The CPF system can be rather confusing if we are trying to set up our CPF in a way that fits our financial plan.
In order to do that, we might need to understand a certain aspect of CPF. If we do not, then we might make some decisions that are difficult to reverse.
One area that is confusing for many is how much can you take out of your CPF after 55-years-old.
The short answer is that it depends, which is not the most satisfying answer and it is because of how confusing the CPF is.
So today I will try my best to see if I can lay it out clearly.
But before that, I may need to explain some stuff so that those newer to the CPF can understand things better.
You may be able to withdraw a certain amount of your monies in CPF
The main role of our CPF is to set aside enough money for our retirement. However, the government over the years have layered in a few functionalities such that in its current form, our CPF means more than retirement:
- Retirement savings
- Medical sinking fund
- Funds for our properties
- Loan for children’s education and for our higher education
Our CPF is made up of 4 accounts:
- CPF Ordinary Account (OA)
- CPF Special Account (SA)
- CPF Medisave Account (MA)
- CPF Retirement Account (RA)
Your CPF RA is created only when you turn 55 years old, and it is mainly used to house the funds meant strictly for retirement income.
You cannot withdraw in a lump sum from your CPF MA. You can use it periodically for your medical needs. After you pass away, your heirs would be able to have it.
After a certain limit, you have the potential to freely withdraw monies from your CPF OA, SA and RA account.
And this is what many of us would like to figure out.
Which part of our CPF OA, SA and RA can we get out as cash if we need it and when?
We can withdraw excess money above a certain limit after 55 years old
The magic number is 55-years-old.
When you reach 55-years-old, your CPF Retirement Account (RA) will be created.
At the same time, CPF will shift a sum of money from your CPF SA and CPF OA into CPF RA. Your CPF RA, like the SA, currently earns you a healthy 4% a year interest.
CPF will automatically shift your money to CPF RA during two milestones:
- At 55 years old
- From 65 years old to 70 years old, when you start your monthly CPF LIFE payout age. Their OA, SA will transfer to RA up to the FRS
CPF will first see if your CPF SA is enough to hit the limit, and if not, it will then tap your CPF OA.
If you have done well in your career and optimized your CPF well, you can leverage on the higher, stable interest of the CPF accounts to compound your money and then access the next time.
The Basic Retirement Sum and Full Retirement Sum limits that you need to hit to unlock excess monies for future cash withdrawals
The limit that we are referring to is the Basic Retirement Sum (BRS) and the Full Retirement Sum (FRS).
This is the amount of money that CPF force you to lock in your CPF so that eventually you can have a perpetual stream of income for your retirement spending.
Here is the current BRS and FRS (Dec 2021):
Currently, the BRS is $93,000 and FRS is $186,000. There is also an ERS where the government encourages you to set aside more in your CPF RA so that you have a stronger, more potent perpetual income stream (more money, stronger stream!)
FRS is 2 times BRS and ERS is 3 times BRS.
Notice that the BRS, FRS and ERS go up every year.
If you only set aside the BRS, FRS and ERS equivalent to today, you might not have enough monies to have an income that pays for your daily expenses in the future (due to inflation).
However, since we are concerned about how much in excess of the BRS and FRS that we can take out if we want to, which BRS and FRS should we take note of?
You take note of the BRS, FRS when you turn 55 years old.
For example, you are 53 years old in 2018 when you learn about this stuff. The BRS and FRS limit that you should zoom in on is the 2020 limit, which is $90,500 and $181,000 respectively.
So suppose you have accumulated $300,000 in your CPF OA and SA. At 55 years old, $181,000 will be automatically transferred from your SA and OA to your CPF RA.
The rest of the $119,000 will stay in your CPF OA and SA and you can treat that like a high-yield savings account and withdraw as you like. (A caveat: things are not so beautiful, but for understanding sake, just go with this flow.)
Okay, why is there a BRS limit and a FRS limit? Property Charge/Pledge
For those of you with a residential property, CPF allows you to pledge your property.
