UNDERSTANDING CPF
Here Is All You Need To Know About Your CPF Account When You Reach 55
It is understood that the existence of the Central Provident Fund (CPF) is to help citizens with income during their retirement years. It is safe to assume that all of you understand that part.
But do you really understand how it works?
When will you get your money? For how long I will get the monthly income? What is the minimum amount in order for me to get a monthly income? Or even, will I be getting a monthly income?
If you are an employee and regularly contributing your CPF account, you should be more aware of your own money. Thus this article will help you understand better about the Retirement Sum Scheme.
Upon reaching 55
A Retirement Account (RA) will be formed once you turn 55. The money from your Ordinary Account (OA) and Special Account (SA) will be combined into the RA. The birth of the RA does not mean that your OA and SA will not exist anymore. If you are still working and contributing to your CPF when you are age 55, you are still able to contribute to both your OA and SA.
To sum it up, you will have a total of four CPF accounts when you reach 55.
READ ALSO: Things You Should Know About CPF Retirement Account (RA)
What is a Retirement Sum?
From the name itself, it is an amount of money you have put aside in your CPF account to be used during your retirement.
With that amount, you are able to receive monthly payouts from your payout eligibility age. At this current moment, the payout eligibility age is 65. Will it change? That is something that is not certain.
How much is the Retirement Sum that you need to achieve?
The simple answer to the question above is in depends on the year. Each year has a different Retirement Sum. Year by year the amount will increase.
There are actually three different levels of Retirement Sum. They are:
- Basic Retirement Sum (BRS)
- Full Retirement Sum (FRS)
- Enhanced Retirement Sum (ERS)
By default, you need to achieve the Full Retirement Sum. But if you choose to pledge your property, you only need to fulfill the Basic Retirement Sum.
The Retirement Sum is determined upon you to reach 55. And as history shows, the retirement sum will increase annually. Approximately an increase of 3% annually.
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How much will you get upon reaching 55?
This will boil down on how much in your RA. But before moving forward, you would need to establish these few things.
- Retirement Account amount
- Your Retirement Sum (FRS & BRS)
- Property Charge/ Pledge
*To simplify the illustration, we will assume that you have fully paid off your home and will not be set aside your money for mortgage settlement.
By default, you need to fulfill your FRS. But in a scenario where you decide to do property charge/ pledge, you will only need to fulfill your BRS (half of FRS).
We will divide it into a few scenarios:
Scenario 1
– Retirement Account amount is above FRS
– No Property Charge/ Pledge
How much will you get?
You will get the amount above the FRS.
Scenario 2
– Retirement Account amount is above FRS
– Yes there is a Property Charge/ Pledge
How much will you get?
You will get the amount above the BRS.
Scenario 3
– Retirement Account amount is above BRS
– Yes there is a Property Charge/ Pledge
How much will you get?
You will get the amount above the BRS
Scenario 4
– Retirement Account amount is above BRS
– No Property Charge/ Pledge
How much will you get?
You will get only $5,000.
Scenario 5
– Retirement Account amount is below FRS
– No Property Charge/ Pledge
How much will you get?
You will get only $5,000.
What happens after you withdraw at age 55?
Withdrawing the money at age 55 is an option and is not mandatory. Whether or not you chose to withdraw that money, there will still be a balance in your RA.
That balance will continue to earn the risk-free interest rate and be accumulated over time.
Eventually, the amount inside your Retirement Account will enable you to join the CPF LIFE Scheme or Retirement Sum Scheme. Both schemes will give you a monthly payout but are different in certain aspects, which will be discussed in another article.
You will get your monthly payout upon your payout eligibility age. That will depend on your date of birth.
10 Years until your monthly payout
If you are born after 1954, you most likely have 10 years before you get your monthly payouts.
At age 55, you should review back your retirement fund and its progress. You would need to check whether you would have a sufficient amount of money to last through your retirement years.
You are also able to check on the amount of the monthly payout via the CPF LIFE Estimator / Retirement Sum Scheme Payout Calculator. That will give you a gauge on how much will be complimented on top of what you had accumulated for your retirement.
You can make your CPF monies as part of your retirement plans. But do not make it as your one and only plan for retirement.
That comes to the end of this article. Hope that this is beneficial for you and do share it with your family friends. Till next time.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
