Tuesday, May 7, 2013

CPF minimum sum for Jul 2013 and projections for 30 years


This post contains the predicted CPF minimum sum which I computed in May 2013.

On May 2014, I did a small revamp to this post as I find it useful to compare my predicted values to the actual values. From 2014 onwards, I will add in the actual inflation rate for the previous year and actual announced minimum sum value in the 2 new columns.

Notes:
1) Every year, the CPF minimum sum is increased to account for inflation.
 2) CPF has set a 120k (in 2003 dollars to hit) by 2015. Before 2015, the CPF minimum sum will also increase by a certain ratio to account for this target

As the CPF minimum sum is largely dependent on the inflation, any changes to inflation rate will affect the CPF minimum sum which will in turn affect our plans for retirement. This projection serves to give us a rough idea of the CPF minimum sum when we retire so that we can better plan for our retirement.

The projected CPF minimum sum are as follows:
 
CPF Min sum for inflation rate Actual
Year 3% 4% 5% Actual inflation Actual min sum
2014 155,800 157,300 158,800 2.4% 155,000
2015 163,900 167,100 170,300 1.0% 161,000
2016 168,800 173,800 178,800
2017 173,900 180,800 187,700
2018 179,100 188,000 197,100
2019 184,500 195,500 207,000
2020 190,000 203,300 217,400
2021 195,700 211,400 228,300
2022 201,600 219,900 239,700
2023 207,600 228,700 251,700
2024 213,800 237,800 264,300
2025 220,200 247,300 277,500
2026 226,800 257,200 291,400
2027 233,600 267,500 306,000
2028 240,600 278,200 321,300
2029 247,800 289,300 337,400
2030 255,200 300,900 354,300
2031 262,900 312,900 372,000
2032 270,800 325,400 390,600
2033 278,900 338,400 410,100
2034 287,300 351,900 430,600
2035 295,900 366,000 452,100
2036 304,800 380,600 474,700
2037 313,900 395,800 498,400
2038 323,300 411,600 523,300
2039 333,000 428,100 549,500
2040 343,000 445,200 577,000
2041 353,300 463,000 605,900
2042 363,900 481,500 636,200
2043 374,800 500,800 668,000

** each year's value rounded to nearest $100



My other thoughts:
Depending on the inflation rate for the next 30 years, the CPF minimum sum can end up very differently. As seen from the figures above, it works out to a difference of almost 300k! We should plan for our retirement using a higher inflation rate to allow more buffer for ourselves. If inflation rates remain at a level that is higher than the 2.5% and 4% interest rates, Singaporeans are likely to find themselves drifting further and further away from the specified CPF minimum sum.

I would suggest Singaporeans to plan for their own retirements separately and not rely on the the CPF scheme alone for your retirement needs. 

I will try to come up with a more accurate CPF minimum sum estimate for subsequent years when the inflation rates for 2013 are announced. Until then, the above estimates should serve as a good estimate for you.

Other posts relating to CPF minimum sum can be found here:
CPF min sum related posts







25 comments:

Anonymous said...

CPF payout rate should follow inflation rates rather than be pegged to some Singapore Government Securities (some kind of government bond)

Otherwise, the time will decay the value of money... and keep raising the minimum sum to chase some number is not a solution.

The scholars and money managers at CPF have a heavy responsibility.. They need to demonstrate more ability to grow the citizen's hard earned funds.

Action Kamen

Mad Stranger said...

Hi Action Kamen,
I do agree with you on this. CPF interest rates should follow inflation rates or the current 2.5% (which ever that is higher).

The recent increase is 9k. Some employees may not even have contributed 9k to their OA and SA. They will just get further and further away from the CPF minimum sum target.

Mad Stranger said...

updated values above with 4% inflation as well

Anonymous said...

Hi
The increase of cpf minimum sum will not stop at year 2015?

Thanks.

Mad Stranger said...

Hi Anonymous,
From now until 2015, there is a target of 120k (in 2003 dollars) to hit. In addition to this, there is an additional increase due to inflation.

From 2016 onwards, only inflation will affect the increase in minimum sum.

Based on the projections I did above, you will see a sharper increase in 2014 and 2015 to account for the target min sum.

