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CPF Full or Enhanced Retirement Sum for AK?

Sunday, April 18, 2021

It has been a while since I blogged.

So, I decided to share this reply to a reader's comment as a blog since it is a little more substantial. 

If you are interested in the reader's comment, you can read the comment: HERE

Hi Staerfeldt, 

I am glad that my blog has been inspirational. :D 

The CPF has definitely been gaining popularity compared to the reception it used to get in my early days as a blogger. 

The very low interest rate environment in recent years probably made it even more popular. :) 

It is important to remember what is the primary purpose of the CPF which is to help fund our retirement. 

So, we should not use our CPF savings in a careless manner in so many ways just because we are allowed to. 

Many who invested with their CPF savings would have been better off just leaving the money in their CPF accounts. 

The CPF is really designed to help the masses and not the rich amongst us: 

CPF LIFE is an annuity that pays for life. 

So, ERS is a pretty good way of ensuring we get more monthly pocket money in our old age. 

However, this only really pays off if we live a very long life. 

Beyond the first $60K in CPF savings, the RA pays 4% per annum just like the SA. 

So, it really isn't a big loss if we choose to have FRS instead of ERS, leaving some money in the SA untouched which gives us options on withdrawal too. 

Personally, I think the FRS is good enough as I like to keep my options open. 

Of course, I could change my mind later on. :) 

You might be interested in this blog from 2015: 

1. CPF can be our best friend. 

From CPFB:
What are the Basic Retirement Sum (BRS), Full Retirement Sum (FRS) and Enhanced Retirement Sum (ERS)?


starmaster said...

Hello AK , thank you for your insightful opinion

but what do you think about SA shielding then ?
since we can instead use OA (2.5%) to transfer to RA instead of SA (4%) , will that be enticeful enough to fill it up to ERS instead FRS using OA ?

I am thinking of transferring maximum amount from my OA to RA at 55 ( to ERS ) , and start using the 4% from SA as a yearly payout bonus on 1st Jan

retiree5559 said...

Hi AK, your blogs are always very informative and enlightening to read. We belong to the Merdeka generation and are in the Retirement Sum Scheme. Had topped up our RA every year to the prevailing max. Also topped up to ERS immediately upon its introduction. Compounded interests from the top up alone (from age 55 onwards, 11 years) now amounts to $70,000. Intend to start drawdown when our combined monthly payment is $5,000 (around age 67).

We are fortunate and have passive incomes other than RS to see us through our retirement comfortably. Nonetheless, it is still assuring to receive regular coupons from a AAA rated sovereign perpetual (almost) bonds.

Ivanp said...

Hi AK,

It's a good day when u blog ;)

I would like to seek your pov on:
Q1. leaving everything in CPF at 55 (I.e. not withdrawing) and letting it compound till 65.

Q2.How should I calculate the CPF amount at 65 years with the above decision?


AK71 said...

Hi starmaster,

The idea of shielding our CPF SA has been gaining traction in recent times and the last time I blogged about it was in December 2019.

It is certainly worth considering as long as the CPF rules don't change as it still seems like a loophole to me. ;p

Maximising CPF SA savings and returns?

Whether the money in the RA is formed by money from our SA or OA, the fact remains that we will lose the flexibility of lump sum withdrawal if we should need to do so at or after age 55. Once money goes into the RA, it stays there forever.

However, for people less financially savvy and who are more risk averse, it can be worth considering as an additional 1.5% interest is huge if we expect the low interest rate environment to continue forever which, intuitively, seems unlikely to me. ;)

AK71 said...

Hi retiree5559,

Your retirement funding plan is made stronger with greater certainty because you made full use of your CPF account. Your experience is once again proof that interest income from our CPF savings is passive income too. Congratulations! :D

CPF interest is passive income and real money.

Sadly, too many people are still suspicious about the CPF and believe in conspiracy theories. The CPF is really to help the masses. So, the very rich might not need the CPF but the vast majority of CPF members really do.

A river called CPF and the stubborn horses.

AK71 said...