By doing so, you only need to set aside an amount equivalent to the BRS limit, instead of the FRS limit, in your CPF RA to fund your retirement income.
The main reasoning is that you need a place to stay that is secured in your retirement. A secured dwelling can exist in 2 ways:
- You have a fully paid up residential property with a land lease long enough that last you till at least 95 years old.
- You have a secured rental income.
If you pledge your property, it is as if you have satisfied #1 and the government is more comfortable that you only have half the FRS for retirement income.
If you do not, then you need at least the FRS.
If you have a residential property, it means that you could potentially get out more money as flexible cash after 55 years old.
Going back to the same example, if you have $300,000 in your CPF OA and SA, and you decide to pledge your property, you will only need to set aside $90,500 to be transferred to your CPF RA and you can readily withdraw the remaining $209,500. (Caveat again: this is not the full picture and I will explain in greater detail later)
However, if you want a stronger income you can still set aside an amount equivalent to the FRS or even ERS.
What if your CPF monies are less than the BRS Limit?
If you have an amount that is less than the BRS Limit, the government allows you an unconditional withdrawal of MAX(20% of your retirement savings, $5,000), either from 55 or 65 years old.
This means you can withdraw a range of $5,000 to 20% of your retirement savings.
Can You Charge/Pledge Your Property and Withdraw from Your CPF RA after Your Monies have Transferred to Your CPF RA?
Some of you only realize this after 55 years old where the equivalent of the full retirement sum has been transferred to your CPF RA.
Can you charge/pledge your property after that and get out some money from your CPF RA?
The short answer is yes you can.
You can pledge your property and you can get money out but the amount will depend on some conditions (which I will explain later).
CPF Treats Each $1 of Your Monies in Your CPF SA and RA Differently
Okay, remember that I explain that you can withdraw the money above your BRS, FRS limit as cash if you would like to after 55-years-old?
There are conditions.
How much can be withdrawn depends on the source of your money in your CPF SA and RA.
The amount of money that qualifies towards your BRS limit is also different.
Here is a way that you can visualize your CPF SA and RA:
Basically, each dollar in your CPF SA and RA is viewed differently by CPF. You can assume that CPF knows the source of each dollar.
You can imagine the money from each source as a bucket and in each of CPF SA and RA, there are different buckets.
In the illustration above, I tried to list down all the different sources that could eventually contribute to your CPF SA and RA.
- Some of these sources can be taken out if you fulfil the BRS and FRS limit some cannot.
- Some of these sources qualify as evaluation for BRS and FRS limit, some do not.
For the newer folks, let me explicitly state some rules of thumb to make understanding this CPF SA and RA stuff easier:
- Not all top-up is the same. There is retirement sum top-up (RSTU), Medisave top-up and voluntary contribution top-up (VC3A). They are different. RSTU and Medisave top-up allow you to gain tax relief, while VC3A do not.
- Interest earned is not the same. Interest earned from RSTU monies and non-RSTU monies is treated differently for some stuff.
There will be some more rules of thumb dropped later.
Now let us go through the bigger ones.
You Cannot Withdraw RSTU Monies
Retirement sum top-up allows you to gain tax relief but the main objective is to really set aside more for your retirement.
For this reason, CPF does not allow you to withdraw RSTU Monies.
Thus, #7 and #13 can never be taken out unless through CPF LIFE Income.
Technically, #7 can still come out if the amount of RSTU monies before age 55 is more than the FRS at that time of assessment.
But no matter how I look at it, that seldom happens.
Think of it as go in won’t come out anymore.
You Cannot Withdraw Interest Earned from RSTU monies in CPF RA
The interest earned on your RSTU monies that reside in your CPF RA cannot be withdrawn, even if you pledge/charge your properties.
So this affects #8.
This is when you start noticing that if you top-up to FRS early in your CPF SA, technically you can withdraw the interest earned on your RSTU monies (#1)
Interest is handled very differently!
