Planit:Detailed CPF Contributions Exercise Answer Key

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Question One:

Ren and Shou Bai want a detailed breakdown of their CPF contributions and those of their employers included in their life goals analysis. Ren's age, retirement age and income respectively are 50, 55 and $100,000; Shou's is 48, 53 and $40,000. Use the CPF contribution calculator to determine the different tiers. Also, Ren saves $7,000 annually into an SRS fund, and Shou saves $4,000 into her own SRS.


Answer:

Open the CPF Contribution Calculator.

  1. Enter Ren’s known income of $100,000 beside the yellow Annual Salary box.
  2. Change the Current Age to 50
  3. The Retirement Age will be Ren’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, there should be several entries based on information from the Cash Flow Screen.

  1. Click Edit beside Ren’s CPFIS/SRS Retirement Savings
  2. You will notice the Employee Amount is already entered as the CPF savings that were entered on the Cash Flow screen. This was likely the current combined value of SA, OA and SRS savings.
  3. 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 savings. First, set the To Year to the current year, when Ren is age 50. This age was in the CPF Contribution calculator, as the end age for the first CPF tier.

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

4. We will make this detailed savings stream for the SA contributions, so set the Matching Amount to $2940: the employer SA contribution for Ren’s age 50.

5. Click on the Add button beneath the current savings tier.

6. Enter the From Year as the year Ren 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).

7. Set the Employee Amount as $4420: Ren’s contribution for the SA at this age.

8. Similarly, the Matching Amount should be $2578

9. The Index Rate can be left at 3.0% since his salary and thus contributions will increase with inflation.

10. The Reduce Life Style By box can remain checked, since these savings will be coming out of Ren’s income and thus reduce the amount he can spend on lifestyle.

11. The Model As function can be left at Fixed Period, since even if Ren were to delay retirement, SA contributions stop at age 55.

12. Ensure the Type is set to go to Ren’s CPF – Special Account

13. Click Save

Now you can add Ren’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 Edit beside Ren’s Other Savings.
  2. Enter a new Description, and set the Type to go to Ren’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 Ren’s age 50, when the first savings tier ends.
  5. The Employee Amount is already set to $0, which is correct since the OA savings are already included in the $22,074 of CPF Savings from the Cash Flow screen.
  6. The Matching Amount should be $7,988: 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 Ren 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).
  9. Set the Employee Amount as $8,211: Ren’s contribution for the OA at this age.
  10. Similarly, the Matching Amount should be $4,790
  11. The Index Rate can be left at 3.0% since his salary and thus contributions will increase with inflation.
  12. The Reduce Life Style By box can remain checked, since these savings will be coming out of Ren’s income and thus reduce the amount he can spend on lifestyle.
  13. The Model As function can be left at End at Retirement, since if Ren were to delay retirement, these OA savings would continue until the new date.
  14. Click Save

You still need to add Ren’s SRS savings:

  1. Click Add above the existing savings
  2. Enter a Description and set the Type to Ren’s SRS Account
  3. Set the From Year to next year, since the SRS have been included in the first CPF savings tier from the Cash Flow screen already, which ends at the end of this year.
  4. The To Year can be set to the year of Ren’s retirement at age 55.
  5. The Employee Amount can be set at the flat amount of $7,000
  6. There are no employer contributions, so set the Index Rate to 3.0%.
  7. The Reduce Life Style By box can remain checked, since these savings will be coming out of Ren’s income and thus reduce the amount he can spend on lifestyle.
  8. The Model As function can be left at End at Retirement, since if Ren were to delay retirement, these savings would continue until the new date.
  9. Click Save

Shou also wanted the detailed breakdown of her CPF savings. Open the CPF Contribution Calculator.

  1. Enter Shou’s known income of $40,000 beside the yellow Annual Salary box.
  2. Change the Current Age to 48
  3. The Retirement Age will be Shou’s planned age of 53.
  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, you will notice there are several entries based on information from the Cash Flow Screen.

  1. Click Edit beside Shou’s CPFIS/SRS Retirement Savings
  2. You will notice the Employee Amount is already entered as the CPF savings that were entered on the Cash Flow screen. This was likely the combined value of SA, OA and SRS savings.
  3. 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 savings. First, set the To Year to the year Shou is age 50. This age was shown on the CPF Contribution calculator, as the end age for the first CPF tier.
  4. We will make this detailed savings stream for the SA contributions, so set the Matching Amount to $1176: the employer SA contribution for Shou’s age 48 to age 50.
  5. Click on the Add button beneath the current savings tier.
  6. Enter the From Year as the year Shou will be age 51, and the To Year as the year she will be age 53. Even though the CPF savings tier continues to 55, Shou plans to retire by 53, so her savings would end.
  7. Set the Employee Amount as $1768: Shou’s contribution for the SA at this age.
  8. Similarly, the Matching Amount should be $1031
  9. The Index Rate can be left at 3.0% since her salary and thus contributions will increase with inflation.
  10. The Reduce Life Style By box can remain checked, since these savings will be coming out of Shou’s income and thus reduce the amount she can spend on lifestyle.
  11. The Model As function can be left at End at Retirement, since if Shou were to delay retirement, her SA contributions would continue until her age 55.
  12. Ensure the Type is set to go to Shou’s CPF – Special Account
  13. Click Save

Now you can add Shou’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 Edit beside Shou’s Other Savings.
  2. Enter a new Description, and set the Type to go to Shou’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 Shou’s age 50, when the first CPF tier ends.
  5. The Employee Amount is already set to $0, which is correct since the OA savings are already included in the $10,029 of CPF Savings from the Cash Flow screen.
  6. The Matching Amount should be $3,195: 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 Shou will be age 51, and the To Year as the year she will be age 53.
  9. Set the Employee Amount as $3,284: Shou’s contribution for the OA at this age.
  10. Similarly, the Matching Amount should be $1916
  11. The Index Rate can be left at 3.0% since her salary and thus contributions will increase with inflation.
  12. The Reduce Life Style By box can remain checked, since these savings will be coming out of Shou’s income and thus reduce the amount she can spend on lifestyle.
  13. The Model As function can be left at End at Retirement, since if Shou were to delay retirement, these OA savings would continue until the new date.
  14. Click Save

You still need to add Shou’s SRS savings:

  1. Click Add above the existing savings
  2. Enter a Description and set the Type to Shou’s SRS Account
  3. Set the From Year to the year of Shou’s age 51, since the SRS have been included in the first CPF savings tier, running until Shou’s age 50.
  4. The To Year can be set to the year of Shou’s retirement at age 53.
  5. The Employee Amount can be set at the flat amount of $4,000
  6. There are no employer contributions, so set the Index Rate to 3.0%.
  7. The Reduce Life Style By box can remain checked.
  8. The Model As function can be left at End at Retirement.
  9. Click Save
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