Friday, July 18, 2014

Will we have enough CPF savings to retire on after using it for housing?

We all know that housing prices are much more expensive than it was 20 years ago. When my parents bought our 4 room flat, it only cost $70,000. Now, the price is as high as $350,000. A young couple who buys a new HDB flat will most likely be paying about $280,000(after subsidies) for it. If they take a loan from HDB, the monthly instalment works out to be about $1100 per month. This have to be paid for the next 25 years. Assuming this couple buys the house at 27 years old, by the time they finish paying, they will be 52 years old which is very near the age where they will be allowed to draw out any amount of their CPF above the minimum sum.

Not sure about how the CPF works and what is the CPF minimum sum? Read my earlier post here: All about CPF minimum sum and CPF life

There were some concerns from the public out there which i've gathered:

  1. Will we have enough CPF savings to retire on after using a substantial amount for housing?
  2. Will we be able to meet the minimum sum by the time we reach 55? How much will the minimum sum be then?

High housing price leads to depleted CPF savings?

The CPF savings from the ordinary account can be used to pay for housing. I was curious whether youngsters my age will still have enough CPF savings to retire on after paying for housing for the next 25 years? How much CPF savings will we have by that time? So, i decided to do some calculations using a formulated excel spreadsheet i designed myself. 

Young person earning $3000 starting salary

Before i show the results of the calculations, there are some assumptions for the calculations:
  • Each person earns $3000 starting pay and starts working at age 25
  • 4% salary increment every year
  • Housing loan of $550 per person every month paid from CPF OA account (assuming cost of house is $280,000 and taking a loan of $252,000 for 25 years)
  • Husband and wife shares 50-50 of the cost
Let's say this person buys their house at age 27, this is what his CPF account would look like for the first 3 years:

On the third year, his CPF OA account is totally wiped out to pay for the first instalment of his house. 

The next few years are shown below:

The various different contribution rates of the CPF and interest rates have been taken into considerations. The first $20,000 of the OA earns 3.5% interest and thereafter 2,5% interest. The first $40,000 of the SA account earns 5% and thereafter 4%. The OA contributions rates are 23%, 21%, 19% and 13.5% for different age brackets and the SA contribution rates are 6%, 7%, 8% and 9.5% respectively. Also, CPF contribution is up till $5000 monthly salary. Any salary after that is not subjected to CPF contributions. For more info on CPF contribution rates, click here.  

With a 4% yearly salary increment, this person would have hit $5000 monthly salary at age 39. At the end of age 55, this person would have $198,408.63 in his OA account and $231,939.04 in his SA account. There is an additional medisave contribution which when exceeded the medisave minimum sum of $43,500 will be transferred to the SA account. This works out to be an additional $197,006.55. Total in OA and SA combined is $627,354.22. This seems like a decent amount at age 55. However, this is based on current conditions where the CPF minimum sum is at $155,000. How much will the CPF minimum sum increase to 20 years from now will be unknown. But even if the minimum sum increases to $500,000, this graduate would have no problem meeting it at age 55.

The above illustrations is for a young graduate who is assumed to have earned $3000 starting salary at the age of 25 and 4% salary increment every year. It does not reflect any bonus payments, retrenchment scenarios or whatsoever. Will $627k be enough to retire on 30 years from now? It may not be so. 

Young person earning $2000 starting salary

Let's bring it a step further by calculating for a person who earns a lower salary say $2000 and only 3% increment every year.

There is an interesting finding for a person who only earns a starting salary of $2000. This person will not have enough CPF savings to pay for the first 10% down payment of the $280,000 HDB flat until the age of 28. The down payment cost will be shared in a 50-50 ratio between husband and wife. 

At the age of 28, we can see the CPF OA account again goes to zero and remains at zero for the next 3 years till age 31. This is because, this person's CPF contribution to his OA is below $550. Thus after paying for the housing instalment, he's left with zero. In fact, he'll have to fork out some cash for that 3 years to pay for housing loan instalment.

The rest of his CPF savings until age 55 is shown below:

The verdict? This person who starts out with a salary of $2000 and 3% yearly salary increment will have $52,736.75 in his CPF OA and $167,429.75 in his CPF SA at age 55. There is an additional medisave contribution which when exceeded the medisave minimum sum of $43,500 will be transferred to the SA account. This works out to be an additional $123,535.19 in his SA account. Total available for retirement for him would be $343,338.04. 

Will CPF minimum sum increase to $500,000?

