You will be able to describe how CPF savings become a monthly income in retirement.
Ask people in their late twenties how CPF pays out in retirement and you hear a mix of half-memories. "You get it all back at 55." "You can't touch it until you die." "The government keeps it." None of these is right, and planning around any of them leads to the wrong amount of private saving, usually too much worry and too little action.
The real process has three parts: what happens at 55, how the money turns into a monthly income, and what you can do now to change the size of that income. This lesson walks through each one.
When you turn 55, the CPF Board creates a Retirement Account for you. Savings from your other accounts are moved into it, up to a retirement sum.
The CPF Board publishes three retirement sums each year, the Basic, Full and Enhanced Retirement Sums, and the CPF website gives the current amount of each. The Full Retirement Sum is the default amount set aside. If you own a property with enough remaining lease, you can pledge it and set aside only the Basic Retirement Sum, which lets you withdraw more of the rest. If you want a higher monthly income later, you can top up your Retirement Account towards the highest of the three.
What you set aside matters because it decides the size of your monthly payouts. A larger Retirement Account means a larger income for life, and a smaller one means less.
CPF LIFE is the national annuity scheme. From your payout eligibility age, it uses your Retirement Account savings to pay you a monthly income for as long as you live.
The phrase "for as long as you live" is the important part. A private savings pot can run out if you live to 95. CPF LIFE pays until you die, however long that is, because it pools the risk across all its members. Members who die early leave money in the pool that helps pay those who live long. Your family is not left with nothing, though: if you die early, any part of what went into CPF LIFE that has not yet been paid out to you, plus any savings left in your accounts, goes to your beneficiaries.
There are several CPF LIFE plans. The Standard Plan pays a level amount, the Escalating Plan starts lower and rises each year to keep up with prices, and the Basic Plan pays a lower amount but leaves more for your beneficiaries. You choose a plan when payouts are about to begin, and the CPF website compares them.
You can also start payouts later than your payout eligibility age, up to a limit the CPF Board sets. Each year you defer makes the monthly payout larger.
Every number in this system changes. The CPF Board revises the retirement sums each year for people turning 55 in later years. The payout eligibility age is set by law and has risen before. Payout estimates depend on the sum you set aside, your plan and your age when payouts start.
So do not plan around a figure from an article or a relative. Use the retirement planning tools on cpf.gov.sg. Once you log in, they read your own balances, project them forward with assumptions you can see, and give you an estimate of your monthly payout. The estimate is a snapshot, and it moves as you keep working and as the rules are revised.
You can add money yourself to raise your retirement income. Under the Retirement Sum Topping-Up Scheme, you can top up your own Special Account before 55, or your Retirement Account after it, with cash. You can also top up for family members, such as parents.
Cash top-ups may earn you income tax relief, up to a yearly limit. The rules on who qualifies, how much relief you can get and the ceiling on top-ups are set by the CPF Board and IRAS, and they change, so check both cpf.gov.sg and iras.gov.sg before you rely on the relief.
Two things to weigh before you top up. First, the money is locked once it goes in. It becomes part of your retirement savings and cannot be taken back out for a home, a business or an emergency. Second, it competes with your other goals. A top-up that leaves you without an emergency fund is the wrong order, as lesson 1.1 showed.
Here is a way to think about it with made-up figures. Ben, 32, has his emergency fund in place, his insurance gaps closed and S$400 a month left for long-term saving. He could top up his Special Account, invest in his own account, or split the money between the two. The top-up gives him a lower but steady return, locked until retirement, plus possible tax relief this year. Investing on his own gives him access to the money and a less certain return. Neither is wrong. The choice depends on how much flexibility he wants, and module 6 covers the investing side.
The detail of how to plan top-ups, and the timing that gets the most interest, is in CPF Mastery: every account and the choices you control.
The figure that matters for your planning is the monthly amount CPF LIFE is likely to pay you. You will use it in lesson 7.3, where you compare it with the spending you want in retirement. Before then, log in to cpf.gov.sg with Singpass and find the retirement payout planner.
Use the CPF retirement planner to see an estimate of your future monthly payout and write it down with the date you checked.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).