CPF for Retirement: How Does It All Work? (A Simple Guide)

When you start to plan for your retirement, the first thing you’d want to do is understand how CPF works.

But with constant improvements made to the CPF system over the years, rules have been changing.

Because of these changes, there’s a lot more information out there, which causes clutter.

Even so, it’s still not an easy task, and that puts people off.

That’s why this guide is created to provide only the meat of the dish, and stripping away the potatoes and veggies (they’ll still be addressed in other articles).

So, let’s find out how CPF for retirement works!

Too Long; Didn’t Read (Infographic)

how cpf for retirement works

But it’s slightly more complex than that. Read more to find out.

What’s the Purpose of Our CPF?

One of the primary objectives of the Central Provident Fund (CPF) is to provide us with a retirement income that covers at least the basic needs when we’re old.

But because it’s also a comprehensive social security system (i.e bao ka liao), there are a lot more uses for your CPF savings.

It’s also known to be a forced saving to hit major financial goals.

This is important because as humans, we tend to get distracted. And when we have many incoming wants/needs, we may not be able to sieve through them and figure out where our money should go.

The forced savings will enable us to purchase a property and receive an income during our retirement years.

The 4 Types of CPF Accounts

When you start working, part of your salary will go into your CPF accounts.

Here’s an overview of them:

1) Ordinary Account (OA)

Perhaps one of the most useful accounts you can have.

You can use the OA balance for a variety of needs. But beware, if you over-use it (e.g buy a big property that you can’t really afford), it directly reduces your retirement savings in the later years.

Examples of what OA can be used for:

Ordinary Account Interest: 2.5%

2) Special Account (SA)

There are less uses for SA balances.

And because of this reason, it’s geared for retirement purposes. Especially so, when it grows at a higher interest rate.

Apart from its name, there’s nothing really special about it.

Examples of what SA can be used for:

  • you can invest it (but most leave it as it is)

Special Account Interest: 4%

3) MediSave Account (MA)

The MA savings cater to your basic healthcare needs, of not only for yourself but for your dependants.

Unlike the other accounts, the MediSave Account has a ceiling which is the Basic Healthcare Sum (BHS). It’s currently at $63,000 in 2021. If you have more than that, there’ll be an overflow to other CPF accounts (more on that later).

Examples of what MA can be used for:

MediSave Account Interest: 4%

4) Retirement Account (RA)

When you’ve reached the age of 55, the Retirement Account will be created.

Monies from your SA and/or OA will flow into the RA.

This sum in your RA is meant to provide an income stream eventually.

More details on how it works later on.

Retirement Account Interest: 4%

Bonus Interest Rates on CPF Accounts

Apart from the regular interest that’s earned on each CPF account, there are bonus interests as well.

If you’re under 55 years old, there’ll be an additional 1% on the first $60,000 of your combined CPF balances. There’s a cap of $20,000 for OA savings.

If you’re 55 years old and above, you’ll get an additional 2% of the first $30,000 of your combined CPF balances, and an additional 1% on the next $30,000. There’s a cap of $20,000 for OA savings.

For extra interests earned on OA balances, they’ll go into the Special Account (SA) or Retirement Account (RA).

EXTRA FACT
There’s a sequence that’s used to determine what makes up your combined CPF balances for bonus interest calculation:

1) Retirement Account (RA), including any CPF LIFE premium balance
2) Ordinary Account (OA), with a cap of $20,000
3) Special Account (SA)
4) MediSave Account (MA)

How Are You Contributing to CPF?

As long as you’re a Singapore Citizen or Permanent Resident, you’ll contribute to CPF if you’re earning an income.

Here are the contribution rates for most employees:

cpf contribution rates
Source: CPF website

Note: It’ll be different if you’re a self-employed, as CPF contributions are voluntary except for MediSave.

Contributions to CPF can come from your Ordinary Wages (e.g monthly salary) and Additional Wages (e.g annual bonus), but there are caps.

The Ordinary Wage (OW) Ceiling is at $6,000/month.

What it means: If you’re earning $10,000/month, only $6,000 is subjected to CPF contributions. If you’re 55 and below, your contribution to CPF will be $1,200 (20% of 6,000). And your take-home pay will be $8,800 (10,000 – 1,200). Your employer will also contribute $1,020 (17% of 6,000) into your CPF.

There’s also the Additional Wage (AW) Ceiling. The formula for AW Ceiling is $102,000 – Total Ordinary Wages (OW) subject to CPF for that year.

