How Does the CPF Retirement Account Work?

Having a Central Provident Fund (CPF) account is practically synonymous with being a Singaporean. After all, the account is opened from birth, with S$4,000 deposited in each newborn’s MediSave Account (MA).

When you start work, part of your salary is paid out in terms of your Ordinary Account (OA), Special Account (SA) and MediSave. Your CPF funds then serve as a way to finance critical milestones, such as paying for housing using your OA.

The one account you may be less familiar with is your Retirement Account (RA). It only comes into effect when you turn 55, hence it may seem the most remote of all the CPF components.

However, understanding how the RA works and how to best make use of it, can help you in planning long term.

Purpose of Retirement Account

Your RA is dedicated to sustaining you in retirement. It helps you save funds that are invested by CPF. This arrangement then provides you with monthly payouts when you retire.

When you turn 55, CPF opens your RA and uses what’s in your SA and OA to top it up to form your Retirement Sum. This determines your monthly payouts when you turn 65. However, your SA and OA do not close even after your RA is opened, and can continue to receive funds.  

This might be of concern to you if you’re tapping on the OA and SA – for example, if you’re using the OA to pay for housing or investing what’s in your SA. How much goes into your RA from these two accounts?

CPF draws up to your Full Retirement Sum (FRS), which is S$192,000 for those turning 55 in 2022. It’s twice the Basic Retirement Sum (BRS), which is adjusted yearly for inflation and expected to increase by 3.5% per year from 2023 to 2027.

If you own a property with a lease that can last you up to age 95, you only need to set aside the BRS of S$96,000. However, your monthly payouts will be less.

On the other hand, if you want the highest possible payouts, you can opt to top up your RA to the Enhanced Retirement Sum (ERS) of S$288,000.

The table below summarises the payouts you can expect to receive upon turning 65, if you set aside the corresponding Retirement Sum when you turn 55 in 2022.

Pro tip: Work out how to cover your retirement needs, CPF payouts included, with this calculator

In other words, if you envision CPF payouts to be a critical portion of your retirement income, you’ll want to keep an eye on your Retirement Sum. A simple way to help make sure you’ve got enough for your desired Retirement Sum, is to start topping up your Special Account earlier, as it benefits from a 4–5% compounding interest rate.

What if you want your money to remain in your OA or SA? If you need to continue using your OA for housing payments after 55, you can apply to reserve your OA savings for this purpose through CPF’s Online Services. When the monthly payouts start, CPF will transfer your reserved OA savings to your RA if you have not yet set aside your Full Retirement Sum.

Another point to note is that you can opt to invest your OA and SA savings under the CPF Investment Scheme. So long as you have set aside S$20,000 in your OA or S$40,000 in your SA, you can invest the rest under the scheme. The amount invested would also not be automatically transferred to your RA.

If you don’t have enough funds to make up the BRS, there’s no need to fret. It’s not required that you top it up in cash or sell your property. Payouts will simply be prorated accordingly.

Nonetheless, if you are thinking of using CPF’s payouts as a key part of your retirement plan and you can spare the funds from your OA and SA, it would be best to let your savings be transferred over to your RA at age 55. This will secure your retirement sum before it increases in later years.

How CPF’s retirement payouts work

Since the RA’s main purpose is to ensure you have a decent amount of savings that CPF can invest to give you payouts, you might be wondering how the scheme works. This is where CPF Lifelong Income For the Elderly, with the apt acronym of ‘CPF LIFE’, comes into play.

The scheme provides lifelong monthly payouts in the retirement years. All Singapore Citizens and Permanent Residents born in 1958 or after, and who have at least $60,000 in their retirement savings before they turn 65, are automatically included. If you don’t meet these criteria, you may still receive payouts, but these will stop when you deplete your retirement savings.

CPF LIFE offers three plans: Basic, Standard and Escalating. While the payout range is still determined by your Retirement Sum, these plans influence how your range will adjust over the years.

The more attractive options are the Standard Plan and Escalating Plan. The former provides fixed monthly payments; while straightforward, these may be worth less over time due to inflation. The latter starts with payouts which are lower than the Standard Plan’s, but which gradually increase by 2% each year to keep pace with inflation, and may eventually be higher than the Standard Plan’s.

Meanwhile, the Basic Plan, which is a legacy plan from the early days of CPF LIFE, provides lower monthly payouts which decrease in the years to come.

You can choose to start payouts from age 65 to 70; otherwise they automatically begin from 70. For every year that you defer the payouts, they increase by 7%.

Read more: Can You Retire on CPF LIFE Payouts Alone?

Withdrawal of CPF savings

Perhaps you’re not planning to rely on CPF LIFE for retirement; you’re more interested in how much you can withdraw once you turn 55.

If you have S$5,000 or less in your OA and SA at that point, you can withdraw all your savings; no money will be transferred to your RA.

If you have more than that, you can withdraw S$5,000 and savings above the FRS (which goes to your RA), or above the BRS if you own a property with a lease that lasts you till age 95.

Maximising savings in Retirement Account

Let’s say the RA is an important part of your retirement plan. How can you save enough to get your desired payouts?

Besides topping up your SA early as mentioned, you can also make use of the following schemes.

Matched Retirement Savings Scheme

This scheme was launched last year and aims to help those who have not reached their BRS to build their retirement funds. It will run for five years. During this time, the government will match every dollar of cash top-ups made to the RA, up to S$600 per year.

To be eligible, you have to be a Singapore Citizen aged 55 to 70, and possess the following: less RA savings than the current BRS, monthly income of not more than S$4,000, a residence with annual value of not more than S$13,000, and not more than one property.

Voluntary Housing Refund

If you’ve used your OA to pay for your property, you can refund part or all of the CPF funds used, to take advantage of CPF’s interest rates and save for your retirement. You can refund up to the principal withdrawn, including the CPF Housing Grant, and its accrued interest.

Silver Housing Bonus

Another option for those looking to downsize their home in later years, is to sell your property and buy a three-room or smaller flat. If you use the proceeds to top up S$60,000 (up to the FRS) for your RA, you’ll receive the maximum cash bonus of S$30,000. The cash bonus is pro-rated at S$1 for every S$2 top up if it’s less than S$60,000. You’ll also be able to keep any balance from the proceeds as cash.

You can qualify if at least one owner is a Singapore Citizen aged 55 or older, and the gross monthly household income is within S$14,000. This scheme applies for those selling HDB flats or private housing with annual value not more than S$13,000.

Lease Buyback Scheme

You can also opt to sell back part of your flat’s lease to HDB and use the proceeds to top up your RA. Similar to the Silver Housing Bonus, topping up your RA with S$60,000 or more will qualify you for a cash bonus of S$30,000, S$15,000 or S$7,500 for a three-room, four-rom or five-room (or bigger) flat respectively. Lesser top-ups will be prorated according to the size of your flat.

Conclusion

You can be assured of a continued source of income in retirement if you have at least S$60,000 in your RA when you turn 65, since that qualifies you for CPF LIFE. Depending on the amount needed to support your lifestyle, you can aim to set aside the Basic, Full or Enhanced Retirement Sum in your RA.

However, if you have other sources of retirement income, your RA and its payouts may just be a complement to your already established retirement plan.

Read more: Retirement Planning: Is S$1 Million Enough?