Have you thought about the possibility of living pass 100 years old? Given that Singapore's life expectancy is about 84 years old (which means 1 in 2 of us are going to live past 84) and with advancement in technology, healthcare and living conditions, the likelihood of you living pass 100 is not remote at all.
How much do you need to live a dignified elderhood? Are you afraid of living too long because you don't want to be a burden to others or worried that you might outlive your economic resources?
These are some of the questions that Immortalize encountered when we help people plan their last mile of life, spanning from retirement all through to their legacy.
In Part 1 of this CPF LIFE series, we explore CPF LIFE, Singapore's national longevity insurance annuity scheme introduced in 2009, and why we think it's one of the best gift from the government.
Base Case Scenario
In Singapore, when you hit 65 years old, what usually happens is that you can apply to start receiving monthly payouts from your CPF accounts or choose to defer the payouts till later. If you don't do anything, your payouts will automatically start at 70 years old.
If you were born before 1958, you can choose to either be in the Retirement Sum Scheme (RSS) or the CPF Lifelong Income for Elderly Scheme (CPF LIFE).
If you were born on or after 1958, you are most likely going to be automatically enrolled in CPF LIFE. If not automatically enrolled, you can voluntarily opt in or CPF will pay out your retirements savings till it runs out.
How to Join CPF Life?
In Singapore, you will automatically be included in CPF Life if you are:
A Singaporean or Permanent Resident (PR);
Born in 1958 or after;
Have at least S$60,000 in your retirement savings before you reach 65.
If automatically included, before you turn 65, you’ll be informed on the options available to you.
If not automatically included, you’ll receive monthly payouts until your retirement savings run out. You can join the CPF Life scheme voluntarily:
If you are a Singapore Citizen or Permanent Resident
Anytime between 65 to one month before you turn 80 years old (when you want to start receiving payouts)
If you want to opt out, you can do so if you meet certain criteria.
Now, let's decide if we want to be in CPF LIFE or whether we should try to get out of it.
In the following section, we will compare RSS with CPF LIFE to decide whether we are better off in CPF LIFE.
How does the Retirement Sum Scheme work?
Under RSS, your monthly payout amount will be calculated such that your current retirement savings will be able to last you up to 20 years, taking into consideration the base interest rate, which is 4% p.a. at the time of writing. Any extra interest paid will be used to extend your payouts beyond 20 years, up to 90 years old or another 5 years, whichever ends later.
Note:
Payout stops once all the savings run out. If you pass away before the savings run out, the balance on your Retirement Account (RA), including any interest earned, will be paid out to your beneficiaries.
How does CPF LIFE work?
CPF LIFE hedges against your longevity risk by providing payouts to you for as long as you are alive.
Note: For an individual, longevity risk refers to the risk of you living longer than expected, which may mean living longer than your money or economic resources can provide for.
Overview
Once you have decided to start your payout, all or part of your savings in the RA will be deducted as CPF LIFE premium. A monthly payout will be determined and paid to you. The monthly payout will first be deducted from your CPF LIFE premium.
If your premium gets fully deducted, CPF will continue to pay you your monthly payout (this is the insurance component).
If you die before your premium gets used up, the remaining premium, will be distributed as inheritance to your CPF nominees.
Round 1: Duration
CPF LIFE wins. CPF LIFE pays you for as long as you are alive while RSS ends when your RA runs out.
Now, let's look at the payout.
How much can you get from CPF LIFE each month?
You can check the amount that you are eligible for via the CPF LIFE estimator.
But to summarize, the CPF LIFE payouts are determined by an independent actuarial consultant and depends on factors such as:
Age
Gender
Females tend to live longer than males and so everything else the same, the payout for a female will be lesser than an equivalent male.
CPF interest rates
The higher the CPF interest rate, the higher the payout.
Mortality rates
The longer the population is expected to live, everything else the same, the lower the payouts.
CPF LIFE premium - The retirement savings used to join CPF LIFE
The more you join CPF LIFE with, the higher premium you are paying and thus, the higher the payout.
CPF LIFE plan type
The plan type determines whether you will get a constant payout throughout, payout that keeps increasing, etc.
Let's illustrate with an example.
If you turn 55 years old in 2022, the maximum amount that you can use for CPF Life, which is your Enhanced Retirement Sum, is S$288,000. By the time you reach 65 and if you are on the CPF LIFE Standard Plan, you can expect a monthly payout of about S$2,140 - S$2,300, till you die.
What is the difference between the CPF LIFE payout plans?
There are three CPF LIFE payout plans that you can choose from:
Standard Plan - Fixed payout every month
This is the default plan that we will use for comparison. It gives the same payout every month and is suitable for people who don't mind adjusting their spending pattern by buying lesser or living more frugally even as the price of things rise.
Escalating Plan - Increasing payout every month
Protects you against inflation/rising cost of living. Payouts starts lower and increase by 2% every year. The payouts for the Escalating Plan will initially be lower than the payouts for the Standard Plan but will eventually be higher as time goes by.