We know that CPF minimum sum has been increasing yearly from 2003. During the CPF protest last week, it was said that the CPF minimum sum will increase to $500,000 and most young people would never get to see their money again. Is this possible?

The current CPF minimum sum is $155,000. Based on this, one can expect to receive about $1200 per month under the CPF life scheme. If the minimum sum increases to $500,000, all else remaining equal, one can expect to receive at least >$3600 monthly. This is quite a decent sum of money. However, we will not be able to predict the standard of living at that time. Prices of food may have doubled or tripled with your normal chicken rice at $8-$9 instead of the $3 we have now. The CPF minimum sum is increased for the same purpose of catering for a higher standard of living.

Singaporeans can't meet minimum sum?

If Singaporeans can't meet minimum sum, it's not because the minimum sum is too high. Rather, we should look at whether these people have enough to retire on? They may only be getting a few hundred dollars per month if their CPF savings is low. If they only depend on CPF savings to retire, then it'll surely not be enough. The sad truth is they may have to continue to work to an old age in order to just survive unless they have their children to take care of them. Many people suggest to let those people who don't meet the minimum sum to draw out more at age 55 instead of the current $5000 only. But however, if they are allowed to draw out more now, they will have lesser in the future. They may be able to retire now, enjoy for a few years then be forced to go back to work in their 60s again.

$2000 salary can retire comfortably?

The person in the above example with $2000 starting salary and 3% yearly salary increment can afford to retire with $340,000+. This doesn't seem like a lot of money especially when its 30 years from now. If this person knows that the CPF may not be adequate for him to retire on, he can start to have an alternative retirement plan for himself through his own private savings or even voluntary contributing cash into his CPF account. He can also consider transferring some amount from his CPF OA to SA to earn the higher interest rate of 4%. If he has investment knowledge, he can also invest his CPF money prudently under the CPF investment scheme(CPFIS).

CPF is a first line safety net. However, it may not be enough for some to retire on

Even with the CPF system, some people may still not be able to retire as seen in some of the cases in Singapore currently. The problem is people may rely too heavily on a system and leave retirement entirely to the CPF. They continue to spend all the money they earn without having any personal savings. If the government wants everyone to retire comfortably, they can raise the CPF contribution rates but they will not be able to do it easily. Even with the current low contribution rates, people are already making noise and protesting on it. I would think even the minimum sum is on the low side as with $1200 a month, it's not a lot of money.

Create your own CPF system

It is always prudent for us to plan for our own retirement aside from the CPF. If you want to retire earlier than 55 or 65, then plan it yourself. Create your own CPF system: "Personal Savings, Personal investment portfolio and personal passive income". This is the financial freedom system. A system we can all strive to achieve.

Lastly, curious to know how my excel spreadsheet looks like after all the calculations? Here's a sneak peek:

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Related Posts:
1. All about CPF minimum sum and CPF life
2. Return our CPF?


  1. Earn progressive higher income over our lifetime or invest for growth-dividends stocks to create weath; otherwise it is very tough for average employees to retire at 60s with retirement income for life goal.

    1. Hi Uncle CW,

      Good advice. Earning higher income does make a difference.

  2. One point to note in your assumptions is that the CPF min sum for medisave will also increase over time due to inflation. Using your above assumptions and assuming a 3% inflation p.a, 30 years from now, the medisave min sum will be $122,000. This means the individual earning $3000 at age 25, will only be able to transfer much less to fund his OA+SA Balance.

    Maybe you can do a slight edit to your post to reflect it?

    1. Hi Chan Yuan,

      You're right on the medisave minimum sum. For this, we can just deduct straight from the total amount and put it back into the medisave account. If MMS is $122,000, the individual earning $3000 at age 25 would have $548,854.22 at age 55 in his OA and SA combined.

    2. By the way, nice projections of CPF figures. After reading this article, I realize if I want to meet the 2 CPF min sums at 55, a 4rm BTO flat is a way to go. If i purchase a 5rm BTO flat which would cost $340,000, I will fall short of the CPF min sums

    3. Hi Chan Yuan,

      Another way to look at it is if you use more money to buy a bigger flat now, you can sell it later and buy a smaller flat when you reach retirement age. That will also give you more money for retirement. The only thing is not to overstretch ourselves when buying a house that in the event we lose our job, we can't continue paying the instalment.

  3. Informative article! I wonder though if you did include HDB interest rates into the loan payment amount? Thanks!

    1. Hi,

      Yes, the interest rate of 2.6% is included in the loan payment amount. It works out to be $1100 which is about $550 per person supposing husband and wife pay 50-50.

