CPF on FIRE: Top up CPF LIFE to Enhanced Retirement Sum (ERS) or invest instead?

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CPF on FIRE is a series that takes a deeper look into Singapore’s Central Provident Fund (CPF) Scheme and see how they do or do not contribute to a financial independence journey. As each Singaporean and Singaporean PR must contribute a large chunk of their monthly income to CPF, this is a hot button topic for everybody. I’d like to dive deep and dissect it to give an objective assessment of the scheme from a financial independence and early retirement perspective.

In my first CPF-related post on how to best optimise the usage of CPF LIFE, I concluded that CPF LIFE is a great annuity plan that has a very high expected pay out which can greatly supplement our retirement income. (And that’s still true!)

However at the end of the post, I also mentioned that it is more worth it to elect for the Full Retirement Sum (FRS) and call it a day instead of going for the Enhanced Retirement Sum (ERS). I concluded that the ERS doesn’t offer as good value-per-dollar compared to the FRS based on the RA balance… but now that I think about it, that isn’t really the best way to look at this. Rather, I should have compared it to the alternative.

If instead of topping up from FRS to ERS, we instead invested the difference – which of these two options will provide a higher passive income? Well, that’s what I aim to do with this post.

In terms of TL;DR: Based on what I found as a result of writing this post, I will personally be topping up my CPF RA up to the Enhanced Retirement Sum because it is super worth it from a risk and returns standpoint. I hope I can show you how I came to that conclusion with this post.

[Update 7-May-2020] To be clear, this is an analysis from the perspective of optimising the retirement income by comparing investments and CPF LIFE which is an annuity. It does not mean that CPF LIFE is the correct product for your retirement needs from the perspective of preserving your capital – in which case, CPF LIFE (as annuity that has low residual value), would not be the optimal choice.

So let’s take a deeper look at this decision and compare topping up to ERS against investing this money to determine which one comes out on top.

Here’s how I’ll be breaking this post down:

  1. Important announcement!
  2. What does it cost to upgrade from FRS to ERS?
  3. How much more passive income do we get from ERS compared to FRS?
  4. If we invest the money ourselves instead, how much passive income would we be able to generate?
  5. How long would it take for the investment route to break even against the ERS?
  6. Final verdict & conclusion

Before that, I have an exciting announcement to make

[Update 16-May-2020] The Webinar is done! You can watch the recorded webinar here: https://endowus.com/insights/webinar-financial-independence-retire-early/ Thank you to those who were there live to ask questions and interacted with us on the stream. I hope that the content was interesting and informative to you!

The friendly folks at Endowus (not sponsored) has graciously asked me to join them as a presenter on an episode of their weekly, live, online webinar. The topic will revolve around Financial Independence in Singapore. We’ll be discussing general topics and concepts around FIRE and Financial Independence through the lens of doing so in Singapore.

For those of you who read this blog regularly, this will likely not offer anything completely new, but we’ll be answering some live audience questions so it would be awesome to interact with some of you guys if you are tuning in!

This is all because of readers like you guys! Love you all! ❤️

This will be my first live appearance (in voice form) so if it goes well, I can look to do more engagements like this.

If you’re interested, it will take place on Wednesday, 13th of May at 7pm to 8:30pm.

Here is the EventBrite link to the Webinar: https://www.eventbrite.sg/e/endowus-live-financial-independence-retire-early-in-singapore-tickets-103901526262

I hope to see you guys on the chat!

Now that’s out of the way, let’s dive into our ERS vs Investing analysis!

First let’s take a look at the difference between FRS and ERS

How much extra do you have to pay to upgrade from FRS to ERS?

Here are the amounts you are required to have in your RA when you turn 55 for FRS and ERS (I included the Basic Retirement Sum (BRS) as well for completeness):

Retirement SumsAmount Required in CPF RA
FRS (2x BRS)S$181,000
ERS (3x BRS)S$271,500
Source: CPF Website

As you can see, in order to upgrade FRS to ERS, you must top up the CPF RA with an equivalent of 1 BRS or S$90,500. This can be done either via transferring more funds from the CPF OA into the CPF RA or you can top up in cash.

Once you do that, you would meet the criteria for upgrading to ERS. So what do you get for topping up?

How much more in annual passive income do you get for the upgrade?

Once you have either the BRS, FRS or ERS in your CPF RA, you can elect for the CPF LIFE to begin paying the annuity payout starting from the age of 65 (10 years later) or as late as 70.

By choosing to have the CPF LIFE payout later, you can increase the monthly payout by as much as 7%. However, to keep this simple we’ll only take a look at the amount you’ll get if we elect to get our payout at the earliest date possible, which is starting at age 65.

