At the 2019 National Day Rally, PM Lee Hsien Loong made announcements for gradual increases in retirement age, re-employment age and CPF contribution rates for older workers. Here are some notes on making your CPF work for you.
HOW MUCH DOES CPF LIFE PAY?
If you are aged 55 years old today, the current:
· Basic Retirement Sum (BRS) of $88K gives you about $700-$800 p.m. @ age 65
· Full Retirement Sum (FRS) of $176K gives you about $1200 to $1500 p.m.
· Enhanced Retirement Sum (ERS) of $264K gives you about $1800-$2100 p.m.
HOW FEASIBLE FOR PEOPLE TO REACH THE SUMS BY AGE 55? [CPF/ MOM STUDIES]
For a fresh grad, buying a 4-room flat, if you have a starting pay of:
· $2000 – can reach BRS
· $2300 – can reach FRS
· $2800 – can reach ERS
For older cohort, 7/10 turning 55 in 2020 will hit BRS; 7/10 turning 55 in 2030 will hit FRS
COMMON MISCONCEPTIONS ABOUT CPF FULL RETIREMENT SUMS
1. FALSE: That if you don’t have FRS, you cannot retire
TRUE: Only CPF LIFE payouts start @ age 65
2. FALSE: That if you don’t have FRS, you can’t take out any money at age 55
If you own a property, you can take out monies in excess of BRS
If you have less than BRS, you can take out $5,000
If you have less than $5,000, you can take out everything
3. FALSE: That if don’t have FRS, you will be penalized (TRUE: no penalty!)
SHOULD YOU DEFER CPF LIFE PAYOUTS TO A LATER AGE?
· Have a balance: every year deferred (max till age 70), you get 7% more payout, but you deserve to also enjoy from 65 years old – you never know when you go
· Defer only if you have enough @age 65
TIPS FOR HELPING YOU REACH CPF FULL RETIREMENT SUM
· Don’t over-extend yourself and buy too big a property
· Don’t wipe out your CPF
· Top up your CPF Special Account (SA)
· Don’t invest your SA
· Contribute into the 3 accounts
CPF LIFE OR PRIVATE ANNUITY PLANS?
CPF LIFE has best returns (all else being equal). Private annuities have all but disappeared,
but you can supplement with:
· Retirement Income insurance plans (which are not really annuities) if you want reliable income, but returns are not high
· Supplement also with investments, separately – not high cost ILPs which are NOT recommended
INVESTING YOUR CPF UNDER CPF INVESTMENT SCHEME (CPFIS)
Short-term performance fluctuates. Overall investor experience with CPFIS is poor.
· Do not invest your Special Account (it’s at 4% risk free!)
· Keep costs low – avoid sales charge; use a conflict-free adviser; use low-cost funds; do not buy ILPs: costly and choices restricted.
SUPPLEMENTARY RETIREMENT SCHEME (SRS)
· Purpose is to encourage planning for retirement beyond CPF
· Tax benefit for up to $15,300 for locals, $35,700 for foreigners per year
· Penalty-free withdrawals start from statutory retirement age prevailing at time of first investment – given NDR announcements, you should have a year or so before this changes to age 65
· Invest in various instruments as SRS interest is low – again, keep low cost
Make sure you have liquidity – there are constraints CPF and SRS when it comes to withdrawal. If you would like to listen to the podcast, you can listen to it here.