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

Friday, 11 March 2016

What IF I Can't Hit my CPF Retirement Sum?

Dear Readers,

I would like to share with you an important issue I believe every Singaporean faces: What if I cannot hit my CPF Retirement Sum?


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6 Points your CPF is like your Bond Portfolio
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5 Things about CPF Nomination YOU SHOULD KNOW

Do not worry. If you do not hit the Retirement Sum (FRS or BRS), there is no penalty involved.
You are also not required to top up the difference to CPF in the event you do not hit the Retirement Sum.
Yes! You are correct! It is not compulsory for you to hit your CPF Retirement Sum.

Whether you hit it or not, you would still draw a monthly payout from CPF when you reach your draw down age (age 65). You will just receive a lower money payout from CPF.

The only problem is that you are unable to withdraw most of your money in your Retirement Account - you can only withdraw up to $5,000
But, you can pledge your property to withdraw money in excess of the Basic Retirement Sum (BRS).
The BRS on 2016 is set at $80,500.
If you pledge your property at age 55, you will be able to withdraw money in your CPF in excess of the BRS.
Eg: if you have $100,000 in your Retirement Account (RA) as of December 2015, you can withdraw up to $19,500 from your RA if you pledge your property to CPF.

We talked about the types of CPF Retirement Sum previously (Link HERE)
Although the figures look daunting and achievable, there are actually not much serious consequences if you do not meet it.

Actually, you do not really need to hit the FRS.
A lot of people are actually looking at the FRS and wondering if they can ever withdraw the money above the FRS.
However, you can aim to hit just the BRS (for more info, click HERE).
1) If you hit BRS with no excess money, you will still be able to withdraw up to $5,000.
2) If you hit FRS, you can pledge your flat to withdraw out the money in excess of the BRS.
3) If you have money above the FRS, you can withdraw the excess money out or you can keep them inside to receive ERS (for more info on ERS, click HERE).

Personally, I would say aiming to hit the BRS is more achievable, possible, more satisfying and less daunting mentally.
1) It is a much lower target, hence a easier target to reach.
2) You still get a monthly pay out, just not as much as FRS and ERS.
3) Yes, you cannot withdraw any money out. But, if you hit the FRS with no excess, you still need to pledge your house with CPF before you can withdraw the money in excess of BRS.
4) Of course, the more money you have in your CPF account, the money your dependents will get if you pass away before you finished the money in your CPF.

Instead of looking at the CPF minimum sum as a target where you can withdraw money at a certain age, look at it as a savings + annuity + life insurance plan.
We posted an article about how CPF is like an insurance HERE

Remember to offer your opinions. If you don't put your two cents in, how can you expect to get change?

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  1. I plan to create an "annuity" from CPF that starts paying out from age 55. This is done by transferring unused funds from OA to SA during my working years. By building a huge SA account, selecting the BRS and drawing down at 4% p.a from SA/RA from 55, I have effectively an annuity plan that pays out from age 55. Your thoughts on this ?

    1. Hi Betta man,

      I think this is a pretty good idea.
      Do you mind if we shared this thought with the rest of our readers?
      Just a few pointers to note
      1) before you transfer your money from OA to SA, it would be best if you made sure there is sufficient money inside to pay for housing or other things.
      2) while it would be nice to draw annuity every month from age 55, if you are still working, maybe you could not draw the money out so soon and let it grow further. Of course if you planned on retiring age 55, I think this annuity plan is a good one.

      Thank you

  2. betta man, appreciate to elaborate more, pls.

    Do you mean after setting aside BRS (even if we can meet FRS), we can start drawing down at 4% from SA/RA from age 55?