Here’s how much payout each of the 3 different Retirement Sums provide when you turn 65:

Retirement SumsMonthly Payout
BRSS$750 – S$810
FRSS$1,390 – S$1,490
ERSS$2,030 – S$2,180
Source: CPF Website

So let’s isolate how much more we’re getting by upgrading from FRS to ERS shall we? How much more do we get for adding in another S$90,500?

Retirement SumsMonthly Payout (Low End)Monthly Payout (High End)

So it looks like by upgrading from FRS to ERS, we are getting an additional S$640 on the low end and an additional S$690 on the high end of the payout compared to the FRS.

How much does this mean in terms of a Safe Withdrawal Rate?

So if you’ve been learning about FIRE or if you’ve read by other posts, you’d know that one of our favorite tools to determine how much passive income we can withdraw from our investment is the Safe Withdrawal Rate.

So let’s take a look at how much the additional S$640 and S$690 mean when compared to the S$90,500 additional funds we need to put into the Retirement Sum. If it’s higher than our baseline of 4% then we’re getting a relatively good deal!

However, we cannot just use the S$90,500 directly to calculate our withdrawal rate as that’s how much we top up our CPF RA at age 55 but we only receive our payout at age 65 – ten full years later! Instead we should see how much the S$90,500 would have become in 10 years, and then calculate the withdrawal rate based on that larger number.

If we used S$90,500 directly, then S$640 a month would equal S$7,680 per year and S$690 would equal to S$8,280 per year. This comes out to about 8.5% and 9.1% withdrawal rate respectively – which is really high! But if we calculate using how much S$90,500 would have become in 10 years, we’d have a much lower number.

So let’s do that first.

Calculating how much S$90,500 would have become in 10 years in CPF RA

Doing this is actually quite straightforward. We can simply use the annual interest rate of the CPF RA and compound the S$90,500 monthly for 10 years.

This is how interest rates in CPF RA looks like:

Amount in CPF RAInterest Rate
First S$30,0006%
Next S$30,0005%
Above first S$60,0004%

Since the S$90,500 we are topping up into the CPF RA is on top of the Full Retirement Sum of S$181,000, all of the added amount would fall into the “Above first S$60,000” amount and thus gets a flat 4% interest rate.

If we compound that amount monthly at 4% p.a. over 10 years, we’d get:


Using this number to calculate the withdrawal rate now we actually have 5.69% for S$640/month and 6.14% for S$690/month – nowhere near as high as 8% or 9% but still really good if we baseline against the 4% withdrawal rate we normally use for FIRE number calculations.

That’s it then right? Case closed? Topping up to ERS is definitely better because for the amount of money, we’d get a steady income that’s equivalent to between 5.69% and 6.14% – which is clearly better than just 4%?

Not so fast! It may be true that the additional passive income you get for ERS represents a great withdrawal rate, but we’re just comparing that to the amount of money that it would become in the CPF RA under 4% interest rate.

What if instead I don’t put that S$90,500 into the CPF RA for ERS, but instead invest it outside instead to get higher returns than 4%? Isn’t it possible that it would grow to an amount that will provide better absolute passive income even when I am withdrawing just 4%?

The answer is yes, it’s definitely possible. So now let’s take a look at that scenario. How much of a return you’d need from investments outside of CPF RA for us to do better than topping up to get the ERS shall we?

How much annual passive income can we get if we invest the funds instead?

The first step we’ll need to take in order to find out the passive income we can generate from investing the funds instead is to find out how much the funds would become – if invested – after 10 years.

In order to do this, given that I don’t want to predict how well the market will perform when we all turn 55 until when we all turn 65, I’m simulating multiple possibilities.

Let’s take a look at how much S$90,500 could turn into given average nominal (including inflation) rate of returns of 5% all the way up to 9%:

Chart of portfolio values after 10 years (at age 65) at different average returns if the funds is invested instead of topping up CPF LIFE to get to ERS

Great! So now we have 5 different scenarios, all of which gives us a better portfolio value higher than if we had left it in CPF RA. Now we can actually look at how much passive income each of these scenarios will give us.

How much passive income will each portfolio produce and how does it compare to ERS?

Although all 5 investment scenarios produce better ending portfolio balance than if we had put the money into the CPF RA, the passive income that they can generate is the baseline Safe Withdrawal Rate of 4% or lower – nowhere near 5.69% and 6.14% of CPF LIFE. Therefore not all of the scenarios will produce better passive income than CPF LIFE.

