How CPF LIFE Can Give You A Passive Monthly Income Worth The Median Salary – $3,000 – When You Retire In Singapore

When we retire, we can rely on CPF LIFE to provide us with a monthly payout – for as long as we live – so we never run out of money in our old age. This is what makes CPF LIFE such a unique, powerful and important retirement planning tool for Singaporeans and PRs.

Compared to investments, which can be risky and have unpredictable or uneven returns, CPF LIFE is administered by the government. This makes it virtually risk-free. In addition, while building up towards our CPF LIFE payouts, we earn a minimum of 4.0% (and up to 5.0%) per annum on our Special Account savings and 4.0% (and up to 6.0%) per annum on our Retirement Account savings.

Read Also: [Beginners’ Guide] Understanding CPF LIFE And Your Monthly Payouts When You Retire In Singapore

How Much Do We Need In Retirement?

In a previous article we wrote, we found that an average retiree in Singapore would need about $215,000 in their Retirement Account (RA) at 65 for a CPF LIFE monthly payout of about $1,214 – which is what the average retiree in Singapore spends.

Read Also: How Much You Need In Your CPF Retirement Account (RA) At 65 To Afford The Average Retiree’s Expenses With CPF LIFE Payouts

In this article, we explore how much CPF savings we will need in order to receive $3,000 from CPF LIFE during our retirement. While the median take-home salary is $4,000 in 2021 – we arbitrarily deducted $1,000 off this figure to account for expenses we would not likely have during our retirement years – namely any car and other loans, work-related expenses and income tax.

How Much Do We Need In Our CPF LIFE To Get $3,000 Each Month?

We can try use the CPF LIFE estimator – a calculator tool by CPF Board – to estimate out how much we’re going to need in our CPF Retirement Account (RA) to get a monthly payout of $3,000.

Note that this is more than double of what the average retiree spends today – which, to recap, is $1,214.

* There are also Basic Plan and Escalating Plan that we can aim for.

For someone aged 65 today, they would have needed $355,000 in their Retirement Account (RA) when they were 55 in order to receive a $3,000 CPF LIFE monthly payout. If this same person delays CPF LIFE payouts until they turn 70, they would have only required $300,000 in the Retirement Account at 55.

Obviously, this might be difficult to manage if we are only aiming for our Full Retirement Sum (FRS) when we turn 55. Firstly, the Full Retirement Sum for anyone aged 65 today would have been $131,000 in 2011 (when they turned 55). If you are 70 today, the FRS would have been equivalent to $99,600. Setting aside these amounts would only provide a CPF LIFE monthly payout of approximately $1,000 (for anyone age 65 today)  or $1,100 (for anyone aged 70 today).

Read Also: How Much You Can Withdraw From Your CPF Account At Age 55?

For those who turned 55 in 2011, an equivalent Enhanced Retirement Sum (ERS) would have been $196,500 – or 1.5x the Full Retirement Sum – which would have provided them with a CPF LIFE monthly payout of up to $1,600. This is only about half of the $3,000 monthly payout we’re targeting to get out of CPF LIFE.

Saving Beyond The Enhanced Retirement Sum (ERS) In Our Special Account

To make up for the shortfall, we can top-up our Special Account (SA) via the Retirement Sum Topping-Up (RSTU) Scheme as early as possible. This will help us build up even more funds within our CPF accounts.

This pot of money will continue compounding at 4.0% to 6.0% per annum, and we will also enjoy tax relief each year as we make regular RSTU top-ups. Potentially, we may be able to bridge the shortfall from CPF LIFE to give us $3,000 each month by withdrawing these sums in our retirement years.

This is because we can withdraw any excess above the Full Retirement Sum in our CPF OA and SA when we turn 55. While we can withdraw these balances, we don’t have to. We can simply let it continue compounding within the CPF system until we actually retire and start receiving CPF LIFE monthly payouts.

Read Also: How Older Singaporeans Can Continue Using CPF To Enjoy Higher Risk-Free Returns After Age 55

We will use the case study for those turning 65 this year as an example. If this individual was able to hit their “Enhanced Retirement Sum” of $196,500 when they were 55 (in 2012), they would have needed to save another $160,000 in their Special Account at 55, in order to withdraw about $1,400 from their SA each month until they hit the average life expectancy of 84 in Singapore.

This might seem like a lot of money, but there are many case studies on how we can accumulate $1 million in our CPF accounts by 65. We just need the long-term discipline to save towards our target amount.

Read Also: 1 Million At 65 Using CPF? Here’s The Math Behind The 1M65 Concept

Drawing Down Money From Our Special Account (SA) After 65

For anyone turning 65 this year, they would have required about $160,000 more in their Special Account at 55, after accounting for the $196,500 Enhanced Retirement Sum transferred into their Retirement Account.

If they had done this, they can now use their Special Account like an ATM – withdrawing the remaining $1,400 each month. They can also choose not to withdraw during months that they don’t have to or withdraw more during months that they need to. On top of this flexibility, they continue to earn an interest of 4.0% per annum on the remaining amount in their Special Account.

Read Also: How Much Can You Withdraw From Your CPF Account At Age 55?

Doing this, their $160,000 will last till they are about 84 years old – which is around the current life expectancy in Singapore at 83.6 years.

*Assumptions:

• Withdrawal of $16,800 ($1,400 x 12) at end of each year
• Interest of 4% earned on our balances in Special Account

Read Also: Why You Should Maximise Your CPF LIFE Before Other Private Annuity Plans?

Replicating This For Our Own Retirement Needs When We Turn 65

Obviously, the figures stated in the article are for those who turned 65 this year. The figures used will not be applicable for anyone who wants to put these plans into effect today. Nevertheless, the aim is to show how we can go about achieving this – even if it won’t be easy.

If we work towards saving our target amount by the time we stop working, we will be able to start withdrawing a sum that is more in line with the median salary of that year rather than what the average retirees are spending.

One great way to kickstart this journey towards saving more money in our Special Account is to read these articles on:

• Hitting $1 million in our CPF account by age 65 (1M65)
• Supercharging this to hit $1 million in our CPF account by age 45 (1M45) (real life example of someone who’s done it)
• (for lack of better word) Turbocharging this to hit $4 million in our CPF account by age 65 (4M65)
• Making your baby a millionaire

Read Also: Here’s What Your CPF Full Retirement Sum Might Look Like When You’re 55

This article was first published on 28 December 2020 and updated with new information. 

Cover Image by Raymond Quek

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