- OA for housing;
- SA for retirement funding;
- MA for healthcare.
|
Allocation Rates (% of Total Wages) | ||||
|
Employee’s Age (Years) |
Ordinary Account |
Special Account |
Medisave Account |
Total % Of Wage |
|
35 & Below |
23 |
6 |
8 |
37 |
|
Above 35 – 45 |
21 |
7 |
9 |
37 |
|
Above 45 – 50 |
19 |
8 |
10 |
37 |
|
Above 50 – 55 |
15 |
11.5 |
10.5 |
37 |
|
Above 55 – 60 |
12 |
8.5 |
10.5 |
31 |
|
Above 60 – 65 |
3.5 |
8 |
10.5 |
22 |
|
Above 65 – 70 |
1 |
5 |
10.5 |
16.5 |
|
Above 70 |
1 |
1 |
10.5 |
12.5 |
Adapted From: Seedly – CPF Contribution Rates 2024 Guide
Money will be contributed into your CPF account as long as you are employed in Singapore.
4th Account (Retirement Account) opened at 55:
Prior to 1 Jan 2025, when a CPF member reaches the age of 55, a fourth account, the Retirement Account (RA), is created.
The balances in the member’s OA and SA are transferred to the RA up to the Full Retirement Sum (FRS), which is set at SGD $205,800 for those turning 55 in the year 2024.The FRS serves as a benchmark for the amount an individual may need for retirement, and it is adjusted annually by 3% to 3.5% to keep pace with inflation.
The savings in the SA are transferred to the RA first. If the SA savings are insufficient, the OA will provide the additional funds needed to meet the FRS.
CPF Retirement Funds:
There are a total of 3 retirement sums that a CPF member can consider when their RA is opened.
They are: Basic Retirement Sum (BRS), Full Retirement Sum (FRS) and Enhanced Retirement Sum (ERS).
Based on CPF’s website, a retirement sum should be the reference amount of money that an individual needs to save for their monthly expenditure during retirement.
The difference between the design of each retirement sum is as follows:
Based on the above image, it is clear that the basis of comparison is the FRS, where it is “an ideal point of reference of how much one needs in retirement”.
CPF LIFE:
At age 55, the retirement sum chosen will decide the outcome of your CPF Lifelong Income For the Elderly (CPF LIFE) Scheme. CPF LIFE is a national annuity scheme that pays out monthly income for life from the age of 65.
You are automatically included in CPF LIFE if you are born in 1958 or after and have at least $60,000 in your retirement account when you start your monthly payouts.
The monthly income amount is dependent on 2 factors, the retirement sum that has been locked in since 55 as well as the CPF LIFE Plan that is chosen.
The 3 CPF LIFE plans are:
- Basic Plan
- Standard Plan
- Escalating Plan
The selection of the plan will determine the characteristics of the monthly payouts as shown below.
For the remainder of this article, we will assume that the Standard Plan was chosen. For an individual turning 55 in 2024, the retirement sum and expected monthly payout is as follows:
As seen from the table above, the higher the retirement sum chosen, the larger the monthly payout in the future.
As of now, the FRS amount is 2 times the BRS amount and the ERS is 3 times the BRS amount.
To figure out an estimate of your monthly CPF LIFE payout in the future, one can visit the official CPF LIFE Estimator:
Source: CPF LIFE Estimator Portal
Basic Retirement Sum (BRS):
Let’s now dive into BRS and how it works.
Comparing the BRS and FRS definitions, the BRS excludes “rental expense”. This is in assumption that the CPF member owns a property.
Based on CPF’s website, property owners will not have to worry about the rent of their housing during retirement. Hence, they have the “flexibility to set aside their FRS with a mixture of property and cash, and withdraw part of their RA savings down to the BRS.” – CPF
The criteria of a property owner is as follows:
Upon turning 55, the CPF member hence will be able to withdraw down to their BRS as long as the sum set aside after withdrawal, plus the CPF savings you have used for the property including the accrued interest, is enough to make up your Full Retirement Sum (FRS).
By withdrawing your RA savings down to the BRS, the CPF member has to pledge to refund the amount withdrawn from CPF when the property was purchased, including the accrued interest, if the property is now being sold or transferred.
You can visit CPF’s website to learn more about the amount you can withdraw from your CPF accounts net of BRS.
It is important to note that the amount withdrawal from your RA will exclude any interest earned, any government grants received and any top-ups made to your retirement savings.
Hence, before withdrawing the savings in your RA, do consider carefully as a reduced sum in your RA will affect your future CPF LIFE monthly payouts as mentioned above.
Enhanced Retirement Sum (ERS):
As compared to BRS, ERS is on the other end of the retirement sum spectrum where a CPF member commits more than the FRS.
For CPF members turning 55 in 2024, their ERS is 1.5 times of their FRS (or 3 times of BRS).
(Note: The ERS will increase in 2025 to become 2 times the FRS for those who turn 55 in 2025. This change will be discussed in part 2 of this article)
When a member commits the ERS in their RA at 55, they can expect to draw a higher monthly income once they turn 65. This opportunity to commit a higher retirement sum now might be ideal for those who would want a higher monthly payout in the future to meet a certain retirement lifestyle.
Unlike, the BRS and FRS that remains fixed based on the cohort sum when you turn 55, the ERS will continue to increase annually. This means that the CPF member will be able to continually top-up their RA each year to meet that year’s prevailing ERS and expect to receive higher CPF Life payouts in the future. This ensures that your retirement payouts keep pace with inflation and the ever changing economic conditions.
ERS is the maximum amount that a CPF member can voluntarily contribute into their RA. It would be wise to first consider your current and future financial situation before deciding to commit to the ERS as money placed into your RA is a one way street and cannot be withdrawn subsequently.
As mentioned above, to figure out an estimate of your monthly CPF LIFE payout in the future, one can head to the CPF LIFE Estimator.
In part II of this article, we will dive into the changes to CPF which will soon be implemented in 2025 and how it affects you depending on your age group. Stay tuned!
In the meantime, TWSG will be holding our quarterly seminar on the evening of 18 April 2024 to share about 2024 market updates as well as how to build your passive income.
Author:
Aaron Ang
Edited by:
Yee Shen Hao
