How many years do I need to work to accumulate enough money in my CPF for retirement?
Should I transfer money from my Ordinary Account to my Special Account?
Can I work lesser years and have sufficient money to retire if I top up my Special Account with cash?
4 years ago, these were the questions I wanted to find answers for.
At that time, there weren’t any financial bloggers who had an answer for this so I decided to design my own spreadsheet. For the lack of creative cells in my head, I called it the CPF Tracker tool.
Seeing that the Seedly Facebook community has been asking the same questions in the past few months prompted me to make some changes to my CPF Tracker tool to make it more user friendly for others. It took some time, but it’s finally done!
Before you start, click on “File” and select “Make a copy…” to save a copy of this spreadsheet in your Google Drive.
Let’s start with the Monthly CPF Contribution worksheet.
I started this CPF Tracker in 2015 at the age of 32. Feel free to change the year and age to suit you.
Decide on how long you plan to be working and your estimate monthly salary. Note that any monthly salary amount above $6,000 will not make any impact because CPF’s Ordinary Wage Ceiling is currently capped at $6,000.
Using the Full Retirement Sum for the last 4 years to predict the average yearly increments for Full Retirement Sum. You can extend the number of years on your own to forecast how your Full Retirement Sum is like.
If your Full Retirement Sum is different from mine (I reach age 55 in 2038), Update cell M15 in the CPF Calculations worksheet accordingly.
Next, click to the CPF Calculations worksheet to make a few changes.
Input the final figures in your CPF accounts for last year in Column M. The CPF OA, CPF SA and CPF MA worksheets will use these figures to forecast your CPF account figures in future.
If you have existing mortgage loans, enter your monthly mortgage loan repayment numbers in Column J. The CPF OA worksheet will make the respective deduction each month.
Are you wondering if transferring money from your CPF Ordinary Account to your Special Account to accumulate a higher interest rate of up to 5% will help you reach your Full Retirement Sum faster?
In the CPF OA worksheet, I created something to simulate an answer for this question.
Go to Column P and enter the amount you plan to transfer from your Ordinary Account to your Special Account. The CPF Tracker will simulate what happens when you transfer the money in the month of December from OA to SA.
What about topping up your CPF account with cash? Besides the tax benefits that comes with your CPF cash top up, how does it accelerate your retirement?
I’ve added something in all the 3 worksheets, CPF OA, CPF SA and CPF MA, to simulate an answer for this as well. Column O of all 3 worksheets helps to simulate performing a cash top up to the respective CPF account in the month of December.
With this CPF Tracker tool, I hope you are able to forecast how long you will need to work to meet your CPF retirement needs.
Ideally, you should aim to reach 55 with a positive figure in your CPF OA account after repaying your mortgage loan. Bulk of your Full Retirement Sum should be funded by your CPF SA account for optimum effectiveness because funding it with CPF OA will take too long. This is due to the difference in interest rates between both accounts.
Let me know what you think about my CPF Tracker and what you would like to see improved in the comments below.
Note: The main challenge in the CPF Tracker was calculating the interest rates at the end of each year. CPF has a slightly more complex way of calculating interests that I wasn’t able to replicate in my CPF Tracker. That said, I feel that the deviations were not that far for me to spend the effort to make additional changes.
Additional note: The CPF Tracker ignores the extra 1% for the first $60,000 in the CPF account because it’s just too tedious to code it in the spreadsheet formula.
Update: It was brought to my attention that some readers have misinterpret the purpose of this article when I used myself as a personal case study. While I try to keep my personal life mostly separated from this blog, I decided to share more information about myself.
I’m 35 years old this year and I own a 3-room HDB flat in Toa Payoh built in 1970.
It’s not very common for people my age to own a 48-year-old HDB flat in a matured estate but due to my family circumstances, life decided to toss me this lemon where I had to purchase a HDB flat and undertake the mortgage payments at a young age for my family to have a roof over their heads.
I knew I was going to outlive my HDB flat’s 99-year lease and when my MP, Dr Ng Eng Hen decided to do a house visit at my block a few years ago, I asked him what were the government’s plans for old HDB flats like mine.
It was as though I threw a curved ball at his face with my question and he literally dodged the question.
He had no solution and he had no plans to ask the government to formulate a solution.
Fast forward to 2018, the government finally decided to face the music after other diligent MPs started asking the tough questions.
In the recent National Day Rally, our Prime Minister announced a concept scheme called Voluntary Early Redevelopment Scheme (VERS) where residents in a precinct will get to vote if they want the government to buy back all the flats for redevelopement, and residents can use the money to fund the purchase of another flat.
I call it a concept scheme because nothing about this scheme has been finalized. But what we know from both our Prime Minister and the PR activities in our mainstream media is that the buyback price under VERS will have limited financial upside.
How I interpret this is that unlike SERS, it’s unlikely that the VERS buyback price will be sufficient for you to purchase another HDB flat without forking out additional money out of your own pocket.
We do know that VERs will happen when the HDB flats reaches 70 years old.
So what we need to ask here is:
If the answers for the above are no, are these residents better off staying put and live out the remaining 29 years of lease?
I’m going to use myself as a case study and you should do your own calculations too.
When my HDB flat reaches 70 years old, I’d be 57 years old. If it all goes well according to this blog, I would have already retired (fingers crossed).
If everyone voted yes to VERS, then I’ll need to find a home at the age of 57 which can be quite tough if the VERS buyback price is too low to pay for a HDB flat.
