'Allowing full withdrawal at age 55 is risky'

'Allowing full withdrawal at age 55 is risky'
CPF Building at Robinson Road.

Why does the Minimum Sum need to go up each year?

The increases to the Minimum Sum for each successive cohort over the last decade are part of a gradual adjustment plan in 2004, to catch up with what a lower-middle income household would need in retirement.


What will be the increased Minimum Sum in 2015? Will there be any increase beyond 2015?

We will have to look at the prevailing inflation rate first. Once that is clearer, we will announce the Minimum Sum in 2015.

We have no present plans to increase the Minimum Sum after 2015 at the moment.


How did CPF arrive at $155,000, the minimum sum for those who turned 55 between July 2014 and June 2015?

That is the amount needed to get a monthly payout of about $1,200 in 10 years' time when you reach age 65.

That amount is based on an estimation of how much a lower-middle income household would spend on daily living when they enter retirement 10 years from now.


Do I have to top up the shortfall in cash or sell my property if I don't meet the minimum sum requirement at age 55?

No. It just means that the monthly payout will be smaller correspondingly.

Only half of the Minimum Sum needs to be set aside in cash.

The savings above that amount can be used to finance housing purchases, or be withdrawn through a property pledge.


Why not allow the option of a full withdrawal at age 55, like when CPF was first introduced?

A full withdrawal was allowed then as the life expectancy then was about 62, seven years after the draw down age.

The situation is very different today, where one could expect to live a further 30 years or more.

Allowing a full withdrawal from CPF at age 55 will put us at real risk of outliving our savings in old age. To blindly keep to the earlier model of full withdrawal at age 55 would be wrong and irresponsible.


How are the current CPF interest rates determined?

The current CPF interest rate structure was implemented in 2008.

The fundamental principle is to peg CPF interest rates to returns on investments of comparable risk and duration in the market.

The interest rate on Ordinary Accounts is pegged to a 12-month fixed deposit and savings rates of major local banks.

However, unlike market interest rates, it pays a guaranteed floor rate of 2.5 per cent to 3.5 per cent.

This article was first published on July 09, 2014.
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