Some people opt not to top up their CPF LIFE to the maximum because they believe they can do better by investing their funds themselves, as well as have access to more cash.
At 55, when the full retirement sum (FRS) of $220,400 is moved to the Retirement Account, these Central Provident Fund (CPF) members will stop there because they are content to just get about $1,700 in monthly payouts when they hit 65.
They choose not to voluntarily top up another $220,400 to hit the enhanced retirement sum (ERS), which will enable them to double their payout to $3,400, because they think they can do better by investing the $220,400 on their own.
At the first InvestMe financial literacy course on May 16, some participants wanted to know which decision is better.
There is no right or wrong answer because it boils down to how savvy you are at investing, or your choice to let the CPF Board pay you a decent amount every month.
Those who opt to invest on their own should note that when they make such a decision in their 50s, they are still at the peak of their financial acumen. But can they still manage their money wisely three decades later at 85 and beyond?
At 85, those who opted for the FRS would have received $408,000, while those who topped up to the ERS would have received double the sum at $816,000.
So those who are investing should ask whether they are confident about growing $220,400 to $408,000 or more, without spending much of the capital sum in 20 years, as doing so would certainly reduce the chance of making more money.
This begs the million-dollar question – do you want to spend your retirement still dabbling with money or do you want a high monthly sum to just appear in your bank account every month?
After all, if you opt for the ERS and are blessed with longevity genes, you stand to receive over $1 million by 90, and $1.2 million by 95, without any stress over managing your funds.
One participant sounded a note of caution: He was told by a financial adviser to top up only to the FRS so that he could use the $220,400 to invest in a private annuity instead.
You should know that CPF LIFE is also an annuity scheme, except that its payouts are guaranteed by the Singapore Government and are for life.
So before you sign up for a private annuity with the $220,400, you should check whether it can pay you more than $1,700 every month for life.
If you are really keen to plan for more money, consider putting money in private annuities only after you have set aside $440,800 for CPF LIFE. Do note that even after 55, you can continue to increase your monthly payouts by making annual top-ups to the incremental increase of the ERS.
There was a question on whether you can top up to the ERS only at 65 to receive a higher payout, because the participant wanted to invest the $220,400 for a decade first.
You can top up to the ERS any time after hitting 55 because CPF LIFE is a very inclusive scheme that allows members to manage their cash flow and do their top-ups based on their affordability.
Indeed, there is no need to hit the ERS – if you can top up only to $330,000, you can still receive up to $2,600 as your monthly payout.
Do note that just like other financial products, the timing of top-ups matters because all investment needs time to grow.
The monthly payout of $3,400 for the ERS in 2026 applies only to those who top up when they hit 55. So if you make the top-up a decade later, you will not receive $3,400 but a lower amount, because you have missed out on the 10 years for your sum to grow.
If you are over 55, it is prudent to book an appointment at the CPF Board to check your estimated payout before you make a substantial top-up.
Finally, if you are looking to increase the ERS payout by making annual top-ups, you get more bang for your buck if you do so on Jan 1 every year so you can get a bit more than others who do so later in the year.
After all, when it comes to growing money, it is always better to start earlier than later.
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