99% of CPF Members Attain Less Than 4 Times Their CPF BRS When They Turn 55. How True is This?

Shortly after the Singapore Budget 2024, CPF put out a short FAQ regarding some commonly asked questions and their responses. Out of all the responses, this response was quite intriguing to me:

Math is quite unique in that if we exercise our brain power a little more, we can become clearer in something. But the math might not come naturally to us. We might not know that we can easily calculate something.

I always wondered how much money in CPF Special Account (SA) we are discussing that CPF members can potentially shield so that they can have a High Yield Saving Account of 4% p.a.

CPF stated here that 99% of members aged 55 and above today would have an equivalent of less than 4 times their cohort CPF Basic Retirement Sum (BRS), or the equivalent of two times their CPF Full Retirement Sum (FRS) in their CPF SA at 55.

So with Shielding, members have roughly two four-percent per annum accounts instead of one currently. Naturally, most Singaporeans will feel unhappy.

I wanted to test whether that 99% math is accurate and remember that we have a CPF Projector which we use internally to estimate the account values in CPF at certain junctures.

I set the following parameters:

1. A member can hit CPF FRS in their CPF SA at 20, 25, 30, 35, 40, 45, 50, 55-years-old.
2. Upon hitting CPF FRS, their money will grow on its own, regardless of the higher annual revision of the CPF FRS limits.
3. Then, this member can earn a high income that would have an equivalent annual CPF Contribution of $37,740 p.a. He or she will have additional money flowing into their CPF SA accounts.
4. We want to see the estimated value in their CPF SA account whether it will be two-times of their cohort CPF FRS.

The results is in the table below:

I have listed the age the member attained CPF FRS, the estimated CPF FRS for that cohort and the estimated money they would have in their CPF SA.

We can see that the 4 x BRS, or 2 x FRS gauge is quite alright.

There are very motivated working adults between the working age of 25 to 35 who strives to attain the CPF FRS. The number of times of FRS is about 2 times.

If you attain CPF FRS earlier than 25-years-old AND earn a great salary, you can possibly have a much higher SA amount relative to the CPF FRS.

Either:

1. Well, inform the young person who started a business and drew a good salary and early top-ups to their CPF SA account.
2. Young person whose parents help fund their CPF SA account to the maximum and give them a high-earning job that allows high CPF contribution above the CPF FRS limit or
3. Their parents somehow make Voluntary Contributions (VC3A) up to the annual limit of $37,740.

Here are some CPF Rules to consider when thinking about whether the CPF SA cannot be more than this:

1. Below the age of 55, members cannot top-up more (via Retirement Sum Top-up or RSTU) than the prevailing CPF FRS. The growth of the account (4% p.a.) should outpace then growth of the annual CPF FRS limits.
2. We already account for a maximum salary contribution via either a high salary from work or VC3A contribution.
3. Members cannot transfer more than the CPF FRS from their CPF OA to CPF SA before age 55.

So this is how the math works out.

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