Anonymous said...

Hi,
What will be the minimum salary per month for a worker to meet the minimum sum requirement after 30 years of working?

Thanks.

Anonymous said...

The CPF is the biggest PONZI scheme and as the years go by, people will never getto see their money.

Mad Stranger said...

Hi Anonymous,
There is no direct answer on the minimum salary required to hit the minimum sum. There are too many factors involved.

1) Are you buying a HDB / private housing?
2) What is going to be the inflation rate like for the next 30 years?
etc

You must also take into account how the contribution changes for your OA/SA/MA as you age.

Mad Stranger said...

Hi Anonymous,
You will still get to see that money. it will be returned to you in the form of CPF life payouts.

Also, if you reach 55 between 1 January 2014 and 30 June 2014, the following withdrawal rules apply
1) $5,000 or less
-> All your cash balances

2) More than $5,000 but less than or equal to $153,000
-> $5,000

3) More than $153,000
-> $5,000 and any further cash balances after setting aside the CPF Minimum Sum of $148,000 (from July 2013 to June 2014) and the current Medisave Minimum Sum of $40,500.

Anonymous said...

Thanks for all the good articles.

Assume I have $200,000, can I still pledge the HDB for 50% and get out $123,500? Or they force you to exhaust all your OA & SA before allow you to pledge your HDB?

That being said, take out too much cash also got reinvestment risk! Maybe not a good idea to pledge the HDB? Is their annuity reasonable in terms return?

Regards

Anonymous said...

The 120K target by 2015 seem arbitrary and strange. If the logic holds true for this increase up to year 2015 what is stopping them to come up with a new target, say 180K by 2020?
The yearly inflation increase, I can understand and accept but this two-tier increase really does not make sense. Who is to say what kind of lifestyle anybody choose to live?
I mean even the inflation figure used, shouldn't it be just the core inflation instead of overall inflation figure which is much higher? Dissapointed but what to do?

Anonymous said...

our own money and we have to look like beggers , begging them to give our money back.. wtf

Mad Stranger said...

Hi Anonymous,
The pledging of property is quite complex. Little information on the pledging is available on the CPF website. I suggest you consult the CPF board directly on the options you have.

Mad Stranger said...

Hi Anonymous,
The 120k (in 2003 dollars) target was originally targeted to reach in 2013.

However, in 2011, inflation rate was high at 5.2%. A decision was then made to extend this target to 2015 instead.

I have an old post on this:
http://madstranger.blogspot.sg/2012/05/cpf-minimum-sum-to-be-raised-to-s139000.html

I do not think that a new target will be set. But the min sum will be adjusted annually to account for inflation.

But, I do feel that it is inappropriate to use the inflation rate for this computation. Certain items (e.g housing) may no longer be a "main cost" for a retiree. A huge jump in housing prices will not affect a retiree who has fully paid for his/her housing. But that will result in a larger inflation % which in turns increases the min sum.

Mad Stranger said...

Hi all,
if you wish to leave a comment for discussion, I do appreciate if you could leave a name or initials so that I can better address to your comment/question.

Kristy said...

Hi M,

Thanks for posting this. Other than the low interest rate, there is also an accrued interest portion which we have to pay back to our CPF when we use CPF for housing loan. Until today, I do not see what is the purpose for paying interest when u never did earn that interest.

With such an inflated housing price now, I seriously think that singaporeans need to look for a better savings plan that can match the inflation rate for our own retirement and also to top up to the minimum sum. I know it sound silly but this is the hard truth.

Mad Stranger said...

Hi Kristy,

The primary purpose of the CPF is for retirement purposes.
If you had not used your CPF monies or housing, it would have earned you a 2.5% compounded interest. If you sell your house, the proceeds withdrawn earlier plus any accrued interest needs to be credited back to our account. This is to ensure that you have sufficient funds for retirement.

There is currently no rules that forces you to top up cash in the event your proceeds is insufficient to cover the accrued interest. Also, if you do not sell your house, the accrued interest will not affect you in any way.

I do agree on the part to have an alternative plan for retirement. One suggestion is to set up an SRS account and use it to set up a retirement portfolio. You get to enjoy tax savings by topping up the account.

