Retirement Fund and Inflation

A Central Provident Fund member is required to set aside a Minimum Sum of $99,600 on reaching age 55. This Minimum Sum will be adjusted yearly to allow for inflation. The CPF now uses an adjustment of 2% per year.

We can use the real rate of interest of 2% to compute the drawdown of the Minimum Sum.
At present, the CPF member can draw down the Minimum Sum for age 62. The Government is giving a Deferment Bonus to encourage people to delay the draw down to age 65.

If I use the real rate of 2% to calculate the accumulation of the Minimum Sum to age 65 and draws down this sum over 25 years, the drawdown is $6,200 a year or $518 a month. This reflects the value of money today. The “nominal” amount will be higher, due to inflation.

Many people consider $518 a month to be inadequate. I estimate that a retiree should have two times of the Minimum Sum to achieve a more comfortable standard of living. This can be achieved by keeping a larger portion of the CPF savings in the special account or by having personal savings to supplement the CPF savings.