CPF Life and Retirement Sum Scheme: Picking the Best Option

For many people in Singapore, CPF savings are a major part of their retirement funds. This means it is very important to learn how CPF works if you want to plan for retirement in Singapore.

In this article, we will discuss two main parts - CPF Life and the Retirement Sum Scheme (RSS). We will explain the differences between these schemes. We will also show how they can change your monthly CPF payouts when you turn 65.

Differences Between CPF Life and Retirement Sum Scheme (RSS)

CPF LIFE is now the main way for Singaporeans to get their CPF payouts during retirement. It has taken the place of the old Retirement Sum Scheme (RSS). However, some people still use the old RSS, so we will explain how it works too.

Here's a quick overview of CPF LIFE and RSS:

CPF Life

CPF LIFE works like an insurance plan that pays you each month during your retirement, beginning at age 65. It’s important to know that only Singaporean citizens and permanent residents who contribute to their CPF can join CPF LIFE. This means that homemakers and self-employed people who do not make regular CPF payments cannot take part.

The monthly payments from CPF LIFE come from your Retirement Account (RA). This account gets its money from your CPF Ordinary Account and CPF Special Account when you turn 55. The amount in your RA depends on the Retirement Sum for that year. The CPF Board changes this sum each year. How much money you get each month after retirement depends on what is in your RA when you are 55 and which CPF LIFE plan you pick (Basic Plan, Standard Plan, or Escalating Plan).

Retirement Sum Scheme (RSS)

This is one of the two retirement plans from the CPF Board. You can access it if:

• You are a Singaporean citizen or a resident who was born before 1958 and not part of CPF LIFE.

• You were born in 1958 or later but do not meet the requirements for CPF LIFE because you have less than S$60,000 in your Retirement Account (RA) when your monthly payments begin.

• You are not a Singapore citizen or resident.

Like CPF LIFE, the Retirement Sum Scheme (RSS) gives monthly CPF payments starting at age 65. You can decide to start getting payments later, but not after age 70. However, the RSS does not offer payments that last for life, unlike CPF LIFE. The money in your Retirement Account (RA) is only meant to last until you are 90 years old.

Since CPF LIFE is seen as the better retirement plan, people on the RSS are often urged to change to CPF LIFE for regular monthly payments. You can join CPF LIFE anytime before you turn 80.

CPF Life Monthly Payouts vs RSS Monthly Payouts

Here's a quick look at CPF LIFE payouts for 2024:

And here is how much money people will get each month from CPF LIFE if they turn 55 after 2024:

When planning for retirement in Singapore, remember you cannot know how long you will live. This is why the RSS payout scheme, which ends at age 90, can feel limited. In other words, CPF LIFE may be a better choice because it gives payouts for all of your life.

However, both CPF payout plans only cover basic living costs. It’s important to look at your lifestyle and figure out how much more savings you need for a good retirement. For example, if you want to take several vacations each year or spend more time on hobbies, these payouts may not be enough.

Conclusion

With the rising cost of living, you cannot be sure that the amount you think is enough for retirement will be enough by the time you turn 65. Putting your money in high-interest savings accounts that give you good returns is one of the safest ways to grow your retirement funds. You may be surprised to see that some dividend plans in Singapore offer up to 7% per annum.