Let’s take a look at each of their passive income using the 4% rate compared to the increase from ERS:

Chart of passive income from different investment portfolio returns using 4% Safe Withdrawal Rate compared to increase in CPF LIFE payout with ERS

As you can see, the portfolios with returns between 5% and 7% all produce less passive income compared to even the lower end of the increase in ERS income.

At 8% average returns, we are starting to be able to generate passive income that is between the low and high end of income generated from ERS.

Then at 9% portfolio returns – keep in mind that this is an average over 10 years – we see a clear outperformance compared to ERS.

However, before we jump to any conclusions from this information, we need to keep in mind that:

  1. We are looking at payout for CPF LIFE payout for the Standard Plan, which does not increase to adjust for inflation over time. So for CPF LIFE Standard Plan, we will only ever get this much in payout until the day we die.
  2. As for the 4% Safe Withdrawal payout, it allows us to increase the withdrawal amount each year depending on the rate of inflation! This means that the amount we can withdraw from the portfolio will increase slightly over time to allow for any cost of living adjustment due to inflation.

With those 2 points in mind, eventually the passive income from the 5%, 6% and 7% portfolios will increase enough to beat the ERS income!

So when will the investment income beat the ERS income in these scenarios?

Well, there will be 2 major milestones:

  1. When the monthly passive income increases enough to be equivalent to the ERS income; and
  2. When the total income received from the portfolio withdrawal is equal to the total income received from the ERS

Of course, we’d expect #1 to come before #2. Once the monthly income beat the income from ERS, it can start to catch up with the total income.

So I modeled this out for each of the portfolio returns, increasing the passive income for each portfolio by 2% (inflation adjustment) every year and got this:

Chart of years of passive income from investment portfolios to beat low and high end of increase in CPF LIFE income from ERS based on their average rate of return between age 55-65

Let’s break this result down:

  1. 5% Return Portfolio: If your portfolio only generates 5% returns between age 55 and 65, then your portfolio will generate very small passive income at age 65. It would take between 13 and 18 years before it will generate roughly the same monthly passive income as ERS. Now if you wanted the total income from the portfolio to beat that of ERS, you’ll need between 26 and 33 years after you start withdrawing! Which will put you at between 91 and 98 years old before you break even!
  2. 6% Return Portfolio: For the 6% return portfolio, the situation isn’t much better. It will take between 8 and 13 years before the passive income from this portfolio to match ERS – we’d be between 73 and 78 by then. In order to beat ERS in terms of overall income received, it would take between 17 and 24 years – we’d be between 82 and 89 years old by then.
  3. 7% Return Portfolio: This is the more reasonable rate of return compared to the more conservative 5-6% however this also means that this portfolio is a bit more risky compared to the other 2 – i.e. more equities and less bonds. With this portfolio we’d get the same monthly passive income between 3 to 8 years after withdrawal – between age 68 and 73. We’d get more in total returns after between 8 and 16 years – between age 73 and 81. Certainly a lot more reasonable.
  4. 8% Return Portfolio: Now we get to something that’s really worth considering. With this level of returns on your investment – and you’d be taking a bit more risk than the other portfolios – we’d beat the low end of the ERS payout right out the gate. However, it will take almost 3 years to beat the higher end in monthly income – around age 68 – and 7 years to beat the higher end ERS income in terms of total income – around age 72.
  5. 9% Return Portfolio: No need to even talk about this one. If you can consistently get 9% returns per year over 10 years, you will certainly beat ERS right out the gate on both the lower and higher end. If you can do this and are willing to take this risk, then investmenting is better for you than topping up ERS.

So what’s the final verdict – should we upgrade to ERS?

Let’s look at it from a life expectancy perspective

Based on SingStat, here’s the latest life expectancy at the age of 65 for Singapore residents:

Source: SingStat.gov.sg

This shows that:

  1. For males at age 65, we are expected to live for another 19.3 years – till age 84.3
  2. For females, that number is slightly higher at 22.6 years – till age 87.6

So from this perspective, in order for it to make sense for us to invest the money instead of choosing to stick with ERS, we would need to generate at least a return of 7% p.a. Else ERS is going to be superior.

Of course, if our life expectancy is less than 30 years as the data seem to suggest, then it’s also possible for us to withdraw more than 4% from our portfolio since the 4% rate assumes you’d like to make sure the money lasts 30 years.

However, that is risky because of longevity risk. If we end up living longer than expected (a great thing) but we withdrew too much and we run out of money, then we’d have a hard time in our old age – so I wouldn’t advise increasing the withdrawal rate and hoping that we don’t out-live our money.

This brings us to the main benefit of CPF LIFE – risk reduction.

