In Singapore, we’re trained to think about our long-term future and retirement from the day we start working. This is when we see a portion of our monthly wage channelled into our CPF accounts, namely the Special Account (SA), for our retirement.
While our CPF contributions also go into our Ordinary Account (OA) and MediSave Account (MA), these accounts can be used to pay for certain expenses, while our SA is primarily meant for our future retirement needs. For example, our OA can be used to pay the downpayment and mortgage of our home, tuition fees for our loved ones and certain insurances such as the Home Protection Scheme (HPS) and Dependent Protection Scheme (DPS). Our MA can be used for medical treatments and procedures as well as MediShield Life, Integrated Shield Plans (IP) and CareShield Life insurance policies.
We can also invest our SA balances, but we can only do so with sums above the first $40,000. Moreover, the SA also pays an interest of 4% per annum – a decent risk-free return.
For most people, this means monies in our SA just sit there, compounding every year, until it’s ready to be lumped with the balances in our Ordinary Account at 55 to make up our new Retirement Account (RA).
Read Also: CPF Medisave: Here’s How Your Basic Healthcare Sum Might Look Like When You’re 65
What Happens When You Turn 55?
When we turn 55, a new Retirement Account (RA) will be created for us. Monies from our Special Account (SA) and Ordinary Account (OA) will be used to fund our RA, up to the Full Retirement Sum (FRS).
In 2024, the FRS amount is $205,800. For those who turn 55, this amount will be channelled into our RA – first from our Special Account, and if it is insufficient, the rest will be transferred from our Ordinary Account. We also have the option to pledge a property that we own and set aside only the Basic Retirement Sum (BRS) of $102,900 (0.5X the FRS), or even choose to set aside the Enhanced Retirement Sum (ERS) of $308,700 (1.5X the FRS). For this article, we’ll just focus on the Full Retirement Sum (FRS).
The FRS is meant to safeguard a basic retirement in Singapore, and hence it also needs to keep pace with inflation and rising standard of living. To keep the story short, the FRS increases each year.
Anyone who turns 55 in 2024 will have to set aside $205,800. This is more than 3.5% higher than what people who turned 55 in 2023 had to set aside, which was $198,800. In turn, those who turned 55 in 2023 had to set aside a figure of approximately 3.5% higher than people who turned 55 in 2022, when it was $192,000. This should be no surprise as Minister for Finance Lawrence Wong revealed during the Singapore Budget 2022 that the retirement sums will be going up by 3.5% in the next five years, rather than the close to 3% increments in the recent past.
Read Also: What Happens To Your CPF Monies After Transferring It To Your Retirement Account (RA) At Age 55?
Those Turning 55 Next Year Will Have To Set Aside A Higher FRS
As discussed, anyone who turns 55 on or after 1 January 2024 will already know much they need to set aside for their FRS. Post the Singapore Budget 2022 statement, delivered on 18 February 2022, we also know the FRS amount until 2027.
55th birthday on or after
Full Retirement Sum (FRS)
1 January 2017
$166,000
1 January 2018
$171,000
1 January 2019
$176,000
1 January 2020
$181,000
1 January 2021
$186,000
1 January 2022
$192,000
1 January 2023
$198,800
1 January 2024
$205,800
1 January 2025
$213,000
1 January 2026
$220,400
1 January 2027
$228,200
Source: CPF
As we can see, the recent trend is that the FRS increased approximately 3% each year until 2022. From then, it will rise to 3.5% instead each year. If inflation and cost of living rise at a higher rate, the government has shown that it will increase the retirement sums by more. With an FRS of $205,800 in 2023, an individual turning 55 in 2024 would be eligible for CPF LIFE payouts of approximately $1,660 every month when they turn 65 in 10 years’ time.
If we think this isn’t sufficient, we should make it a point to start planning for our retirement as soon as possible and save more in our CPF accounts. We can also build complementary retirement nest eggs outside of our CPF accounts.
So, How Much Would I Need To Set Aside When I’m 55?
This question might not be a totally fair one to ask of the government today. While they try to give us as much foresight as possible, predicting inflation levels and rising cost of living in the next 25 or 30 years may be very difficult, if not impossible. We’ve seen how an unfoseeable event like the pandemic in 2020 can impact cost of living already.
Looking at past FRS figures, we can see that people who turned 55 in 2003 only needed to set aside $80,000 for their FRS, while anyone turning 55 in 2023, needs to set aside $198,800. And anyone who turns 55 in 2027, will need to set aside $228,200. This means the long-term compounded annual growth rate of our FRS may be closer to 4.5%.
