It is little more difficult to get information on the older Retirement Sum Scheme. Here is my summary after spending some time Googling. If you don’t want to rely on my “rojak” research skills, there is always the Central Provident Fund Act which is the authoritative source of information.
I actually drafted this post last week and I thought I’ll add a snippet here because very recently, there was a controversial article regarding a letter sent out by CPF Board. I don’t wanna give traffic to the original source so this will have to do – Dollars & Sense is legit.
Friendly reminder that this is for Retirement Sum Scheme and not CPF Life.
1. What is Retirement Sum Scheme?
The Retirement Sum Scheme provides CPF members a monthly income to support a basic standard of living during retirement. The Retirement Sum Scheme is different from the CPF Life Scheme. To better mitigate longevity risks, the CPF LIFE Scheme introduced in 2009 provides a monthly income for as long as you live.
CPF Minimum Sum Scheme (old name) = CPF Retirement Sum Scheme (new name)
Minimum Sum Scheme > Retirement Sum Scheme > CPF Life (current)
Source : cpf.gov.sg
2. Payout Eligibility Age / Drawdown Age
Setting aside a retirement sum when you reach 55 years old ensures that you have a regular income from your payout eligibility age to support a basic standard of living. There is Central Provident Fund (Revised Retirement Sum Scheme)  Regulations and Central Provident Fund (New Retirement Sum Scheme) Regulations  plus Central Provident Fund (New Retirement Sum Scheme) (Amendment) Regulations .
And you tell me how are people supposed to understand this easily?! The keyword you want is “relevant age” so here goes – the magic number is still 65 years old for many. It’s just the mechanism of opt in/out that has changed? I’m not sure cuz it doesn’t affect me now.
Year of Birth Payout / Eligibility Age :
1943 and before – 60
1944 to 1949 – 62 // my parents are here!
1950 and 1951 – 63
1952 and 1953 – 64
1954 and after – 65
3. Payout Adjustments
In response to public feedback, MSS/RSS members can apply for payout adjustment to receive higher monthly payouts. This is provided that their payouts can last at least 20 years from their draw-down age, or at least another 5 years from the time of application, whichever ends later.
Source : mom.gov.sg
4. Central Provident Fund (Revised Retirement Sum Scheme) Regulations
On AGC’s website, look for the above section on CPF and see Fourth Schedule. If the date of monthly withdrawal or payment is on or after 1st July 2003, then the subsistence amount is $297. The amendment effective 1st October 2018 appears to have changed the amount from $297 to $250 (oops). FYI, my parents are currently getting $297 even when their accounts cannot sustain the payouts for that long because it is the subsistence amount as mandated in the CPF Act (then).
Source : agc.gov.sg
5. Case Study
This is the situation that my parents face now.
Current age of Parents : 70
Payout age : 62
Payout age + 20 years : 82
CPF Retirement Account (RA) : $10,000
Monthly payout (subsistence amount) : $297 (assuming unchanged)
Estimated payout exhausted date : Another 3 years (and money runs out)
If we disregard interest earned for simplicity in calculation ..
Amount in RA needed for subsistence payout till age 82
= $297/mth * 12 months * (82 – 70) years
Topping up any amount into RA from $1 to $32,768 will extend the payout exhausted date towards age 82, but monthly payout will not increase and therefore remain at $297.
Topping up in excess of $32,768 will ensure payout exhausted date is age 82 or later. You can apply to CPF Board for higher monthly payouts.
Question : If I top up now, will they base the payout on the original $297 or re-calculate based on $250?
6. Converting CPF-OA Into Cash
Assuming my parents have $0 in RA, then I can choose to transfer subsistence amount * 12 months * 2 pax from my CPF-OA into their CPF-RA every year.
This converts a total of $7,128 annually from CPF-OA into cash payouts. Woohoo!
Requirement : My CPF savings inclusive of property pledge/charge can meet at least the current FRS. More specifically, see below.
The Amount of CPF-OA I can transfer is the lower of :
- Total CPF Savings + Property Charge – FRS ($176,000) or
- Total CPF Savings – BRS ($88,000) or
- CPF OA // haha
In a nutshell, the scheme will only allow folks who have enough for their own retirement to siphon off money from their own CPF-OA to support their parents. CPF Board ain’t stupid and you can see from the three points above.
7. In The Event Of Death Of Recipient
When the recipient dies, top-ups via CPF would be returned to the giver. This treatment is different from cash top-ups. FYI, top-ups via cash would be treated as if they were gifts to the recipient and will be distributed by way of CPF nomination or intestacy laws.
Source : mom.gov.sg
All in all, I found this research exercise to be very helpful in planning for my parents’ retirement. I didn’t know a lot before I started, and now I feel like a plan is slowly forming in my mind. Hope you found this helpful! If anything I wrote is inaccurate, please drop me a comment – I’m happy to learn more!
You may also like the following posts :
- CPF News – $57,200 Basic Healthcare Sum For 2019
- CPF Money That Keeps Growing (2019)
- My Net Worth Is Still 6-Figure And I’m OK With It (2019)
Once again, I’ve graciously accepted Aaron’s request from across the causeway to share a little nugget of my thoughts.
Market returns generally took a beating in 2018, but do not be discouraged. Market volatility is part and parcel of our investment journey and more importantly, don’t forget we are in a marathon and not a sprint. Keep calm and stay the course. John Bogle said it best: “Time is your friend; impulse is your enemy.”
Aaron of mr-stingy is a wonderful writer about getting the most out of life. See more useful tips here : 16 INFLUENCERS SHARE THEIR BEST MONEY TIPS FOR 2019