How does the CPF retirement sum work and how much do you need?

Already counting down the days to retirement… when you’re only 25 years old? Late nights at the office and crazy bosses can do that to you.

Every month, you see a large chunk of your earnings disappear into your CPF accounts. But as a salaried employee, your CPF savings are likely to form an integral part of your retirement income.

Yet you’ve heard ominous warnings about the Retirement Sum rising, and how you won’t be able to get your money out if you don’t meet it.

So what exactly is the CPF Retirement Sum, and how does it affect you? 

What exactly is the CPF Retirement Sum?

When you turn 55 years old, a Retirement Account will be automatically created for you. Money that’s in your Special Account and Ordinary Account will be transferred to this Retirement Account.

How much? Up to the Full Retirement Sum, which is $192,000 in 2022.

Still got more money in your CPF OA and SA? You can continue to top up to the Enhanced Retirement Sum, which is $288,000 in 2022.

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Here’s the fun part: When you turn 65 years old, you can actually withdraw cold hard cash from your CPF Retirement Account if you own a home. How much? You will be allowed to withdraw any amount, as long as you leave behind the Basic Retirement Sum ($96,000 in 2022) in your Retirement Account.

So, basically I can withdraw $288,000 – $96,000 = $192,000 cash from my CPF RA? Then, I can top up and withdraw again? Yes, you can.

Before you start dreaming of getting rich and buying your next Rolex, note that this cash is not to be touched until you are ready to receive your retirement payouts at age 65, or later if you wish, hence it was previously termed the “minimum sum”.

Henceforth, the money in this Retirement Account = your Retirement Sum. So to know how much of your Retirement Sum you’ve already saved up, you can simply add up your OA and SA funds.

Of course, this retirement money needs to be of a certain amount before you can receive meaningful payouts, because the government isn’t going to give you money for free.

How much is the CPF Retirement Sum?

There are actually not one, but three Retirement Sums:

• Basic Retirement Sum (BRS)
• Full Retirement Sum (BRS x 2)
• Enhanced Retirement Sum (BRS x 3)

“What?!”, you scream. As if it wasn’t confusing enough.

It’s also important to know that all three Retirement Sums increase by about 3 per cent every year to keep pace with inflation. Here are the Retirement Sums from 2016 to 2022, with this year’s in bold.

Okay, but I’m not turning 55 yet. How do I work out MY Retirement Sum?

CPF does not publish Retirement Sums beyond 2022. 

To estimate your own Retirement Sums, first figure out how many years it’ll take for you to reach age 55, then use a compound interest calculator to calculate.

For example, if you’re 35 years old this year, you’ll be 55 years old in 20 years time. Input $96,000 as the “initial investment”, 20 years in “length of time”, and take 3 per cent as the “interest rate”. 

Using this method, here are your estimated Retirement Sums:

• Basic Retirement Sum: $173,386.68
• Full Retirement Sum: BRS x 2 = $346,773.36
• Enhanced Retirement Sum: BRS x 3 = $520,160.04

But this is only an estimate, assuming that the Retirement Sums continue to grow at 3% all the way. CPF can always change the growth rate depending on inflation and other factors.

How much can I withdraw from my CPF at age 55?

If you own a home in Singapore with a remaining lease that can last you up to age 95, then you can withdraw your CPF savings above the Basic Retirement Sum.

You’ll have to “pledge” your property to CPF so that CPF can count your property value as part of your total savings. If you sell your home in the future, you’ll need to refund the sale proceeds to your CPF account — up until it hits the Full Retirement Sum.

The withdrawal amount excludes the following (which will remain in your account and go towards retirement payouts):

• Interest earned
• Any government grants you received
• Top-ups made under the Retirement Sum Topping-Up Scheme

Example: You’re 55 this year, and you have $200,000 in your CPF. You own an HDB flat which you agree to pledge to CPF. You can therefore withdraw up to $200,000 – $96,000 (BRS) = $104,000.

Alternatively, you can opt NOT to pledge your property to CPF. That means you can withdraw up to $200,000 – $192,000 (FRS) = $8,000.

Either way, you can still sell your home in the future. In the first scenario, you’ll need to refund some money to CPF, up until you hit FRS. In the second one, you can keep the sale proceeds.

What happens to the Retirement Sum sitting in my CPF?

The reason for setting aside the Basic or Full Retirement Sum in our CPF is so that we can get sufficient payouts during retirement, under the CPF LIFE scheme.

The more you have in your CPF account at retirement, the higher your monthly payouts, as this screenshot from CPF shows:

Note that you can still get some monthly payout even if you do not hit the Basic Retirement Sum — but it’ll be very low.

Which also brings us to the next question around which Retirement Sum you should target…

Should I be looking at the Basic or Full Retirement Sum?

If you are a home owner with a decent amount of CPF savings, you might be wondering:

• Should I pledge my property so I can withdraw my savings above the Basic Retirement Sum?
• OR should I keep the Full Retirement Sum in my CPF i.e. withdraw less?