CPF LIFE is much lower risk whereas investing involves high risk if you want to generate the higher returns required

Now I’m not saying that CPF LIFE is “risk-free” because it isn’t. It is still affected by policy risk and the Singapore Government could potentially change the payout or the payout date.

However, given that this is a national program which affects all Singapore residents, changes will likely be gradual and we’d be informed of any changes before we get to make the decision. It’s unlikely for the government to make changes to the policy that will affect those that has already received their payout because that would seriously impact any planning that retirees has done around CPF LIFE. Any changes are likely to only affect those that have yet reached the age of 55, thus giving them time to adjust their retirement plans.

Comparatively, investing exposes the investor to the market cycle and the global economy. It’s completely possible that during the 10 years between 55 and 65, the economy takes a dive and the returns for the investor over that period ends up being negative. If that were to happen, then the investor will be much worse off than using CPF LIFE.

Also in order to attempt to get higher returns, the investor must allocate the funds to equities, but that is higher risk. Normally an investor should rebalance their portfolio to become more bond-heavy nearer retirement age, and at 55 we may have as high as 50% of our portfolio allocated to bonds, which will reduce the expected return of a portfolio in exchange for more stability.

This will not be an issue for a person utilizing CPF LIFE. The income is predictable and backed by the Singapore government.

The downside of CPF LIFE (Updated 7-May-2020)

In terms of downsides of CPF LIFE, it would not be the best choice if the intention is to preserve your capital. Once you have top up or paid into CPF LIFE for the purpose of getting the payout, that lump sum is no longer available to you. You lose the access and flexibility of using that money when and how you want. It has been converted into a relatively stable and consistent annuity payout that are paid on a schedule until you die.

Although CPF does say that there will be a bequest that – when added to your total payout – will be at least equal to or more than the amount you’ve put into CPF LIFE, they are not optimising for maximising the bequest amount. This is true even with the Basic Plan option (they still need to give you monthly payout after all.)

The primary objective of the government to design CPF LIFE in a way that optimises for ensuring that it can pay out to its members as long as they are alive and not for building an inheritance to bequest to your family. Thus, once you pass on, there may be little to no remaining value left to pass on to your dependents or family members.

Compare this to investments, if planned properly, your investment assets can be structured in ways that will produce a nest egg that can be passed onto your children or remaining family members after you pass.

If you do not need the income from CPF LIFE to live in your retirement to hedge against your longevity risk and market risk, and instead you’d like to preserve capital and build an inheritance to for your children and family, then CPF LIFE is certainly not the right choice for you.


So given all of the above analysis, I have changed my mind from my post on how to optimise CPF LIFE. In that post I wrote that the optimal use of CPF LIFE would be to get to the Full Retirement Sum. Although technically that’s still true, we don’t get a proportional increase in passive income when we top up to Enhanced Retirement Sum, however, it is still much better than if we take that funds to invest it and generate the additional income ourselves.

This is due to the fact that the ERS payout is actually quite good and it would require us to get very good returns on our investments in order to outperform ERS. Additionally the risks we’d have to take in order to generate that kind of return will actually not be worth it – especially at the age of 55.

So my personal take – from the perspective of optimising my retirement income – is to top up to Enhanced Retirement Sum to lock in that higher income payout. Then if you have money left over, you can invest that outside for additional passive income. There’s no point leaving this great guaranteed income on the table to try to do it yourself.

Of course, if you believe that you can definitely get more than 7% returns by investing, then you can take that calculated risk. For me, I know what I’ll be doing.

I hope you found this analysis useful! If you do, please do share it with others you think will benefit from this post, it will really help!

If you have any questions, do email me or comment below or get in touch with me on twitter @firepathlion!

Until next time!


40 thoughts on “CPF on FIRE: Top up CPF LIFE to Enhanced Retirement Sum (ERS) or invest instead?”

  1. Hi, good analysis, but I also realise that the extra S$90,500 you use to upgrade from FRS to ERS will stay with the govt, and you will never see that money again.
    But if you invest that S$90,500 yourself, that money belongs to you, and you have full control over it – and at the age of 65, assuming that you only withdraw a small portion of the money every year, the balance would still be earning returns for you year after year.

    • Hi JA, you’re definitely right! If you elect to upgrade to ERS, the money is now locked into CPF so that it can generate that consistent retirement income for you. You will not have the flexibility to withdraw more than they promise but you also won’t be getting less. However with investments, you have the flexibility to withdraw as much as you want or as little as you want, while you are also subjected to the whims of the market. If the market does badly or goes through a crash right when you are about to withdraw from it, the amount you can withdraw may not be as much as you need or it just won’t last you as long. This is the risk you will have to consider by going with the investing option. In the end it is a decision that you get to make!