What it means: Continuing from the above example, your AW Ceiling is $30,000 ($102,000 – (6,000 * 12)). Therefore, if you earn an annual bonus of $20,000, that entire amount is subject to CPF contributions; if you earn an annual bonus of $50,000, only $30,000 is subject to CPF contributions.

But, how are the CPF contributions allocated into the CPF accounts?

Here are the CPF allocation rates:

cpf allocation rates
Source: CPF website

Earlier I mentioned that the MediSave account has a ceiling: Basic Healthcare Sum (BHS) of $63,000 in 2021.

Once you hit that ceiling, the excess above it will go into other CPF accounts instead of the MediSave Account.

The overflow will go into the Special Account or Retirement Account. However, if you’ve hit the prevailing Full Retirement Sum (FRS), then the excess will go into the Ordinary Account instead.

overflow of MediSave
Source: CPF website

Is CPF Sufficient for Retirement?

As you’re contributing to CPF throughout the years, you may have thought of whether CPF savings are enough for retirement.

According to Josephine Teo, Minister of Manpower, here are the average CPF payouts:

average CPF payout
Source: MOM website

But much more has been done in recent years, and younger cohorts expect to get higher payouts now.

As for the average household expenses per household member (in households where there are no working persons and all are age 65 and above), it is $1,154 across all types of dwellings.

But at the end of the day, averages don’t matter.

What matters is whether your expected expenses based on your desired retirement lifestyle can be covered by your expected CPF payout and/or any other income.

If your CPF payouts aren’t enough, then you’ll need to earn more, save more, or invest more.

You can estimate your CPF payout with this helpful tool.

The Retirement Account (RA) Is Created When You Reach 55 Years Old

So, we’ve been working and contributing to CPF, and now we reach 55 years old.

What’s going to happen?

cpf what happens at age 55

The Retirement Account (RA) will be created.

And how is it going to be funded?

There will be a transfer of savings first from your Special Account (SA), and then your Ordinary Account (OA), up to the Full Retirement Sum (FRS).

The OA, SA, and MA accounts will remain, and any future CPF contributions will still go into those accounts.

OVERVIEW
The savings in your RA will be your retirement sum and be kept in it earning interests until you hit the Payout Eligibility Age (PEA) which is 65 years old (for those who are born in 1954 or later).

The amount in your RA will then be used to enter CPF LIFE, which is where your monthly payouts will come from. You can choose to delay entering into CPF LIFE till age 70.

The 3 Types of Retirement Sums

Now, it’s time to bring in 3 categories of retirement sums:

  1. Basic Retirement Sum (BRS)
  2. Full Retirement Sum (FRS) or BRS x 2
  3. Enhanced Retirement Sum (ERS) or BRS x 3

As mentioned, at age 55, your SA and OA, in that order, up to the FRS, will be transferred into the RA, and that’ll be your retirement sum to enter into CPF LIFE at age 65-70. CPF LIFE will then provide you with monthly payouts. More details on CPF LIFE soon..

Thus, the higher the amount you have in your RA, the higher your monthly payouts.

But what happens if you don’t have the FRS? It’s fine and you don’t need to use cash to top up to the FRS.

And if you want more than the FRS? Then you can top it up, up to the ERS.

Here’s a table to show the past, current and future Retirement Sums:

55th birthday in the year ofBasic Retirement SumFull Retirement SumEnhanced Retirement Sum
2016$80,500$161,000$241,500
2017$83,000$166,000$249,000
2018$85,500$171,000$256,500
2019$88,000$176,000$264,000
2020$90,500$181,000$271,500
2021$93,000$186,000$279,000
2022$96,000$192,000$288,000

As you can see, the Retirement Sums increase every year due to inflation (about 3% per year). And as future Retirement Sums are not guaranteed until CPF publishes them, you can only estimate what it’ll be like in the future with a compound interest calculator.

When you reach age 55, your Retirement Sums (e.g Full Retirement Sum) are fixed and will not change.

The retirements sums in your RA will stay and grow with interests until you enter CPF LIFE at the Payout Start Age (65-70 years old) where you can start to receive monthly payouts.

Here are the estimated monthly payouts according to how much you have in your RA:

estimated cpf monthly payouts
Source: CPF website

But what happens if you want to withdraw? Can you do so?

How Much Can You Withdraw From Your CPF Savings?

Now, if you need to withdraw some CPF savings at 55, you’re able to do so.