Looking at the CPF LIFE table above, we can see that keeping the bare minimum BRS in your account will result in pretty skimpy retirement payouts. 

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55-year-olds with $96,000 (BRS) in CPF will only get about $700 to $800 a month after age 65. Is that enough to live on? Perhaps, but it’s probably not very comfortable.

On the other hand, if you have the Full Retirement Sum of $192,000, you’d get a more decent $900 to $1,000 a month. This is a more desirable “allowance” given the ever-rising cost of living.

So if you have a choice, it makes sense to aim for the highest Retirement Sum you can afford.

Of course, financially-savvy retirees may choose to withdraw a larger lump sum at age 55 to invest in other retirement income assets. 

It’s a good idea to diversify your retirement portfolio, but please make sure your investments are relatively safe! Don’t blow it all on horse betting and cryptocurrency, is what we’re saying.

Will my retirement payments stop if my CPF Retirement Account runs out of money?

The short answer is — no, this won’t happen if you’re on CPF LIFE.

If you were born in 1958 and after, and have at least $60,000 in your Retirement Account six months before you reach the age where you can receive payouts (age 65 or later), you are automatically enrolled in CPF LIFE.

Even if you (or more likely, your parents) are not auto-enrolled in CPF LIFE, don’t fret: You can apply to join the scheme anytime before you turn 80 years old.

CPF LIFE guarantees retirement payouts for life, regardless of how much remains in your account in old age. So even if you manage to live till the age of 150, you will still continue to receive payouts.

Is CPF LIFE the same as the Retirement Sum Scheme?

CPF LIFE is the primary retirement income scheme for all CPF members. It replaces the old Retirement Sum Scheme, which is currently being phased out.

Both give you monthly payouts during retirement. But the old Retirement Sum Scheme gives you monthly payouts only up to age 90, while CPF LIFE pays out for life.

Given that 1 in 3 Singaporeans live past 90 years old, this makes the Retirement Sum Scheme much less attractive than CPF LIFE.

The caveat for CPF LIFE is that you have to pay a significant lump sum premium from your Retirement Account when you join the scheme (anytime from age 65 to 70). This will restrict your ability to use your CPF monies for other purposes.

To calculate your exact CPF LIFE payouts, you can use the CPF LIFE Estimator to check how much you can get. Or, read our tome on CPF LIFE: Monthly Payouts, Plans & Minimum Sums. 

What if I can’t meet the Basic Retirement Sum?

If you can’t even meet the Basic Retirement Sum, your situation will be a little different when you turn 55.

$5,000 or less: For those who have $5,000 or less in their entire Retirement Account, you can withdraw the entire amount when you turn 55. You will not receive any retirement payouts, so you should hopefully have done some retirement planning on your own.

More than $5,000, but less than BRS: You will be allowed to withdraw $5,000 when you turn 55, and that’s it. You will then wait till you’re at least 65 to receive CPF LIFE payouts, which will be pro-rated based on how much you have in your account.

More than BRS, but less than FRS: If you own property and have pledged it, then you can withdraw any savings above the Basic Retirement Sum. Otherwise, you will be allowed to withdraw $5,000. 

You do not need to top up your account to hit the Retirement Sum. But if you receive any new CPF contributions or top-ups after age 55, the money will be kept in your CPF until your balance meets the next Retirement Sum.

So if all else fails, there is one final solution — continuing to work past age 65 and delaying the onset of your retirement payouts, so you have more time to accumulate your desired Retirement Sum.

How do I start saving for my future CPF Retirement Sum?

If you’re some ways from age 55 and have done the math, the projected CPF Retirement Sum in the future might be pretty scary.

Going back to the above example — if you’re now 35, the estimated Basic Retirement Sum would be $173,386.68 while the Full Retirement Sum is $346,773.36. That can sound like a tall order if you have limited earning power.

On the other hand, compound interest can be a powerful thing over a long period like 20 years. There are a few things you can do right now to set you up for higher chances of hitting the Retirement Sum you need.

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Transfer funds from OA to SA: You can transfer Ordinary Account savings to your Special Account to boost interest from 2.5 per cent to 4 per cent p.a. The transfer is one-way, though, so only do it if you’re certain you won’t need the OA money for housing.

Retirement Sum Topping-Up Scheme: Top up your Special Account in cash. You can get tax relief for up to $7,000 a year for doing this, up until you hit the current Full Retirement Sum. Again, make sure you really don’t need the cash in the short- or medium-term since it will be locked up.

Invest your cash (outside of CPF): We recommend investing as a complement to (not a replacement for) CPF. Cash investments can be sold, so you have some wiggle room in case of future contingencies.

Compared to CPF’s risk-free returns, these investments all carry much higher risk of loss. You can keep the risk down by investing for the long term and focusing on unsexy, diversified investments such as ETFs.

With many low-cost robo advisors and investment brokerages to choose from, it’s easier than ever to start investing. Here are but a few popular ones.

This article was first published on MoneySmart.