      After taking a look at the risk vs rewards, I feel that the stability that CPF LIFE provides and the level of returns it was able to provide (higher than 7% annualised return) was very worth it for me 🙂

      • Hi FP Lion, great article and analysis.

        I thought I would just add in my own opinion wrt the ERS returns needed to be generated by investments. Your calculation method seems to put it at a disadvantage. No doubt if a person lives longer and longer, then CPF ERS is an excellent plan.

        For my own calculation, I uses the same $90,500 compound from 55 to 65 and setup the same payout (Ave $670/month) annually based on a certain percentage of returns that deducts the pool of money until it is $0.

        If you live till 80 yrs, returns needed: 2.0% pa
        If you live till 85 yrs, returns needed: 3.1% pa
        If you live till 90 yrs, returns needed: 3.8% pa
        If you live till 95 yrs, returns needed: 4.3% pa

        I would like to add that on a STD CPF LIfe plan, the bequest is 0 after Age 80. So based on above numbers, investment options are definitely viable as opposed to 7%, 8% or 9%.
        Of course, 1 major Risk Point I have to mention is, will everyone who take $90,500 out, diligently find a good method/consultant to invest their money in a responsible/diversified/sustained way?? That is a big IF.

        I have written on the topic as well and if I could add my link below. Thanks!

    • Hi JT! You only need to decide to top up to ERS when you hit 55 years old! So once you reach 55, an amount from your SA and OA will be taken (up to FRS amount) to create the RA. After that you have the option of transferring any excess funds from your OA into RA up to ERS or if you don’t have enough in your OA, you can top up your RA using cash to ERS. So don’t worry, you haven’t missed that window yet!

  2. Hi,
    Curious at one of the statements you make. Your calculation involve having the BRS in your RA at age 55, but the eventual monthly payout remains the same even at 65. Correct me if I’m wrong but.. assuming you left aside FRS (for example) in your RA, the FRS will grow at the rate which you mentioned. I believe the monthly payout will increase in a pro-rated manner too, resulting in a higher than usual payout when 65.

    • Hi Aaron! My calculations used the difference between ERS and FRS (not BRS) and assumed that the payout mentioned on the CPF website is meant for the current ERS and FRS amounts so the assumption is that if you turned 55 today, at 65 you’re going to get the payout that’s mentioned today, rather than an adjusted amount in 10 years. If the number does get adjusted in 10 years and is actually even higher, then it would actually tilt my analysis even MORE in favour of CPF LIFE because the amount of payout would be even higher. 😀 Hope that makes sense!

  3. Yes that makes sense! Just want to clarify the fact that if I put BRS at age 55, the BRS will actually grow till age 65, resulting than a higher than BRS payout.

    Information on CPF is not always clear on the web 😭

    • Yeah I find the lack of clarity of CPF information frustrating as well. I am sure that all retirement sums, including BRS, continues to grow in your RA until age 65, however I think that’s already been factored in (since it’s a straightforward & predictable calculation) so your BRS payout has already taken that into account and will not be adjusted up. That’s what I assumed in my post for ERS also 😀 now if it does get adjusted up, then even more awesome for us!

  4. Fire-Path Lion, hi
    Thank you for the article. I have a thought for your consideration. Before reaching 55 years old, I do a CPF-SA shield leaving the minimum required amt ($40k) in CPF-SA. It is done by investing in CPF-SA permitted bond fund. Upon the date of my birthday, CPFB will take from my CPF-SA balance first followed by CPF-OA to create CPF-RA. After CPFB informed me that my CPF-RA is created, I sell my bond fund. It goes back to CPF-SA. In this way, I ensured majority of the funds to create CPF-RA comes from CPF-OA, thereby enabling a higher interest at 4% instead of 2.5%. In addition, CPF-SA funds earn 4% until I decide what to do at age 65. In this way, the amount in CPF-SA is not tied.

    • Hi Andrew! Thanks for commenting! That’s a really good point. Do you know if we have evidence that this method works in ensuring that we are able to shield our SA dollars from becoming RA in doing this? This does open more doors in making use of CPF-SA during retirement as a bond-fund and a fixed-income generating portion of our portfolio if we can keep a large chunk of our SA in tact!

        • Hey Krishnan! Thanks for this link and it’s explained quite well. This is very interesting and it might be worth it for me to do a deep dive on when & whether folks trying to FIRE should use this CPF SA shield method. Since CPF SA offer a guaranteed 4% interest, this might be great to use as the Bond / Fixed Income portion of our portfolio in our old age while keeping the rest of the money outside of CPF in equities for higher expected return.

