CPF Withdrawal at Age 55 – When Should You Do So?
Mr. Tan : “Hi Shaun, I am about to reach age 55 and I know I can withdraw my CPF.”
Me : “That’s great! You should be very happy and rich.”
Mr. Tan : “Rich…arhh…that I don’t know but I am feeling a bit confused and disturbed…”
Me : ”Oh…Why is that so? Anything I can do to help?”
Mr. Tan : “Yes. I know I can withdraw my CPF sum but I have questions… Should I withdraw or leave it with CPF? How much to withdraw? Which CPF retirement scheme should I be getting? Which CPF Life plan should I choose? And what do I do with my money if I withdraw?”
Me : “Don’t Worry, Be Happy! I should be able to help you understand more about this.”
The fears and concerns that Mr. Tan experiences are common to what most people experienced when they are nearing age 55. I suspect that this is because it is not easy to decide on what to do with your CPF savings unless there is an understanding of CPF withdrawal rules, CPF interest rates, CPF-Life scheme and how they can affect the unique retirement needs of the individual.
What happens to your CPF at age 55?
Upon turning age 55, CPF members can withdraw their CPF savings after setting aside their
- Basic Retirement Sum (BRS) with sufficient charge or pledge in their Retirement Account (RA), OR
- Full Retirement Sum (FRS) – equivalent to 2 times BRS.
For members turning age 55 for the period of 2022 to 2027, the BRS will be increased by about 3.5% from the previous year to cater for inflation.
A CPF member will receive a letter from CPF Board six months before their 55th birthday. He or she can apply to withdraw the CPF savings from 55 by submitting an online application. The withdrawal of savings has always been optional and we should understand the pros & cons in doing so.
For more details on CPF withdrawal at age 55, you can refer to the CPF website.
Leaving your money in CPF – Earn Interest with no “Lock-In”
If you choose to leave your savings in the CPF accounts, there are 3 types of interest rates that you can earn. They are the CPF interest rates, Extra interest rates and Additional extra interest rates.
Here is a summary of the current CPF interest rates that you can earn before age 55 and after age 55 (when there is an additional “Retirement Account”).
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We must also take note that the priority of accounts that make up the $60,000 & $30,000 is as follows:
- First: Retirement Account, including balance used to pay for the CPF LIFE premium
- Second: Ordinary Account, up to $20,000
- Third: Special Account
- Fourth: Medisave Account
And the extra interest received on OA will go into member’s SA if you are below 55 years old or RA if you are 55 years old and above to enhance your retirement savings.
In fact, here is an example to illustrate this:
Mr. Tan is 55 years old in January 2017. His combined CPF balance is above $60,000 (ie. $180,000) in January 2017 (and remain unchanged for the rest of the year).
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The total interest earned for the year is $6,600 and Mr. Tan has to take note that the extra interest he earned from OA ($300) will go into his RA to enhance his retirement savings as he is 55 years old.
Now that you’ve got a better grasp of the interest rates of CPF savings after age 55, let’s look at CPF LIFE.
Planning for your CPF LIFE – Lifelong Income For the Elderly (LIFE)
CPF Life is a life annuity scheme which provides one with monthly pay-outs for as long as he or she lives.
The CPF Life scheme was introduced in 2009 to better mitigate longevity risks as compared to the Retirement Sum Scheme (which some of us may still remember).
Statistics According to a 2018 report by the Department of Statistics, 1 in 2 Singaporeans aged 65 today is expected to live beyond 85 years of age. Previously in 1990, the average Singaporean lifespan was 76.1 years. So we are living longer. Hence, having an income that will last as long as one lives has become more important than ever.
You will have to join CPF Life if you’re Singapore citizen or PR born in 1958 or after, and have $60,000 or more in your RA when you turn 65.
