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CPF Retirement Sum – How Does It Work and How Much Do You Need?

MoneySmart logo MoneySmart 7/11/2019 Joanne Poh
a person using a computer: cpf retirement sum © Provided by MoneySmart Singapore Pte Ltd cpf retirement sum

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 (previously Minimum Sum)?

When you turn 55, your Ordinary Account and Special Account will merge to form your Retirement Account. You will be allowed to withdraw any excess money, but are obliged to leave behind the Retirement Sum in your account.

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.

"What?!", you scream. As if that wasn’t confusing enough.

The amount you receive in monthly retirement payouts will depend on which of the three Retirement Sums you manage to meet.

For people who are turning 55 in 2019, here’s how much you get based on your retirement account savings.

Type of Retirement SumAmountMonthly Payouts
Basic Retirement Sum$88,000$730 to $790
Full Retirement Sum$176,000$1,350 to $1,450
Enhanced Retirement Sum$264,000$1,960 to $2,110

Now, remember that you can withdraw in excess of your retirement sum at age 55?

If you want to withdraw your funds till only the Basic Retirement Sum is left in your account, you’ll have to own a property, and will be made to place a charge or pledge on your property before you can do so. This means that usually only those who really need the money will withdraw till only the Basic Retirement Sum is left.

Conversely, if you have funds exceeding the Enhanced Retirement Sum when you turn 55, you can pick and choose which of the Retirement Sums you want to leave in your account for retirement payout purposes.

If you’re still in your twenties or thirties and think you’ve plenty of time to accumulate money to put towards your Retirement Sum, think again.

Thanks to inflation and the rising cost of living, the retirement sum increases every year.

For those turning 55 in 2018, the Full Retirement Sum is $171,000. For those turning 55 in 2019, it will be $176,000. Those who will hit 55 in 2020 will have to set aside at least $181,000.

The figures for the years after 2020 have not been released yet. But based on current trends, we can estimate that in 20 years’ time, the Full Retirement Sum might be about $280,000.

 

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

The short answer is - it won't happen if you have at least $60,000.

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.

You turned 55 between 1 January 2013 and 30 April 2016You turned 55 on 1 May 2016 and after
  • At least $40,000 in your Retirement Account when you reach 55 years old; or
  • At least $60,000 in your Retirement Account six months before you reach your payout eligibility age.
  • At least $60,000 in your Retirement Account six months before you reach your payout eligibility age.

CPF LIFE guarantees retirement payouts for life.

That means that if you manage to live till the age of 150 and totally drain your Retirement Account, you will still continue to receive payouts. If you are not placed on CPF LIFE, you can apply to join anytime between your payout eligibility age and before you turn 80 years old or remain on the Retirement Sum Scheme.

 

Retirement Sum Scheme (RSS) vs CPF LIFE

The main difference between the Retirement Sum Scheme is that you will receive monthly payouts until 90 years old whereas for CPF LIFE, you will receive them for life.

Type of Retirement SumAmountRetirement Sum Monthly PayoutsCPF LIFE Monthly Payouts (Standard Plan)  
Basic Retirement Sum$88,000$730 to $790$730 to $790
Full Retirement Sum$176,000$1,350 to $1,450$1,350 to $1,450
Enhanced Retirement Sum$264,000$1,960 to $2,110$1,960 to $2,110
 

If you are on the RSS, you will start receiving monthly payouts based on which "Retirement Sum" goal you managed to hit up to 20 years. You savings has a base interest rate of 4% provided by the Government so your RSS payouts will extend beyond 20 years until you turn 95 years old. New rules have just been announced that the duration will be capped at 90 years old.

It will take effect from 1 Jan, 2020 for those who are currently receiving payouts. Those who will turn 65 from 1 Jul, 2020 and under RSS will also get payouts until 90 years old rather than the previous 95 years old. Given that 1 in 3 Singaporeans live past 90 years old, this is makes the Retirement Sum Scheme even less attractive than CPF LIFE, which is a scheme in which your retirement payouts last you through life. If you're born in 1958 or after, and have at least $60,000 in your Retirement Account 6 months before you reach your payout eligibility age, you will be automatically included in CPF LIFE. The caveat for CPF LIFE is that you have to pay a significant lump sum premium that is paid from your Retirement Account, which will restrict your ability to use your CPF monies after 55, unless you have enough in there. 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.

For those who have $5,000 or less in their entire Retirement Account (for instance because you’ve been self-employed and haven’t made CPF contributions, or haven’t been working), you get to 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.

Let’s say that at age 55, you have more than $5,000 but less than the Basic Retirement Sum. In that case, 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 payouts, which will be pro-rated based on how much you have in your account.

If at age 55 you have less than the Full Retirement Sum but more than the Basic Retirement Sum, you will be allowed to withdraw $5,000. If you also own property and have a sufficient property charge/pledge on it, then you will also be allowed to withdraw any savings above the Basic Retirement Sum.

For those with less-than-satisfactory amounts in their Retirement Account, 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.

The post CPF Retirement Sum - How Does It Work and How Much Do You Need? appeared first on the MoneySmart blog.  

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