15 July 2019

Can You Top-up CPF-RA Beyond FRS to Achieve ERS After Age 55?

Here's something that I've been puzzling about regarding the CPF retirement sum.

Say you only managed to accumulate enough for a Full Retirement Sum (FRS) of $176,000 by age 55. But you actually wanted to achieve the Enhanced Retirement Sum (ERS) of $264,000. Can you still do so somehow later?

Up to age 55, you can contribute to the Special Account (SA) up till the FRS amount. And at age 55, the Ordinary Account (OA) and Special Account (SA) are then poured into the Retirement Account (RA). But let's suppose you didn't have any money left in the OA, and the SA had $176,000. So the resultant RA would only be $176,000.

Post-55 though, you can contribute to the RA up to the ERS amount.  But how do you move from FRS to catch up all the way to ERS? Is it a matter of topping up the difference of $88,000?  I think not.

This article offers some clue (see page 9): CPF Retirement Planning Booklet - Be Ready With CPF.
"The retirement sum that you set aside at age 55 will grow with interest over time. The table below shows how much your retirement savings will grow to at different ages. If you would like to have a specific level of monthly payout, these are the estimated RA savings you should set aside at the various ages. Do note that the amount you can top up to is capped at the current Enhanced Retirement Sum for members aged 55 and above." 
For the ERS of $264,000 at age 55, it is $393,400 at age 65. This means that in the course of 10 years between age 55 and 65, you can contribute to the RA up till $393,000 at age 65, in order to catch up to the equivalent of FRS.  Whereupon, the estimated payout would then be $1,960 to $2,110 per month.

Is this the correct interpretation?

CPF Retirement Booklet - Your Assurance in Retirement


Life Finance said...

You can write in to the CPF Board to check, They are actually quite helpful in my experience.

But here is what I understand. At age 55, $176,000 is taken from your SA and OA and put into the RA. On the very next day, you would be able to top up your RA up to the current ERS, using your SA (not advised), OA or cash.

The next year, the FRS and ERS will be revised to a higher amount (applicable for people reaching 55 in 2020), and you can then top up your RA again to this new, higher ERS. Since the increase in the FRS and ERS have historically been higher (around 5%) than the interest paid on the RA (4%+), there will still be some headroom for you to top up your RA every year.

Anonymous said...

Yes, in theory we can continue to TOP up to ERS( which increases every year). There are many others who do not even have FRS at 55. Many CPF members heard about RA ( from OA and SA) at 55, and took advantage of the system just before 55 to deploy their funds away from CPF for whatever investment such as buying a house or share investment. After 55, their RA would be understandably low. When the investment is liquidated, the CPF money used and its accrued interest would then be returned to CPF accounts. These returned money with its accrued interest may bloat the RA beyond ERS. The excess would be returned to the member, if he is above 55, the balance including the years of accrued interest of the principal sum in investment is substantial esp after years of compounding. These money when returned can amount to more than ERS in RA.

Anonymous said...

Let me share my experience since I am past 55 yo.

Right on my 55th birthday, I woke up in the morning, logged in into my CPF account and lo and behold, my RA was created. At that time, the FRS was $161,000, and all the money came from my SA with a little left over.

Right from the start, I had planned to top up my RA to ERS. If I were use my CPF money to top up my RA to ERS, they would take money from SA first before taking money from the OA. Since I didnt want my SA to be hollowed out, I had to use cash ($80,500) to top up my RA to the then ERS of $241,500.

Every January 1st since then, I have been topping up my RA with $7,500 in cash, to keep up with the new ERS limit. Please note that the interest earned in your RA each year is not counted towards the new ERS limit. Let me explain:

This year the ERS limit is $264,000. By next year, it would be increased by $7,500 to the 2020 limit of $271,500. My current RA amount is $296,000 including the interests earned over the few years, but I would still be able to top up another $7,500 in January 2020.

So to answer Lizardo's query, you can indeed continue to top up your RA to meet the new ERS amount of each progressive year up till you are 70 years old. 70 years old is the latest age at which you can join the CPF Life plan. 55 years old is the earliest age at which you can opt to join the CPF Life plan.

The biggest hurdle (& pain) is the very first top up from the FRS to ERS. For those turning 55 yo this year, the FRS is $176,000 and the ERS is $264,000, this makes the top sum to be a whopping $88,000!! This is no small sum and takes some saving effort to build up - if you intend to top up your RA to ERS, you must plan and start saving early. After that first top up, every year is $7,500, a more manageable sum.

Lizardo said...

Thanks to all for the most helpful responses. I am especially grateful to hear from those with experience. They are immensely insightful.

Interesting on the idea to go for ERS and preserve the remaining SA to earn the 4% interest.

Anonymous said...

I am the past 55 yo guy.

This could be your next blog post topic, if you like - "How to protect your SA money from being taken to form the RA upon reaching 55 yo." Here is a teaser.

As it stands now, money in the SA earns 4% pa of interest. Likewise money in the RA also earns 4% pa of interest. For those 55 yo and above, CPF also gives 6% pa to the first $30,000 in your RA, and 5% pa to the second $30,000 in your RA, while the rest of the money in your RA earns 4%.

So for eg., I have $176,000 in my RA, the interest my RA money would earn in a year is: $176,000 x 0.04 + $900 = $7,940. The $900 is derived from the 6% and 5% interest for the first $30,000 and second $30,000 respectively.

Now, the issue is, how to "prevent" the CPF from taking money from your SA to form the FRS in your RA when you turn 55?

Supposing I am now 54 years and 11 months old, and I have $230,000 in my SA. Next month, when I turn 55, CPF would automatically take $176,000 from my SA to form the FRS in my RA, leaving me with only $54,000 in my SA. I would rather CPF takes the $176,000 from my OA to form the FRS in my RA and leave my $230,000 in my SA intact to earn 4% interest pa.

Let me know if you want to write about this! ;-)

Lizardo said...

I'd like that! Would you have more to share? Perhaps can e-mail me.

And if you have no objections, I would like to quote the above as well.

Would you have a moniker rather than "anonymous"?