Asked by Anonymous

Should I top up my CPF RA to ERS. I have enough OA balance to cover it (assuming I do a OA to RA transfer). I understand that the transfer is irreversible; and I get to enjoy higher payouts from age 65. Should I do the transfer or leave it in OA?

I have no plans to do any CPF withdrawal unless the market crash providing opportunities in the stock market.

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  • Christopher Tan
    Christopher Tan, Executive Director at MoneyOwl Private limited
    Level 4. Prodigy
    Answered on 24 Jan 2019

    Hi anonymous, thanks for your question. There are 3 "things" that you will need in retirement.

    1. A fully paid house

    2. A suitable medical insurance to pay your hospital bills

    3. A retirement income stream.

    One question that you might want to ask yourself this:

    1. At retirement, what kind of lifestyle do I want to live so that it would be a meaningful and purposeful life for me?

    2. And to live this lifestyle, how much do I need per month? So say for example, you would need $5K per month. The next question is

    3. How much of this $5K, I "die die" must have? Let us just say that you "die die" must have $2K

    Then an annuity is a good instrument to use to give you this "safe retirment income stream" of $2K. Regardless of financial markets and regardless of how much you live, you will get this amount till your demise.

    In my opinion, the best annuity in Singapore is CPF LIFE. Should you top up your RA up to ERS? If your "safe retirement income stream" that you need is $2K, then I would say yes, do top it up to ERS. However, if you only need say $1500 per month as your safe retirement income floor, then there is no need to top it up to ERS, having up to FRS would suffice. This is because:

    1. You have said it right, topping up your RA is irreversible. There is an opportunity cost. Top up till what you need and don't over do it.

    2. Although I am pretty confident that the government will not make ridiculous policy decisions (having been on the CPF Advisory Panel and I understand how CPF policy decisions are made), there is always that possibility that policy might still change and you don't like it.

    3. The more money you have in CPF to give you that safe retirement income stream, the lesser money you have to invest in a higher return instrument to give you a higher total income stream.

    Hope this helps!

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    • Question Poster
      Thank you, Christopher! This is very helpful.
      24 Jan 2019