What is Retirement Sum?
When you reach 55, the monies in your CPF Special Account (SA) and Ordinary Account (OA) will be transferred to a Retirement Account (RA), up to the Full Retirement Sum (FRS).
You can then choose to withdraw the excess amount. Or just continue to set it aside for a larger retirement sum, up to the Enhanced Retirement Sum (ERS).
Based on the table above, when I reach 55, the FRS will be an estimated $290,471. At the moment, I’m only looking at the monies that are in my SA account to supplement the FRS. The monies in my OA account will be needed for payment for my HDB loan.
Currently my SA has approx. $96,000. It seems that I need $200,000 more to go. I have 16 years more before I reach 55. My plan is to top up via Retirement Sum Top-up Scheme. This has limit cap to how much you want to top up is the FRS if you are below 55 and ERS if you are 55 and above. It is different from the voluntary contribution that you make to CPF for all 3 accounts or just the Medisave Account (MA) where the annual limit is $37,740 (minus your cpf contributions from salary).
How to Top up the Retirement Sum?
The are 2 ways to go about it.
- Transfer monies from your OA to SA to earn a higher interest rate
- Do cash top up to SA
I already did a $10,000 transfer from my OA to SA earlier this year. I think I won’t be making any more OA to SA transfers as I’ll need to keep the money for HDB loans.
How my 5 years plan became a 3 years plan?
When I first started doing this planning, I thought I will need at least 5 years to hit CPF FRS.
First up, I did up this crazy table to calculate how much I will have based on my cash top ups and salary contribution. I used the formula found from this site.
Interest is calculated based in the lowest amount every month. But the interest is not added to the next month amount for calculation. Just imagine there is another pot called interest. All the monthly interest goes here, until Dec when all the interest are the credited back to your account.
As I was computing the numbers, I can already see that I don’t need 5 years to hit FRS. My cash top up is rather aggressive at $1,000 per month. If you are younger and have more time til you hit 55, you can consider a smaller amount.
4 Years Test
Based on the table, I should have $213,527 at the end of 2024. Now, if I don’t do any more top ups or salary contributions from then on, can I still hit my FRS at 55?
Boom! I can still hit the amount, and around $50,000 more than the estimated FRS $290,417 needed.
Then can I hit CPF FRS within 3 years?
Based on the table, I should have $186,737.55 at the end of 2023. Can i still hit FRS?
Double boom!!!!! Yes i can! And with an excess of $20,000!
That, my friend, is the power of compound interest! I am already pretty late into this FI journey. So if you are in your 20s, make use of the time you have to do compounding interest.
What about in 2 years?
Based on the table, I should have $160,974.41 at the end of 2022. Can i still hit FRS?
I’ll be approx. $12,000 short of the est. FRS amount. It is not that big an amount. Let’s see what happens 2 years down the road. Will definitely revisit this post in the future to see where I am.