Our 55th birthday is a significant milestone for Singaporeans as it marks the first time that we are eligible to withdraw our CPF savings in cash. We can withdraw at least $5,000, or more depending on our balances. We have written about this in detail in How Much Can You Withdraw From Your CPF Account At Age 55?
However, what may be even more important is the fact that our CPF Retirement Account is created when we turn 55. This is when the savings from our Special Account and Ordinary Account is transferred to our newly created Retirement Account to form our retirement sum. This retirement sum will provide you with a monthly income in old age.
So, what’s so different about our CPF Retirement Account?
CPF Retirement Account Holds Our Retirement Sum And Forms The Basis Of Our CPF LIFE Payouts Or Retirement Sum Scheme Payouts
While we make contributions to our Ordinary Account (OA), Special Account (SA) and MediSave Account (MA) throughout our working life, our Retirement Account (RA) is unusual as it is only created on our 55th birthday.
Savings from our Special Account, followed by our Ordinary Account, up to our Full Retirement Sum is transferred to our Retirement Account upon its creation. This retirement sum will form the basis of our eventual CPF Life or Retirement Sum Scheme payouts, when we reach our payout eligibility age (current set at 65 years old) at earliest or later if we choose to delay the payouts, up to 70 years old.
As the Retirement Account is intended for our retirement, we cannot use our RA savings for other purposes. Instead, we can continue to tap on our savings and contributions to our OA and MA for housing and healthcare, respectively.
Read Also: CPF LIFE VS Retirement Sum Scheme: What’s The Difference?
We Can Top Up More (Up To Our ERS) And Earn Up To 6% P.A. Interest In Our Retirement Account
Similar to our Special and MediSave Accounts, our savings in our Retirement Account earn a higher interest rate at up to 6% p.a. This additional interest will help us build our retirement nest egg and lead to higher retirement payouts.
If we are aged 55 and above, we will earn an additional 1% extra interest on the first $30,000 of their combined balances (with up to $20,000 from the Ordinary Account). This is paid over and above the current 1% extra interest that is earned on the first $60,000 of their combined balances.
Source: CPF
To take advantage of the interest rate, we can also choose to top up more to our Retirement Account. Prior to 55 years old, the maximum we can contribute to our CPF accounts is up to the Full Retirement Sum. Upon reaching 55, this maximum is increased to the Enhanced Retirement Sum, which is 1.5 times the FRS. Topping up to the ERS will enable us to build a better retirement nest egg.
For example, if we turn 55 in 2022, our estimated CPF LIFE payout at 65 is $1,500 under the standard plan (for males) if our RA is at the FRS of $192,000. If we top up to the ERS of $288,000, our estimated CPF Life payout will be $2,280.
Read Also: BRS, FRS, ERS: Why There Are 3 CPF Retirement Sums & Why They Increase Every Year
We Don’t Have To Meet The FRS In Our Retirement Account
For those of us who are not flush with CPF savings, we need not worry even if we don’t have enough to meet the FRS. We will still receive our CPF LIFE payouts (though at a lower amount). We can calculate our estimated payouts using the CPF LIFE Estimator.
If we have used CPF savings for your property, the CPF savings withdrawn for our property (including accrued interest) will be used to meet our FRS. We can pledge up to our Basic Retirement Sum to meet the FRS. What happens when we pledge our property is that we will have to restore our RA up to our FRS with our sales proceeds when we sell our property.
Additionally, if we receive any new contributions, government grants or other refunds in your CPF accounts after 55, part or all of these amounts will be transferred to our RA up to our FRS (or BRS if we pledge our property) on our next withdrawal.
Read Also: Here’s What You Need To Know About Pledging Your Property To Meet The CPF Full Retirement Sum (FRS)
Special Account Savings Are Transferred First To Our Retirement Account
When our Retirement Account is created, there is a sequence in which our CPF savings are transferred to our Retirement Account. Savings in our Special Account are transferred first, followed by our savings in Ordinary Account. Our MediSave savings remain untouched.
This means that if you already accumulated your FRS amount in your SA, this will be transferred to your RA and your OA savings will be untouched. However, as we are no longer able to transfer between our OA and SA savings after 55, we may be losing out on the higher base interest earned on our SA savings.
If we wish to maximise the interest earned on our CPF savings, some of us may consider “shielding” our SA savings. In a nutshell, this involves investing our CPF monies in safe and liquid investments just prior to the creation of our RA and disrupting the usual flow of our SA savings to our RA. We go into more details in our article – CPF Shielding Hacks (Special Account & Ordinary Account): Do They Really Make Sense?
Read Also: Investments To Make With CPF OA and SA Funds When Doing The CPF Shielding Hack
Retirement Account Continues To Earn 4% Interest Even When We Start Our CPF LIFE Payouts
When we reach 65, the savings in our Retirement Account is set aside as the premium for our CPF LIFE. This premium will continue to earn the same CPF interest as they were under our RA and we will continue to enjoy the extra interest. This extra interest earned is factored into the monthly CPF Life payout and increases the amount of payout we will receive.
Read Also: What Happens To The Interest On Your CPF Balances After Setting Aside Your Retirement Sum At 55?
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