Age in 2022
55th birthday on or after
Full Retirement Sum (FRS)
75
1-Jul-03
$80,000
74
1-Jul-04
$84,500
73
1-Jul-05
$90,000
72
1-Jul-06
$94,600
71
1-Jul-07
$99,600
70
1-Jul-08
$106,000
69
1-Jul-09
$117,000
68
1-Jul-10
$123,000
67
1-Jul-11
$131,000
66
1-Jul-12
$139,000
65
1-Jul-13
$148,000
64
1-Jul-14
$155,000
63
1-Jul-15
$161,000
62
1-Jul-16
$161,000
61
1-Jan-17
$166,000
60
1-Jan-18
$171,000
59
1-Jan-19
$176,000
58
1-Jan-20
$181,000
57
1-Jan-21
$186,000
56
1-Jan-22
$192,000
55
1-Jan-23
$198,800
54
1-Jan-24
$205,800
53
1-Jan-25
$213,000
52
1-Jan-26
$220,400
51
1-Jan-27
$228,200
Source: CPF
However, a yearly increment of 4.5% may be on the high side as the latest FRS figures have only increased by 3% in the recent past, and 3.5% in the preceeding years. Further, according to the Department of Statistics Singapore, the compounded annual growth rate of the MAS Core Inflation Measure increased close to 1.5% per annum since 2003. Since then, the MAS Core Inflation Measure has only beat the 4.5% compounded annual growth rate on one occasion – in 2008 when it increased 5.7%. Even during 2022, the MAS Core Inflation came in at 4.1% – but may come close again in 2023.
It could be that the earlier FRS figures were a low estimate when it started and the government had to play catch up subsequently. In future, increments in the FRS could potentially drop under the 3.5% benchmark it has recently set. Alternatively, the government has also shown that it will react if they believe more is required to be set aside for our retirement – by already raising the rate of increase from 3.0% to 3.5% till 2027. This will likely be the case in inflation continues to be persistently high in the coming years.
Here’s How Much We May Need To Set Aside When We’re 55
At this point, we should also note that there’s no guarantee the CPF will continue to function the way it currently is. In fact, there have been many changes to the CPF system in the past, and likewise, it could look very different in 25 or 30 years’ time.
We already know what the government expects someone turning 55 to have until 2027. And we also can draw on past figures to give us a sense of what is to come.
In the illustration below, we use both figures to give us a better idea of what may be in store for us.
Age in 2024
55th birthday on or after (1 Jan)
Full Retirement Sum (FRS)
60
2019
$176,000
59
2020
$181,000
58
2021
$186,000
57
2022
$192,000
56
2023
$198,800
55
2024
$205,800
54
2025
$213,000
53
2026
$220,400
52
2027
$228,200
Increase 1.5% p.a.
Increase
3.5% p.a.
Increase
4.5% p.a.
51
2028
$231,623
$236,187
$238,469
50
2029
$235,097
$244,454
$249,200
49
2030
$238,624
$253,009
$260,414
48
2031
$242,203
$261,865
$272,133
47
2032
$245,836
$271,030
$284,379
46
2033
$249,524
$280,516
$297,176
45
2034
$253,267
$290,334
$310,549
44
2035
$257,066
$300,496
$324,523
43
2036
$260,922
$311,013
$339,127
42
2037
$264,835
$321,899
$354,388
41
2038
$268,808
$333,165
$370,335
40
2039
$272,840
$344,826
$387,000
39
2040
$276,933
$356,895
$404,415
38
2041
$281,087
$369,386
$422,614
37
2042
$285,303
$382,315
$441,631
36
2043
$289,583
$395,696
$461,505
35
2044
$293,926
$409,545
$482,273
34
2045
$298,335
$423,879
$503,975
33
2046
$302,810
$438,715
$526,654
32
2047
$307,352
$454,070
$550,353
31
2048
$311,963
$469,963
$575,119
30
2049
$316,642
$486412
$601,000
Based on these figures, it doesn’t seem likely that the rate of increase can continue at an average pace of 4.5%. If this were the case, anyone who is 30 years old today would have to set aside more than $600,000 as their FRS when they turn 55.
While challenging, higher CPF contributions via our salaries, which will rise to a monthly ceiling of $8,000 by 2026, may go some way to increasing our overall CPF savings. This move also shows that the government will tweak the CPF contribution rates if necessary. Also, nothing is stopping the increase of CPF contribution rates beyond the 37% contribution rate by those who are 55 and below.
Again, during Budget 2022, it was announced that the retirement sums would increase by 3.5% annually until 2027. This is higher than the 3.0% level that it had been increasing in the years just prior to it. If inflation continues to be persistently high, the FRS rates can be revised even higher.
According to the Ministry of Manpower, the median gross monthly income from work has increased at a compounded annual growth rate of more than 3.8% since 2012, and likely even higher if we look at median wages before then. This could sway the argument for an average increment that is closer to 4.0% or even 4.5% each year.
Instead, if the FRS continues to increase by around 3.5% each year, we would see our FRS rise to more than $485,000 for those who are 30 today. While this is also a big sum of money, it is at a level that is below the average wage growth levels over the past 10 years.
Of course, if the annual increase in FRS tapers to 1.5% per annum, closer to the average long-term core inflation in Singapore, the FRS will rise to a more reasonable amount of over $316,000 for those who are 30 in 2024.
At the same time, the last thing we would want is to finally retire, but find that our lifelong monthly CPF payouts are insufficient to keep pace with inflation levels.
No one knows what will happen for sure in the future, but we should definitely work towards a retirement goal that we’re comfortable with, and ensure that our plans do not fully rely on just CPF LIFE payouts.
This article was originally published on 28 March 2018 and updated to reflect the changes to the Full Retirement Sum (FRS).
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.
