Using CPF and CPF LIFE for retirement

Understanding retirement income and payouts around CPF can be overwhelming. The different pension payout options available and the different amounts of CPF we can withdraw is confusing for most people. To plan retirement well, Singaporeans have to understand how best to utilise CPF Lifelong Income For The Elderly (CPF LIFE) for their retirement income needs.

What is CPF LIFE?

CPF LIFE is an annuity scheme that provides a monthly payout starting from the age of 65. From an annuity scheme, you can generally expect a fixed sum of money paid to you monthly for the rest of your life.

Under the scheme, there are three CPF LIFE plans (Standard, Basic and Escalating) to suit different needs. Fun fact: you only need to choose your CPF LIFE plan when you wish to start your CPF LIFE payouts, any time from 65 to 70.

Two key ways you can customise your CPF LIFE:

1. How much you want to contribute to CPF LIFE, also known as CPF Retirement Sum
2. Your desired monthly payout amount type, also known as the CPF LIFE plan

Understanding the different CPF Retirement Sum amounts for retirement

Just like how you can get more coverage if you pay higher insurance premiums, the same logic applies to your CPF Retirement Sum choice. For CPF members turning 55 years old in 2024, the premiums for CPF LIFE is $102,900 for the Basic Retirement Sum (BRS), $205,800 for the Full Retirement Sum (FRS) and $308,700 for the Enhanced Retirement Sum (ERS). The higher the premium paid, the more you can expect your monthly retirement income from CPF to be.

Let's understand what the different Retirement Sum amounts mean for CPF members:

Basic Retirement Sum (BRS)

You can choose to set aside a smaller amount for CPF LIFE if you pledge a property that you own. The smallest amount that you can set aside is the prevailing BRS, which is $102,900 if you are 55 years old in 2024. The property's remaining lease must last you till at least 95 years old.

By pledging your property, you can withdraw the remaining amount from CPF Special Account (CPF SA) and Ordinary Account (CPF OA).

Full Retirement Sum (FRS)

If you choose not to pledge your property and have sufficient balance in your CPF SA and OA combined, CPF will create a CPF Retirement Account (RA) based on the CPF FRS. A common misunderstanding is that you have to top up your Retirement Account with cash if your SA and OA combined balance is less than FRS.

Transferring FRS is the default option given to CPF members, and holds the following implications:

1. The FRS amount of $205,800 is the limit you can top your CPF Special Account up to currently, otherwise known as the Retirement Sum Top-up Limit (RSTU)
2. Once you hit the FRS, you can withdraw any CPF SA and OA monies above the FRS amount

Enhanced Retirement Sum (ERS)

The Enhanced Retirement Sum is the largest amount you can top your CPF RA up to. You will only be able to top up your RA to the ERS after the age of 55. The ERS is 1.5 times of the FRS and the CPF monthly payouts are also correspondingly larger.

A common misunderstanding CPF members have is that your CPF Retirement Sum has to be any of the 3 amounts. It does not have to be; if you have pledged your property you can choose to transfer an amount that falls between the BRS and FRS to your RA, likewise you can also transfer an amount that falls between the FRS and ERS to your RA.

Now that we have covered the different CPF Retirement Sum amounts, let's cover the different CPF LIFE payout plans.

Find out more: how to grow your CPF with Endowus

How different CPF LIFE Plans have an impact on retirement payouts

How the Standard, Basic and Escalating Plans differ

The above table summarises the key differences between plans, namely:

1. Monthly payout amounts
2. Bequest (or inheritance) amount

The default option for CPF LIFE is the Standard Plan, which provides relatively higher monthly payouts while leaving a lower bequest. In contrast, the CPF Life Basic Plan gives a lower monthly payout but leaves a higher bequest. The CPF LIFE Basic plan, being a legacy option from the CPF Retirement Sum Scheme, will give progressively smaller payouts as CPF balances decline.

As compared to the CPF LIFE Standard Plan, the CPF LIFE Escalating Plan provides payouts that increase by 2% each year so that CPF members can generally maintain their standards of living even as prices rise over the years. However, there is no free lunch in the world, so CPF LIFE Escalating Plan comes with lower initial monthly payout.

Using CPF LIFE Estimator to choose between CPF LIFE plans

CPF's official CPF LIFE Estimator is useful for those born before 1980 to project:

1. how much they need in their RA to receive their desired CPF LIFE monthly payout
2. how much CPF LIFE monthly payout they can get given their RA balance

By using the CPF calculator, you will know the different RA amounts as well as the CPF LIFE monthly amount, based on the different CPF LIFE plans. Unfortunately, there isn't a "superior" option when deciding among the choices, it largely depends on how much you can afford for CPF LIFE, and what kinds of payout you want to receive.

Getting started for retirement planning

In conclusion, there are different options around CPF retirement sums and CPF LIFE plans that you can choose at 55 years old and through retirement. The luxury of choice at retirement is often given to those who have planned their CPF usage early. Find out more about how you can maximise your CPF account here.

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