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

This is how much you may have to set aside when you’re 55.

 

In Singapore, we’re trained to think about our long-term future and retirement from the day we start working. This is when we see regular contributions from our monthly wage going into our CPF, namely the Special Account (SA).

While our CPF contributions also go into our Ordinary Account (OA) and Medisave Account (MA), these accounts can be used to pay for the downpayment and mortgage of our home, tuition fees for our loved ones and certain insurances such as the Home Protection Scheme (HPS) and Dependent Protection Scheme (DPS) via our OA and medical treatments and procedures as well as MediShield and Integrated Shield Plans (IP) via our MA.

Investing our SA monies may also seem futile. This is because we can only invest anything above the first $40,000 we have in the account. The SA also pays an interest of 4% per annum – a return majority of investments cannot guarantee for the long-term, let alone at virtually risk-free levels.

For most people, this just means monies in our SA sit there, compounding every year, until it’s ready to be lumped with the balances in our Ordinary Account at 55 to make up our new Retirement Account (RA)

What Happens When We Turn 55?

When Singaporeans and Permanent Residents (PRs) turn 55 today, a Retirement Account (RA) will be created for us. Monies from our Ordinary Account (OA) and Special Account (SA) will be used to fund our RA, up to the Full Retirement Sum (FRS) of $171,000.

We can also opt to pledge a property that we own and set aside only the Basic Retirement Sum (BRS) of $85,500 (0.5X the FRS), or even choose to go with the Enhanced Retirement Sum (ERS) of $256,000 (1.5X the FRS). However, for the purpose of this article, we’ll just focus on the FRS.

The FRS is meant to safeguard our retirement, and hence it needs to keep up with the pace of inflation and standard of living. This means the FRS have to increase each year.

Anyone who turns 55 in 2018 will have to set aside $171,000. This is approximately 3% more than people who turned 55 in 2017, when it was $166,000. In turn, those who turned 55 in 2017 had to set aside a figure of approximately 3% higher than people who turned 55 in 2016, when it was $161,000.

So, you can see the trend is that this figure increases close to 3% each year.

What Happens If I’m Turning 55 Next Year?

Besides relying on past years’ increments, the government usually gives us some visibility into how much we may need to set aside to better plan for our retirement needs. Right now, anyone turning 55 before 1 January 2020 will already know much they need to set aside for their FRS.

55th birthday on or after Full Retirement Sum (FRS)
1 January 2018 $171,000
1 January 2019 $176,000
1 January 2020 $181,000

* Source CPF

As you can see, the next two years follow the same trend, increasing approximately 3% each year. Looking further back, we can see that someone turning 65 today, and being eligible for CPF LIFE payouts, required $106,000 in his RA when he or she initially turned 55 close to 10 years ago. Assuming this person continued to enjoy a return of 4% for the next 10 years (until today), he or she would have accumulated close to $142,500.

Technically, this figure is a little higher as we’re assuming this person did not receive the additional 1% on his or her first $60,000 combined CPF balances or the additional 1% interest on the first $30,000 combined CPF balances for members aged 55 and above (introduced in January 2016).

With a balance of $142,500, this person would be eligible for CPF LIFE payouts of between $805 and $845 every month. If you think this isn’t sufficient, you should make it a point to start planning for your retirement as soon as possible.

So, How Much Would I Need To Set Aside When I’m 55?

This question might not be a totally fair one to ask of the government. While they try to give us as much foresight as possible, predicting inflation levels and rising cost of living in the next 25 or 30 years may be very difficult, if not impossible.

Looking at past FRS figures, we can see that people who turned 55 in 2003 only needed to set aside $80,000 for their FRS, while anyone turning 55 in 2020, needs to set aside $171,000. This is a compounded annual growth rate of close to 4.9%.

Age in 2018 55th birthday on or after Full Retirement Sum (FRS)
70 1 July 2003 $80,000
69 1 July 2004 $84,500
68 1 July 2005 $90,000
67 1 July 2006 $94,600
66 1 July 2007 $99,600
65 1 July 2008 $106,000
64 1 July 2009 $117,000
63 1 July 2010 $123,000
62 1 July 2011 $131,000
61 1 July 2012 $139,000
60 1 July 2013 $148,000
59 1 July 2014 $155,000
58 1 July 2015 $161,000
57 1 July 2016 $161,000
56 1 January 2017 $166,000
55 1 January 2018 $171,000
54 1 January 2019 $176,000
53 1 January 2020 $181,000

* Source CPF

A yearly increment of 4.9% may be on the high side as the latest FRS figures are only increasing by 3% every year. Further, according to the Department of Statistics Singapore the compounded annual growth rate of the MAS Core Inflation Measure increased close to 1.5% per annum since 2003. In addition, there has only been one year where the MAS Core Inflation Measure beat the 4.9% compounded annual growth rate – this was in 2008 when it increased 5.7% from 2007.

It could be that the earlier FRS figures were a low estimate when it started and the government had to play catch up subsequently. As countries age and develop, inflation levels also taper off – this could mean that going forward, increments in the FRS could potentially drop under the 3% benchmark it has recently set.

Here’s How Much We May Need To Set Aside When We’re 55

At this point, we should also note that there’s no guarantee the CPF will continue to function the way it is functioning currently. There have been many changes to the CPF system in the past, and it could look very different in 25 or 30 years’ time.

We already know what the government expects someone turning 55 to have until the year 2020. And we also can draw on past figures to give us a sense of what is to come.

In the illustration below, we use both figures to give us a better idea on what may be in stored for us.

Age in 2018 55th birthday on or after Full Retirement Sum (FRS)
56 1 January 2017 $166,000
55 1 January 2018 $171,000
54 1 January 2019 $176,000
53 1 January 2020 $181,000
Based on 1.5% increments Based on 3.0% increments Based on 4.9% increments
52 1 January 2021 184,000 186,000 190,000
51 1 January 2022 186,000 192,000 199,000
50 1 January 2023 189,000 198,000 209,000
49 1 January 2024 192,000 204,000 219,000
48 1 January 2025 195,000 210,000 229,000
47 1 January 2026 198,000 216,000 241,000
46 1 January 2027 201,000 223,000 253,000
45 1 January 2028 204,000 229,000 265,000
44 1 January 2029 207,000 236,000 278,000
43 1 January 2030 210,000 243,000 292,000
42 1 January 2031 213,000 251,000 306,000
41 1 January 2032 216,000 258,000 321,000
40 1 January 2033 220,000 266,000 337,000
39 1 January 2034 223,000 274,000 354,000
38 1 January 2035 237,000 282,000 371,000
37 1 January 2036 240,000 290,000 389,000
36 1 January 2037 244,000 299,000 408,000
35 1 January 2038 247,000 308,000 428,000
34 1 January 2039 251,000 317,000 449,000
33 1 January 2040 255,000 327,000 471,000
32 1 January 2041 259,000 336,000 494,000
31 1 January 2042 263,000 347,000 518,000
30 1 January 2043 267,000 357,000 544,000

 

Based on these figures, it doesn’t seem likely that the rate of increase can continue at an average pace of 4.9%. This is especially with a monthly wage cap of $6,000 on CPF contributions.

However, according to the Ministry of Manpower, the median gross monthly income from work has increased at a compounded annual growth rate of over 5.2% since 2007 – this could mean sway the argument for an average increment of 4.9% each year for the FRS.

No one knows what will happen for sure in the future, but you should definitely work towards a retirement goal that you’re comfortable with, and ensure that your plans do not fully rely on your CPF LIFE payouts.

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