Beginner's guide to CPF Retirement Sums (and how to get there)

Singaporeans turning 55 this year are exhorted to have at least $90,500 in CPF savings (excluding Medisave) in order to meet the Basic Retirement Sum. 

Even more panic-inducing, if you’re 30 years old currently, the Basic Retirement Sum could rise to nearly $190,000 by the time you turn 55 (assuming 3 per cent increase year-on-year). 

It’s enough to want to make you go back to being a carefree kid. 

But don’t cocoon yourself in your blankets just yet. Here’s everything you need to know about the CPF Retirement Sum, including how to get there faster.

(Hint: It’s not actually that bad.) 

What is the CPF Retirement Sum?

Simply put, the CPF Retirement Sum indicates how much of your CPF savings you should set aside in order to have lifelong monthly payouts (via CPF LIFE) during your retirement years.

The CPF Retirement Sum comes in three tiers: Basic Retirement Sum (BRS), Full Retirement Sum (FRS) and Enhanced Retirement Sum (ERS). The following table illustrates the difference between the three tiers.

Although the CPF Board sets a CPF Retirement Sum each year, there is no requirement to achieve this amount. 

Instead, you are simply asked to retain a portion of your CPF savings accrued throughout your working years, in exchange for a degree of financial stability during your retirement.

The more CPF savings you set aside, the more you will receive each month during retirement (see below).

Remember that CPF LIFE is not your only option for retirement income. Depending on your career and financial portfolio, your CPF LIFE payouts may play a more or less significant role. 

What is the significance of the CPF Retirement Sum?

Having said that, the CPF Retirement Sum should still be considered an important benchmark, as it determines your available options when you reach 55 years old.

You probably already know that at age 55, your CPF Ordinary Account (OA) and Special Account (SA) are combined to form your Retirement Account (RA), which is used to fund CPF LIFE. You are also eligible for a lump-sum withdrawal at this time. 

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Now, the sum total of your OA and SA at this point would either be 1) equal to or higher, or 2) lower than the Retirement Sum. 

If your OA + SA total is lower than the BRS, you are allowed to withdraw up to $5,000, while the remaining goes to your RA.

If your OA + SA total is higher than the FRS, you are allowed to withdraw $5,000 plus any amount in excess. 

Additionally, you can make a property pledge to withdraw more of your CPF savings, but doing so will lower the monthly payouts you receive from CPF LIFE. 

Please note that the above is an extremely simplified explanation, and is simply meant to highlight the effect of the Retirement Sum when you turn 55 years old. This is only one part of the much larger overall picture of your retirement planning. 

Also note that you can choose not to make any withdrawals at age 55, and instead have the entire sum put into CPF LIFE to receive correspondingly higher payouts in future. Or you may simply preserve the option to make a withdrawal at a later time. 

For completeness, your OA + SA total at 55 will be transferred to your RA, up to the FRS amount. You'll have to perform your own top-up via the Retirement Sum Topping-up Scheme (RSTU) to hit the ERS. The remainder in your OA and SA can be drawn down at your discretion.

What are the prevailing Retirement Sums?

	BRS	FRS	ERS
2020	$90,500	$181,000	$271,500
2021	$93,000	$186,000	$279,000
2022	$96,000	$192,000	$288,000

The above table sums up the three Retirement Sum tiers for the next three years. As you can see, the sum goes up by about 3 per cent per year, rounded to the nearest hundred. 

This increase is introduced to keep pace with inflation, so as to be a more accurate marker for retirement planning purposes. 

What are the effects of achieving the Retirement Sums?

Remember how we mentioned that the Retirement Sum you put aside will be used to fund your CPF LIFE payouts? Therefore, how much you put into your RA at age 55 will determine how much you receive each month when your CPF LIFE payouts start. 

Here’s a simple illustration:

RA balance at age 55	Estimated monthly payout from age 65
$90,500 (BRS)	$580 – $810
$181,000 (FRS)	$1,070 – $1,490
$271,500 (ERS)	$1,560 – $2,180

The important thing to know is this: you are not required to adhere to these three Retirement Sums. You can still receive lifelong income with any amount you happen to have in your CPF savings at age 55. 

Rather, think of them as handy indicators for the quality of life you should expect in your golden years. 

(For a more customised forecast, use the CPF LIFE Estimator.)

Obviously, this only works if you put in a reasonable amount that will generate a sustainable payout for you. But as mentioned at the beginning of this article, there’s nothing to stop you from setting up additional streams of retirement income, such as:

• Purchasing an additional endowment or annuity plan
• Investing in the market for dividends
• Downsizing your HDB flat and putting the proceeds into CPF LIFE
• Renting out spare rooms for rental income
• Cashing out your life insurance policies upon maturity 

How can I reach my Retirement Sums quicker?

It must be said that so far, CPF LIFE is the best-performing annuity plan available to Singaporeans, being backed by Special Singapore Government Securities, which are guaranteed by the Government. 

Certainly, there are advantages to having CPF LIFE play a starring role in your retirement portfolio. The more CPF savings you put in, the better payouts you can enjoy. 

So if you’re looking to reach your retirement sums quicker, consider the following:

1. Transfer from OA to SA for higher interest

The base interest rate for your OA is 2.5 per cent per annum. For your SA, it’s 4 per cent per annum. As higher interest grows your money faster, transferring your OA funds into your SA will help you reach the Retirement Sums quicker.  

You’ll need to be below 55, with an SA balance lesser than the FRS to do this. Do note that any transfers made to your SA are irreversible, so you should only do this if you’re sure you won’t be needing your OA funds for housing or other purposes. 

2. Make a Retirement Sum top-up 

You may also — via the Retirement Sum Top-up Scheme — choose to make cash top-ups directly to your (or your family members’) CPF accounts, as summarised below:

	Account	Top-up limit
Below 55	SA	FRS
Above 55	RA	ERS

As an added bonus, you also qualify for tax relief of up to $14,000 per year ($7,000 for self, additional $7,000 for top-ups made for parents, spouse or siblings).

3. Grow your OA and SA funds via CPF Investment Scheme

Another way to accelerate the growth of your CPF funds is through market investments via the CPF Investment Scheme (CPFIS).

Under this scheme, you may invest your OA and SA funds in a wide variety of investments, including unit trusts (UT), insurance investment-linked products (ILPs), exchange-traded funds (ETFs), bonds and more.  

However, please note that the investments offered under CPFIS are not guaranteed, and carry the risk of loss. Hence, if you are not confident of investing on your own, this method may not be for you. 

See below for more details of the CPFIS.

	Funds restriction	Restrictions and exclusions
CPFIS-OA	First $20,000 not allowed for investment	Stocks limits: 35 per cent of investible savingsGold limits 10 per cent of investible savings
CPFIS-SA	First $40,000 not allowed for investment	Higher-risk UTs and ETFs excluded.Selected investment types excluded.

This article was first published in SingSaver.sg.