Here's what your CPF full retirement sum might look like when you're 55

PHOTO: Pixabay

In Singapore, we’re trained to think about our long-term future and retirement from the day we start working. This is when we see regular contributions from our monthly wage going into our CPF, namely the Special Account (SA).

While our CPF contributions also go into our Ordinary Account (OA) and Medisave Account (MA), these accounts can be used to pay for the downpayment and mortgage of our home, tuition fees for our loved ones and certain insurances such as the Home Protection Scheme (HPS) and Dependent Protection Scheme (DPS) via our OA and medical treatments and procedures as well as MediShield and Integrated Shield Plans (IP) via our MA.

Investing our SA monies may also seem futile. This is because we can only invest anything above the first $40,000 we have in the account. The SA also pays an interest of 4 per cent per annum – a return majority of investments cannot guarantee for the long-term, let alone at virtually risk-free levels.

For most people, this just means monies in our SA sit there, compounding every year, until it’s ready to be lumped with the balances in our Ordinary Account at 55 to make up our new Retirement Account (RA)

What happens when we turn 55?

When Singaporeans and Permanent Residents (PRs) turn 55 in 2021, a Retirement Account (RA) will be created for us. Monies from our Ordinary Account (OA) and Special Account (SA) will be used to fund our RA, up to the Full Retirement Sum (FRS) of $186,000.

We can also opt to pledge a property that we own and set aside only the Basic Retirement Sum (BRS) of $93,000 (0.5X the FRS), or even choose to go with the Enhanced Retirement Sum (ERS) of $279,000 (1.5X the FRS). However, for the purpose of this article, we’ll just focus on the FRS.

The FRS is meant to safeguard our retirement, and hence it needs to keep up with the pace of inflation and standard of living. This means the FRS has to increase each year.

Anyone who turns 55 in 2021 will have to set aside $186,000. This is approximately 3 per cent more than people who turned 55 in 2020, when it was $181,000. In turn, those who turned 55 in 2019 had to set aside a figure of approximately 3 per cent higher than people who turned 55 in 2018, when it was $176,000.

So, you can see the trend is that this figure increases close to 3 per cent each year.

What Happens If I’m turning 55 next year?

Besides relying on past years’ increments, the government usually gives us some visibility into how much we may need to set aside to better plan for our retirement needs. Right now, anyone turning 55 before 1 January 2022 will already know much they need to set aside for their FRS.

55th birthday on or after Full Retirement Sum (FRS)
Jan 1, 2020 $181,000
Jan 1, 2021 $186,000
Jan 1, 2022 $192,000

As you can see, the next two years follow the same trend, increasing approximately 3 per cent each year. Looking further back, we can see that someone turning 65 today, and being eligible for CPF LIFE payouts, required $131,000 in his RA when he or she initially turned 55 close to 10 years ago.

Assuming this person continued to enjoy a return of 4 per cent for the next 10 years (until today), he or she would have accumulated close to $193,900.

Technically, this figure is a little higher as we’re assuming this person did not receive the additional 1per cent on his or her first $60,000 combined CPF balances or the additional 1per cent interest on the first $30,000 combined CPF balances for members aged 55 and above (introduced in January 2016).

With a balance of $193,900, this person would be eligible for CPF LIFE payouts of between $1,070 and $1,131 every month . If you think this isn’t sufficient, you should make it a point to start planning for your retirement as soon as possible.

So, how much would I need to set aside when I’m 55?

This question might not be a totally fair one to ask of the government. While they try to give us as much foresight as possible, predicting inflation levels and rising cost of living in the next 25 or 30 years may be very difficult, if not impossible.

Looking at past FRS figures, we can see that people who turned 55 in 2003 only needed to set aside $80,000 for their FRS, while anyone turning 55 in 2020, needs to set aside $171,000. This is a compounded annual growth rate of close to 4.9per cent.

