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Every now and then, I hear news or see articles that talk about CPF.
If there is one topic that would always pique the interest of Singaporeans, it would be this.
I’ve seen the CPF retirement sums figures floating around, but since retirement feels quite distant from me, I never realized the actual numbers.
However, a recent chat with my friends left me very intimidated by how much we need when we retire.
So I was very excited when I was reminded that we could receive monthly payments through the CPF LIFE scheme.
That’s why I decided to face these intimidating retirement numbers from CPF for the first time.
Earlier we saw how much we need to earn to achieve the Total Retirement Sum (FRS) when we turn 55.
TL; DR: To get to FRS, we would need:
- $ 3,500 starting salary at age 25
- Annual salary increase of $ 110
- Maintain a salary of $ 6,000 starting at age 48
And also take out a home loan of $ 360,000 or less.
While these numbers may not seem like a lot to some, they can still be intimidating to others.
So in this article, we’ll tabulate how much we need to earn to reach the Basic Retirement Sum (BRS), which TBH is pretty daunting enough.
TL; DR: How much do I need to earn to reach the basic CPF retirement sum?
Assuming you are 25 years old in 2020 (you just started work after graduation), these are the Projected Retirement Sums that might be required when you turn 55 (assuming a 3 percent annual increase based on current trends).
| Retirement sum | Amount (S $) |
|---|---|
| Basic retirement sum | $ 219,667 |
| Total amount of retirement | $ 439,335 |
| Enhanced retirement sum | $ 659,002 |
Now, let’s dive into the BRS of $ 219,667.
Let’s make some assumptions here:
He’s 25 this year and his goal is to reach the BRS of $ 219,667 by age 55.
Given the:
- His starting salary is $ 2,500 (current SGUnited internship salary but with contributions from CPF)
- Salary increase of $ 100 per year
- Assuming there are no bonuses
- Buying an apartment that costs $ 320,000, the costs are divided equally with your partner
To simplify these calculations, please note that we are not considering the additional 1 percent interest on the first $ 60,000 in your CPF accounts, as well as any excess of your MediSave that would flow into your Special Account, upon reaching the Basic Sum of Medical attention.
These will definitely increase the amounts that we see in our calculations and help to reach the retirement amounts.
How do we calculate the required basic retirement sum in 2050?
Most of us are still a couple of years away from turning 55.
Since we have seen retirement sums increase each year, what we have today would be completely different than what is required 30 years later.
Looking at the recent year-on-year difference, we take a projected return of 3% and extrapolate these figures for the next 30 years:
| 55th birthday in | Basic retirement sum (BRS) |
Porcentual increment | Total amount of retirement (FRS) |
Porcentual increment | Enhanced retirement sum (3 x BRS) |
||
|---|---|---|---|---|---|---|---|
| 2017 | $ 83,000 | 3.11 percent | $ 166,000 | 3.11 percent | $ 249,000 | ||
| 2018 | $ 85,500 | 3.01 percent | $ 171,000 | 3.01 percent | $ 256,500 | ||
| 2019 | $ 88,000 | 2.92 percent | $ 176,000 | 2.92 percent | $ 264,000 | ||
| 2020 | $ 90,500 | 2.84 percent | $ 181,000 | 2.84 percent | $ 271,500 | ||
| 2021 | $ 93,215 | $ 186,430 | $ 279,645 | ||||
| 2022 | $ 96,011 | $ 192,023 | $ 288,034 | ||||
| 2023 | $ 98,892 | $ 197,784 | $ 296,675 | ||||
| 2024 | $ 101,859 | $ 203,717 | $ 305,576 | ||||
| 2025 | $ 104,914 | $ 209,829 | $ 314,743 | ||||
| 2026 | $ 108,062 | $ 216,123 | $ 324,185 | ||||
| 2027 | $ 111.304 | $ 222,607 | $ 333,911 | ||||
| 2028 | $ 114,643 | $ 229,285 | $ 343,928 | ||||
| 2029 | $ 118,082 | $ 236,164 | $ 354,246 | ||||
| 2030 | $ 121,624 | $ 243,249 | $ 364,873 | ||||
| 2031 | $ 125,273 | $ 250,546 | $ 375,819 | ||||
| 2032 | $ 129,031 | $ 258,063 | $ 387,094 | ||||
| 2033 | $ 132,902 | $ 265,805 | $ 398,707 | ||||
