You will be able to explain the Basic, Full and Enhanced Retirement Sums and the property pledge.
Linda's question after lesson 6.1 was the one most people ask: S$240,000 is a lot to lock away. Does it have to be that much? The answer is that the figure isn't fixed for everyone. There are three retirement sums, and owning a home can let you set aside the smallest of them.
The CPF Board publishes three retirement sums for each cohort.
The Basic Retirement Sum, or BRS, is the lowest. It is meant to provide a basic level of monthly payouts, and it is the minimum that members who own a suitable property can choose to keep in their RA.
The Full Retirement Sum, or FRS, is the default. Unless you choose otherwise, your RA is formed up to this amount at 55, as lesson 6.1 showed. It gives higher monthly payouts than the BRS.
The Enhanced Retirement Sum, or ERS, is the highest. You don't reach it automatically. Members who want higher payouts can top up their RA towards it, and payouts rise with the amount in the RA.
The connection that matters is simple: the more you have in your RA when payouts begin, the higher your monthly CPF LIFE payout for life. The sums are steps on that scale, and each one comes with an estimated payout range that the CPF Board publishes.
The sums are set for each cohort and rise over time, roughly in line with incomes and living costs. The ERS was also raised recently relative to the other two. So the figures for someone turning 55 this year are not the figures for you if you turn 55 in 2035. Look up your own cohort's sums on cpf.gov.sg, or the latest announced figures if yours haven't been published yet.
If you own a property with enough lease remaining, the CPF Board lets you keep only the BRS in your RA. The rest, up to the FRS, can be withdrawn from 55. In return, you put a pledge on your property for an HDB flat, or a charge on a private property, which links the property to your retirement savings.
The property must have a remaining lease that lasts you to an age set by the CPF Board, and there are other conditions. If you sell the property later, part of the proceeds may have to go back into your RA. Check the current rules before you plan around a pledge.
The trade-off is clear. Pledging lets you take out more cash at 55. It also means a smaller RA and lower monthly payouts for the rest of your life. The pledge is a choice to rely more on your home and less on CPF LIFE for retirement income.
With made-up figures, suppose Linda's cohort's sums turn out to be S$120,000 for the BRS and S$240,000 for the FRS, and that she will have S$240,000 in her RA at 55, as in lesson 6.1. She owns a four-room HDB flat with plenty of lease left.
Option one, stay at the FRS. She keeps S$240,000 in her RA and gets the payouts that come with it.
Option two, pledge her flat and keep only the BRS. She could withdraw up to S$120,000 of her RA, the difference between S$240,000 and S$120,000, at 55. Her monthly payouts would be noticeably lower for life.
Option three, top up towards the ERS. If she had spare cash or OA savings, she could add to her RA for higher payouts later, up to the ERS limit.
Linda is leaning towards option one. She doesn't need a lump sum at 55, her flat is where she plans to live, and she would rather have the higher monthly income. She noted that she could still top up later if her circumstances changed.
To answer that, you need three things: your cohort's retirement sums, or the latest figures, your expected SA and OA balances at 55, and whether you own a property that would qualify for a pledge. The CPF website shows your projected position against the sums once you log in, and lesson 6.4 builds your own version.
If you are in your twenties or thirties, the exact figure isn't the point yet. What matters is whether your projected balance at 55 looks closer to the BRS, the FRS or above it, and whether heavy housing use might pull it down. People who use most of their OA on a home often reach 55 with less than the FRS, which is one reason the pledge option exists.
Look up the three retirement sums for your cohort or the latest published figures, and compare them with what you expect to have in your SA and OA at 55.
Look up the three retirement sums for your cohort or the latest figures, and write which one you are on track for.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).