On the 55th birthday, CPF will create a Retirement Account (RA) for you and savings from your Special Account (SA) and Ordinary Account (OA), up to the Full Retirement Sum (FRS), will be transferred to your RA to form your retirement sum. The savings in your RA will provide you with monthly pay-outs based on CPF LIFE plan that you choose. For higher pay-outs, you may also top up to your RA up to the Enhanced Retirement Sum (ERS).
There are basically 3 Retirement Account Savings you can set aside. They are the Basic Retirement Sum (BRS), Full Retirement Sum (FRS) and Enhanced Retirement Sum (ERS). For each of these sums, there are 3 CPF LIFE Plans that is available and they are known as the CPF LIFE Standard Plan, CPF LIFE Basic Plan and CPF LIFE Escalating Plan.
Each CPF Life Plan provides a different combination of trade-offs between the amount of monthly pay-outs and the bequest you will leave for your beneficiaries. (ie. The Basic Plan will give a lower monthly pay-outs and a higher Bequest compared to Standard Plan.)
If one has a lot of dependents, CPF LIFE Basic Plan may be more suitable.
Retirement Sum Table & CPF LIFE Plans (correct as at Dec 2022)
Source: Be Ready with CPF
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Shaun has been featured in Channel 8 “Money Week 财经追击” on CPF related topics. Do have a quick watch by clicking on the image below:
Click HERE to watch the video.
Customising to Your Needs
While CPF is designed to provide for general retirement income needs through the CPF-Life scheme, there are some situations whereby privately set up plans may better help you to meet your financial goals. Here are 3 examples on these situations:
1. You prefer to start receiving income earlier than age 65
Sometimes, people choose to retire at an earlier age when they are still healthy and have the energy enjoy life. If you intend to retire before age 65, your retirement income needs to start before age 65 as well. In this situation, there will be an income gap if for example, you choose to retire earlier at age 55 which is before the CPF LIFE pay-out age of 65.
(Click image above to enlarge)
In order to cover this gap, you may consider making an additional withdrawal from your CPF at age 55 once (you have set aside your FRS or BRS with property pledge) to put into a private insurance annuity plan or an investment plan that provides immediate income.
2. You want more income in the earlier retirement years
You may want to have more income during the earlier years of retirement where discretionary spending is higher. Having income that is spread out equally throughout retirement may not be ideal in this case.
To have more income for the initial retirement period (e.g. the first 10 years of retirement), you may choose to contribute a lower amount retirement sum and withdraw the savings to put into a private retirement or annuity plan that pays out a higher income for a limited number of years.
3. You prefer your CPF savings to benefit others as you are already self-sufficient
Report: Singapore’s number of millionaires could increase by more than 60 per cent from 2020 to 2025, according to Credit Suisse Group, part of a surge in millionaires expected in Asia as financial capitals emerge from the Covid-19 pandemic. Singapore may have 437,000 millionaires by 2025 compared with 270,000 in 2020, according to the bank’s 2021 Global Wealth Report.
You may belong to the group of people who already have sufficient wealth for retirement and is able to retire in comfort without depending on CPF-Life. However, you may want to use the funds to benefit others such as your dependents or even charities.
In such a situation, you may choose to contribute the minimum amount needed for CPF-Life and use the rest of the CPF savings to purchase a life insurance policy which can provide more for your legacy planning needs.
Learn how to Complement CPF-Life with Private Insurance and Retirement Plans
By complementing CPF-Life with privately set up plans, it allows you to meet your personal financial goals more effectively. There are many insurance and retirement plans offered by different companies that can help you plan better. You can download this Resource List for a summary of some of the plans to help you get your planning started.
(NOTE: Get our Resource list for a summary of some of the plans to help you get your planning started [Updated Dec 2022]. Get your copy here)
The decisions to make at age 55 are some of the most impactful financial decisions you can make. If you have any doubts, seek out a financial planner that you trust to provide you with a professional second opinion.
Enjoy the retirement and not retire the enjoyment!
Article by Shaun Lin, FChFP
Email: shaun.lin@gen.com.sg
The writer is the Chief Executive Officer of GEN Financial Advisory