| 2034 | $ 136,889 | $ 273,779 | $ 410,668 | ||||
| 2035 | $ 140.996 |
|
$ 281,992 |
|
$ 422,988 | ||
| 2036 | $ 145,226 | $ 290,452 | $ 435,678 | ||||
| 2037 | $ 149,583 | $ 299,165 | $ 448,748 | ||||
| 2038 | $ 154,070 | $ 308,140 | $ 462,211 | ||||
| 2039 | $ 158,692 | $ 317,385 | $ 476,077 | ||||
| 2040 | $ 163,453 | $ 326,906 | $ 490,359 | ||||
| 2041 | $ 168,357 | $ 336,713 | $ 505,070 | ||||
| 2042 | $ 173,407 | $ 346,815 | $ 520,222 | ||||
| 2043 | $ 178,610 | $ 357,219 | $ 535,829 | ||||
| 2044 | $ 183,968 | $ 367,936 | $ 551,904 | ||||
| 2045 | $ 189,487 | $ 378,974 | $ 568,461 | ||||
| 2046 | $ 195,172 | $ 390,343 | $ 585,515 | ||||
| 2047 | $ 201,027 | $ 402,053 | $ 603,080 | ||||
| 2048 | $ 207,057 | $ 414,115 | $ 621,172 | ||||
| 2049 | $ 213,269 | $ 426,538 | $ 639,808 | ||||
| 2050 | $ 219,667 | $ 439,335 | $ 659,002 |
Things we will spend with our CPF accounts
In addition to being a recent hardworking graduate at 25, you also meet the love of your life at that age.
The two of you dated for five years before deciding to take your relationship to the next level.
We recognize the complex nature of CPF interest that accrues monthly but is compounded annually.
In this scenario, we will assume a regular annual compound interest, where the actual amount would differ slightly.
Based on our previous assumptions:
It looks like we will have around $ 50.0532 in OA and SA accounts before spending it on an HDB floor.
Now, assuming you will buy your HDB apartment with your partner when you are 30 years old.
You managed to secure a floor that costs $ 320,000.
We assume that both you and your partner have exactly the same amount in your CPF accounts and we hope to retain $ 20,000 in your OA rather than clean it up after the flat purchase.
You’ll make a down payment of $ 20,081.57 each, and you will both take out a 25-year HDB home loan of $ 279,837.
An estimated monthly fee would be $ 1,270, which is $ 635 each.
We see a drop in our OA balance to $ 21,177.68, assuming we start paying for the house in the first year of purchase.
Will we come to BRS with this salary at age 55?
Now for the important question.
Will we come to BRS with a starting salary of $ 2,500 and an increase of $ 100 per year?
Since CPF contributions are capped at $ 6,000 per month and your salary is $ 5,500 at 55, there is no need to worry about this cap.
We can see that there will be $ 304,818.19 in your retirement account.
Let’s take a look at the BRS needed again.
| Retirement sum | Amount (S $) |
|---|---|
| Basic retirement sum | $ 219,667 |
| Total amount of retirement | $ 439,335 |
| Enhanced retirement sum | $ 659,002 |
It will be approximately $ 219,667.
Then yes!
He will arrive at BRS at age 55.
What if I don’t want to work until I’m 55?
Perhaps retiring earlier could be your goal.
Assuming all factors remain the same, we run the numbers to see what the earliest age is to stop working and still be able to press BRS.
It seems that we can only stop working after the age of 51.
Are these numbers achievable?
For our assumptions in the above scenario, there are a few things that we did not include that would help drive our CPF savings.
This includes our additional 1 percent interest on the first $ 60,000 of our CPF balance.
Also, our annual bonuses are also not taken into account in the calculations, which would also provide a nice addition to your savings.
There are also other ways to increase your salary beyond $ 100 per year, or you can reach your goals sooner by refilling your CPF accounts.
However, everyone’s situation is different and the numbers here serve primarily as a general guide.
But breaking it down makes it all seem less intimidating and more achievable, right?
Final thoughts
Planning for retirement may seem far-fetched to some of us.
It is as if we have just started working and are now planning the end of our working life.
But the magic of compound interest is something we all want to tap on before it’s too late.
If you’re looking for more retirement planning tips and ideas, you know where to go!
This article was first published in Seedly.
