Central Provident Fund (CPF)
I believe CPF formed a large net worth of most working adults in Singapore, including me. I have talked about my current stage of in my reflection article (Portfolio Update: Feb 2023 and Reflection at half-life (hopefully) mark – 40 Years old). In that article, I have mentioned that “Reach CPF Full Retirement Sum (FRS) in Special Account in Jan 2020 (Current: way exceeded 200k such that will still reach FRS even if not working).” Action and evidence speak louder than word. I shall show screenshot of my CPF in this post at the end of this post.
What is Central Provident Fund (CPF)?
In case for those not aware (especially foreigner) who are reading this post. Let me share some details.
CPF is short for Central Provident Fund in Singapore, which is a savings scheme designed to help Singaporeans save up for their future. It’s a mandatory savings plan that both employers and employees contribute to, and it offers a range of benefits such as retirement savings, medical savings, and insurance coverage.
Contributions to CPF are made on a monthly basis, and the amount you contribute depends on your age and income. The funds in your CPF account are managed by the government, and you’ll earn interest of 2.5% to 4% (with special extra interest, it can go up to 6% for the first 60k) on your savings too.
Overall, CPF is an important safety net for Singaporeans, and it’s designed to make sure that you have enough financial resources to support yourself throughout your life. Whether you’re saving up for retirement, a home, or your education, CPF is there to help you achieve your goals (hopefully).
One key term in CPF that one should know is Full Retirement Sum.
What is Full Retirement Sum?
The Full Retirement Sum (FRS) of CPF is the amount of money you need to save up in your CPF account to receive a basic monthly payout for life after you retire. This is really important because it helps to ensure that you have enough money to cover your living expenses and healthcare needs during your retirement years.
When you turn 55, you can choose to set aside your FRS in a special account called the Retirement Account (RA). The RA is designed to provide you with a monthly payout starting from the age of 65 years old, so you can enjoy your retirement without worrying too much about finances.
As of 2023, the FRS is $198,800, but don’t worry if you don’t have that much saved up yet. You can still receive a lower monthly payout under the CPF Life Scheme if you don’t have enough savings in your CPF account to meet the FRS.
Of course, if you want to receive a higher monthly payout in retirement, you can choose to set aside more than the FRS in your RA. This will help you enjoy a more comfortable retirement and give you greater financial security.
FRS has been increasing steadily over years (see screenshot below) and many people are worried that they can’t achieve it. This is fact and a real worry.
How much monthly payout will I get?
The next question is how much I will get monthly at age 65. From the CPF website,
To receive a monthly payout of $1,470 – $1,570, you will need $288,900 in your
Retirement Account (RA) at 65. A much lesser sum of $192,000 is required if you set aside
the amount in your RA at 55.
For example, if I want 2k per month at 65, I need to have around 280k at age 55! Wow that’s a big amount. It’s difficult to achieve it – That’s why most people think.
My CPF Special Account (SA) as of Today
Picture speaks a thousand words.
Why do I show SA only? Because I am making use of the compounding effect of CPF SA to achieve Full Retirement. The rest of money in Ordinary Account and Medisave Account to me are just bonus to me.
Assuming, I quit my job immediately, thus no further CPF contribution to work.
This is what I will get at age 65.
Ignoring the extra interest for first 60k and further work contribution, I would have 612k at age 65. Based on the payout table from CPF website earlier, $428,300 will give $2140 to $2300 monthly payout from age 65. I have 612K, thus it means I should have at least 3k per month. Together with my spouse, we would have 6k per month monthly at least. Decent lifestyle for old couple? (Don’t forget that this excludes my investment portfolio)
Power of compounding
Of course, this is a backup plan. My main plan is still my equity, bond, option, & crypto portfolio, which is way larger.
Plan early and build success.
My idea is just to get CPF FRS out of mind, hence I deliberately try to maximize it when I was younger. Hence, today, at 40, I totally don’t bother with how much I have in my CPF – just let it auto-compound.
It’s not difficult to achieve Full Retirement Sum – FRS
Contrary to most beliefs, it is not difficult to achieve Full Retirement Sum. There are few simple methods to achieve based on what I did.
- Transfer OA to SA as early as possible. I did this after learning from A Singaporean Stocks Investor (ASSI) decades ago. This is my main method to achieve Full Retirement Sum. This is achievable as I didn’t buy expensive HDB and thus minimal amount is taken from OA to pay for my house.
- Top up with CASH to get tax relief. I did some top-ups over the past decades (but in total less than 5k). Why? Because of the idea of shifting goalpost. It worries many people and of course me. Furthermore, I could get more than 4% outside from stocks etc, why lock my money for 30 years?
However, for the transfer of OA to SA, it is different, since money already trapped in system, why not make full use of it? Let the government interest play the magic of compounding for you.
What about you? Have you achieved your Full Retirement Sum? Do you plan to achieve it? It’s not difficult and I am the living proof of it.
Care Your Present
Lastly, I want to repeat one last thing. please learn to live in the moment, enjoy every single moment of your life.
“Time has no reset button” is what I used to be saying.
But this is not powerful accurate enough.
It SHOULD BE Time is ticking away.
For each passing day,
You have one less day with your spouse, parents, children and most important yourself.
Read: Truly understand Living in the Moment now
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