      • Hi FIRE-Path Lion,
        Yes, CPF-SA shielding definitely works for any amount above $40K – we must keep a minimum of $40K in our CPF-SA when investing the funds in our CPF-SA.
        With this in mind, another option would be to leave the $90.5K in CPF-SA to earn 4% pa instead of topping up CPF-RA (and hence locking it up). This affords the flexibility of withdrawing as much, or as little, as we need, while the balance continues to earn 4% interest.
        Perhaps you would like to work out the age at CPF Life offers a better return than this alternative.

  5. Fire-PathLion,
    My wife is a homemaker and few years back I started contributing to her CPF SA account as it will earn 5% on first 60k. Later on I felt that may be I should continue to contribute more for the purpose of tax saving(upto 7k) as well as to allow for additional retirement income that would come from her RA account. Do you know how this works? Meaning would there be a spectate RA account created for her and then based on the amount in her account at age 55, CPF Life payout would be provided. In effect both getting a CPF life payout for our respective sums in RA

    • Hi Krishnan, I believe that your wife’s CPF account will behave like a normal CPF account and an RA will be created for her, similar to yourself, when she reaches the age of 55. She will also be eligible for CPF Life.

  6. Is there a deadline that we must withdraw all our CPF money? Can we leave whatever sum we have to earn the interest in the various account till we pass on?

    • Hi John! Based on my research, I don’t believe there’s a deadline, you may leave your funds in CPF to earn the interest for as long as you wish. Once you pass on it will be given to your estate as per normal or based on the nomination you’ve made.

  7. Can I top up to ERS the $90K fully with cash even though my SA still has excess fund after the FRS amount has been set aside? Can I then continue to retain my SA/OA funds to enjoy the high interest rates?

    • Hi Edith! I think it’s possible to do the popup of the CPF OA with cash so that the CPF OA alone provides enough funds to hit the ERS, however that alone won’t guarantee that the funds used for creating the RA comes solely from the OA. I’ve been told that in order to do this, you can follow something called the “CPF SA Shielding” approach highlighted here: https://toc.net/2019/10/20/cpf-sa-shielding-before-ra-is-formed-at-age-55/

      Basically before the age of 55, you use the CPF SA money to buy into some short term T-Bill / Singapore Government Bonds so that the money is “locked up” in the bonds as you turn 55. When you do so when the CPF RA is created, instead of taking the money from the CPF SA (which is now locked int the bonds) they take all the funds from the OA instead. Once that happens you can then sell the bonds where the proceeds will return to your CPF SA to continue enjoying the higher interest rate in the SA. You can keep your funds that remains in the SA and OA after the age of 55 for as long as you’d like. There’s no requirement or age limit in which you will have to withdraw the funds – so you can enjoy the higher interest as long as you keep the funds in there.

  8. Scenario: I am 55 this year, the ERS is $271,500. I am considering if I should top up the ERS every year to the max amount. Eg This year 2020 the ERS is $271,500, next year 2021 the ERS is $279,000 so I can put in an extra $7500 into my RSTU every year till age 64. Is there a way to do a calculation on the final amount i would get from CPF at age 65 for CPF Life, my stream of income till I die?

    • Hi Jessa! That’s an interesting question, however I don’t think that would be necessary. Your CPF RA interest is already at least 4% (and up to 6% due to the bonus interest) and the maximum funds that can be within the CPF RA account is up to ERS. If you had $271,500 at the beginning of this year, by the end of the year the interest from that amount (at just 4%) is already $10,860 – which will bring you up to more than the required ERS amount. Any extra amount *should* flow into your CPF SA or CPF OA – which one I’m not sure so don’t quote me on this one.

      In any case, because the maximum you can have in the CPF RA is up to the ERS and the interest on the current amount should already overshoot the amount you need, I don’t think you’d need to manually top up.

      However, if the situation were to occur where the increase in interest does not cover the gap and you still have room to top up till you reach the ERS, then you can certainly top up to the ERS using the RTSU. In order to know roughly how much you’d get in payout, the CPF Board provides this CPF LIFE estimator for our use, it might help answer your question: https://www.cpf.gov.sg/eSvc/Web/Schemes/LifeEstimator/LifeEstimator

      • RSTU for prevailing ERS in RA yearly doesn’t take in consideration of interests thus you can still top up yearly but with no tax relief since it’s above the qualifying FRS.

  9. Regarding SA shielding. My 55th BD is Dec this year. If I buy T bills in July leaving just 40K behind, can I then transfer 141K from OA to SA, then buy another 141K T bills with SA, top up with OA again….same cycles before Dec until my OA is left with just 20K and SA with 181K for FRS. When all my T bills mature after Dec, they’ll all go back to SA. Can I do that? Is it legal? Tks.