Hi Ivanp,

Good day to buy 4D and Toto when AK blogs? That was what someone told me before. ;p

I like the idea of not touching our CPF savings unless we absolutely have to, whatever our age might me. Don't use our CPF savings just because we can, especially in such a low interest rate environment.

See also:
CPF members above 55 should use it as a savings account.

As for calculation, I am very poor at math. Ok, I am just too lazy. ;p

Use the CPF Calculator maybe? I not too lazy to find the link:
CPF calculators.

Have fun! :D

Siew Mun said...

I reach ERS, on my birthday last year. I also top up to the prevailing ERS this year in Jan. I plan to top up to the prevailing ERS each year. CPFLife payout is a safety net to meet basic retire needs when all else fails. My wife is 6 years my junior would like to retire together, ERS would make sense for us until her CPFLife payout starts 6 years later. We relieve our children burden to support us by becoming financially independent in our retirement.

AK71 said...

Hi Siew Mun,

Good to hear from you again. :D

You are another great example of someone who has cracked the CPF code and used it to achieve a financially secure retirement.

Thanks for the update. :D

For anyone who is reading this and would like to know more, read this blog:
Understand CPF LIFE and make it work for us.

ConsumeLess Life said...

Hi AK, your internal link to [Unfair FRS and ERS' CPF LIFE payouts?] looks wrong. It links back to this article.

starmaster said...

thank you so much for your reply AK , will take your opinion into my heart

for now i intend do a SA shielding so my OA will go into RA at ERS . Currently i still have another 20 yrs to think about it 😆, will consider again when its nearer

Investminds said...

Hi Ak, thanks for sharing. I i like your idea of going for FRS instead of ERS and keeping our options open. I am thinking of drawing the additional funds for warchest. I am keeping a watchlist to nibble shares when market provide buying opportunities during GSS like in Mar 20. Risk versus reward could be higher than SA 4%. Second, i will have 10 years from 55 to 65 yrs investment horizon and the 10 years could yield higher capital and yield return when market is going though a GSS. The additional fund can also act as a contingency funds.

AK71 said...

Hi ConsumeLess Life,

Thanks for letting me know. Fixed. :)

AK71 said...

Hi starmaster,

Just talking to myself, of course. ;)

20 years is a relatively long time and many things, including our perspectives, could change in that time.

So, yeah, no need to have your strategy set in stone now. :)

AK71 said...

Hi Investminds,

Yes, all of us have different circumstances and our brains are also wired differently.

Apart from saying that the CPF is a very good tool which we should use to help ensure we have a financially secure retirement, I feel that there isn't a universally right or wrong answer when it comes down to specifics.

We should do what we can do based on what we believe in and what our circumstances allow.

For example:
Topping Up our CPF savings can wait for some.

We should be careful not to treat CPF strategies anyone shares as things everyone should follow religiously.

us said...

Hi AK,

I think your facebook account is back

Going to resume blogging full time? :P

Staerfeldt said...

Much appreciated AK. My thought process is the same as starmaster but still have quite some years to decide - if it doesn’t change. Shielding isn’t free as well, need to do the maths.

AK71 said...

Hi us,

My Facebook account was not shut down but Facebook removed all links to my blogs without any warning or explanation I could understand.

Facebook was mean to me although I was generating traffic for them with my posts and they probably made money from that traffic without sharing any with me too.

I am a hobbyist blogger and not a professional blogger who needs to use Facebook for business.

Facebook was mean to me and I don't need Facebook. ;p

Financially free and Facebook free.

AK71 said...

Hi Staerfeldt,

Yes, rules might change and it is probably a good idea to be mindful of the possibility.

As for the cost of shielding, opportunity cost is a cost too.

I like to have certainty in life but the quest for greater certainty in life should not result in the loss of having important and, sometimes, impactful options.

For sure, we need some certainty in retirement funding and I am glad we have the CPF LIFE.

This might be an interesting blog for some:
Questions from an investor on HDB and CPF.

us said...

Hi AK,

Yes I know, have been following you for a long time.