The bulk of my CPF money would have been moved from my CPF Ordinary Account and Special Account to my Retirement Account.
Whether there’s sufficient fund in my CPF Ordinary Account to pay for another HDB flat becomes questionable.
Even if I do manage to get a mortgage loan, I can imagine that the loan tenure will be really short and the amount I can borrow won’t amount to much.
I might even have to consider renting instead of buying.
This means I may also have to continue working to pay for the mortgage or rental.
That would suck. A lot.
Let’s say every one voted no to VERS and I decide to stay in my HDB flat until the remaining lease expires.
29 years later, I’ll be homeless at the age of 86 and will need to find a new place to stay.
While I am not going to generate any income from my HDB flat through renting or selling, I’m also saving on expenses because I am guaranteed a home to stay in for the next 29 years.
If it costs $2,000 per month to rent a place of similar standards, I’m saving $696,000 just staying put in my HDB flat.
With the assumption that I’ll live till the age of 100, it does mean I’ll need to think about where I’m going to stay for at least 14 years.
This is still a perfectly fine option.
I have a place to stay till I’m 86. By letting my 3-room HDB flat depreciate to $0, I’ll also be writing off a significant amount of money in my CPF account because like most Singaporeans, I funded my HDB flat mortgage with money in my CPF Ordinary Account.
It’s also very likely that I will have to dip into my retirement portfolio to fund to purchase or rent a place to stay.
If I go with this option, I guess I better start saving!
At the same time, I also have a few cards to play here. I could choose to sublet a room, rent the entire flat out for rental income (that means staying somewhere else).
Let’s look at the option of staying in my flat and sublet a room for 29 years.
To recap, I’ll be 57 years old and in 5 years time, I can start withdrawing from my SRS account and 3 years after that, my CPF Life payout will start.
I’ve spent so many years accumulating my retirement portfolio and have sufficient money to cover my living expenses and all the rental income from my flat will be reinvested in bonds or overseas fixed deposit accounts that will generate 4% interests per annum.
The market rate for rental of a common room is around $500-600 today but let’s optimistically say I can get at least $400 per month (after deducting misc. expenses like repairs, agent commission, etc.) by renting out my common room in a matured estate that’s near the MRT station and has great amenities around.
At the end of the 99 year lease, I’d have accumulated $269,208 in rental income.
What about renting out the entire HDB flat and either relocate in a low cost of living area, maybe stay in my SOHO apartment in Cambodia. *wink*
Again, the calculations assume that all the rental income generated from my HDB flat will be reinvested into bonds or overseas fixed deposit accounts that will generate 4% interests per annum.
The market rate for rental of a 3-room HDB flat in my area is around $2,100 today but I’ll be optimistic and say that I’ll probably get at least $1,500 per month after deducting the misc. expenses like repairs and agent commission.
Here’s where things get interesting.
By letting the rental income grow over 29 years, I’d have accumulated a massive $1,009,529 in rental income!
I think I might be sitting on a gold mine here.
In my retirement planning, I’m expecting myself to retire by 50 so losing my 3-room HDB flat will be a big downer.
Let’s look at the situation if it’s a yes for VERS.
I don’t need to make a profit off my 3-room HDB flat. That’s not the point here.
But if the government’s VERS buyback offer can’t even match $250,000, which I think will pay for 2-room HDB flat. If my investment portfolio goes well, I might even consider topping up $50,000 to get a 3-room HDB flat.
Even if I decide not to buy a HDB flat, majority of the money will go back into my CPF because I paid for most of my HDB flat with money from my CPF account.
While it will become an additional stream of retirement income in 8 years time (if I already accumulated my Full Retirement Sum in my CPF Retirement Account), it does mean if I can’t tap on the VERS payout if I choose to rent a home instead of buying.
What if it’s a no for VERS?
I’ve got option A which means i have a home to stay till I reach 86. Because I’m not getting any rental income, I’ll need to start saving and increase my investments to prepare to buy or rent a home when the lease expires. I wouldn’t say this is my ideal choice because its going to take more work.
There’s also option B that could yield me $269,208 in rental income. It’s not much, but I imagine this could easily fund a 2-room HDB flat purchase that I’ll stay for the rest of my life. Otherwise, if I decide to relocate out of Singapore, this could easily fund my living expenses comfortably for at least 8 years.
Then we have option C where there’s a massive $1,009,529 rental income at the end of the lifespan of my 3-room HDB flat. I’m realising our government’s dream of our HDB flats becoming a million-dollar asset, my way. You’re welcome, Mr Lee. 🙂
Option C also requires significant planning because it means I’ll have to think about where I’m going to stay when I retire.
The conclusion is, that there’s no conclusion.
The fact that we’re more than 20 years ago from the concept scheme that our government calls VERS means anything can change. We don’t know what’s the policies around VERS will be like. It could work for us, or against us.
What I hope is that through this article, you realise that we don’t have to limit us for what government has in store for us. We can make our own informed decisions if we make an effort to think for ourselves and our circumstances.
How are you planning as your HDB flat reaches its 99-year lease?
I’d love to hear your thoughts in the comments below.
Explaining personal finance to kids can be very challenging, especially when it comes to the logic around compounding.
Here’s a simple way to explain the power of compounding with your kids. Here’s how the conversation would be like between me and my imaginary son, Tom.