But doing so may lead to lower payouts in the future.

cpf how much can you withdraw

Withdrawing at 55 Years Old

How much you can withdraw entirely depends on how much CPF savings you have, and whether you’ve hit the Retirement Sums.

1) If you have $5,000 or lesser in your Special and Ordinary Accounts

You can withdraw all of it. And none will go into the Retirement Account.

2) If you have between $5,000 and the Full Retirement Sum (FRS) in your Special and Ordinary Accounts

You can withdraw up to $5,000 from your Special and Ordinary Accounts. The remaining amount will be transferred to your Retirement Account as your retirement sum.

The exception to this: If you own an eligible property^, you can pledge it and then withdraw the excess above the BRS from your Retirement Account savings*

3) If you have more than the Full Retirement Sum (FRS) in your Special and Ordinary Accounts

You can withdraw $5,000 or the excess savings in the Special and Ordinary Accounts after setting aside the FRS, whichever is higher.

The exception to this: If you own an eligible property^, you can pledge it and then withdraw the excess above the BRS from your Retirement Account savings*.

Illustrations:

Assuming the FRS is $186,000, and the BRS is $93,000.

1) Mr Tokio

  • Special Account savings: $190,000
  • Ordinary Account savings: $90,000
  • Total: $280,000

The amount of $186,000 (FRS) will be set aside into the Retirement Account. Mr Tokio can then withdraw $94,000 in his Ordinary and Special Accounts.

But if he owns an eligible property^ and pledges it, he can choose to withdraw the excess above the BRS from his Retirement Account savings*. So if he chooses this option, he can withdraw up to a total of $187,000 (94,000 + 93,000).

2) Mr London

  • Special Account savings: $60,000
  • Ordinary Account savings: $50,000
  • Total: $110,000

Mr London can withdraw $5,000 from his Special and Ordinary Accounts. And the remaining amount of $105,000 will be set aside in the Retirement Account.

But if he owns an eligible property^ and pledges it, he can choose to withdraw the excess above the BRS from his Retirement Account savings*. That means, he can withdraw $5,000 from his Special and Ordinary Accounts, and $12,000 (105,000 – 93,000) from his Retirement Account.

3) Mr Germany

  • Special Account savings: $20,000
  • Ordinary Account savings: $20,000
  • Total: $40,000

Mr London can withdraw $5,000 from his Special and Ordinary Accounts. The remainder of $35,000 will be set aside into his Retirement Account.

^ for the eligible property, the remaining lease can last till you’re at least 95 years old; if you sell or transfer the property, the expected CPF housing refund allows you to hit the FRS in RA.

* retirement account savings excludes interest earned, government grants and top-ups from Retirement Sum Topping-up scheme (RSTU).

Withdrawing After 55 Years Old

For the savings that you were entitled to withdraw at age 55, you don’t need to withdraw at that age.

You can withdraw at a later time.

There are some reasons why you should leave the monies in your CPF and not withdraw:

  • depending on how much you have in your CPF savings, you can still earn an interest of up to 6%
  • CPF savings are considered low risk
  • if there’s no urgent need
  • you can always withdraw in the future, in full or partially, and as many times as you like

But for those who are more financially-savvy, withdrawing and then investing it or starting a business to earn higher potential returns can be a consideration.

Withdrawing at 65 Years Old

Apart from CPF LIFE which gives you the monthly payouts starting at 65 years old (or you can delay it till 70), you can do a lump sum withdrawal at 65 years old.

This is called the Payout Eligibility Age Lump Sum Withdrawal.

cpf withdrawing at age 65

If you’re born in 1958 or after (most readers here), at age 65, you can withdraw up to 20% of your Retirement Account savings (excludes RSTU top-ups, CPF LIFE bonus and deferment bonus). This amount includes the $5,000 that you were entitled to withdraw at 55 years old.

You don’t need to withdraw this exactly at 65 too and can be delayed to a later time.

Withdrawing this amount is optional. But doing so will reduce the amount available to enter into CPF LIFE, which equates to lower monthly payouts.

What Is CPF LIFE?

When you reach the payout eligibility age of 65, you can use the monies in your Retirement Account (RA) to enter into CPF LIFE.

cpf retirement account at age 65

CPF Lifelong Income for the Elderly (CPF LIFE) is an annuity that provides monthly payouts for life.

The lifetime payouts are important especially when our life expectancy has been increasing and is expected to increase in the future.

If you don’t wish to receive the monthly payouts at 65, you can still delay it until 70 years old. Doing so increases the monthly payouts.

