Retirement account question

[Okenba]

Here's a question.

I'll be 55 in 2027 and I note the new ERS will be $342,300. This should yield an estimated monthly payout from 65 onwards of $2,690 according to the news.

If I top up my RA until the new yearly ERS each year from 55 to 65, how much extra monthly payout will I get (assuming I choose the Standard plan and payout to start from 65)?

I am trying to see if it's worth topping up and CPF won't give me a straight reply. Wonder if anyone here has asked this before or maybe you're already doing this so you know the increase in monthly payouts.

Also, does it matter to the eventual payout when I top up the ERS? For example, will the payout at 65 be the same if I top up yearly for 10 years from 55 to 65 til the ERS, versus topping up fully to the ERS only when I reach 65 (i.e. I don't top up til the ERS from 55 to 64)? Will one approach yield a higher eventual payout from 65 onwards?

If you top-up to ERS ($342,300) at 55 and don't do anything else, your RA at 65 will be about $517,500. (4%pa, 5% for first 30k, 6% for next 30k.)

If you top-up to ERS at 55, and continue topping up to ERS every year, your RA at 65 (assuming 3% increase in ERS per yr), will be about $657,500. About 27% more then if you don't top up at all.

If you top-up to ERS at 55, then do nothing until 65, when you top-up again to the prevailing ERS, then your RA at 65 will be the about $517,500 + (ERS@65 - ERS@55) = about $635,200. (assuming 3% increase in ERS per yr) About 23% more than if you didn't top-up at all. But about 3% less than if you topped-up every year.

Edit: If you expect to live a long life, and are financially able, you could also wait for 70 for payout. If you have a good amount in your SRS, this should be quite do-able.

 

[zoneguard]

If you top-up to ERS ($342,300) at 55 and don't do anything else, your RA at 65 will be about $517,500. (4%pa, 5% for first 30k, 6% for next 30k.)

From the diagram, you can tell that going for ERS, it doesn't give the same payout as expected or bang for your buck.

The extra interest (which falls within BRS) gives higher interest than the next BRS tier for FRS (and next BRS tier for ERS)

 

[BBCWatcher]

From the diagram, you can tell that going for ERS, it doesn't give the same payout as expected or bang for your buck.

Yes, that's how the math works when bonus interest applies. But that doesn't matter as such. All that matters is whether topping up a Retirement Account is (overall) better than the next best alternative ("NBA"). Is it still the best overall deal? Often yes.

As a bit of a clue, why is there an ERS limit at all?

 

[iMac]

Edit: If you expect to live a long life, and are financially able, you could also wait for 70 for payout. If you have a good amount in your SRS, this should be quite do-able.

Yes, that's how the math works when bonus interest applies. But that doesn't matter as such. All that matters is whether topping up a Retirement Account is (overall) better than the next best alternative ("NBA"). Is it still the best overall deal? Often yes.

As a bit of a clue, why is there an ERS limit at all?

Maybe soon CPF would add a few ERS options.

1x ERS = Basic ERS $288,000
2x ERS = Full ERS $576,000
3x ERS = Triple ERS $864,000

Those rich ppl would be very, very happy.....

 

[celtosaxon]

Edit: If you expect to live a long life, and are financially able, you could also wait for 70 for payout. If you have a good amount in your SRS, this should be quite do-able.

Actually, if you don’t expect to live a long life, you still might want to delay to 70, if you wish to bequeath more to your heirs.

That is 5 more years for the interest to compound on your balance… if you start payments at 65, interest starts to get diverted to pay for longevity insurance.

 

[fontsize88]

If you top-up to ERS ($342,300) at 55 and don't do anything else, your RA at 65 will be about $517,500. (4%pa, 5% for first 30k, 6% for next 30k.)

If you top-up to ERS at 55, and continue topping up to ERS every year, your RA at 65 (assuming 3% increase in ERS per yr), will be about $657,500. About 27% more then if you don't top up at all.

If you top-up to ERS at 55, then do nothing until 65, when you top-up again to the prevailing ERS, then your RA at 65 will be the about $517,500 + (ERS@65 - ERS@55) = about $635,200. (assuming 3% increase in ERS per yr) About 23% more than if you didn't top-up at all. But about 3% less than if you topped-up every year.

Edit: If you expect to live a long life, and are financially able, you could also wait for 70 for payout. If you have a good amount in your SRS, this should be quite do-able.

Thanks again for helping with this. Just wondering though how the "27%" or "23%" more in RA translates into actual payouts. Does it imply a similar amount in higher payouts (e.g. 23% more payouts between the options in your 1st and 3rd paragraphs)?

If so, it would mean that a payout of $2690 (figure taken from Annex E3 of the Budget) based on $342,300 vs. a payout of about $3308 (when you top up to ERS only at 65) versus a payout of around $3416 (when you top up yearly to ERS from 55 to 65yo).

 

[Okenba]

Thanks again for helping with this. Just wondering though how the "27%" or "23%" more in RA translates into actual payouts. Does it imply a similar amount in higher payouts (e.g. 23% more payouts between the options in your 1st and 3rd paragraphs)?

If so, it would mean that a payout of $2690 (figure taken from Annex E3 of the Budget) based on $342,300 vs. a payout of about $3308 (when you top up to ERS only at 65) versus a payout of around $3416 (when you top up yearly to ERS from 55 to 65yo).

Unlikely. To be honest, payouts are a bit of a black box to me.
The way in which interest is earned in RA is clear, but beyond that, less so.
You can estimate, but its just an estimate. Fine if you're not too worried about the fine details.

Zoneguard has a nice diagram a couple of posts up that show that the payout is less as you put in more, but that is with reference to the amount in RA @55, and could just be a natural consequance of the way that interest is earned in the RA. I don't think there are figures of how much you can expect for payout based on how much is in RA at payout stage. I could be wrong.