How easy is it for working Singaporeans to meet the CPF full retirement sum when they reach the age of 55?
PUBLISHED ONJuly 08, 2019 2:22 AMBySim Kang Heong
In May, a study was published that showed that Singaporean seniors would realistically need $1,379 a month for their retirement.
The response among Singaporeans was understandable and expected - expressions of how high that number was, followed by the concern whether the majority of working Singaporeans could realistically afford that sum.
The CPF Full Retirement Sum for members turning 55 in 2019 is $176,000. According to the CPF LIFE Estimator, having this Full Retirement Sum will give us around $1,383 to $1,528 in Standard Plan monthly payouts from age 65 onwards.
This is remarkably close to the amount of month the study concluded as being sufficient for retirement ($1,379).
We thus set out to find out whether Singaporeans at various income levels can actually hit the Full Retirement Sum by the age of 55, or if they will be a large surplus or shortfall.
As you will see in the subsequent sections, making such a projection by hand isn't so straightforward, as we first have to grapple with differing CPF contribution rates over the course of our careers, with different proportions of our CPF contributions going into our Ordinary Account (OA) and Special Account (SA).
ASSUMPTIONS
For simplicity of calculations, we assume that Singaporeans earn the same incomes for entirety of their working life, without accounting for increments nor inflation.
The income levels we will be examining are $1,500 and $4,437, which is the Median Income of Singaporeans in 2018 according to the Ministry of Manpower.
Obviously, most of us will start our earning lesser at the start of our careers, and steadily increase our earning potential, before either reaching a plateau or suffer a dip if our productivity goes down as we age. We may also have periods of unemployment or sabbaticals during our decades-long career.
Keeping the income fixed for the entirety of one's career in our calculations is reasonable, since the upsides of increments and increase in earning potential is cancelled out by the effects of inflation, periods of unemployment, and possibly having to start from an entry-level position for those making mid-career switches.
We assume that we start work at age 24, and that CPF interest rates remain the same.
For the purposes of this projection, we will also ignore the 1 per cent in bonus interest earned on the first $60,000 in combined balances, since this was only introduced in 2008, and there is no guarantee it will continued to be granted. This will give us a very conservative view for our CPF accumulation.
CPF CONTRIBUTION RATES OVER THE COURSE OF ONE'S CAREER
We first need to know how much CPF monies we're contributing over the course of our career based on various income levels. Even though our income remains the same in each case, the actual contribution percentages and amounts differ based on our age.
Based On Monthly Income of $1,500:
Age |
Duration |
Percentage Of Salary To OA |
Percentage Of Salary To SA |
Amount Of Salary To OA |
Amount Of Salary To SA |
| 24 to 35 | 12 years | 23% | 6% | $345 | $90 |
| To 45 | 10 years | 21% | 7% | $315 | $105 |
| To 50 | 5 years | 19% | 8% | $285 | $120 |
| To 55 | 5 years | 15% | 11.5% | $225 | $172.50 |
Based On Monthly Income of $4,437:
Age |
Duration |
Percentage Of Salary To OA |
Percentage Of Salary To SA |
Amount Of Salary To OA |
Amount Of Salary To SA |
| 24 to 35 | 12 years | 23% | 6% | $1,020.51 | $266.22 |
| To 45 | 10 years | 21% | 7% | $931.77 | $310.59 |
| To 50 | 5 years | 19% | 8% | $843.03 | $354.96 |
| To 55 | 5 years | 15% | 11.5% | $665.55 | $510.26 |
HOW MUCH CPF MONIES WOULD WE HAVE ACCUMULATED BY AGE 55?
We can now calculate how much we would have accumulated by age 55, taking into account the different interest earned by our OA and SA savings.
Based On Monthly Income of $1,500:
Age |
Monthly OA Contribution |
Total In OA (Including Interest) |
Monthly SA Contribution |
Total In SA (Including Interest) |
Total CPF Accumulated (Including Interest) |
| 24 to 35 | $345 | $57,987.43 | $90 | $16,654.52 | $74,641.95 |
| To 45 | $315 | $117,421.50 | $105 | $71,367.40 | $188,788.90 |
| To 50 | $285 | $151,271.15 | $120 | $95,121.75 | $246,392.90 |
| To 55 | $225 | $185,784.43 | $172.50 | $124,125.61 | $309,910.04 |
Based On Monthly Income of $4,437:
Age |
Monthly OA Contribution |
Total In OA (Including Interest) |
Monthly SA Contribution |
Total In SA (Including Interest) |
Total CPF Accumulated (Including Interest) |
| 24 to 35 | $1,020.51 | $171,526.81 | $266.22 | $49,264.08 | $220,790.89 |
| To 45 | $931.77 | $347,332.78 | $310.59 | $119,331.27 | $466,664.05 |
| To 50 | $843.03 | $447,460.04 | $354.96 | $169,315 | $616,775.04 |
| To 55 | $665.55 | $549,550.32 | $510.26 | $240,675.52 | $790,225.84 |
LOOKS SIMPLE ENOUGH, BUT WHY DOESN'T REALITY SEEM TO MATCH UP TO THE MATH?
As we can see above, it is quite possible, simple even, for Singaporeans on an income of $1,500 to accumulate enough to meet the Full Retirement Sum, thanks to risk-free guaranteed interest, the power of compound interest and consistent savings.
However, in reality, most Singaporeans would aspire (or even require) to buy a flat to live in, and a large portion of their CPF monies during their most economically productive periods of their lives is spent on servicing their mortgages, and not earning interest for them.
This wealth remains locked in their homes, until they choose to sell their homes, at which time they would need to use the proceeds of the property sale to return back to their CPF accounts, with accrued interest.
Given that many Singaporeans would need to home to live in, it is easy to see how they may have difficulties meeting the Full Retirement Sum by the age of 55. Thus, in Singapore, our property financial decisions has a huge impact on our retirement, and it is crucial to plan today with an eye decades down the road.
Other (smaller) obstacles to one's Full Retirement Sum include using CPF for one's children's tertiary education and making investment losses when investing their CPF monies.
This article was first published in Dollars and Sense.