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Should We Keep the Full Retirement Sum (FRS) or the Enhanced Retirement Sum (ERS) in Our CPF After Age 55?
As we approach the age of 55, we need to make a critical decision regarding our CPF savings. Should we maintain the Full Retirement Sum (FRS) or opt for the Enhanced Retirement Sum (ERS)? The decision is critical as it will have a direct impact on our retirement lifestyle and our decision will effectively lock in our money for literally the rest of our lives.
Pros of Choosing the Enhanced Retirement Sum
Higher Monthly Payouts
The most obvious benefit of the ERS is the increased monthly payouts under CPF Life. By setting aside a larger sum, we secure a higher monthly income during retirement which will provide more comfort and peace of mind during our golden years.
Greater Financial Security
The ERS offers a reliable and guaranteed income stream ideal for those of us who prefer a hands-off approach when building our retirement nest egg.
Cons of Choosing the Enhanced Retirement Sum
Reduced Liquidity
Opting for the ERS however locks up a large portion of our CPF savings, limiting our ability to access those funds after the age 55. This reduces our flexibility to use that money for other financial goals — such as supporting our children’s education or paying that unexpected medical bill. With our funds tied up in CPF for the long term, we’ll have less capital available for unexpected expenses.
[Note: When deciding on using our CPF for other financial goals, it is important to remember that our CPF is meant to fund our retirement lifestyle.]
Lower Investment Flexibility
With our funds tied up in CPF, we might also miss out on potentially higher returns from other investment options like stocks, bonds, or real estate. While CPF offers attractive interest rates, these may not match the returns we can achieve through other vehicles, especially if we have the skills or appetite to pursue them.