  4. Hi SGYI,

    Think you put in quite a bit of homework to come up with this post and kudos to you!

    CPF was always meant to provide for a basic retirement. It's also interesting to note that there are people who wish to put more in the CPF Minimum Sum but are unable to.

    From your calculations it also appears that someone earning $2000 should start off with a smaller flat if he is relying on CPF solely for retirement.

    1. Hi 15HWW,

      Yup there is a limit to how much we can put into CPF. It's true that someone with $2000 salary should start off with a smaller flat which would be a 3 room HDB flat. Or maybe buy the flat at a later stage when he has worked for a number of years.

  5. Hi, would it be possible to have the excel spreadsheet? =) I like to play with the property price.

    1. Hi,

      Sure. Just email me and I can share with you through email.

  6. Hello, this may be a dumb question - can CPF deductions be considered as savings as big part of salary goes into it? Of course, it's more prudent to have cash savings on your own as it's accessible and liquid. Is that correct?

    1. Hi,

      You're right. CPF is for retirement only. We still need a portion of our own private savings for rainy days in case we lose oir jobs. CPF also may not be enough for most people as most of us use a big portion of it for housing. In this case, we should also have our own seperate savings for retirement.

    2. Thanks for the reply and all the best to your blog and journey to financial freedom! Will continue reading your blog as it's very informative. Cheers!

    3. Hi,

      You're welcomed. Have a great weekend ahead :)

  7. Hi,

    Great effort in computing the excel sheet! I am also currently making my own spreadsheet based on the data provided above just to cross check the figures. Firstly, how did you get the housing loan of $550 per person? Based on the data above, loan amount = $252k, loan tenure is 25 years and interest rate is 2.6%. Given this data, the monthly installment is $1,143.25 based on my calculations. Divide that by 2 and each person would need to fork out about $571.63.

    In addition, can you kindly explain to me why his CPF OA is wiped out when he pays for the first installment? His OA is $17,181.00 + $601.34
    (Interest) = $17,782.34 when he's 26 years old and his first installment would be ($1,143.25/mth * 12 mths) divided by 2 which equals to $6,859.50. Shouldn't he be left with $17,782.34 - $6,859.50 = $10,922.84?

    Thank you!

    1. Hi,

      The monthly loan is an estimated figure. I put $550 as a round figure and to take into consideration that CPF OA is wiped out then the remaining is factored in for the monthly loans.

      CPF OA is always wiped out when we first buy our house. One lump sum will be paid then the rest is considered into your housing loan.

    2. Ahhh it's a rounded figure. I see...

      So basically, the CPF OA is wiped out because of the 10% down payment (10% * 280k = 28k. Divided by 2 = 14k) plus the first installment ($6,859.50) (i.e. 14,000 + 6,859.50 = 20,859.50) or is it just the 10% down payment alone? Because if it's the down payment only, then the first installment will only be paid when he's 28 and not 27.

    3. Oh no. Cpf is wiped out regardless of the downpayment or installment. If you have 100k in your cpf OA account, all will be wiped out also. Then the rest is considered as housing loan.

    4. Whoa this is the first time I'm hearing this haha. Sorry, I've never bought a HDB flat before so I'm not well versed in this area. Definitely reading and learning so that I can understand better though. Any source links from HDB or any official links for me to read up on the above matter about CPF being wiped out regardless of the downpayment, installment or remaining amount in the CPF OA?

      So if it's wiped out, where does it go to? Does it go to pay off the principal of the loan? Ok let's assume the person above has 100k in his CPF OA when he's 27 years old which is also the year he paid for his 1st installment. Assuming all things remain equal, i.e. loan amount = 252k, loan tenure = 25 years and interest rate = 2.6%, how much must he pay then for the loan? It can't still be $571.63/mth for 25 years right? I mean the 100k has to go somewhere. It can't just disappear into thin air lol.

      Btw, thanks a lot for helping me clarify all my enquiries!

    5. There are no source links on the cpf wipe out thing. It is from experience of friends who told me this. You can find on forums that people are talking about this too.

      Yes the wipe out figure goes into the payment of the loan. So the actual loan amount becomes smaller as you already paid a lump sum in. That is also why I estimated a lower monthly installment of $550 after factoring in that cpf oa is wiped out when purchasing a house.

  8. The CPF is only fully used up when the buyer applies for a HDB loan. The information has always been available on the HDB website at Please refer to the portion "Use of All CPF Savings".