The majority of us know that CPF LIFE will provide a lifelong payout in our retirement. While this is assuring, the question is whether we will receive enough CPF LIFE payouts to fund our retirement.

This is a difficult question to answer because everyone leads different lifestyles and is in different life circumstances. The best way to estimate the amount we will need in retirement is to look at some of the studies done in this area.

How much does an average retiree need each month?

We looked at the average retiree household expenses in the most recent Household Expenditure Survey 2017/18 to determine how much retiree households were spending based on their type of home.

While it found that the average retiree household spent $1,154 per person, how much each household spend varied substantially between home types.

Retirees living in condominiums and others spent over four times more than those in 1- to 2-room HDB flats. On average, retirees living in HDB flats spend about $867 compared to retirees living in condominiums and private properties who spend above $2,000.

While it is understandable that those living in larger homes spent more, we also need to account for inflation as these statistics are from 2017/2018. Applying the 20-year average MAS core inflation rate of 1.7 per cent, these figures will rise in 2021 to:

Using these figures, we determine what retirees, aged 65 today, need in their CPF Retirement Account (RA) to be able to receive such amounts for their entire retirement needs.

On average, a retiree living in an HDB flat will expect to spend an average of $912 monthly while a retiree living in private property will expect to spend more than double that amount.

How much will a 65-year old today need in his Retirement Account (RA) to afford the average household retirement expenses?

Even though the figures above are segmented based on home types, there will still be situations where individuals live different lifestyles and face different circumstances. At best, these are estimates for how much retirees in the respective households should be spending.

To find out how much retirees need in their Retirement Account (RA) to receive a payout worth the respective amounts, we can use the CPF LIFE Estimator tool.

* Note that these figures are simply based on computations on the CPF LIFE Estimator tool. When setting aside our retirement sum, we are capped by the Enhanced Retirement Sum, which is $279,000 in 2021.

As we can see from the table, retirees may need a substantial amount of money in their CPF account to be able to receive the average amount that they will spend in their retirement.

In fact, the Basic Retirement Sum (BRS) required by CPF in 2021 is $93,000 which is much lower than what is required based on our computation, even for the smallest flat type at $135,600 for the Basic Plan for those aged 65 this year.

Instead, if you are relying on CPF Life payouts for retirement, you need to aim to have at least the Full Retirement Sum (FRS) in your CPF at 65, which is $186,000 in 2021.

By living below our means and trying to contribute more to our CPF accounts when we can, we may be able to supercharge our CPF balances. This may allow us to pay our entire retirement expenses from CPF LIFE alone. If we are able to achieve that, it will give us peace of mind without worrying whether our other investments will deliver their expected returns.

For those living in HDBs, their Retirement Account figures do look more achievable compared to those living in more luxurious housing types. For those living in condominiums and landed properties, their numbers can look unrealistic for them to accumulate more than $500,000 (and even up to $659,000) in their Retirement Account (RA) to achieve the average expenditure amount.

This is not something we should be shocked to learn, as CPF LIFE has always stated that the intention is to provide payouts that are sufficient for a basic level of retirement.

Nevertheless, by accumulating or supercharging our CPF accounts when we are young, we will be able to achieve balances of above $500,000 and even into the millions.

Of course, those living in more luxurious homes also tend to have other assets they rely on for their retirement income. While we can contribute up to the Enhanced Retirement Sum (ERS) in our Retirement Account, and subsequently contributed to CPF LIFE, we can still withdraw the rest of our CPF  balances on a monthly basis.

Looking at the CPF LIFE escalating plan for payouts to keep up with cost of living

Just like the Full Retirement Sum (FRS) increases each year to account for the higher cost of living in Singapore, we need to understand that this concern continues even after we retire.

On the Basic Plan and Standard Plan, we receive fixed payouts for the rest of our lives. On the Escalating Plan, we stand to receive a payout that increases by about 2 per cent per annum each year. This should keep up with the 20-year MAS core inflation rate – which comes in at 1.7 per cent.

This article was first published in Dollars and Sense.