How do you see yourself in the future when you grow old?
Happy and prosperous? Or sick and lack of money?
To no one’s surprise, everybody prefers the first scenario, including you.
The government of Singapore and CPF Board understand this concern; thus, creating a retirement scheme called CPF Life to help you achieve happy and prosperous retirement days. This program works by providing a lifelong stream to its members through a monthly payout for the rest of their life, starting at age 65.
So what actually happens when you enter the age 65?
RECEIVE MONTHLY PAYOUT
Why age 65 is such a big matter is because it is the current payout eligibility age (pea) set by the government, which means this is the age where you can start receiving a monthly payout from your Retirement Account that you have created at age 55.
There are 3 types of CPF Life plans which determine how much money you will receive per month.
Source: CPF Board
- Standard Plan: receive a higher payout every month for the rest of your life.
E.g.: if you have $85,500 (Basic Retirement Sum) in your Retirement Account and want to apply for Standard Plan, you will receive $720-$770 from your pea until your death. The amount will not increase or decrease.
- Basic Plan: in contrast to the Standard Plan, this one offers a lower level of monthly payout.
E.g: if you have $85,500 in your Retirement Account and want to apply for Basic Plan, you will receive $680 – $700, constantly every month.
- Escalating Plan: receive a lower payout at the beginning, but with an increased amount of 2% every year.
This is a new payout plan which is recently active per January 2018. By joining this plan, you will have more money in hands as you live longer.
E.g: if you have $85,500 in your Retirement Account and wish to apply for Escalating Plan, you will receive initial monthly payout approximately $550 – $610, which is the lowest amongst three plans. However, by age 85 you will receive a higher monthly payout than if you apply for the Standard Plan.
RECEIVE BEQUEST UPON DEATH
One of the worries of parents as they grow older is how their children would live after they are gone.
With CPF Life, you are not only granted monthly payout but also bequest for your beneficiaries. The annuity that has not been used for monthly payout (without interest) and also the rest of your savings in the Retirement Account can be passed down to your family. In other words, by joining CPF Life you will not lose even one cent of your money.
The amount of bequest you leave behind depends on the CPF Life plan that you choose.
The best plan for collecting more bequests is the Basic Plan because with a lower monthly payout, you will only use a smaller amount of annuity compared to the other plans. People who opt for this plan usually expect their life to be no longer than 85 years old, so they can leave more money for those who are left behind.
Vice versa, the Standard Plan will allow you to leave a smaller amount of bequest in return to bigger monthly payout received during your lifetime after pea. This is why Standard Plan is more recommended for those who wish to spend more during their golden days, instead of leaving more bequests.
Meanwhile, the Escalating Plan is only slightly better than Standard Plan when it comes to bequest.
To know the estimation of your monthly payout and bequest, visit CPF Board’s Life Payout Estimator.
This is an example of it which was taken from the CPF website for your reference, as of 15 April 2018:
Based on the “Standard Plan” which we have worked out the figures for the Internal Rate of Return(IRR):
If someone aged 56 is drawing down $1,270 per month (based on an interest of 3.75% p.a) to $1,391 per month (based on an interest of 4.25% p.a) until age 80, the internal rate of return (IRR) is only 1.81% p.a to 2.55% p.a.
|CPF Life Standard Plan|
|Age||Cashflow (Lower)||Cashflow (Higher)||Lower||1.81%|
If you happen to leave the world at age 80 (for a projected interest of 4.25% – which in actual, is only 2.55% p.a), you will leave behind $6,838 for your next of kin.
Based on the “Basic Plan” which we have worked out the figures for the Internal Rate of Return(IRR):
If someone aged 56 is drawing down $1,157 per month (based on an interest of 3.75% p.a) to $1270 per month (based on an interest of 4.25% p.a) until age 80, the internal rate of return (IRR) is about 3.74% p.a to 4.20% p.a.
|CPF Life Basic Plan|
|Age||Cashflow (Lower)||Cashflow (Higher)||Lower||3.74%|
If you happen to leave the world at age 80 (for a projected interest of 4.25% – which in actual, is only 2.55%p.a), you will leave behind $139,070 for your next of kin. Given a choice to make before 65, most of our clients will go for this option.
As for the ‘Escalating Plan’, you can visit the CPF Board’s Life Payout Estimator and check out the rate of returns.
RECEIVE HIGHER PAYOUT
- One way to receive a higher monthly payout is by making top-ups to your Retirement Account through cash or transfer. This can be done by yourself or by your loved ones. To understand more about this, read our previous article about CPF Top-ups here (link to the previous article_still not existing).
- Another way is by deferring the starting age for receiving the monthly You can enjoy an increased payout by up to 7% per year if you start receiving later than age 65. However, make sure not to defer more than 5 years (the allowed maximum age is 70).
ADVANTAGES OF TOPPING UP THE RETIREMENT ACCOUNT (RA) to RECEIVE HIGHER PAYOUT
- As of today, the CPF minimum sum is $171,000 and the maximum you can top up to the RA account is $256,000. Given that you can enjoy an interest rate on average of 4% p.a through CPF, every monthly drawdown you can receive around $1800 for as long as you live.
DISADVANTAGES OF TOPPING UP YOUR RETIREMENT ACCOUNT(RA) and what you can do as an Alternative
- Your retirement account is locked from age 55 to 65 before the drawdown of monthly payout starts once the CPF Life kicks in.
- If a critical or terminal illness is to happen, the Retirement account does not pay out a single cent to you unless it is upon your death; hence, if you are in the need of the CPF monies, it will not be paid to you that quickly.
- You can only enjoy an interest rate on average around 4% p.a. (please refer to the CPF Life Calculator and which schemes you are taking and until when you will receive the payout).
Alternatively, you can look at other various instruments whereby we can offer plans with benefits as follows:
1) Capital protected
2) Provides a higher return than CPF Life, with 6.7% payout
3) Not investment-related (no volatility)
4) Complements your CPF Life by giving you an even higher payout
5) Pays you and your family for 100 years and will not decrease your Capital!
6) PLUS, receive your payout 5 years earlier than your CPF Life, allowing you to retire earlier than your peers! (You don’t need to wait until 65 now.)
By simply better optimizing your existing CPF monies, you will be able to get a much higher payout and retire 5 years earlier, comfortably.
Not only that, this Lifetime Income Plan pays for up to a 100 years and will continue to give a payout to your children and grandchildren even when you are no longer around, making this an excellent Retirement and Legacy instrument.
Should you be keen to know more, feel free to contact us or leave your contact details in the comment section below after you finish reading this article!
HOW TO RECEIVE THE MONTHLY PAYOUT
Now we are going into a more technical issue.
Prefer the traditional way? Fill in the application form and mail it to:
Central Provident Fund Board
Lifelong Income Department (LID)
P.O. Box 3060
CHANGING/CANCELLING CPF LIFE PLAN
If by any chance you are not happy with your payout plan, you are allowed to change or cancel the plan within the 30 days of you policy letter. Cancellation can only be done if you voluntarily join the CPF Life or voluntarily purchase an additional annuity.
For existing members who are also interested in the newly-available Escalating Plan, you can switch into the plan between January to December 2018. Take a note that your monthly payout will be reduced since the Escalating Plan has lower starting payout than Basic and Standard plans.
Changes and cancellation can be requested via e-Concierge by login using your Singpass.