The facebook page seems to have your links back though, just wanted to inform you about it :)

AK71 said...

Hi us,

Oh, the links to my blogs have been restored?

Thanks for sharing with me as it is news to me. :D

Still, I am so used to being Facebook free now. ;p

Investminds said...

Hi AK, i agreed with you that all of us have different circumstances and our brains are also wired differently. Your blog have open up my mind about CPF and investing. Thanks to you, i am on track to meet my financial and CPF goals.

Unknown said...

Understand your thinking is to have more flexibility/option in withdraw money from OA/SA, was wondering whether is it better to fill RA up to BRS only with property pledge?

AK71 said...

Hi Investminds,

Thanks for letting me know that my blog has had a positive impact on your journey to greater financial security. I am glad. :)

We are so lucky to be in Singapore and I am so thankful that most of us regular folks here can be financially free if we do the right things. :)

A reader's story for anyone who might be interested:
Views on CPF, insurance and investments changed after eavesdropping on AK.

AK71 said...

Hi Unknown,

The BRS is an option for people who might not have enough in their CPF for the FRS.

If we have enough CPF savings for the FRS, I feel we should at least go for the FRS.

I think we will appreciate a regular and dependable payout of a more meaningful amount in our old age.

Of course, what this amount should be would probably be different for each of us which is why some might go for the ERS.

So, I would not say whether BRS is better than the FRS or ERS.

It depends on an individual's circumstances and beliefs. :)

Personal View said...

Was looking for your blog as I wanted to show it to a friend who is interested in investment / trading and found that you have started blogging again! 🥳

By the way, are your blog posts dated before 2021 deleted or something...?

And again, good to have you back!

AK71 said...

Hi Personal View,

Eh, I didn't stop blogging.

I just blog less frequently. ;)

Didn't delete any old blog posts either.

Don't use the mobile version of the blog because it doesn't show many things but I enabled it because many regular readers like to read my blog using their phones.

Go to the web version of my blog and you will find all the hyperlinks in the sidebars like before. :)

I blogged about the change in this blog:
Largest REIT investments updated: COVID-19 meltdown.

"Readers who want to access whatever is lost in the mobile version will have to click on the "View web version" option at the end of the page."

SgFire said...

Howdy Ak

Can you talk to yourself about sph recent saga?

I am not vested but i am sure we can have a good laugh this weekend

AK71 said...

Hi SgFire,

In a nutshell, SPH's NAV will go down but EPS will go up.

So, as an asset play, SPH isn't as attractive as before but as an investment for income, it is more viable now.

This is not an immediate change, of course, and needs approval at EGM and months to execute.

SgFire said...

Thank you AK

At this price, what would be the full year yield that an income investor hope to get.

AK71 said...

Hi SgFire,

It is estimated that the EPS is going to be 5 cents after the exercise is over.

The dividend yield would depend on how much is distributed to shareholders.

SPH could pay out 50% to 100% of its earnings as dividends.

So, if we paid $1 per share, that would be a dividend yield of 2.5% to 5% on cost which is pretty decent in today's environment.

The sky is definitely not falling. ;)

Rellangis said...

Hi AK, have you ever considered getting some crypto since the prices are going down?
Want to hear your thoughts about this... Thanks

AK71 said...

Hi Rellangis,

My opinion on Bitcoin and friends remains the same. ;)

My final word on Bitcoin and friends.

Peter said...

If I am not wrong, if your SA has enough money when u reach 65, u will have to choose at least FPS.
Actually I prefer BPS if it is allowed because the remaining money in SA can generate interest at 4%

AK71 said...

Hi Peter,

If we have enough in our CPF savings, then, it is the FRS for us.

If we choose to pledge our fully paid home, we can opt for the BRS.

The ERS is available for those of us who would like to have a bigger monthly payout from CPF LIFE and have the resources for it.

Of course, which one we choose will depend on our circumstances and what we want. :)

1. Choose your own CPF adventure.
2. Undersand CPF LIFE and make it work.

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