All Sources are Used to Evaluate Your FRS Limit Requirement
Whichever source, they are used to determine if you have hit your FRS limit.
For example, if you have all six different sources in your CPF SA and they are equal to your FRS, you fulfilled your FRS limit and can consider how much excess you can withdraw.
RSTU Monies are Not Used to Evaluate Your BRS Limit Requirement
RSTU monies are not used to evaluate if you fulfil your BRS limit, despite property pledge/charge.
So in my diagram, only #1 to #6 are used to evaluate the BRS limit when your money is in CPF SA and #8 to #12 are used to evaluate the BRS limit when your money is in CPF RA.
Here is the extract from CPF:
If we understand this, and the part where RSTU monies cannot be withdrawn, we can understand this example better:
I adapted this case study from CPF in a 10 Important Aspects About Your CPF Retirement Account (RA) on Providend’s Portal.
The case study tried to explain how much John and Steven was able to withdraw from their CPF RA if they decide to pledge their property.
But some struggled to understand why Steven cannot withdraw anything.
The main reason is that Steven’s RSTU monies ($100,000) are not used to evaluate if he satisfies the BRS limit of $90,500.
Only $28,000 is used, which is less than $90,500. Therefore, Steven cannot withdraw any.
It is not quite feasible to top-up via RSTU, charge property and has the option of extracting half of the FRS in the future.
Some of you might wish to give your family some flexibility by charging a property, then getting out half of FRS when you turn 55 and gaining tax relief by doing retirement sum top-up.
I think this is not feasible simply because the money they contribute under RSTU is not used to evaluate their BRS limit.
Suppose the FRS is $181,000 and the BRS is $90,500.
If they RSTU $90,500, this money won’t be used to evaluate whether you fulfilled the BRS limit.
This means to get out money, you need to set aside another $90,500 that is non-RSTU monies.
So that would mean $181,000 cannot be withdrawn after 55 years old.
It feels to me that if you have the ability to top-up (means you are financially quite flexible), you might still need to set aside $181,000 or the full retirement sum.
Can You Surgically Extract Certain CPF OA and SA Monies, In a Certain Sequence that You Desire?
Okay, some of you might be wondering that, if CPF viewed the source of these CPF SA, RA and OA funds differently, is there a way for us to surgically extract certain types of monies out the way we want?
The answer is no.
I tried to frame your CPF monies in this way so that it is easier for you to visualize.
You can withdraw your money out from your CPF OA and SA after 55 like a normal FAST transfer.
But you have no control over the sequence.
When you wanna withdraw, CPF views the OA and SA together. They have a certain withdrawal sequence for the funds in your accounts that goes like this:
- Your CPF SA interest
- Your CPF OA interest
- Your CPF SA capital
- Your CPF OA capital
Basically, they empty out the interest then the capital, and the higher-yielding monies first.
Why do so many people do Retirement Sum Top-up as early as they can?
A newbie would be wondering why there are enough people who would proactively do RSTU until they hit the full retirement sum as early as they can.
This is the model:
- There is no cap on how much your CPF SA can grow above the FRS limit. This is unlike the Medisave, which have a cap.
- The interest rate that we can earn on CPF SA is relatively high and your money does not suffer from any volatility.
- You can eventually have a high-yield savings account after 55 years old if you hit your FRS.
If someone does an RSTU top up such that they hit the FRS limit fast, their income from work, income from side job that they VC3A into, interest earned can eventually stack on top of the RSTU monies.
The appeal is to compound at 4% a year.
If you managed to have excess monies above the FRS or BRS (if you charge/pledge your properties), you can potentially withdraw them out after 55 years old.
How much you can withdraw will depend on the make-up of your CPF SA and RA. RSTU monies, interest earned on RSTU monies in CPF RA cannot be withdrawn. Interest earned on RSTU monies in CPF SA is available.
RSTU monies cannot be used in BRS limit evaluation. Interest earned by RSTU monies can.
Hope this is useful.
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