Planit:Detailed CPF Contributions Case Study

From Planipedia

This case study is specific to financial planning in Singapore, so has fixed values rather than indices by country. For a similar case study applicable to Malaysia, please see Planit:Employer EPF Contributions Case Study.

One of the largest benefits to your client as a Singapore resident will be their automatic savings into the Central Provident Fund, along with the extra contributions made by their employer. By accurately calculating your client’s CPF savings into the various account types, you can show which savings will go to fund the retirement goal, or life goals like education. You can plan now for changes in savings as your client ages.

Example Problem One:

Alvin is his own employer, earning $220,000, but he is making the full contributions to his CPF accounts in order to counter-act the high amount his family spends on lifestyle expenses. Alvin is currently age 42, and hopes to retire by age 55 given his high savings. Grace’s income is not registered so she does not make any CPF contributions. Using the CPF Contribution Calculator, calculate the contributions Alvin will make (as his employer and an employee separately) into the various CPF accounts, and input them appropriately into the Savings screen.

Solution using Summary Insurance Coverage:

Open the CPF Contribution Calculator.

1. Enter Alvin’s known income of $220,000 beside the yellow Annual Salary box.
2. Change the Current Age to 42
3. The Retirement Age will be Alvin’s planned age of 55.
4. Now the CPF contributions below will be based on your client’s income and age. Keep the spreadsheet open to refer to when entering the data into the Savings screen.

Back on the Savings screen in the Web Advisor, click Edit beside Alvin’s CPFIS/SRS Retirement Savings

1. The Employee Amount should already has a non-editable amount for the current tier, based on the CPF savings that were entered on the Cash Flow screen, likely a combined value of SA and OA savings.
2. Since we cannot edit this amount, we will leave this combined CPF value as is for the first savings tier. For the remaining tiers (and for the employer contribution for this tier) we will split the SA and OA savings. First, set the To Year to the year Alvin will be age 45 (in three years). This age was shown on the CPF Contribution calculator, as the end age for the first CPF tier.

Note: We will not be including detailed Medisave contributions because the Medisave account is usually shown as a Personal Use account, and thus cannot properly receive savings. Simply update the balance of the Medisave whenever you are concerned about your client’s hospitalization coverage.

1. We will make this savings stream for the SA contributions, so set the Matching Amount to $5447: the employer SA contribution between Alvin’s current age and age 45
2. Click on the Add button beneath the current savings tier.
3. Enter the From Year as the year Alvin will be age 46, and the To Year as the year he will be age 50. (As identified by the Age Range in the CPF Contribution Calculator).
4. Set the Employee Amount as $8923: Alvin’s contribution for the SA at this age bracket.
5. Similarly, the Matching Amount should be $6469
6. Click on the Add button again to add the final tier.
7. Enter the From Year as the year Alvin will be age 51, and the To Year as the year he will be age 55. (As identified by the Age Range in the CPF Contribution Calculator).
8. Set the Employee Amount as $9725.
9. Similarly, the Matching Amount should be $5673
10. The Index Rate can be left at 4.0% since his salary and thus contributions will increase with inflation.
11. The Reduce Life Style By box can remain checked, since these savings will be coming out of Alvin’s income and thus reduce the amount he can spend on lifestyle.
12. The Model As function can be left at Fixed Period, since even if Alvin were to delay retirement, SA contributions stop at age 55.
13. Ensure the Type is set to go to Alvin’s CPF – Special Account
14. Click Save

Now you can add Alvin’s detailed OA savings. Remember that his OA savings as the employee have already been accounted for as the non-editable entry from Cash Flow.

1. Click on the Add button at the top of the summary Savings screen
2. Enter a Description, and set the Type to go to Alvin’s CPF – Ordinary Account
3. Set the From Year to next year, since added savings streams cannot start in the current year.
4. The To Year can be set to the year of Alvin’s age 45, when the first savings tier ends.
5. The Employee Amount for this first tier should be $0, since it is already included in the $34,438 of CPF Savings from the Cash Flow screen.
6. The Matching Amount should be $19,420: the amount contributed by the Employer to the OA portion for this age range (as shown in the CPF Calculator).
7. Click on the Add button beneath the current savings tier.
8. Enter the From Year as the year Alvin will be age 46, and the To Year as the year he will be age 50.(As identified by the Age Range in the CPF Contribution Calculator).
9. Set the Employee Amount as $24,239: Alvin’s contribution for the OA at this age.
10. Similarly, the Matching Amount should be $17,573
11. Click on the Add button again to add the final tier.
12. Enter the From Year as the year Alvin will be age 51, and the To Year as the year he will be age 55. (As identified by the Age Range in the CPF Contribution Calculator).
13. Set the Employee Amount as $18,065.
14. Similarly, the Matching Amount should be $10,538
15. The Index Rate can be left at 4.0% since his salary and thus contributions will increase with inflation.
16. The Reduce Life Style By box can remain checked, since these savings will be coming out of Alvin’s income and thus reduce the amount he can spend on lifestyle.
17. The Model As function can be left at End at Retirement, since if Alvin were to delay retirement, these OA savings would continue until the new date.
18. Click Save

Go to the exercise to test your knowledge on detailed CPF contributions