Through the Retirement Sum Topping Sum (RSTU) Scheme, we are encouraged to top-up beyond our salary contributions to our CPF Special Account (SA), while saving on up to $7,000 in taxes each year.
The primary reason is so we bulk up our retirement savings from an early age for the purpose of receiving higher CPF LIFE monthly payouts when we eventually retire. Today, the current Payout Eligibility Age – earliest we can start withdrawing from CPF LIFE – is when we turn 65.
How Much Should We Contribute To Our CPF Special Account (SA) Each Year?
Each year, we can contribute up to $7,000 to our own Special Account to receive a dollar-for-dollar tax relief. Technically, we can contribute more to our Special Account – up to the Full Retirement Sum (FRS) – but we won’t be able to receive tax relief on amounts above the first $7,000.
We can also make cash contributions of up to $7,000 to a loved one’s Special Account and receive a dollar-for-dollar tax relief as well. However, in this article, we will focus on making top-ups to just our own Special Account.
While we are contributing towards our retirement, the incentive to make RSTU top-ups each year is also to receive the dollar-for-dollar tax relief. If we are gunning for the tax relief, we also need to consider two things: 1) how much tax we are going to pay each year and how much top-ups to make so that we maximise the tax relief and 2) whether we will breach the maximum $80,000 income tax relief cap.
How Much Will We Have In Our Special Account By The Time We Turn 55?
Of course, besides the $7,000 RSTU top-ups to our Special Account each year, we will also be making monthly Special Account contributions through our salary. To calculate how much we will have by the time we turn 55, we need to make some simple assumptions:
#1 We earn the median wage in Singapore. In 2020, the median wage was about $3,876. This translates into a Special Account contribution of:
|Employee Age||Special Account Contribution Rate||Special Account Contribution (Yearly)|
|35 and below||6%||$2,790|
|Above 35 to 45||7%||$3,255|
|Above 45 to 50||8%||$3,720|
|Above 50 to 55||11.5%||$5,348|
|Above 55 to 60||3.5%||$1,627|
|Above 60 to 65||2.5%||$1,162|
#2 We never receive a single wage increase. We start at 30 with a Special Account balance of $8,640 – roughly translating to getting a salary of $2,000 each month from 24 to 30. This will probably negate some inflationary impacts as our Special Account contributions would be slightly more with a higher salary each year.
#3 For simplicity, we will just assume that all Special Account contributions – from our salary and from RSTU – are made at the beginning of each year. In reality, this isn’t the case as we only contribute from our salary each month. However, we have the option of making RSTU top-ups at any time.
#4 Also for simplicity, we do not take into account the FRS for those below 55 and the ERS for those 55 and above. The levels depicted in the article may be beyond what is allowed by CPF.
With the assumptions out of the way – here’s how much we will end up with at 55, if we 1) made Special Account contributions through our salary and 2) maxed out our RSTU top-ups of $7,000 each year.
Note that we start at age 30 with $8,640 already in our Special Account after contributing from a $2,000 salary from age 24 to 30 (some may have even more if we earned more or started before 24). It also includes all $2,790 contributed from our median wage at the start of the year (for simplicity sake in our calculations). Of course, it also includes the $7,000 contributed at the start of the year. Finally, we earn 4% returns on our Special Account balances at the end of the year.
|Age||CPF Special Account Contributions From Salary (Yearly)||CPF Contributions From RSTU (Yearly)||CPF Special Account Balances|
As we can see, after earning the median wage with no salary increase from 30 to 55 AND contributing $7,000 each year in our Special Account, we will end up with an amount of $529,575.
What Will Our Retirement Funds Grow To By 65?
While the Full Retirement Sum (FRS) will be contributed to the Retirement Account, we can still continue to compound our Special Account and Retirement Account balances by at least 4% each year from 55 to 65. We also earn an additional interest rate of 1% on the first $60,000 of our CPF balances, and an extra additional interest of 1% on the first $30,000 of our CPF balances.
We can also continue to earn tax relief by continuing to contribute $7,000 each year. This will grow our retirement funds further and give us more tax relief.
For the sake of our calculations, we won’t separate the Special Account and the Retirement Account balances as both accounts earn 4% returns on its balances.
|Age||With No Further Contributions||With CPF Special Account Contributions From Salary Only (Yearly)||With CPF Special Account Contributions From Salary And RSTU (Yearly)|
If we stopped working at 55, our Special Account and Retirement Account balances will rise to $795,150 all on its own – from the interest returns we get each year.
If we continue to make contributions through our salary, but stop the RSTU top-ups, it grows even further. If we decide to continue making RSTU top-ups until 65 (which will be the retirement age by about 2030), we may have close to $893,000.
Note that if we continue to work from 55 to 65, our Special Account contributions from salary falls to 2.5% or $1,162 a year, and from above 60 to 65, it falls to 1% or $465 a year. This is because our retirement sum has been set aside, and greater priorities go to keeping wages lower and funnelling more CPF contributions to our MediSave.
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