I Visited A CPF Office Part 2

I went back, a couple of weeks ago. 

Sometimes when you have some answers, they stir more questions inside that noggin and so I had to relieve my curiosity face-to-face with a CPF representative. See my original post for abbreviations and some context. 

1. Growing the RA - Does the RA go away at age 65?

Context - Your RA is set up at 55 and monthly payouts start at 65. The payouts are part of the overall CPF Life annuity plan by the Singapore Government. Everyone's RA feeds into the CPF Life insurance pool to generate returns to fund everyone's monthly payouts. 

Response - No. It's still there. 

2. Growing the RA - So if I am working at 55 and into my 60s, are my CPF contributions going into the RA?

Context - You and your employer will still be liable for CPF contributions after you turn 55. Where does the money go?

Response - Yes and no. 

If you have a shortfall in your FRS minimum sum at age 55, any contribution into the CPF will go into making up that shortfall. So that money goes into your RA. 

If you have met the FRS minimum sum at age 55, CPF contributions go first into meeting the MA minimum sum, then the rest go into the OA. 

Extra - You can keep the contributions coming in in your OA for withdrawal anytime, or you can transfer them to your RA so that you increase your RA contribution and hence receive higher monthly payouts later. 

3. Growing the RA - Can I top up my RA? I don't see that function online. 

Context - Apparently one can top up one's RA outside of any other top-up mechanism currently available. 

Response - Yes you can. The function on the CPF online portal only becomes available when the RA is set up at age 55. You can top the RA by any amount up to the ERS maximum at any time thereafter. 

 

4. OA after 55 - Can I use my OA for say my kids' education after the RA is set up?

Context - Is the OA still available after the RA is set up?

Response - Yes. All monies that exceed the FRS minimum sum amount on the year you turn 55 will go into the OA. You can use the money in whole or in part for whatever personal whims, fancies or reasons you have. 

Where education is concerned, there is an 'education loan' aspect to CPF. Up to 40% of a parent's OA can be used to fund his/her child's tertiary education in Singapore at approved institutions. The child then has to pay back these funds with interest to the parent's OA after he/she graduates. 

Given the earlier response re use of OA for personal reasons, the CPF doesn't need to know what you use the money for - be it a sports car, cruise around the world or kid's overseas education. So be savvy/stealthy and let's not go down the education loan route. 

5. RA top ups after 65 - Can I make top ups to my RA after I start receiving payouts?

Context - If you come into a bunch of money later on in life, is CPF a worthy recipient?

Response - Yes you can make top-ups to your RA at any time. However, the impact of the top-ups after 65 will not have as much of an impact to your monthly payouts, as opposed to having top-ups done between the ages of 55 to 65 with a dedicated investment period via CPF Life. 

6. Opting out of CPF Life - I read I can opt out of CPF Life. How?

Context - Yup it's possible. Shock and awe I know.

Response - Yes, you can opt out. This can only be done in person at age 65, and you must meet these criteria
- prove you have a monthly payout plan that gives you the same or higher monthly payouts compared to CPF Life payouts,
- plan must be from MAS-certified and recognised insurers based in Singapore, and
- payouts must be for life.

If approved, then you can withdraw all of your CPF at age 65 except for what's in Medisave. 

In all likelihood, the stumbling block will be payouts for life requirement. Dividends from shares don't count. 

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So with two visits down I am able to put together a Best Case Scenario to maximise your CPF payouts. 

It's best to have the most money in your RA when you turn 55. That allows the biggest sum to grow for the next 10 years within the CPF Life insurance pool. The later you top up your RA, the less time for the top-up amount to contribute most effectively (via interest earned) to your final total at age 65 when payouts can start. 

The ideal scenario is
(1) to always have your RA topped up to the ERS minimum sum from age 55 to age 65. This year 2025, the FRS minimum sum is $213k and hence the ERS minimum sum is $426k. If you hit 55 this year and have $213k in your RA, you can top up another $213k to meet the ERS number. 

$426k in your RA at age 55 and topping up nothing else sort of guarantees you'll get about $3200 a month for life (on the standard plan, there are 3 payout plans) starting from when you hit 65. 

Here's the interesting bit -
(2) As all the minimum sums go up annually, you are allowed to top up your RA to meet the new ERS limit. That's looking like a $16k top up each year. If you did that every year till 64, you'll be adding ($16k x 9) $144k to your RA as fresh funds.

