The changes made to the old CPF minimum sum are of interest to me as the new scheme, Retirement Sum Scheme would definitely apply to me, as I will turn 55 in the not so far future. Basically when I turn 55, the funds in my CPF Ordinary Account (OA) and Special Account (SA) would be transferred to my Retirement Account (RA).
The main changes are that there will be three tiers of sums (as of Jan 2016) that we could choose to leave / top up in our CPF Retirement Account when we turn 55:
- Basic Retirement Sum (BRS): $80,500 (with property pledge)
- Full Retirement Sum (FRS): $161,000
- Enhanced Retirement Sum (ERS): $241,500
The impact would be the amount of monthly payout for life from age 65 from the CPF Life annuity scheme:
- BRS: $660 – $720
- FRS: $1,220 – $1,320
- ERS: $1,770 – $1,920
If we consider a 3% inflation to the retirement sums, the below figures would probably apply to me:
- BRS: $125,500
- FRS: $251,000
- ERS: $376,500
I would like to reach ERS or even more when I hit 55. The idea is to leverage on SA’s 4% interest rate. My target would be to use SA alone to hit the ERS. Hence funds in my OA might be used for property purchase or investments, or just bonus on top of the SA funds.
Many have cautioned that the CPF SA rates might change anytime. My plan is to build the funds in SA consistently and if the rates change, I would review my plan again and consider adding more funds to hit the same sum or shift my funds to my own cash investment instead.
Because of the possible rate changes, I am building some buffers in:
- I am assuming that I would work till 55 only; hence if I continue to work after 55, the SA contribution would be bonus;
- I do not take into consideration the bonus 1% interest for SA for the first $40,000;
- I would still continue to manage my stock portfolio to secure a sum of passive income through dividends.
My plan is to do voluntary cash top-up to my SA on annual basis till I am 55, on top of my employment contribution. For voluntary cash top-up of up to $7000, we are eligible for tax deduction.
If everything goes according to plan, I should be able to reach the ERS in the excess. The excesses could be transferred to my spouse’s RA to maximise the CPF Life, or I could leave it in CPF to earn interest. Of course, I could also withdraw the cash for other uses. But if the rates are still very favourable as compared to the market, I do not think I would do that. Let the money do its work, which is compounding.
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