When it comes to key financial phases, 55 to 65 years old is what most consider their last stretch before retirement.
Perhaps you want to settle down with your loved ones and reap the benefits of your investments. After having slogged so hard the last three decades, now is the time to ensure your long-term financial goals are on track so you can enjoy your retirement.
If you haven’t made concrete plans of how you’ll cover retirement expenses just yet, this is the last chance to do so. There are a number of financial opportunities that open up during this time to help you prepare for retirement:
Your CPF contributions decrease
All working Singaporeans and permanent residents (PRs) contribute a portion of their wages to the Central Provident Fund (CPF). In turn, these contributions are allocated into several savings accounts that citizens can use for various expenses.
For example, Ordinary Accounts (OA) can be used for housing, insurance, investment, and education purposes. And MediSave can be used for hospitalisation and medical insurance.
| See also: MediShield Life: Premiums, benefits and 2020 review |
As you get older, the contribution rates and the allocations change.
If you’re 55 years old and below, 37% of your wage goes to the CPF. But thereafter, you’ll be able to take home more of your income as your employer and employee CPF contributions decrease. By the time you’re above 65, you’ll only be contributing 5% of your income as employee contribution to the CPF.
From age 55 to 65 years old, less money will be placed into your OA and Special Account (SA), and the proportion going into your Medisave account is higher than in the start of your career to cushion any medical expenses you may need for old age.
In the early stages of your career, more money is funnelled into your ordinary account since this is the time when you will likely be building your life — buying a house, making investments, or going back to school. You can use your OA for these.
But as you get older and have more investments under your belt, you’ll likely need more funds to offset age-related health conditions. By the time you hit 50, you’ll only be putting in 3.5% of your contributions into your OA and 10.5% into your MediSave account.
You can keep working until you’re 67, if...
The minimum retirement age in Singapore is 62, but employers must offer re-employment if the employee meets the following eligibility criteria:
- You’re a Singapore citizen or PR
- Have served your current employer for at least three years before turning 62
- Have satisfactory work performance, as assessed by your employer
- Are medically fit to continue working
- Are born on or after 1 July 1952
If you are eligible and your employer offers re-employment, your contract should last at least one year and be renewable until you hit 67.
Keep in mind that if your employer is unable to offer you a position - your employer may transfer the re-employment obligation OR offer a one-off Employment Assistance Payment. If you intend to work past 62, you should make your job preferences known earlier on before you hit the minimum retirement age.
To transfer re-employment obligations to another company:
- The new employer must agree to take over the prevailing re-employment obligations to you from your present employer, AND
- You must agree to the re-employment offer by the new employer
A new CPF account is opened for you
At 55, a retirement account (RA) will be created for you. The combined balance in your OA and SA will be transferred into your RA, up to the Full Retirement Sum (FRS) of S$181,000. This sum can be used for your Retirement Sum Scheme or CPF LIFE Scheme — more on this later.
Take note that the FRS takes inflation and improvements in the standard of living into account, so the FRS will change each year.
Any remaining balance in your OA and SA can be withdrawn from your CPF accounts. But you have the option to leave them in these accounts if you want to earn risk-free interest, or continue paying for your home loans from your OA.
Meanwhile, the sum that you set aside in your RA will be distributed as monthly income when you reach the payout eligibility age.
You might have already been saving up for retirement through other channels and investments—perhaps you invested in time deposits or properties. In that case, you have the option of putting more or less into your RA if you wish. There are three sums you can choose from:
- Basic Retirement Sum
- Full Retirement Sum
- Enhanced Retirement Sum
The Basic Retirement Sum (BRS) is for those who own a property with a remaining lease to last you to at least 95 years of age and want to withdraw their RA savings above the BRS. The BRS needed to be set aside will be half that of the FRS. So for 2020, the FRS is S$181,000. That means your BRS will be capped at S$90,500.
The Enhanced Retirement Sum (ERS) is for those who wish to receive bigger monthly payouts from the CPF in the future. The maximum amount you can put into your RA based on the ERS scheme is thrice the FRS amount. For 2020, that’s S$271,500.
This retirement payout scheme was originally called the Retirement Sum Scheme, where citizens would receive a monthly payout until their RA balance was depleted. But as the average life expectancy of Singaporeans continues to increase, the government replaced the Retirement Sum Scheme with CPF LIFE in 2009 — the big difference being that CPF Life offers monthly payouts for life.
Those born in 1958 and later are automatically enrolled into CPF Life (if you meet the minimum sum of S$65,000 in your Retirement Account at age 65). Anyone born before or not meeting the minimum sum will be on the Retirement Sum Scheme but may apply to CPF LIFE anytime between their payout eligibility age and one month before 80.
| Related: How to use CPF to retire - CPF Retirement Account, interest and payouts |
You get discounts on essential purchases
Getting older in Singapore means you get access to special discounts. This is to make basic necessities more accessible to you as you prepare for retirement.
While the official retirement age is 62, there are some discounts available to you earlier than that:
On to new horizons
The years leading up to retirement can be an anxious one as you make the final adjustments to your financial plans. But budgeting wisely and making use of the best resources and government schemes available to you should help you to retire with enough in your pockets and peace of mind.
To make sure you’re getting the best bang for your buck every time on financial products like insurance and loans, check out GoBear — the easiest way to find what you really need during every stage of your life.
Disclaimer: The information in this article is accurate as of 19 Nov 2020 unless otherwise stated. Whilst we endeavour to keep the information accurate and updated, GoBear makes no representation or warranties for the accuracy of the information in this article or content of any websites which may be linked.
This article is for informational and promotional purposes only; it does not constitute advice or recommendation and does not take into account your own individual circumstances.