    • Hi Edith! I think that’s a lot of money you’re putting into CPF. Just keep in mind that even if you’re buying T-Bills using your CPF SA, that still counts towards the CPF SA cap of the current ERS, so if the total holding within the T-Bill is already equals to ERS, you won’t be able to popup your CPF SA above that for your next T-Bill Purchase. At the end of your CPF SA shield, and your T-Bills mature, you will not have more than the ERS inside the SA – else that will be a pretty big loophole. A lot of your funds will end up sitting inside the OA getting 2.5% instead.

  10. Hi again FP-L, appreciate your advice:
    1. If Z top up to ERS $271,500 at 55 but pass at say 64, just before the monthly payout starts at 65, will Z’s beneficiaries receive $271,500 plus compounded interest over the past 10 years (before payout), or they’ll get only $271,500?
    2. Do most people who can afford it top up to ERS? or is it better to use the $90,500 to buy a private annuity plan that may offer almost similar monthly payout but with more flexibility? Has any research been done on this before?
    3. Is it true that some of the private annuity plans can be surrendered for cash value (if there ever is a need) and gives out a lump sum upon maturity. CPF Life doesn’t allow surrendering and since payout is for life, there is no lump sum payment. If this is true, then won’t we be better off to use the $90,500 required to top up from FRS to ERS to buy a supplementary private annuity instead?
    Thank you.

    • Hi Edith,

      1. I’m not 100% certain here, but I believe that the short answer is that the beneficiaries will receive the S$271,500 plus the compound interest over the past 10 years – so the beneficiaries will not be missing out on any of the compounded interest if the account holder passes away before they begin to receive the payout.
      2. I am not sure if most people top up to ERS. Given that many people are quite skeptical about CPF in the first place, I wouldn’t be surprised if most people do not. However that doesn’t mean that this is the right choice. It is likely that most people do not understand the true cost-benefits of CPF to make an informed decision around using their CPF account. Based on my understanding of CPF LIFE, they are the most value for money annuity plan out there – better than any private annuity plans because of the scale that the government has so I don’t believe that any private annuity plan would be better in terms of payout. Now private annuity plans could offer better flexibility, I would not be surprised if they do because that’s the way they can compete – however they will not pay out as much. It’s always a trade-off between payout and flexibility – there is no free lunch. I will admit that I have not seen a detailed analysis done on this, however the financial principles dictate that private companies must make a profit (and the government does not) and in order to provide higher returns, there must be less flexibility (similar to why Fixed Deposits are able to provide higher return than normal savings accounts – therefore the private plans cannot provide both better payout and better flexibility. If one goes up, the other will go down. Note that I will be very happy to be wrong here. If you happen to find a private annuity plan that is better than CPF LIFE in every regard (higher payout AND better flexibility) then please let me know! If it is clearly better, I would definitely recommend going with that option 🙂
      3. It is true that private annuity plans can be surrendered for cash value! However, the surrender value is much smaller than the amount that has been put in. Think of annuities as a form of insurance. It is an insurance against the risk of living longer than your money can last – longevity risk. And annuity providers are able to guarantee you that you give them $X amount and they’ll pay you S$Y forever by spreading out this risk across multiple people who buy the annuity. Some people will live longer and some will live shorter lives – so if they did their calculations well, this will cancel out – then they add a bit more money so that they can make a bit of profit. Now if they allow you to surrender the annuity for cash value – they cannot give you the full amount or else they will not make any profit and they also lose a pool of funds that was going to be used to pool against other buyers of the annuity. So they cannot make it too worth it for you to redeem your annuity for cash – or else everybody will do it right before they pass away which will effectively prevent annuity from working for the other people who are still holding the annuity. In a way, the inflexibility of the CPF LIFE is what gives the CPF LIFE such good payout compared to private annuities. However, it is something that you should determine whether the flexibility is truly important for you. Keep in mind that once you redeem the annuity for cash, you will no longer receive the monthly payout so you want to make sure that you will definitely not run out of money going forward.

      Hope that makes sense!

  11. Hi FIRE-Path Lion,

    I’m currently 32 yo and I’m looking to fast-track the accumulation of my SA so that it can achieve the FRS when I’m 40 (8 years runway). Thought of 2 ways to go about it:

    1) Perform a monthly cash top-up into my SA till it hits the FRS when I’m 40. Pros would be a fixed annual return (~4%) with no risk of negative returns, Income tax relief and cons would be illiquid (one-way transfer).

    2) Set-up a system to DCA into Robo-advisor till I’m 40, then liquidate the portfolio and do a lump-sum cash top up to my SA. Pros of this is I thought would be liquidity and cons would be volatility and value might fall or go into negative.

