FRS vs ERS

[BBCWatcher]

Due to the staggered interest rate in our CPF accounts. It ranges from 6% to 2.5%.

The interest rates range from 6% to 4% on Retirement Account dollars specifically, which is part of CPF created at age 55 that ends up funding CPF LIFE payouts. The OA interest rate (2.5%) doesn't matter for these purposes, except to some extent in determining whether your Retirement Account will be funded to the Full Retirement Sum. But you're exactly right that bonus interest is the driving factor explaining why BRS, FRS, and ERS level monthly payout amounts are not even multiples of each other.

In terms of financial strategy, here are two bits of advice:

1. It's generally wise, even essential, within a household to make sure that both spouses/partners at least earn maximum bonus interest. Some rough balance between Retirement Accounts is a desirable goal. "Don't forget your spouse."

2. Even though subsequent Retirement Account dollars don't yield quite as much monthly CPF LIFE payout as the very first Retirement Account dollars, you ignore that and look at whether the yield on additional dollars is still comparatively attractive. In current and similar market and interest rate conditions, it is quite attractive. (Analogously, if somebody wants to hand you $1 million in free money and another person wants to hand you "only" $500,000 in free money, the second offer is still attractive after the first. You evaluate each offer on its own terms.)

 

[maple96]

If FRS = 2x BRS and ERS = 3x BRS

How come at 65, those chosen FRS is not getting twice payout as much those BRS ?

And those ERS is not getting payout triple those BRS ?

From CPF website:

Q Why are the monthly payouts for Basic Retirement Sum (BRS), Full Retirement Sum (FRS) and Enhanced Retirement Sum (ERS) not proportional?

A You could look at your Enhanced Retirement Sum (ERS) as 3 portions of Basic Retirement Sum (BRS). As the first $60,000 of your CPF balances earns higher interest of up to 6% p.a., the first portion of your ERS would grow more than the other two. Hence by the time you reach 65 years old, the first portion would give you higher payouts of $790 per month for life. In comparison, the second and third portion, which earns interest of 4% p.a., would give a lower payout of $660 per month respectively for life because it would not have grown as much. The same applies for Full Retirement Sum (FRS). As such, although your retirement sums are doubled or tripled, your payouts do not double or triple accordingly.

Breakdown of Interest and Payouts 2018 (refer to link below for diagram)

This progressive interest rate structure allows members with lower balances to benefit more as they enjoy a higher effective interest rate as compared to members with higher balances. This means that the CPF savings for members with lower balances would grow faster than those with higher balances, resulting in higher payouts.


https://www.cpf.gov.sg/members/FAQ/...group=CPF+LIFE&ajfaqid=2238125&folderid=11673

 

[adi75]

If at 55 i hit FRS, but i pledge property and select BRS and withdraw the rest, can i put the money back into OA/SA and use it like a bank account to withdraw whenever i need it?

 

[BBCWatcher]

If at 55 i hit FRS, but i pledge property and select BRS and withdraw the rest, can i put the money back into OA/SA and use it like a bank account to withdraw whenever i need it?

As long as you're a CPF member, both before and after age 55, you're allowed to make "all three account" voluntary contributions. These contributions will flow into your Ordinary, Special, and MediSave Accounts according to the allocation rules for your age. (If your MediSave Account has reached the Basic Healthcare Sum then that portion will spill over into either your Special Account if you have not reached the Full Retirement Sum or into your Ordinary Account if you have.) Also, these "all three" contributions must fit within the CPF Annual Limit, which is currently $37,740.

The last part is one of the big problems. Let's suppose you celebrate your 55th birthday in the year 2020, your new Retirement Account is created and fully funded to the $181,000 Full Retirement Sum, and you immediately make a property pledge (or have a sufficient property charge) and withdraw $90,500, knocking your new Retirement Account down to $90,500 (the Basic Retirement Sum) practically while guests are still eating your 55th birthday cake. Even if you're not working and earning in Singapore (either employed or self-employed), you would not be able to redeposit $90,500 in one go. You'd have to break it up into at least 3 chunks in order to fit within the CPF Annual Limit. The very earliest you could get that $90,500 completely redeposited would be January, 2022, for interest earning on the final installment starting on February 1, 2022. So you immediately lose 4% interest/year on that whole $90,500, and even when redeposited (mostly much later) you only earn 2.X% interest/year (the blended rate on OA/SA/MA based on the allocation for your age and whether there's spillover from MA into OA). And any portion that ends up in MA can only be spent as MediSave dollars can be spent. Of course you also slash your future lifetime retirement income from CPF LIFE.

Anyway, you can do what you're describing, awkwardly, but it doesn't seem like a good idea.

 

[maple96]

If at 55 i hit FRS, but i pledge property and select BRS and withdraw the rest, can i put the money back into OA/SA and use it like a bank account to withdraw whenever i need it?

If your RA meet FRS at 55, u can pledge property to withdraw 50% of FRS (ie BRS) less any cash topups to SA. U can do it any time after 55 to 65 or 70, before u join CPF Life and start mthly payout. U can do partial withdrawal from RA but the next time u want to withdraw the remaining 50% of FRS partially or in full, u need to re-apply the property pledge again.

Depending on your objectives of withdrawal with property pledge, u can time your withdrawal amts from 55 to 65/70, so the monies in RA can continue to earn 4% pa interest (helps increase your future CPF Life mthly payout and CPF Life premium as well).