Also you'll need to make these $16k top-ups in January so that the maximum return can be made in the year, versus making half the interest if the top-up is done in June with just 6 months in the (first) year to go. 

With your initial sum growing with the top-ups and with interest applied, you would have contributed $807k or so to the CPF Life insurance pool by the time you're ready to receive monthly payouts at 65. (see chart below)

Consequently, with more money in the CPF Life pool, your monthly payouts would also now increase, to about $6k a month for life. (see screencap below from CPF monthly payout estimator) This is roughly double what you would get with ERS without annual top-ups (once again, based on 2025 minimum sum requirements).

Side note - $16k top ups, that's what your adult kids are for :)

How can one meet do a top-up to meet the ERS minimum sum? Besides an inheritance coming in or striking Toto, the easiest way is the sell one's property. Since most of us used our OA to pay for our homes, the funds from sale would go back into the OA as required by law.

It sounds dramatic but
- if selling one's home at age 54
- to have funds go back into one's OA by age 55
- to use these funds to top up the RA to meet the ERS minimum sum at age 55
- with enough of a OA balance to buy a likely smaller HDB flat, move in with the kids or live in Malaysia etc.
- to secure a more realistic monthly stipend way more than $2k a month
why not?

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Alrighty, that's about it for now. But wait, I was explaining this to a friend and he came back with a question about inheritance. I am going back to visit Maxwell CPF centre again. It's on the way to my yoga class, ok. Also it's ok to stress frontline civil servants out. Also I've not yet made a nomination.  

I Visited A CPF Office With Questions

A couple of weeks ago, I made an appointment to visit the CPF office at Maxwell to ask some questions about the sorry state of my retirement funds sitting with the institution. It doesn’t help my CPF balance that I have not been working for a year now and also have a mortgage to pay. I’m not in dire straits yet and there’s always Johor Bahru. 

I armed myself with questions and also asked around if anyone had questions. The CPF people have been on a mission to educate Singapore about how they can fund their housing, retirement and education needs via the 20% + 17% of their salary that goes into the immense pot of cash the government invests to eventually pay out when we’re 65 and older. 

1. Minimum sum - I’m 50 this year and the CPF minimum in 2025 is $213k. What’s the minimum sum going to be in 5 years? 

Context - There is a set minimum sum the CPF board requires individuals to meet so that they qualify for the Full Retirement Scheme (FRS). 

Response - There’s no fixed number the FRS minimum sum goes up by. It seems to be about $8k a year. So by the time I’m 55, the minimum sum will be about $213k + $32k = $245k. 

Will I hit this number? It seems with the 4% annual interest rate on my SA balance, I think I might! 

2. Turning 55 - what happens I turn 55?

Context - Fear of the unknown

Response - One needs to meet the FRS minimum sum at age 55 with funds from one’s Ordinary Account (OA) and Special Account (SA) which are combined to form the Retirement Account (RA) on that special birthday. 

In all likelihood, most of the money I will have in my CPF when I turn 55 will go into the RA. I will be able to withdraw $5k as a “you’ve come over the hill” gift. 

If there is more than enough money to meet the FRS minimum sum, the extra goes back into the OA and can be withdrawn. The CPF allows for a minimum of $5k to be withdrawn as a 55 year old birthday present. If there isn’t enough money to meet the FRS minimum sum, you’ll still be able to take out $5k. 

3. Retirement schemes - can I 'downgrade' to the BRS instead sticking to the FRS?

Context - In addition to the FRS, there’s also the Basic Retirement Scheme (BRS) and the Enhanced Retirement Scheme (ERS). 

The minimum sums for each are also different. The amount required for the BRS is half that of the FRS, so $106k in 2025. The amount for the ERS is twice that of the FRS, so $426k in 2025. 

The impact of these schemes is two-fold. One, the amount of cash the government will send into your bank account when you turns 65 is tied to each scheme. Quite simply, the more you have in your retirement account at 55, the more money you'll receive, capped at the ERS maximum. 

The estimated monthly payouts under each scheme in today's dollars are:

BRS - $900

FRS - $1600

ERS - $3200

Two, the BRS minimum sum is half that of the FRS, so instead having $213k required this year, one needs $106k. Once this is met, the remaining balance can go into the OA for withdrawal to a maximum of $120k. 

So if you have $200k when the RA is set up, you can opt to join the BRS and have a (200-106) 94k sum to do as you see fit when turning 55. A friend commented that if one is able to make more money vis-a-vis $900 a month from investing on one's own, it's not a bad idea. 

