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When we retire, we can trust CPF LIFE to provide us with a monthly payment, as long as we live, so that we never run out of money in our old age. This is what makes CPF LIFE such a unique, powerful and important retirement planning tool for Singaporeans and public relations.
Compared to investments, which can be risky and have unpredictable or uneven returns, CPF LIFE is managed by the government. This makes it virtually risk free.
Additionally, as we move toward our CPF LIFE payments, we earn a minimum of 4.0 percent (and up to 5.0 percent) annually on our Special Account savings and 4.0 percent (and up to 6.0 percent) annually on our Retirement Account savings.
How much do we need in retirement?
In a previous article, we wrote about how we can receive the expenses of an average retiree with CPF LIFE. We found that an average retiree in Singapore spends around $ 1,214 each month and would need around $ 215,000 in their Retirement Account (RA) at 65 for an equivalent monthly CPF LIFE payment.
In this article, we want to explore how much CPF savings we will actually need to live on a decent monthly payment. To represent a “decent monthly payment,” we take the current 2020 median salary in Singapore, which is $ 4,534.
This figure includes employer and employee CPF contributions, and if removed, amounts to approximately $ 3,000 in take-home pay.
How much do we need in our CPF LIFE to get $ 3,000 each month?
We can simply use the CPF LIFE estimator, a CPF Board calculator tool, to find out how much we are going to need in our CPF Retirement Account (RA) to get a monthly payment of $ 3,000.
Keep in mind that this is more than double what the average retiree spends today, which, to summarize, is $ 1,214.
| LIFE CPF | How much do we need in our retirement account at 65 |
| Standard plan | $ 386,900 |
* There is also a basic plan and a tiered plan that we can aspire to.
For someone 65 years old today, they would have needed $ 386,900 in their Retirement Account (RA) when they were 55 years old to receive a monthly payment of $ 3,000 CPF LIFE.
This could be difficult to manage if we were only targeting our Full Retirement Sum (FRS) when we turn 55.
First, the total retirement sum for those people would have been $ 123,000 in 2010 (when they turned 55). Setting this amount aside would give them approximately up to $ 1,091 a month in their monthly CPF LIFE payments.
For those who turned 55 in 2010, the effective Enhanced Retirement Amount (ERS) would have been $ 184,500, or 1.5 times the full retirement amount, giving them a monthly CPF LIFE payment of up to $ 1,572.
This is still about half of the $ 3,000 monthly payment we are aiming to get from CPF LIFE.
READ ALSO: How to invest using your CPF
Save beyond the Enhanced Retirement Sum (ERS) in our special account
To make up the shortfall, we should try to recharge our Special Account (SA) through the Retirement Supplement Plan (RSTU) as soon as possible. This will help us reach the Enhanced Retirement Sum (ERS) and accumulate even more funds on top of it.
This amount of money will continue to be compounded between 4.0% and 6.0% annually, and could potentially cover the CPF LIFE deficit to give us $ 3,000.
Using the case study for those turning 65 this year as an example, if they could reach their “Enhanced Retirement Sum” of $ 184,500 at 55, they would have to save another $ 202,400 in their Special Account.
This may sound like a lot of money, but there are many case studies on how we can accumulate $ 1 million in our CPF accounts at age 65. We only need the long-term discipline to save towards our target amount.
Withdraw money from our Special Account (SA) after 65
Those who turned 65 this year need a remaining sum of $ 202,400 in their Special Account, after contributing the Enhanced Retirement Sum to CPF LIFE.
At this point, they can use their special account as an ATM, withdrawing the remaining $ 1,428 each month. In addition to that, they continue to earn 4.0% to 6.0% annual interest on the amount remaining in your Special Account.
By doing this, their $ 202,400 will last until they are approximately 83 years old, which is around the current life expectancy in Singapore of 83.6 years.
| Years | Remaining balance of the special account (SA) |
| Sixty-five | $ 202,400 |
| 70 | $ 158,311 |
| 75 | $ 104,670 |
| 80 | $ 36,668 |
| 81 | $ 19,832 |
| 82 | $ 3,886 |
| 83 | – $ 13,017 |
* Assumptions:
- Withdrawal of $ 17,136 ($ 1,328 x 12) at the end of each year
- Interest of 6% accrued on the first $ 30,000, 5% on the next $ 30,000 and 4% on the remaining balances in the Special Account
ALSO READ: A Beginner’s Guide to CPF Retirement Sums (and How to Get There)
Replicate this for our own retirement needs when we turn 65
Obviously, the figures indicated in the article are for those who turned 65 this year. While it won’t be easy, it is possible to achieve a monthly payment equivalent to the median salary in Singapore.
If we work to save our target amount by the time we stop working, we can begin to withdraw a sum that is more in line with the median salary for that year rather than what the average retiree spends.
This article was first published in Dollars and meaning.