There are 2 ways u can put your withdrawn monies back into CPF (excluding RA based on your query):

1. Voluntary contribution, subject to CPF Annual Limit, to 3 Accounts (OA/SA/MA). Refer to the CPF allocation table for how the monies will be allocated: bulk of goes to MA, OA then SA. If MA is max, that portion will go into OA. Remember, when u want to withdraw monies like a bank account, monies in SA will emptied first, then OA, in this sequence: interest on SA up to mth prior to withdrawal, interest on OA up to mth prior to withdrawal, current mth “contributions” to SA then OA, SA capital, then OA capital.

2. If there is OA used for housing, u can refund monies to OA.

 

[Value.Matrix]

If at 55 i hit FRS, but i pledge property and select BRS and withdraw the rest, can i put the money back into OA/SA and use it like a bank account to withdraw whenever i need it?

I agrre with the 2 comments befire me, but take note

If you done RSTU (elaborate the cash top up for SA) for tax relief before 55, the rules change. Anything done by RSTU cannot be withdrawn, and hence not counted towards the BRS.

E.g you top up your SA through RSTU, and you have 199k in SA now. Out of the 199k, 100k is RSTU + compounded interest. FRS is 200k.

If you pledge, BRS is 100k,however, since RSTU monies cannot be counted, you cannot withdraw any amount since only 99k fulfill the BRS criteria.

Hence you cant withdraw based on property pledge rule even uf you hit FRS

 

[maple96]

I agrre with the 2 comments befire me, but take note

If you done RSTU (elaborate the cash top up for SA) for tax relief before 55, the rules change. Anything done by RSTU cannot be withdrawn, and hence not counted towards the BRS.

E.g you top up your SA through RSTU, and you have 199k in SA now. Out of the 199k, 100k is RSTU + compounded interest. FRS is 200k.

If you pledge, BRS is 100k,however, since RSTU monies cannot be counted, you cannot withdraw any amount since only 99k fulfill the BRS criteria.

Hence you cant withdraw based on property pledge rule even uf you hit FRS

If your RA meet FRS at 55, u can pledge property to withdraw 50% of FRS (ie BRS) less any cash topups to SA.

Hello, u are contradicting yourself, first u say u agree with my comments, then u go on to add hinting my comment above is wrong?

Answer: my answer is correct, only cash topups to SA are deducted. My answer is based on CPF rules written at the website plus CPFB written confirmation. The written english is not easy to decipher, so need to write to CPFB.

U can write to CPFB to double confirm.

From CPFB website:

"You may apply to withdraw your Retirement Account (RA) savings (excluding interest earned, any government grants received and top-ups made under the Retirement Sum Topping-up scheme) above your Basic Retirement Sum (BRS)"

 

[henrylbh]

He did not say you are wrong. Neither is he contradicting himself. He merely added misinformation on BRS.

 

[Value.Matrix]

Hello, u are contradicting yourself, first u say u agree with my comments, then u go on to add hinting my comment above is wrong?

Answer: my answer is correct, only cash topups to SA are deducted. My answer is based on CPF rules written at the website plus CPFB written confirmation. The written english is not easy to decipher, so need to write to CPFB.

U can write to CPFB to double confirm.

From CPFB website:

"You may apply to withdraw your Retirement Account (RA) savings (excluding interest earned, any government grants received and top-ups made under the Retirement Sum Topping-up scheme) above your Basic Retirement Sum (BRS)"

Aiyo... I never contradict lah bro. I say elaborate le... if not people take at face value die liao... (especially the excluding cash topup is a very 1 liner, but the maths and things behind it is complicated lah).

 

[maple96]

Aiyo... I never contradict lah bro. I say elaborate le... if not people take at face value die liao... (especially the excluding cash topup is a very 1 liner, but the maths and things behind it is complicated lah).

He did not say you are wrong. Neither is he contradicting himself. He merely added misinformation on BRS.

Uncle henry is spot on! He still did not realise his misinformation

Another with blindspot, focus on the wrong thing (to deny vs spotting the key)

 

[iMac]

Hello, u are contradicting yourself, first u say u agree with my comments, then u go on to add hinting my comment above is wrong?

Answer: my answer is correct, only cash topups to SA are deducted. My answer is based on CPF rules written at the website plus CPFB written confirmation. The written english is not easy to decipher, so need to write to CPFB.

U can write to CPFB to double confirm.

From CPFB website:

"You may apply to withdraw your Retirement Account (RA) savings (excluding interest earned, any government grants received and top-ups made under the Retirement Sum Topping-up scheme) above your Basic Retirement Sum (BRS)"

Even MAPLE96 said "The written english is not easy to decipher"...who else here dare to said he/she understand the CPF regulation 100%?

 

[Value.Matrix]

Uncle henry is spot on! He still did not realise his misinformation

Another with blindspot, focus on the wrong thing (to deny vs spotting the key)

Sorry dun get what you mean. Might as well not say anything. Just say CPFB to confirm everything sua. But sometimes even CPFB cannot give you proper answer then how? Need many many email and black and white to confirm.

I blindspot a lot, ok. then i just delete whatever if its really incorrect. Parrot the english also cannot help people understand. Not constructive but no one cares anyway right.

https://heartlandboy.com/money-withdraw-from-your-cpf-at-55/ i spoke to the blogger and blogger even clarified with CPFB, but that amounts to nothing too. I know my English fail liao.