It was 9 years ago that I set out to grow my Central Provident Fund (‘CPF’) as part of my FIRE journey. Back then, I was thinking that having monthly payouts from the government is a good fall-back plan to have, in case my own financial plans do not work out. Last month, when I checked my CPF statement, I realised that I have achieved CPF Full Retirement Sum (‘FRS’) in Year 2023! This is undoubtedly a personal finance milestone worth celebrating. Let me explain in this blog post how I achieved this goal and what its implications are in my journey to achieve early financial independence.
How I Achieve CPF FRS
As shown in Diagram 1, I successfully crossed the Full Retirement Sum of $198,800 applicable in Year 2023.
This is a significant personal finance milestone that was a result of years of patience and hard work. Let me explain how I eventually got there.
1) Continuous Employment
I have been working in the corporate world for 10 years and enjoyed very stable income throughout. My compensation packages were probably above average compared to my peer given my academic qualification and the industry that I was in. This was a strong head start that served as a great compounder of my CPF savings.
Even when I was between jobs, I took just a few days of break to recharge. This strong work ethic and continuous employment undoubtedly accelerated my goal to achieve FRS in my CPF Special Account (‘SA’).
2) Early transfer from OA to SA
As I bought my HDB BTO flat fairly early in my adult life, my CPF Ordinary Account (‘OA’) funds continued accumulating once I have paid the 5% downpayment. As such, I was able to optimise my CPF by transferring funds from my OA to SA as early as in Year 2015. I did this primarily to earn higher interest rate provided by the SA.
It also helped that I maxed out the loan quantum as it was a low interest rate environment. This allowed me to be able to transfer even more funds from my OA to SA till a point I felt that it was no longer necessary.
3) BHS was achieved, so contributions meant for MA flow to SA
Back in 2021, I published a blog post to inform that I achieved the Basic Healthcare Sum. Subsequently, all compulsory and voluntary contributions meant for the MediSave Account (‘MA’), including the ensuing interest generated, spilled over to the CPF SA as shown in Diagram 3.
As a result, my CPF SA has been “supercharged” since 2021 by absorbing all of the contributions meant for the MA. This allowed it to accumulate even faster in a seemingly virtuous cycle.
Pros of achieving Full Retirement Sum
a) All MA Contributions Should Now Flow To OA with FRS Achieved
If you pay attention to the paragraphs below the SA and Retirement Account (‘RA’) buckets respectively, excess funds from the MA will flow to OA if FRS has been achieved. What this implies is that my OA has now become the supercharged account instead, benefiting from the same boost that my SA had been enjoying earlier. It is easier to illustrate this with a simple mathematical equation as shown in Diagram 4.
For a CPF member who is between the age range of 35 to 45 years old and have attained both BHS and FRS, contributions meant for the MA would now flow into the OA instead since both the MA and SA buckets are already full. This is most welcome because funds in the OA are more flexible as they can be withdrawn and used for wider purposes. The fact is that with majority of my CPF contributions going to my OA from henceforth, this will improve my ability to service my housing mortgage.
b) Very likely to meet applicable FRS when I turn 55
Since funds in the SA compounds at a floor rate of 4% or even higher as announced recently, I am very likely to meet the applicable full retirement sum when I turn age 55. This is because the applicable FRS tends to increase at an average rate of 3% as determined at the recommendation of the CPF Advisory Panel in 2016. As long as there remains this gap, I will definitely have funds in excess of the prevailing FRS.
This also implies that I am in a good stead to withdraw funds in excess of the FRS in my CPF accounts when I turn 55, a scenario that I am really looking forward to. Alternatively, setting aside Enhanced Retirement Sum for my retirement is also within realistic reach since I am likely to continue working for the next 10 years and make compulsory CPF contributions.
c) Taking care of my loved ones’ retirement needs
Achieving FRS is like a ticking off a checkbox on my retirement readiness list. With this minimum safety net secured, I can now consider helping my loved ones secure their retirement as well. I can consider transferring my OA savings to my spouse or parents’ CPF accounts. This is a big tool in my arsenal to help my parents achieve higher CPF LIFE payouts that was previously not available to me.
According to the CPF website, one can easily check the maximum amount of CPF savings that can be transferred in the member’s retirement dashboard. Do take note that such a transfer of funds within the CPF system is not applicable for any tax relief.
Cons of achieving Full Retirement Sum
a) No longer able to top up CPF SA to enjoy tax relief
In the past few years, I have been relying on the CPF Retirement Sum Topping Up (‘RSTU’) scheme to enjoy tax relief to alleviate my tax bill. I was able to enjoy this benefit as long as my SA does not exceed the prevailing FRS.
Now that I have achieved FRS, I need to depend on other methods to maximise my personal income tax reliefs. Good news is that Lenora was born this year and I will be entitled to Parenthood Tax Rebate!
b) Higher policy risk
By achieving FRS this early, I am subjecting myself to higher policy risk of the CPF system. For instance, the “goalpost” can shift by amending the withdrawal age. A more drastic change would be a complete upheaval of the CPF LIFE scheme. I recognise the possibility of these occurring but I personally assess them to be remote. Let’s hope I don’t speak too soon on this.
Anyway, I am not counting on CPF LIFE to be the sole source of income for my retirement. It would just be one of the engines as the other sources would be withdrawals from my SRS Account as well as my investment portfolio. In a way, this helps to diversify this policy risk.
At a personal level, I feel proud to have finally crossed this mini milestone as it brings me one step closer to a more secure financial future. Let’s also not forget that trying to build a retirement nest egg is hard and boring work so this is indeed a champagne-popping moment.
On a side note, I did contemplate on the possibility that this blogpost would be interpreted by some as “showing off” and cause unnecessary offence. However, I think this is balanced by the possibility that there might also be some readers who may be inspired to maximise the possibilities offered by CPF to secure the foundations of their own retirement as well. Just like how I was inspired by AK back in 2014.
This article is published on 19 Nov 2023
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