Anonymous said...

What if I plan to use Lease buy back scheme for my property when I turn 63, do I still have to meet minimum sum since lease buyback require I use proceeds to by cpf life anyway?

gg

Mad Stranger said...

Hi gg,
There is no rule saying that you have to hit the min sum. If you don't, you get to withdraw 5k and you get a lower CPF life payout.

If you intend to use the lease buy back scheme, the top up requirement for the Lease buy back scheme for age lesser than 70 is the prevailing min sum.

The balance in the RA is then used to purchase the annuity from CPF which provides you with the monthly payout.

Source:
http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_27December2012.htm


There is also strict criteria for the LBS.
Age: All flat owners at CPF Draw-Down Age (currently age 63) or older
Citizenship: At least one owner is a Singapore Citizen
Income: Gross monthly household income of $3,000 or less
Flat Type: 3-room or smaller HDB flat
Property: No concurrent ownership of second property
Minimum Occupation Period: All owners have lived in flat for at least 5 years

Source:
http://www.hdb.gov.sg/fi10/fi10325p.nsf/w/MaxFinancesEligibilityLeaseBuyback?OpenDocument

Anonymous said...

Hi,

I was trying to project mimimum sum when i turn 55 and googled into your site.

When i refer to cpf website, they did not give the details as in how they derived the yearly increment.

However they did give 2 columns one is the MS in 2003 dollars and the other is the adjustment after inflation.

With that compared to your project which use inflation of 3 to 5 percent as project.

So how to reconcile between the 2 method? of course your is easier to understand. But what is more important how to be as accurate as possible.

CPF did not reveal how they decide on the yearly increament based on 2003 dollars some years 4k some years 1k, as for the inflation rate they did not give the yearly inflation rate they use to do the calculation.

Mad Stranger said...

Hi Anonymous,
You can take a look at some of my other projection posts to see how I estimate the CPF min sum based on the 2003 min sum target and inflation rate.
Example:
http://madstranger.blogspot.sg/2014/07/estimated-cpf-minimum-sum-for-2015-part.html


Though CPF has not disclosed their method of calculations, mine has been quite accurate. So I suspect CPF is using a similar computation.

For actual yearly inflation rates, you can get it from the singstat government website (http://www.singstat.gov.sg).

For the yearly increment in 2003 dollars, we won't know the value set. In 2012 for example, the inflation rate was high (5.2%). So the increment in 2003 dollars was only $1000. CPF also delayed the 2003 target from Jul 2013 to July 2015 during that year.

Anonymous said...

Thanks for the good article.

I will reach 55 years in 2039 with minimum sum of $333,000.

What will be the interest earned on this minimum sum until the draw down age of 67?

By then, what would be the monthly payout?

Thanks

Zack

Mad Stranger said...

Hi Zack,
At age 55, our OA and SA will be combined to form your Retirement account (RA). The RA gives you a 4% interest yearly.

The draw down age for Singaporeans that are born on 1954 or later is 65. But it seems that there are plans to increase it to age 67.

If you can accumulate 333k by age 55, it will compound to more than 533k by the time you are 67! This is assuming an interest of 4% per year. I have not included the additional 1% or the first 60k of your balances.

I do not have an estimate on the monthly payout you will be getting. The CPF life payout estimator n the CPF website only works for people above the age of 50.

Anonymous said...

Thanks.

Its not a bad sum to retire. If both husband & wife can reach 500K by 67, potentially 1 million for the couple during the retirement age.

Assuming interest rate for retirement fund is still maintained at 4% based on yearly balance, interest earnings would be 40k a year.

A prudent couple could survive on interest earnings alone or with minimum withdrawal from principal sum.

With medishield life and CHAS since a retiree not earning income shd be eligible for it), it would be quite comfortable golden years ahead.

Wonder if the govt releases any any statistics to show how many Singaporeans can achieve the minimum sum by the time they retire.

Zack

Mad Stranger said...

Hi Zack,

Based on this page on: www.reach.gov.sg

About half of the active members can hit the minimum sum in 2013. This is after taking into consideration of property pledging.