    The main reason holding me back from going with option (1) is the illiquidity and lead me to consider option (2).

    May I ask other than the pros and cons which I thought of, what other criteria would have to be met before we decide that okay, it is safe to go with option (1) and be prepared not to touch the money that is going into SA?

    Thank you!

    • Hi Han! Hmmm, I’ve thought about this myself. I think for me, I’ve concluded that we should at least top up the SA enough to max out the tax deduction since that will guarantee reduced income tax AND guarantee 4% returns, which is pretty good – especially if our current income tax bracket is high.

      Then I would keep the funds out of the SA and invest it outside of the CPF SA because you get better returns and better liquidity – in case you need the funds for something. You can always top up the SA later once we need to hit the FRS. However, I’d only do that when we really need to, which seems to be age 55.

      Any reason why you want to hit the FRS number at 40 when you can invest the funds outside of CPF until 55 (to take advantage of higher returns) until you really need to top up SA for FRS?

      • Thank you for sharing your thoughts on this FIRE-Path Lion! Maybe I share more about my current plan.

        My original plan since last year was actually to perform a monthly OA to SA transfer to achieve FRS by 55 while DCA-ing into Robos with ~25% of my take home income. However, seeing how one pandemic can have such an impact to many people’s jobs, I feel that my employability in my 40s to 50s is not as certain, hence thats one reason for thinking to aim for FRS by 40, which is to be funded with savings on top of the ~25% that goes to Robos.

        This means to say I might have less wriggle room in terms of my monthly cashflow, which is why i’m kinda unsure if I should just force myself to do a monthly RSTU into my SA, or just save the money and add on to my DCA into Robos, with the liquidity option in case I need the funds for something in the future (*my insurance and Emergency fund has already been catered for, so this something could be for e.g. kids, housing etc).

  12. In the first place are you sure you can top up FRS to ERS? Don’t any how bullshit la… You are a bloody fake advisor… Write without checking the facts.

    • Hi! Thank you for commenting! Do you mean there is no way to top up FRS to ERS? This was written because I was looking into CPF LIFE for my personal knowledge and definitely want to be as accurate as possible. If there is information that I should correct, do let me know. Oh and I am not a financial advisor if that’s what you meant by advisor, just a random guy trying to plan my own retirement and thought I’d share what I learned! Thank you!

  13. Hi! I understand that any voluntary cash top ups to CPF under the retirement topping up scheme does not count towards the calculation of BRS, FRS and ERS. So is it really possible to top up in order to reach the ERS amount? Im abit confused.. sorry if I’m not making sense!!

      • https://dollarsandsense.sg/3-cpf-retirement-sums-increase-every-year/

        Okay what I can confirm is :
        1. At age 55, we cannot withdraw any amount that is above the BRS that comes from our mandatory contributions. Our Retirement Sum Topping Up Scheme (RSTU) contributions are excluded and do not count towards our BRS/FRS. At age 55 for the saking of calculating possible withdrawals. (This is definitely confirmed from my call with CPF hotline)
        2. FRS is the maximum ceiling that you can top up your SA before age of 55.
        This means, I can only top up with cash after age 55, if I want to zeng my CPF to ERS amount, if after adding up my OA balance, I still have not reached ERS.

        For the context of this analysis, let me call CPF again tomorrow to confirm!

        • Just called CPF to clarity my questions. The only scenario where voluntary cash tops under retire top up scheme does not count is for any withdrawals above BRS at the age of 55. But you can definitely top up in cash from FRS to reach ERS after the age of 55. Hence, the assumptions for your analysis here are valid! (Really was just confusing myself earlier…)

          • Hi Joyce! Sorry for being a bit slow in replying! Thank you for checking with CPF and coming back to confirm! I’m glad that it’s cleared up your confusion now! 😊

    • Oh I just realized the previous comment is somewhat similar in question! I’m asking this because previously, I was considering topping up to my RA, and then taking the money out at age 55. Turns out I can’t do that because such top ups don’t contribute to the BRS/FRS/ERS calculations. It can only be part of monthly payout from age 65 onwards. I called CPF to confirm this. But in your context here, this may not matter. Can you just help to confirm my understanding 🙂

  14. Good analysis. Comparison of rates aside, I think the primary consideration for ERS vs FRS options should firstly be the adequacy of the payout. If FRS payout is enough for one’s expenses, wouldn’t putting the 90k into a long term instrument (to compound and ride out volatility) that return >4%, a better overall return, not to mention capital gain instead of depletion. Don’t forget that once CPFL started, interested compounded will no longer belong to the individual.


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