Making a retirement plan takes a lot of research to find answers to your most burning questions. Plus, you’re never sure enough of whether you’ve saved enough for what you want.
Moreover, we are all fighting against inflation.
However, the CPF (Central Provident Fund) offers a strong foundation for your retirement, helping to cover the basic expenses in your golden years. In a sense, it is the backup plan for all Singaporeans.
This is a helpful addition to your personal investment plans. If you don’t have one, don’t worry. You can start your investment journey here.
So, read along to find out how you can manage your CPF to your advantage.
You Need To Consider Your Retirement Needs
Here’s the first question you should find an answer to when planning your retirement:
How is my basic living covered?
Singapore’s retirement age is at 65, and this number will be increased to 70 by 2030.
That means you want:
– Your home to be paid fully so that you have a place to live and no rent to plan for monthly. You can use that home as an extra source of income if you have the room.
– Your basic healthcare coverage so that you can take care of your medical bills. As you age, you’ll face more health issues, and it’s essential to have at least the basic ones covered.
– Your daily expenses should be accounted for; you don’t want to skimp on food or electricity as you’re growing older. At the same time, you never want to live with the fear of outliving what you’ve saved.
These three needs are covered in CPF’s:
– Ordinary Account (OA): housing, insurance, investments
– Special Account (SA): in old age + retirement-related financial products
– MediSave Account (MA): hospitalisation + approved medical insurance
When you reach 55 years old, CPF creates your Retirement Account (RA) that gives you your monthly retirement payouts.
Tip: To ensure you have more money in your CPF account, don’t pay your entire housing loan using your retirement funds.
Grow Your Savings
If you want to manage CPF for your retirement, you want to have enough money in your account first. But that means either having a well-paying job or investing more of your income to obtain cash for your CPF deposits.
Also, you need to clear your debt. For some, they might need a loan with lower interest rates to do that.
But that sounds like a pain.
Here’s a secret many people don’t know: Your CPF account offers you plenty of flexible investment options that increase your savings.
Some of these options are better suited for a higher risk appetite, while others are safer. Regardless of your investment style, it’s always a good idea to let your money work for you.
So, here’s the deal if you’re willing to work a little and gain some financial literacy:
CPF has 200+ funds ready and waiting for your investments under the CPFIS (CPF Investment Scheme). That means you can diversify your portfolio quickly to obtain an excellent interest rate. At the same time, you’ll know that the CPF funds are safer than other stocks.
Here are the best tips to increase your CPF income if you’re risk-averse:
– Don’t withdraw savings from your CPF account to ensure higher rates.
– Make cash top-ups into your SA or RA, depending on whether you’re below or above 55. Doing this ensures higher payouts during retirement. Pro tip: Doing this ensures higher tax relief up to $7,000/year.
– You can increase your interest by transferring funds from OA to SA (below 55) or SA to RA (above 55). Additionally, you’ll get more tax relief, higher retirement payouts, + monthly payouts for the rest of your life.
Set Aside Your Retirement Sum
Once you reach 55, the savings in your SA and OA accounts are transferred to your RA. That’s your retirement sum, so this is where you’ll get monthly payouts from.
That doesn’t mean the government chooses everything for you. Here’s something you may not have known:
You can choose the payout option that suits your needs best.
And that means you can pre-determine the sum you want to have in your RA.
Here’s why that’s important:
This sum increases as more interest gets pumped into your RA. So, if you want your monthly payout at a certain level, make sure to invest more in your RA.
Here are two more things to consider:
– Transfer your SA/OA savings to your RA to increase your payouts.
– Don’t withdraw money from your CPF account unnecessarily.
You will be automatically included in CPF Life if:
– You’re born in or after 1958
– You have a minimum of $60,000 in your RA at least six months before reaching payout eligibility age (PEA)
These CPF LIFE payouts that you’ll get throughout your life are essential for your retirement plan – especially if you don’t have one.
Here are the factors that influence these payouts:
– Your gender
– Your age
– Your RA savings at the moment of joining CPF Life
– Your LIFE plan
– CPF interest rates + mortality rates
Here’s how much you can get during retirement depending on the sum you’ve saved and the plan you’ve chosen:
|RA Savings At 55 (Retirement Account)||Standard Plan||Basic Plan||Escalating Plan|
|Basic retirement sum $85,500||$720-$770||$680-$700||- $550-$610|
- These payouts increase by 2%/year
|Full retirement sum $171,000||$1,320-$1,410||$1,240-$1,290||- $1,010-$1,110|
- These payouts increase by 2%/year
|Enhanced retirement sum $256,500||$1,910-$2,060||$1,810-$1,870||- $1,470-$1,620|
- These payouts increase by 2%/year
These three plans, as you’ve noticed, have different payouts:
– Standard Plan: higher-level monthly payouts
– Escalating Plan: monthly payouts start lower but increase by 2%/year
– Basic Plan: lower monthly payouts
If you don’t choose this plan yourself, you’ll be automatically included in the default Standard Plan.
So what happens to people born before 1958?
If that’s you, you’ll be automatically included in the RSS (Retirement Sum Scheme). You get directly transferred into this scheme if you’re born after 1958 but don’t have at least $60,000 in your account.
You’ll get monthly payouts only until your account gets depleted.
But there’s good news:
You can get more money in your CPF account. We’ll tell you how below.
Consider Your Payouts
Starting at the age of 65 to 70 years old, you can begin to get your payouts from CPF LIFE. Here’s the thing:
Each year when you postpone these payouts gets you an income increase of 7%.
Why would anyone want to postpone these payouts?
Well, you may have another source of income – perhaps you’ve rented a room in your house, or you’re working part-time.
Here’s how you start your monthly payouts:
1) Submit an online application on the CPF website
2) Go directly to a CPF Service Centre with your NRIC to state when you want to start receiving these payments
And here’s even better news:
CPF allows you to take care of your loved ones if you’re worried they don’t have enough savings. So, you can transfer your CPF savings above the Basic Retirement Sum (BRS) to your:
– Your parents or grandparents (if you own property)
You can also use your CPF funds to transfer money to other people’s accounts to improve their retirement. But here’s the deal:
– You can only share savings above your FRS (Full Retirement Sum).
– The term “other loved ones” refers to siblings, parents-in-law, and grandparents-in-law.
Making CPF transfers has one more advantage apart from improving someone else’s life quality during their retirement:
You can obtain up to $7,000/year tax relief.
Managing Your CPF Is Important & More Helpful Than You Think
Managing your CPF for your retirement takes some planning, but hopefully, you understand the basic concepts and strategies after reading this article.
It’s essential to have enough in your CPF account and to manage that money wisely. This can make the difference between getting $1,500 payouts during retirement for the rest of your life or $400 payouts until your money runs out.
Luckily, CPF allows you to invest your money and to get top-ups from loved ones.
When was the last time that you checked how much you have in your CPF account?
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