Depending on who you believe, you may think our CPF savings are like Russia. You know it's there, I know it's there. But very few Singaporeans have actually travelled there and experienced it first-hand.
Unlike Moscow, however, most Singaporeans actually want to see their CPF again. And thanks to certain people spouting some weird promises about CPF reforms, many Singaporeans now complain that they never will. This is obviously not true.
But wait… there is some truth in the complaint!
If you want to be popular among the people, just stand up on a kopitiam stool and shout "Get rid of CPF, give everyone back their hard-earned money!"
And you would be half right - Singaporeans have been leaving more and more in their CPF accounts for their retirement. The "goalposts" have been "shifting" over the years.
What used to be called the CPF Minimum Sum confused everyone when it kept increasing. In 2003, it was $80,000. In 2015, it was $161,000. Today in 2022, it's $192,000 (Full Retirement Sum).
People heard the phrase "Minimum Sum" and thought - die liao, if I don't have that amount in my CPF, I'll never see my money again. But here's the good news - if you actually think this is true, you've got it all wrong.
First things first… in a nutshell, what happens when I turn 55?
Forget the phrase "Minimum Sum". From July 2015, it was renamed to the "Retirement Sum", and there are three levels of retirement sum to choose from depending on how much you want to withdraw from your CPF at 55.
If you're turning 55 anytime soon, here's what happens.
You have a choice among three "Retirement Sums" - the Basic Retirement Sum, the Full Retirement Sum and the Enhanced Retirement Sum. Each option carries its own pros and cons, and so do read up on the Basic Retirement Sum and what the other options mean for you.
The decision you make will determine your monthly payout from 65 and how much you get to take out at 55.
If you're like most of us, and don't turn 55 for the next 20 to 30 years, then you honestly don't need to worry about withdrawing your CPF right now.
So… what is the Basic Retirement Sum?
Your Basic Retirement Sum depends on which year you turn 55 and it does not increase further. That means, if you turn 55 in 2022, the Basic Retirement Sum is $96,000. This amount will increase every year by 3.5 per cent for the next five years.
So if you turn 55 in 2023, the BRS will be $99,400. In 2024, it will go up to $102,900. For those who turn 55 in 2027, it'll go up to $114,100.
Why? It's to match long-term inflation as well as a predicted increase in the standard and cost of living. It'll be up to the government to determine what it will be beyond 2027. When does it stop? Probably never, honestly.
At this point you pull out tissue to dry your tears, then realise even tissue used to be cheaper, you cry even more. But it doesn't really matter, because this is not a number you must hit in order for your money to be released from some money jail.
What happens between 55 and 65?
For all members aged 55 and above, the first $30,000 of your CPF savings will earn two per cent extra interest, followed by one per cent extra interest on the next $30,000.
Both employer and employee CPF contribution rate will also increase by one per cent from January 2023 for members aged 55 to 70.
Hmmm… seems complicated. Just tell me if the CPF Retirement Sum is practical or not!
If you still think CPF is some big conspiracy which is a Ponzi scheme to pay our ministers' huge salaries, then really, there's no point reading further.
Nothing we say will convince you. However, if you're a concerned Singaporean who is genuinely worried about your future retirement, read on.
1. The Basic Retirement Sum is actually pretty easy to achieve
Let's look at the illustration of Mr Lee who is now 55. Mr Lee is the worst-case scenario any Singaporean would find himself in. (Note: This is a really unrealistic worst-case scenario.)
Assume Mr Lee began earning just $1,200 a month since he was 25. That's right. No pay raise, no end of year bonus, nothing. Just a flat salary of $1,200 each month for the past 30 years.
Now, over a 30 year period, the CPF contribution rates (both employer and employee) will fluctuate. At the same time, so do the Ordinary Account and Special Account allocations.
For simplicity's sake, let's assume 23 per cent of wages go into Mr Lee's OA, and six per cent go into his SA. So that means a contribution of $276 to his CPF OA, and $72 to his SA each month.
Again, for simplicity, and this because this is an unrealistic worst-case scenario, let's assume a fixed CPF interest rate of 2.5 per cent per year for OA and four per cent per year for SA. In reality, this would be much higher because of the higher CPF interest rates before 2005.
How much would be in Mr Lee's CPF account at the age of 55 in this unrealistic worst-case scenario? Surprisingly, calculations result in a figure of $197,230.09.
Assuming he has not used any of it at all, he can opt for the Full Retirement Sum of $192,000. But let's assume he opts for the Basic Retirement Sum of $96,000.
Just a quick note - in order to withdraw above the Basic Retirement Sum, Mr Lee must pledge his property. Do note that properties to be pledged must have more than 30 years of remaining lease to qualify (i.e. Studio apartments cannot be pledged).
This means at 55 years of age, he could potentially withdraw $101,230.09 (approximately) in cash.
Of course, there are many factors which would affect this final amount. Assume he was prudent and bought a smaller house with a mortgage that only costs 15per cent of his salary each month (Remember, a typical HDB flat cost less than $100,000 back then).
Assuming he pays the $180 from his CPF each month for 30 years to pay off the home loan, he would still have at least $100,936.10 in his CPF by 55. This is still higher than the Basic Retirement Sum of $96,000 in which case he would withdraw approximately $4,936.01.
But wait, you say… what if he bought a bigger house? One that would use up all his CPF OA? In that case, Mr Lee would only have what's in his SA, or $49,579.30 left in his CPF. (Since CPF interest is compounded and credited yearly, all calculations done using this compound interest calculator.)
The point we're trying to make is, even in an unrealistic worst-case scenario, Mr Lee should be able to meet the Basic Retirement Sum. The only time he is unable to? When he has bought a property beyond his means. Let's see what happens to Mr Lee in that situation.
2. You don't lose your money even if you don't hit the Basic Retirement Sum
Following our previous example, Mr Lee only has $49,579.30 in his CPF account since he opted to buy a bigger house. This is lower than the Basic Retirement Sum of $96,000.
What happens then? Even though he does not hit the Basic Retirement Sum, Mr Lee will still be eligible to withdraw $5,000 at 55. He may choose not to in order to receive a larger CPF LIFE payout from age 65 onwards.
Depending on which CPF LIFE plan Mr Lee chooses, he will be eligible for a monthly payout of between $400 to $450 for the rest of his life.
So, should you still be worrying about the CPF Retirement Sum?
As you can see from our example, hitting the Basic Retirement Sum is not that impossible dream that many Singaporeans feared. If the amount in your CPF Account is less than the Basic Retirement Sum, don't worry, you should still get your money back after 65 through the CPF LIFE monthly payouts for the rest of your life.
Because most Singaporeans own their properties, you may choose to withdraw their CPF funds at 55, leaving the Basic Retirement Sum to give you a monthly payout via CPF LIFE.
Remember that properties to be pledged must have more than 30 years of remaining lease to qualify (i.e. Studio apartments cannot be pledged).
What's more, if you are comfortably earning passive income through your investments, insurance policies, property rental and via other means, you may consider deferring your CPF LIFE payout, or keeping more of your funds in your Retirement Account in order to receive higher monthly payouts via CPF LIFE.
On the other hand, even if you have less than the Basic Retirement Sum at 55, don't worry. Like everyone else, it'll be given via the monthly CPF LIFE payout, it'll just be a smaller amount, proportionate to how much you have in your Retirement Account.
To put it simply, how much you get back depends on how much of it you've spent. This, sounds pretty fair to us.
This article was first published in The MoneySmart.