Response - One can choose to go on the BRS scheme. Two qualifiers:

- The request must be done in person at a CPF office.

- One must pledge one's property. This means validating that you have a home to stay in till you're 95 years old (check that HDB lease!) and that all owners of the property agree to this pledge. 

4. CPF for property - Do my CPF funds used for property purchases go to any minimum sum calculation? 

Context - Most adults use a good part of their CPF for housing. 

Response - No, sorry not sorry. But one can do a Voluntary Housing Refund. 

5. CPF for property - what's a Voluntary Housing Refund?

Context - All the money you used for buying a home is actually owed back to the CPF. Ironic but let's not get into that discussion. There's a section in the CPF website where you can check how much of your CPF you've used for housing and how much interest you owe yourself on this amount. Double irony I know. 

Response - You can do a Voluntary Housing Refund (VHR) to return money into the OA. It can be partial. What's good about this is that

- all the money goes into the OA unlike voluntary CPF top-ups which are split into OA, SA and Medisave.
 - the top-up can be used to qualify oneself for FRS or even ERS. 

Fact is, most of us would easily qualify for ERS if the funds for property were used for minimum sum calculation. 

6. CPF payouts - Can monthly payouts start before 65?

Context - Money get sooner better right?

Response - No. Also, you need to tell the CPF to start your payouts at 65! They don't happen automatically. Mandatory distribution starts only when you're 70 years of age. 

7. CPF topups - Can I top up my CPF to meet the minimum sum?

Context - You're allowed to top up your own CPF on your own. 

Response - Yes. There are two kinds of top-ups: 

A. Into all OA, SA and MA accounts - there's a maximum of $37,740 I can top up and this is distributed as 40%, 31% and 29% into each account respectively. Note that if the SA already meets the FRS minimum sum, any top-up will be distributed to meet the MA minimum first then the balance will go into the OA. 

B. Into SA only - you can only make a top-up if your SA account if it has not yet met the prevalent minimum sum. For example, with the current minimum sum of $213k, and if you have $200k in your SA, you can top up a maximum of $13k. As the minimum sum goes up annually, a top-up can be made in the next year. 

If you're working at age 55 when the RA is set up, you will continue to make contributions into your OA and MA. (SA closed to set up the RA.) You can move your OA funds into your RA as a top-up. 

Remember also that you can also make a Voluntary Housing Refund anytime to return funds into your OA then transfer into our RA to meet ERS requirements. 

8. SRS - Can the money I put into the SRS be counted as part of the minimum sum?

Context - You can put a maximum of $15,300 a year into the Supplementary Retirement Scheme, and also claim a tax relief for the same amount in that tax year of assessment. See this IRAS webpage.

Response - No. As long as the money isn't the SA it doesn't count towards the minimum sum. 

9. Turning 55 - When can I withdraw my CPF, birthday or birth year?

Context - Money get sooner better right?

Response - Birthday. No sooner. 

10. CPF topups - After I turn 55, is the top-up to the ERS minimum sum based on the year I turned 55 or the current year?

Context - Since payouts are based on what's in the RA, the more money in your RA means you get higher payouts. You can top-up your RA whenever you like after 55 and to whatever amount you can spare. 

Response - Based on current year of top-up, not when you turned 55. Also, you can only top up your RA to meet the ERS minimum sum after you turn 55. 

11. Buying a HDB flat - Can I use my CPF to buy a HDB flat after the RA has been set up?

Context - Some people might want to downgrade to a smaller flat when older. 

Response - Only allowed to buy 3-room flat or smaller direct from HDB. Check the Home Ownership Dashboard to figure out how much is available. 

12. Other nuggets of information

- You can't reverse out a top-up into the RA. 

- If at 55 years of age, you took out the balance in your OA and later sold your home which you used your CPF to pay for, you'll need to pay back whatever you took out at age 55. 

- Once you meet FRS minimum sum requirements, any additional funds added to the RA will enrol you to the ERS. ERS total allowed maximum is 2 times that of FRS minimum sum.

- Daily withdrawal limit from your OA is $50k but you can go have a chat with a CPF person to explain your needs.

- You can only top up your RA to meet the ERS minimum sum after you turn 55. 

- You don't get the $8k tax relief if your RA balance exceeds the FRS minimum sum. 

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I do hope I am accurate about the information presented here. I am happy to entertain comments and questions.