Basic Plan - Fixed and lower monthly payout than Standard Plan
This is a legacy plan from when CPF LIFE was first introduced in 2009. Under this plan, about 10-20% of your Retirement Account (RA) savings will be deducted as CPF Life premium. Your monthly payout will first be paid from your RA and after RA is depleted, payouts will continue from CPF LIFE and carry on till you die.
You can play around with the different payouts under the various plans here.
Does CPF LIFE earn interest?
Your CPF LIFE premium continues to earn you the interest that you would have otherwise earn in the RA and that interest is factored into the higher monthly payout. The interest earned on you and other CPF members' CPF LIFE premium is what allows you to continue receiving payout even after your CPF LIFE premium has been depleted.
How far can I defer CPF LIFE payouts?
You can ensure a higher payout by deferring the date you start receiving to payments till as far as 70 years old
Can I change my CPF LIFE payout plan?
Once you have selected the payout plan, you can only change the plan type within 30 days from the date of your policy letter via “My Mailbox” in your CPF account. After that, you will not be able to change the payout type.
If you are on a legacy plan such as the Basic, Balanced, Plus or Income Plan, you can make the switch to Escalating or Standard plan before the age of 80.
Are CPF LIFE payouts fixed and guaranteed?
No. The size of CPF LIFE payouts are not guaranteed, but they are designed to be stable. Any adjustments to CPF LIFE payouts are expected to be small and gradual. CPF LIFE is a self-sustaining insurance scheme where payouts are matched to premiums. Guaranteeing a minimum payout would require higher premiums.
Round 2: Monthly Payout
On a monthly basis, RSS can pay more than CPF LIFE.
Here are two examples to illustrate.
(Note: Some figures have been rounded up and were correct at the time that they were recorded. The figures may become inaccurate over time.)
Scenario 1: Singaporean male born in 1954 named John. Has S$395,000 in RA. Assume John starts his payout now.
RSS will pay ~$2,650 for ~18 years.
CPF LIFE will pay ~$2,270 till John passes away.
Scenario 2: Singaporean male born in 1955 named Peter. Has ~S$108,700 in RA now. Peter already started RSS payout.
His current RSS payout is ~$680 for another ~22 years.
If he switches to CPF LIFE , Peter will get ~$670 till he passes away.
Obviously, the longer you live, the more CPF LIFE make sense. But what if I die early? Let's look at inheritance.
What happens to my CPF LIFE premium when I die?
After you pass away, any unused CPF LIFE premium will be paid out to your beneficiaries.
Unlike inheritance under RSS, for CPF LIFE, only the unused CPF LIFE premium gets paid to your beneficiaries. Your beneficiaries do not get the interest accrued on your CPF LIFE premiums.
Here's an example to illustrate:
Under RSS, if a member has $450,000 in his/her RA and had already received S$50,000 of payout. When the member passes away, the member's beneficiaries will get $400,000 + accumulated interested.
On the other hand, if a member joins CPF LIFE with S$450,000 of CPF LIFE premium and had already received S$50,000 worth of payouts, S$400,000 will be refunded to the member's beneficiaries.
Round 3: Inheritance
RSS pays more to your beneficiaries than CPF LIFE if you pass away before you could finish using your retirement savings/CPF LIFE premium.
Is Retirement Sum Scheme or CPF LIFE better?
CPF LIFE wins RSS in duration but RSS wins CPF LIFE in terms of monthly payout and inheritance. So does that mean RSS is better?
No. CPF LIFE is better. We'll explain why in Part 2 of this CPF LIFE series, where we'll explore the pros & cons of RSS, CPF LIFE and private annuities to see which is better.
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FAQ
What is CPF LIFE?
CPF Lifelong Income for Elderly Scheme (CPF LIFE) is Singapore's national longevity insurance annuity scheme. CPF LIFE gives you monthly payout regardless of how long you live.
What is the difference between CPF LIFE and Retirement Sum Scheme (RSS)?
CPF LIFE gives you a monthly payout for as long as you are alive while RSS payout stops when your retirement account is depleted. If you pass away before using up your CPF LIFE premium, the unused premium will be distributed to your CPF nominees whereas for RSS, your balance plus accrued interest will be paid out to your nominees.
Are CPF LIFE payouts fixed and guaranteed?
No. CPF LIFE payouts are not guaranteed, but they are designed to be stable. Any adjustments to CPF LIFE payouts are expected to be small and gradual. CPF LIFE is a self-sustaining insurance scheme where payouts are matched to premiums. Guaranteeing a minimum payout would require higher premiums.
Disclaimer: Nothing in this article or site should be construed as providing legal advice or advice of any sort. The information provided are general in nature and may become inaccurate over time. Please consult a professional for advice.
For any issues or queries, please contact j@immortalize.io
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