Everything You Need to Know About CPF LIFE and Your Monthly Payouts When You Retire

Being able to retire comfortably is something that everyone hopes to achieve. 

However, living in Singapore would mean higher living expenses. After all, we didn’t earn the title of the most expensive city in the world for nothing. That’s why retirement planning is of utmost importance here.

Of course, knowing that it’ll be costly to retire, the government has implemented a social safety net system (CPF) that’ll help Singaporeans begin saving for retirement as soon as they start working. 

Through our CPF, Singaporeans contribute a significant chunk of our salaries into a “government savings account”. This money will allow us to save for our homes, medical expenses and for our retirement. 

However, besides knowing what the CPF can do, most people don’t understand what CPF is all about.

“Why can’t the government just return everything at 55? It’s my money!”

“Why are there so many different account names? What makes the special account so special?”

With the CPF (and CPF LIFE) playing such an important role in all of our retirement, we find it a pity that so many people are unable to truly understand the policy. This is our attempt to try to explain the basics of it.

What is CPF LIFE?

In short, this is the part of CPF that most people understand the most. Also known as Lifelong Income For the Elderly (hence, LIFE), it guarantees a monthly payout for us after we retire. 

Sounds great right? Here’s how it works:

When you reach 55, you’ll decide how much money you want to set aside in your CPF Retirement Account. Depending on how much you have in your CPF account and how much you leave in the Retirement Account, you’ll receive a monthly payout once you reach 65.

So How Much Do I Have to Set Aside?

For most people, the Full Retirement Sum (FRS) is required. In 2020, the FRS is $181,000.

If you own a property however, you can pledge your property and opt in to set aside a smaller amount of $90,500 with the Basic Retirement Sum (BRS). However, with this plan, you’ll receive a smaller monthly payout at 65.

For those with more money in their CPF, you can also choose to set aside $271,000 with the Enhanced Retirement Sum (ERS). Of course, with this increased amount, you’ll be able to receive a larger monthly payout at 65.

After setting aside the money for these schemes (FRS, BRS & ERS), you’ll be able to withdraw the rest of your CPF anytime you want. Of course, you can also leave the remaining amount in your CPF to earn that sweet 4-6% interest. 

Of course, for those who are unable to meet the minimum sums, you’ll still be able to withdraw up to $5,000 for your retirement.

What Happens Between 55 to 65

As we have mentioned, your monthly payouts will only begin when you reach 65. 

This means that from the age of 55 to 65, you will have to rely on your own savings if you plan to retire at 55. Of course, for those who have been lucky enough to have a large amount of money in your CPF account, you might be able to retire relying only on your CPF withdrawal (leftover amount after setting aside the retirement sums). 

For the rest however, you might consider working until you reach 65 years old. However, you will have to note that your contribution rates (both employer and employee) will fall after you pass 55 years old.

That’s why we think that owning good investments is the best route to take. As we have shared in this article “What You Should Be Doing in Your 30s and 40s to Retire Comfortably in Singapore”, you can consider cashing out on your property investment as you reach your 60s. 

By making good investments in the property market, you will be able to have a reliable sum of money that can help you retire comfortably after you reach 55. To truly understand what investment is suitable for you, why not schedule a free call with us and find an investment that fits you.

Receiving Your Monthly Payouts

Now that you’ve gotten to 65, it's time to decide the amount of monthly payouts that you want to receive. 

There are 3 different monthly payout plans. The standard plan gives you a consistent monthly payout and is the most common plan. 

For those who wish to leave a higher amount of money to your loved ones after your passing, you will be able to choose the basic plan. Here, you will receive a lower monthly payout amount. 

It is important to note that if you happen to pass on before spending all your savings, only your unused annuity premium and CPF savings will be paid out to beneficiaries. 

Your interest that you have accumulated will not be paid out. 

Lastly, there is the escalating plan. In this plan, monthly payouts start lower but will increase by 2% yearly. This is to ensure that your payouts increase in tandem with inflation and allows you to pay for a more consistent standard of living. 

As most people choose the standard plan, we will be using this plan to estimate the monthly payouts that you will receive. 

For those with the BRS, you will stand to receive around $750 to $810.

For those with the FRS, you will receive $1,390 to $1,490 monthly.

And for those who are lucky enough to opt for the ERS, you’ll be able to receive a whooping $2,030 to $2,180 monthly. 

However, for those with enough savings or enough profits from investment returns, you can choose to begin your payouts at 70 instead. This will leave an even larger monthly payout for you to spend as you enjoy your retirement. 

However, it is important to realize that most people will require more than $1,500 monthly to retire comfortably.

According to research done by the Lee Kuan Yew School of Public Policy, a single elderly household will require $1,379 a month just to meet the basic needs. This means that even though monthly payouts through FRS will be enough to sustain your basic retirement lifestyle, you will want to plan your investments so that you will be able to retire comfortably. 

If you’re unsure as to what you should be doing in order to retire comfortably, why not arrange for a free consultation so that we can help you with your wealth planning today?

What Happens to My CPF After I Pass On

Most people are worried that the Government will “steal” their CPF money. 

However, the most important thing to note is that the amount taken out of CPF will never be less than the amount of money we put into the scheme. 

Here’s a quick calculation to illustrate what we mean:

Imagine if you subscribed to the FRS and put $181,000 into your retirement account at 55, you will be receiving around $1,400 monthly. 

If you begin taking the payouts at 65 and pass away at 85, you’ll have received a total of $336,000. 

That’s nearly 2 times of the total amount that you’ve put into the scheme.

And in the unfortunate event that you pass on before you draw out all of your money, you will be able to leave the remaining CPF premium to your loved ones. 

This means that no matter what happens, your CPF money will remain as your money.

The Final Word

With that, we’ve covered the basics of the CPF scheme. 

However, as we have mentioned, while CPF is a great scheme to help Singaporeans prepare for retirement, CPF by itself is not enough for most people to retire comfortably. 

That’s why, while planning for retirement, it is important to begin early and use CPF as a supplementary scheme that can help you retire earlier and with greater comfort.

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