Age in 2021 55th birthday on or after Full Retirement Sum (FRS)
73 Jul-01-03 $80,000
72 Jul-01-04 $84,500
71 Jul-01-05 $90,000
70 Jul-01-06 $94,600
69 Jul-01-07 $99,600
68 Jul-01-08 $106,000
67 Jul-01-09 $117,000
66 Jul-01-10 $123,000
65 Jul-01-11 $131,000
64 Jul-01-12 $139,000
63 Jul-01-13 $148,000
62 Jul-01-14 $155,000
61 Jul-01-15 $161,000
60 Jul-01-16 $161,000
59 Jan-01-17 $166,000
58 Jan-01-18 $171,000
57 Jan-01-19 $176,000
56 Jan-01-20 $181,000
55 Jan-01-21 $186,000
54 Jan-01-22 $192,000

A yearly increment of 4.9 per cent may be on the high side as the latest FRS figures are only increasing by 3 per cent every year. Further, according to the Department of Statistics Singapore, the compounded annual growth rate of the MAS Core Inflation Measure increased close to 1.5 per cent per annum since 2003.

In addition, there has only been one year where the MAS Core Inflation Measure beat the 4.9 per cent compounded annual growth rate – this was in 2008 when it increased 5.7 per cent from 2007.

It could be that the earlier FRS figures were a low estimate when it started and the government had to play catch up subsequently.

As countries age and develop, inflation levels also taper off – this could mean that going forward, increments in the FRS could potentially drop under the 3 per cent benchmark it has recently set.

Here’s how much we may need to set aside when we’re 55

At this point, we should also note that there’s no guarantee the CPF will continue to function the way it is functioning currently. There have been many changes to the CPF system in the past, and it could look very different in 25 or 30 years’ time.

We already know what the government expects someone turning 55 to have until the year 2020. And we also can draw on past figures to give us a sense of what is to come.

In the illustration below, we use both figures to give us a better idea of what may be in store for us.

Age in 2021 55th birthday on or after Full Retirement Sum (FRS)
57 Jan-01-19 $176,000    
56 Jan-01-20 $181,000    
55 Jan-01-21 $186,000    
54 Jan-01-22 $192,000    
Based on 1.5 per cent increments Based on 3.0 per cent increments Based on 4.9 per cent increments    
53 Jan-01-23 194,900 197,800 201,400
52 Jan-01-24 197,800 203,700 211,300
51 Jan-01-25 200,800 209,800 221,700
50 Jan-01-26 203,800 216,100 232,600
49 Jan-01-27 206,900 222,600 244,000
48 Jan-01-28 210,000 229,300 256,000
47 Jan-01-29 213,200 236,200 268,500
46 Jan-01-30 216,400 243,300 281,700
45 Jan-01-31 219,600 250,600 295,500
44 Jan-01-32 222,900 258,100 310,000
43 Jan-01-33 226,200 265,800 325,200
42 Jan-01-34 229,600 273,800 341,100
41 Jan-01-35 233,000 282,000 357,800
40 Jan-01-36 236,500 290,500 375,300
39 Jan-01-37 240,000 299,200 393,700
38 Jan-01-38 243,600 308,200 413,000
37 Jan-01-39 247,300 317,400 433,200
36 Jan-01-40 251,000 326,900 454,400
35 Jan-01-41 254,800 336,700 476,700
34 Jan-01-42 258,600 346,800 500,100
33 Jan-01-43 262,500 357,200 524,600
32 Jan-01-44 266,400 367,900 550,300
31 Jan-01-45 270,400 378,900 577,300
30 Jan-01-46 274,500 390,300 605,600

Based on these figures, it doesn’t seem likely that the rate of increase can continue at an average pace of 4.9 per cent. This is especially with a monthly wage cap of $6,000 on CPF contributions.

However, according to the Ministry of Manpower, the median gross monthly income from work has increased at a compounded annual growth rate of over 5.2 per cent since 2007 – this could sway the argument for an average increment of 4.9 per cent each year for the FRS.

No one knows what will happen for sure in the future, but you should definitely work towards a retirement goal that you’re comfortable with, and ensure that your plans do not fully rely on your CPF LIFE payouts.

This article was first published in Dollars and Sense.