This article is originally published on 12 June 2019, and updated with additional information on 26 October 2020.
While the CPF system can be a complicated beast, at its very core lies its function to provide for our retirement needs. The solution – CPF LIFE, a national lifelong annuity scheme.
On CPF LIFE, we start receiving our monthly lifelong payouts from our payout eligibility age (PEA), which is currently set at 65 years-old. The amount we receive each month from CPF LIFE is largely dependent on the initial amount we contribute to our Retirement Account (RA) when we turn 55.
What Happens When You Turn 55 In Singapore?
Several major changes happen to our CPF accounts when we turn 55. First of all, we’ll get a birthday present from CPF in the form of a “Reaching 55” information pack detailing some of these changes. Here are five other important retirement-related things we should take note of after turning 55.
#1 Your Retirement Account Is Opened
When we turn 55, CPF opens a fourth account – Retirement Account (RA) – for us. Simultaneously, our combined balances from our Ordinary Account (OA) and our Special Account (SA) is transferred into this Retirement Account (RA).
These funds are then set aside, and compounded, for the next 10 years, for the purpose of contributing into the CPF LIFE scheme when we turn 65 (or up to a maximum of 70).
#2 You Start Receiving An Extra Additional Interest Of 1% On Your First $30,000
At 55, we start receiving an extra additional interest of 1% on the first $30,000 of our combined CPF balances. This return is paid into our Retirement Account to help grow it faster.
This is on top of the additional 1% interest we receive on our first $60,000 of our combined CPF balances.
#3 Choose Your Retirement Sum – The Minimum Amount That You Need To Keep In Your CPF At 55
When we turn 55, we also have to choose the retirement sum we want to keep. There is the Full Retirement Sum (FRS), Basic Retirement Sum (BRS) and Enhanced Retirement Sum (ERS).
|Retirement Sum||Full Retirement Sum (FRS)||Basic Retirement Sum (BRS)
(0.5 X FRS)
|Enhanced Retirement Sum (ERS)
(1.5 X FRS)
The Full Retirement Sum (FRS) is the standard plan. Choosing to go on the Basic Retirement Sum (BRS) will require us to have sufficient property charge and/or pledge our property. The Enhanced Retirement Sum (ERS) is not actually a third option, but a maximum cap on the amount we can top-up our Retirement Account to after we turn 55.
We can withdraw anything above our chosen retirement sum.
#4 Topping Up Our Retirement Account Above The Full Retirement Sum
Before 55, we can top up our Special Account up to a maximum set by Full Retirement Sum. Once we turn 55, and our Retirement Account is opened, we can now top up our Retirement Account up to a maximum set by the Enhanced Retirement Sum.
#5 You Can Withdraw Cash From CPF At 55
As mentioned above, there are three retirement sums we can choose to save in our Retirement Account at 55, and we can withdraw anything above it. Even if we cannot meet the retirement sums, we can still withdraw up to $5,000 regardless of how much (or little) CPF balances we have.
We can also withdraw anything above our Full Retirement Sum at age 55. If we have pledged our property, we can withdraw anything above the Basic Retirement Sum (less any top-up monies).
Of course, we can also leave all our funds within the CPF system to grow for a bigger CPF LIFE payout in the future.
#6 Decide If You Need Your Ordinary Account Balances To Continue Paying For Your Home Mortgage
Both our Ordinary Account and Special Account balances are transferred to create our Retirement Account balance. What many of us may not realise is that we can choose to stop our Ordinary Account balances from flowing into this account.
While we should have tried to pay off our home loans before hitting the home stretch before retirement, it is not uncommon to require our Ordinary Account balances to continue servicing home loans past 55. Read this article below to understand more about how to do this, and find out other little-known things about our CPF.
What Actually Happens To Your Funds In Your Retirement Account?
Once your funds are transferred to your Retirement Account, it is set aside for the next 10 years to compound before you can enter the CPF LIFE scheme. While your funds are sitting in your Retirement Account, it continues to earn an annual interest return.
Our funds will also compound at a slightly higher rate to boost our CPF LIFE monthly payouts once we are eligible. Interest returns on our Retirement Account are as follows:
|Retirement Account Balances||Interest Returns (per annum)|
It is important to note that after choosing the retirement sum we want to go on at 55, our CPF funds are not contributed to CPF LIFE. Instead, it continues to compound for a minimum of 10 years, until we reach the payout eligibility age of 65. We can also choose to compound it for up to 15 years, and only join CPF LIFE at 70 (when we have to start our CPF LIFE monthly payouts).
Here’s how the funds in our Retirement Account will compound for the next 10 years if we turned 55 in 2020:
|Retirement Account Balance At 55||Projected Amount It Will Compound Into By 65|
|$181,000 (FRS in 2020)||$272,900|
|$90,500 (BRS in 2020)||$141,500|
|$271,500 (ERS in 2020)||$404,300|
At the end of year 10, we will turn 65, and have the option to enter CPF LIFE to start receiving a monthly payout for the rest of our lives.
It’s interesting to note that even though we may have started with an FRS that is double the BRS, after 10 years, it ends up being slightly less than double. The same applies to the ERS balances after 10 years, which is less than 1.5 times the FRS and less than 3 times the BRS. This is because the first $30,000 of our balances receives 2% higher interest, and the next $30,000 of our balances receives 1% higher interest, than the remaining funds in our Retirement Account.
This is also why the CPF LIFE monthly payouts may seem like it favours those on the BRS. In actuality, it is just a function of giving greater interest returns to the first $60,000 of our Retirement Account balances.
How Much We Contribute To CPF LIFE?
The table above depicts our Retirement Account balances when we turn 65. We are actually contributing these sums into CPF LIFE, rather than the retirement sums we initially chose.
Why this is important is because when we turn 65, there is another decision to make (besides whether we should defer payouts till we turn 70). We need to choose the CPF LIFE plan we go on. There are three CPF LIFE plans:
|Standard Plan||Basic Plan||Escalating Plan|
|$272,900 (based on FRS at 55)||Full Amount||10% to 20%||Full Amount|
|$141,500 (based on BRS at 55)||Full Amount||10% to 20%||Full Amount|
|$404,300 (based on ERS at 55)||Full Amount||10% to 20%||Full Amount|
If we decide to go on the Basic Plan, we only contribute 10% to 20%, depending on our age and gender, of our Retirement Account balances into the CPF LIFE scheme.
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.