What is the CPF Retirement Account?

If you're a Singaporean citizen or permanent resident, one of the most important things to consider in your financial planning is your CPF Retirement Account (RA).

In short, the CPF Retirement Account is a long-term savings plan for Singaporeans. It is designed to help you save for your retirement and provides a stream of regular income during your retirement years.

The CPF Retirement Account differs from the other CPF accounts because it is formed at age 55 with a specific purpose. The funds in the CPF Retirement Account is subsequently used to buy a retirement annuity insurance (CPF Life), the amount depending on your preferred retirement goal and objective.

But to truly appreciate the value of the RA, we need to understand the thought mechanics behind its creation and purpose.

Why Was the CPF Retirement Account Created

The CPF scheme was created in Singapore in 1955 to provide its citizens with a retirement plan. Back then, Singapore didn't have any Social Security schemes, and most could not save enough money on their own to support themselves in retirement.

The CPF was designed to address this problem by requiring employees and employers to contribute a percentage of wages into the account, which would then be used to pay out retirement benefits.

Singapore wanted its social policies to retain the national philosophy of active government support for citizen self-reliance. This is to prevent the country from becoming a welfare state and ensure that every Singaporean has the means and ability to finance their retirement.

Several accounts were thus put in place to achieve this goal with different purposes, the Ordinary Account (OA), the Special Account (SA) and MediSave (MA). The Retirement Account (RA) is a unique account, only created when a person turns 55. And its funds are pulled from SA first, followed by the OA up to an individual's Full Retirement Sum (FRS).

A Quick Overview of the Different Retirement Sums

There are three main retirement sums that every Singaporean should be familiar with, the Basic Retirement Sum (BRS), FRS, and the Enhanced Retirement Sum (ERS). Each of these will serve as a "benchmark" to help you know how much to set aside for your desired retirement payouts.

The BRS is the minimum savings you will need in your Retirement Account to receive a basic monthly payout from CPF LIFE. It is meant to cover the basic cost of living in Singapore.

The FRS is the recommended amount of savings you should aim for if you want a more comfortable retirement. Its goal is to help cover rental expenses on top of the basic living expenses. That also means the target is higher at two times BRS.

Finally, we have the ERS. This is for those who want to receive even higher payouts during retirement. The ERS is three times the BRS, meaning you would need to make a top-up over and beyond the required saving.

While the "forced savings" are not always appreciated by everyone, the fact is the CPF retirement account has helped millions of Singaporeans achieve a more comfortable retirement.

And it will continue to play an important role in our country's social and economic development.