How to help your parents if they don't have a retirement plan

Many Singaporeans think that their CPF savings are enough to tide them through retirement but the reality could not be further from the truth. Especially if your ageing parents are self-employed or homemakers who do not regularly contribute to their CPF Ordinary Account, chances are, they may not have a nest egg to ensure a comfortable retirement.

If your parents are not on top of their retirement planning, perhaps it is time for you to help them build up stronger reserves that allow them to feel more secure during their golden years.

Here are some methods to help your parents build sufficient funds in their CPF Retirement Account by the time they turn 55.

1. Assess how much your parents need to retire in Singapore

Retirement planning requires an honest look at your parents’ current financial status, spending habits and long-term debts. Money talk can be a sensitive topic amongst family members but it is a process to ensure financial planning is done with realistic calculation of how much your parents truly need to retire in Singapore.

The assessment should take into consideration your parents’ savings, expenses, debts, loans, passive income, investments and insurance plans that are under their name. They also need to project what kind of lifestyle they prefer during retirement. If they want a few vacations a year, they will need a larger pool of retirement funds to support that lifestyle.

2. Top up your parents’ CPF accounts

It is worth doing a voluntary top up to your parents CPF accounts because the CPF Board offers much more generous interest rates than typical savings accounts that provide 0.05 per cent per annum interest.

CPF Ordinary Account	CPF Special Account and Medisave Account	CPF Retirement Account
2.5 per cent	4 per cent	4 per cent
* Source: CPF

Making cash top-ups to CPF Special or Retirement accounts can help your parents grow their retirement savings. Not only will they benefit from compounding interest and higher monthly payouts when they retire, they will also enjoy tax relief at the same time.

However, do take note that you can only top-up your parents’ CPF Retirement Account if they are 55 or above.

3. Protect your parents with relevant insurance coverage

It is easy to forecast predictable retirement expenses for your ageing parents but planning for unforeseen emergencies can be trickier. This is where choosing the right insurance coverage can protect your parents against financial losses that may arise from sudden medical complications and unexpected accidents.

While it is true that Singaporeans are covered by MediShield Life, there are many scenarios and illnesses that require an upgraded Integrated Shield Plan (IP). For a more comprehensive coverage you may also want to consider critical Illness policies, endowment policies and personal accident policies.

Different CPF payout schemes

If you have decided to make cash top-ups for your parents’ CPF account, you must also get familiar with how the funds will be paid during their retirement years. Unlike regular savings accounts with banks, CPF funds cannot be withdrawn at one shot. Part of the funds must be set aside in their CPF Retirement Account. Let’s go through how the CPF payout works.

When your parents reach 55 years old, a CPF Retirement Account will be created for them. Funds from their CPF Ordinary Account and CPF Special Account will then be transferred to this account.

The amount of funds in the CPF Retirement Account is based on the Retirement Sum of that year, which is adjusted annually by the CPF Board. The sum will be split into Basic Retirement Sum (BRS), Full Retirement Sum (FRS) and Enhanced Retirement Sum (ERS)

55th birthday in the year of	Basic Retirement Sum (BRS)	Full Retirement Sum (FRS)	Enhanced Retirement Sum (ERS)
2023	$99,400	$198,800	$298,200
2024	$102,900	$205,800	$308,700
2025	$106,500	$213,000	$319,500
2026	$110,200	$220,400	$330,600
2027	$114,100	$228,200	$342,300
* Source: CPF

Assuming your parents will reach 55 years old in 2023, the BRS is $99,400 and the FRS is $198,800. This means your parents will receive a monthly payout of $870 and $1,620 when they reach 65 years of age.

If your parents want higher payouts in retirement, you can top-up their CPF Retirement Accounts up to the current ERS, which is $298,200.

How to make CPF contributions for your parents

You can easily make a cash top-up to your parents CPF accounts via CPF Mobile app or my CPF Online Services. If you are topping up regularly, you can utilise PayNow or GIRO. Simply log in to your Singpass, then go to the CPF Website for step-by-step instructions.

The cash top-up can be of any amount and doing so will also entitle you to tax relief of up to $8,000 in each calendar year. Another upside for topping up the accounts is that under the Matched Retirement Savings Scheme (MRSS), the Government will match every dollar of the cash top ups you made. This is up to $600 per year, to a maximum of $3,000 over five years.

Alternatively, you can top-up your parents’ CPF accounts using CPF transfer. To do this, you must first set aside the FRS for your own monthly payouts. For property owners (with a Singapore property which has a remaining lease which can last you to at least age 95), you can transfer an amount down to the BRS.

When in doubt, you can contact CPF via 1800-227-1188 (within Singapore) or +65-6227-1188 (from overseas). For face-to-face discussion with a CPF customer service officer, book an appointment via the CPF website.

Conclusion

Topping up your parents’ CPF accounts is just one way to help them plan for their retirement. If you prefer to help them save for their golden years, identifying a savings account with the best interest rates can work just fine too.

Savings accounts are a low-risk way to earn more with your money. Some accounts even allow consumers to earn up to 3.5 per cent per annum. Refer to our Best Savings Accounts for a comprehensive list of savings accounts in Singapore now.

ALSO READ: CPF Shielding Hacks (Special Account & Ordinary Account): Do they really make sense?

This article was first published in ValueChampion.