Understanding the Retirement Account
At age 55, the Central Provident Fund (CPF) Board automatically creates a Retirement Account (RA) for every member. This account is funded by a transfer of savings from the member's Ordinary Account (OA) and Special Account (SA), up to the applicable Retirement Sum (Basic, Full, or Enhanced). The purpose of the RA is to hold the funds that will be used to provide a monthly income stream during your retirement years.
Savings in your RA, just like in your SA, earn a higher, risk-free interest rate compared to your OA savings, with additional interest provided on the first $60,000 of combined CPF balances. This ensures that your retirement nest egg continues to grow steadily even as you approach retirement. From this pool of savings, you will eventually receive payouts, either through the older Retirement Sum Scheme (RSS) or the newer CPF LIFE scheme.
What is CPF LIFE?
CPF LIFE, which stands for Lifelong Income For the Elderly, is a national longevity insurance annuity scheme in Singapore. It was introduced to address the risk of retirees outliving their savings, a growing concern given rising life expectancy. CPF LIFE provides monthly payouts for as long as you live, offering peace of mind and financial stability in your golden years.
How Does CPF LIFE Work?
When you are included in CPF LIFE, a portion of your RA savings is used to pay for a CPF LIFE premium. This premium is pooled with the premiums of other members, and the interest earned on this pooled fund is used to sustain the lifelong payouts. This risk-pooling mechanism is what enables the CPF Board to guarantee monthly payouts for life.
There are three main plans within CPF LIFE:
- Standard Plan: Provides higher, level monthly payouts.
- Escalating Plan: Starts lower and increases annually by 2% to help with inflation.
- Basic Plan: Offers lower initial payouts that decrease, leaving a larger bequest.
If you do not choose a plan by age 70, the Standard Plan is the default. You can also defer payouts from age 65 up to 70, increasing payouts by about 7% per year deferred.
Retirement Account vs. CPF LIFE: A Comparison
| Feature | Retirement Account (RA) | CPF LIFE |
|---|---|---|
| Nature | A savings account for retirement funds | A national annuity insurance scheme |
| Purpose | To hold and grow savings from OA and SA for retirement | To provide a lifelong monthly income stream |
| Payout Duration | Payouts via RSS (for older members) stop when savings are depleted or at age 90. Payouts via Basic Plan use RA savings first, then annuity pool. | Payouts are for life, guaranteed through risk-pooling. |
| Inheritance | Remaining RA savings, including interest, are passed to beneficiaries under RSS. For CPF LIFE, only the unused premium and remaining CPF savings are passed on. | Beneficiaries receive unused premiums and other CPF savings; the pooled interest is retained to pay other members. |
| Payout Source | Savings are drawn directly from the individual's account under RSS. For CPF LIFE, RA savings are used to pay premiums for the annuity pool. | Payouts come from the annuity pool, sustained by pooled interest, after the initial premium is depleted. |
| Eligibility | Created for all Singapore Citizens and Permanent Residents at age 55 | Automatic enrollment for most born in or after 1958 with sufficient RA savings at payout age. Voluntary enrollment also possible for others. |
The Transition at Age 55 and Beyond
The automatic creation of your RA at 55 and the subsequent transfer of funds marks the beginning of your retirement savings journey within CPF. At 55, members with sufficient funds in their OA and SA will have their RA topped up to the Full Retirement Sum. Remaining savings can be withdrawn, though keeping funds in the RA earns attractive interest.
As you approach your Payout Eligibility Age (PEA), currently 65, your RA savings are used to fund your chosen CPF LIFE plan. For those with less than $60,000 in their RA, the older Retirement Sum Scheme (RSS) was the default, but today, most are automatically included in CPF LIFE.
Making the Right Choice for Your Retirement
Understanding the distinction between the RA and CPF LIFE is crucial. Your RA represents your total retirement capital, while CPF LIFE is the payout strategy that turns that capital into a lifelong income. Your choice of CPF LIFE plan depends on factors like desired lifestyle, lifespan, and need for a bequest. Consider supplementing CPF LIFE with other income sources for a more comfortable retirement. The official CPF Board website offers resources for planning.
Conclusion
The CPF Retirement Account is the foundation of your CPF retirement savings, and CPF LIFE is the scheme providing lifelong income from those savings. The RA is the capital, and CPF LIFE is the tool for lifelong financial security. For most modern retirees in Singapore, they are linked, with the RA providing the premium for CPF LIFE. Understanding this relationship helps in planning for a stable retirement, protected from outliving savings.
