# Projected CPF Retirement sums

With regard to my earlier post on Cash top up to CPF Special Account, I decided to do a projection of the CPF Retirement Sums year-on-year, based on a 3% inflation rate:

 Year Basic Retirement Sum (BRS) (with property pledge) Full Retirement Sum (FRS) Enhanced Retirement Sum (ERS) 2016 80,500 161,000 241,500 2017 82,915 165,830 248,745 2018 85,402 170,805 256,207 2019 87,965 175,929 263,894 2020 90,603 181,207 271,810 2021 93,322 186,643 279,965 2022 96,121 192,242 288,364 2023 99,005 198,010 297,015 2024 101,975 203,950 305,925 2025 105,034 210,068 315,103 2026 108,185 216,371 324,556 2027 111,431 222,862 334,292 2028 114,774 229,548 344,321 2029 118,217 236,434 354,651 2030 121,763 243,527 365,290 2031 125,416 250,833 376,249 2032 129,179 258,358 387,537 2033 133,054 266,108 399,163 2034 137,046 274,092 411,138 2035 141,157 282,314 423,472

Look for the year that you would turn 55 and you would be able to see the projected figures for BRS, FRS, and ERS.

Currently we could use cash to top up SA to reach the prevailing FRS, which is \$161k now.

I have a wild thought. What if you have excess cash that you could top up to reach the FRS figure now? How would the figure look like when you turn 55?

Let’s take an example of a 40 year-old Janice, who has some excess cash to top up her SA to the prevailing FRS (\$161k). What would the sum look like if she does nothing till 55?

The sum would roll to about \$290k. This figure is actually higher than our projected FRS. To fulfill the ERS, Janice would need to top up another \$86,297. This amount could be covered by OA balances or cash.

Let’s find out the difference for each year’s increase due to inflation and the interest earned (4%) by the SA balance every year:

 Year FRS Difference in FRS Interest earned 2016 161,000 – 2017 165,830 4,830 6,440 2018 170,805 4,975 6,633 2019 175,929 5,124 6,832 2020 181,207 5,278 7,037 2021 186,643 5,436 7,248 2022 192,242 5,599 7,466 2023 198,010 5,767 7,690 2024 203,950 5,940 7,920 2025 210,068 6,118 8,158 2026 216,371 6,302 8,403 2027 222,862 6,491 8,655 2028 229,548 6,686 8,914 2029 236,434 6,886 9,182 2030 243,527 7,093 9,457 2031 250,833 7,306 9,741 2032 258,358 7,525 10,033 2033 266,108 7,751 10,334 2034 274,092 7,983 10,644 2035 282,314 8,223 10,964 2036 290,784 8,469 11,293 2037 299,507 8,724 11,631 2038 308,493 8,985 11,980 2039 317,747 9,255 12,340 2040 327,280 9,532 12,710 2041 337,098 9,818 13,091 2042 347,211 10,113 13,484 2043 357,628 10,416 13,888 2044 368,356 10,729 14,305 2045 379,407 11,051 14,734

Note that the interest earned by the SA balance would cover the 3% inflation rate in FRS easily. Hence, there is no need to top up for this case and CPF would not allow Janice to do so anyway.

Did you realise that the interest earned is effectively \$128,952 over 15 years, without Janice doing anything besides topping up her SA to \$161k? This is the power of compounding!

What if Janice continues to draw a monthly salary for these 15 years? Where would her CPF contributions go for the SA portion? I have emailed CPF to ask about this, and the reply is as below:

“As long as you are employed and contributing to CPF, you are required to contribute to SA at the prevailing contribution rate. Your CPF contributions which are allocated to your SA can still be credited to your SA, even if you have met the current FRS.”

This sounds like good news to me.

Let us go back to the figures again. Let us assume that Janice continues to draw a \$4000 salary till age 55, and contributes \$279.86 to her SA every month. How would her SA balance look like when she hits 55?

The amount grew to \$359,887, which is very close to our projected ERS of \$376,249. The person would only have to top up \$16,362 in cash or from OA at age 55.

Do you want more good news? The figure should be higher. Why? Below are the reasons:

1. First \$40k of our SA attracts 5% instead of 4%;
2. Janice might get increment in her salary, which means higher contribution to her SA;
3. We have not included any bonuses that Janice might receive in the 15 years discussed, which means more contribution to her SA;
4. SA contribution ratio increases when we turn 45 and when we turn 50.

However, what is the opportunity cost for topping up SA to prevailing FRS now? It really depends on each person’s situation. Do you intend to use the cash to fulfill a long-cherished dream? Do you have confidence that you could use the sum for investment to consistently earn higher than 4% returns for 10-20 years? If yes, then you might not want to top up to \$161k now.

Note that any top up to SA is irrevocable. Hence you must be comfortable locking this amount till 62 or later when we start to withdraw the funds in monthly payouts.

I am going to check how far I am from the prevailing FRS and how long it would take me to hit it. It is definitely an interesting exercise for me.?

Most likely I would try to strike a balance between saving towards FRS and maintaining liquidity. I would continue to top up \$7000 every year to beef up the SA and also to reduce my income tax.

I also bear in mind that this retirement tool forms part of my asset portfolio; it kind of gives me a sense of how balanced or aggressive my asset portfolio is, and have a better sense of how much risk I could take for my other assets.

What would work for you??

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