Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Wednesday, 6 January 2016

CPF LIFE Income DIfference

In today's post, we will be discussing about why is the Full Retirement Sum monthly payout not double the Basic Retirement Sum's payout.

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As you can see below, it is an image of the monthly payout you will get based on the different Retirement Sum.

The FRS is 2x of BRS.
However, the monthly payout from FRS is not 2x of BRS.
The same is for ERS, where payout is not 3x of BRS.

This is because the Effective Interest Rates (EIR) on each Retirement Sum is different.
EIR is the real interest rate return you get from your money.

In 2016,
a) OA earns 2.5%
b) SA, MA & RA earns 4%
c) First $60,000 of your CPF balance gets extra +1%
d) First $30,000 of your CPF balance gets extra +1% if you are age 55 & above

FRS is 2x of BRS, however, the income derived from FRS is not 2x of BRS because the effective interest rate is not the same.
BRS enjoy a higher effective interest rate than FRS and ERS even though it will earn higher than the base 4%.

For a clearer picture on the EIR issue, please refer to our other post: EIR of CPF.
It will explain why is the effective interest on your CPF money decreasing as more and more money is accumulated in your CPF accounts

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