Requirements to be auto-enrolled into CPF LIFE:

  • Singapore Citizen or Permanent Resident
  • Born in 1958 or later
  • Have a minimum of $60,000 in RA 6 months before you turn 65 years old

For those who don’t have the minimum of $60,000, you can still opt in to join, but the monthly payouts will be correspondingly lower.

But that’s not all, you’ll still need to make some decisions..

3 Types of CPF LIFE Plans

There are 3 different CPF LIFE plans to choose from:

  1. Standard Plan (default)
  2. Escalating Plan
  3. Basic Plan
3 cpf life plans to choose from

The Standard Plan provides stable and level monthly payouts. This means that the payouts are meant to not increase or decrease over time.

The Escalating Plan’s monthly payout starts lower than the Standard Plan but will increase by 2% yearly (to cover for inflation). The monthly payout will eventually overtake the payouts from the Standard Plan.

The Basic Plan provides lower monthly payouts, but have a higher bequest to your beneficiaries (when you pass away). How it works is slightly more complicated and it’s considered a legacy (old) plan which was first introduced together with CPF LIFE in 2009. Most members would find that the Standard Plan and Escalating Plan would suit their needs more.

Which CPF LIFE plan is better?

It boils down to individual preferences.

If you’re concerned with the rising costs of living, then the Escalating Plan seems like a better option. The downside is you’d be receiving lower payouts at the beginning.

However, do consider that at 65 years old (i.e younger and healthier), your ability to spend and thus your expenses will be higher, so more money is required. As you grow older, the ability to spend becomes lower. So in that view, I would prefer the Standard Plan. Furthermore, the lower expected monthly income needed in later days can “balance out” the higher costs of living.

What’s the Difference Between CPF LIFE and Retirement Sum Scheme (RSS)?

As mentioned, the CPF system has gone through several changes.

CPF LIFE replaced the Retirement Sum Scheme (RSS) as the default retirement scheme.

For most younger folks (born in 1958 or later), you’ll be automatically included into CPF LIFE when the time comes. However, for those who are born before 1958 are likely to be on the RSS.

To be more specific, here are the groups who would find RSS relevant:

  • those receiving payouts from RSS before CPF LIFE was introduced
  • those who chose to be on RSS even though CPF LIFE was introduced
  • those who were born before 1958 but haven’t begun any withdrawals – can choose between RSS and CPF LIFE
  • those who were born in or after 1958 but fail to meet the auto-inclusion requirements (usually because of the minimum $60,000 in RA; can still opt into CPF LIFE)

Here are 2 main differences between RSS and CPF LIFE:

Retirement Sum SchemeCPF LIFE
Receiving PayoutsPayouts come from the RA savingsPayouts come from CPF LIFE (except for CPF LIFE Basic Plan which is a hybrid of CPF LIFE and RA savings)
Length of PayoutsWith the new changes in 2020, members who turn age 65 from 1 July 2020 will have payouts targeted to end at age 90 instead of 95. This would also mean that payouts will be higher.

Members who are already receiving payouts could either get the same payouts as before or higher, because of the new changes.
Receive payouts for life

What Happens If You Die?

It’d be rather unfortunate if you just started receiving payouts and death happens.

But your CPF LIFE premium balance (if any) doesn’t just disappear.

If you’ve made a CPF nomination, it goes to your nominees/beneficiaries, together with other CPF savings you have.

If a CPF nomination wasn’t made, it’ll then go according to the intestate law or Muslim law.

intestate succession act distribution table

As CPF has opened up the option of making a nomination online, nominating is much easier and convenient now. To learn more, read more about CPF nominations and how to make one online now.

For other assets outside of CPF, a combination of insurance policy nominations and making a Will will address most needs. To learn more, check out this guide on estate planning in Singapore.

What’s Next?

I started writing this guide with the aim of it being basic.

But I realised it’s still not that easy. You do need time and attention to take it all in.

If you’re reading this, congratulations, you should now know how CPF for retirement works.

Regarding retirement planning in Singapore, there are other areas to explore..

Firstly, you can find out whether CPF is enough for your retirement needs.

Secondly, if you wish, you can optimise and increase your CPF savings in various ways.

And lastly, for the monies outside of CPF, there are various retirement investment options. One such example is the private annuity plan that can supplement and be a diversification to what CPF has to offer.

Abram Lim

With over 7 years of experience in the financial advisory industry, and previous stints in Citibank and UOB, Abram eagerly shares his knowledge by publishing research-backed articles. Learn more about Abram