Which CPF L.I.F.E. Plan is Best for you?

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Imagine owning a Supercar without knowing its full capabilities. You go about the entire time you own it realizing only a fraction of its ability and by the time your ownership of it expires, someone tells you of its magnificence. Alas, you can no longer enjoy it.

This is somewhat the current situation what we Singaporeans know of government schemes availed to us. I hope that this article provides more clarity so that we will be empowered to use what is rightly ours.

When it comes to CPF, it is usually a topic of contention. Designed to aide Singaporeans in their Retirement years, sometimes this is met with individuals who would have preferred if they could realise the CPF money at Retirement age instead.

CPF L.I.F.E (Lifelong Income for the Elderly) currently provides Lifelong Income from payout age of 65 (at the point of writing) and I for one am an advocate.

All the following examples are based on a Male, Age 55 with Retirement Account of $181,000.

For an individual who turns 55 this year, having the Full Retirement Sum would enable him to have about $1,420-1,568/mth from the age of 65 for life.

The IRR for this is between 3.58% – 4.14% p.a. till age 85.

This is a sound foundation for many of us. Considering that there are a group of us who have investments which also support us during retirement, you would have the flexibility of squeezing more benefits from CPF by:

Delaying payout up till 70.

You can start your payouts anytime from age 65 till age 70. You can receive up to 7% higher payouts for each year you defer your payouts.

If you would consider this option, one would receive a higher dollar monthly payout of $1,879-2,115.

Though the IRR for this will decline to 3.16-3.72%p.a. till age 85.

Understand which CPF L.I.F.E Option is Best for You

There are 3 options that we can choose from at the payout age of 65.

  • Standard Plan (Default)
  • Basic Plan
  • Escalating Plan

Standard Plan may be a viable option if one requires more income for self and leaving behind a legacy is a 2ndpriority.

Basic Plan may be a viable option for the other way around; leaving behind more for beneficiaries and less for self now.

It is interesting observation that between this two, the Basic Plan seems more attractive vis-à-vis the Standard plan, because this example shows a $121/mth difference ($1368-$1247), but a very sizeable bequest for beneficiaries even at the age of 80 (if demise at 80, Basic gives an indicative bequest of $142,260, whereas Standard give $0). A bequest amount extends till the individual reaches age 91.

The Escalating Plan is a viable option if you have an existing foundation for lifetime income already, it can be used as a hedge against inflation as this instrument receives higher payouts through the years. However, it is good to know that the payout only matches the rate of the Basic and Standard plan at the indicative age of 75, some 10 years after the payout age of 65, before surpassing both plans. Though we do not know the time and the hour of when we kick the bucket, life expectancy would be one of the key considerations of taking up this option.

I hope this has given you more insight on optimizing the CPF LIFE scheme that our government has designed for us. If you have any questions about CPF LIFE or related, ask away and I would be happy to answer them.

Disclaimer: The views expressed here are solely those of the author in his private capacity and not necessarily to the author’s employer, organization, committee or other group or individual.

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About Me

Hi, my name is
Joshua Hoong
I’m a Chartered Financial Consultant (ChFC) at ACTS Advisory Group, IPP Financial Advisers specialising in comprehensive Retirement Planning, as well as a Million Dollar Round Table (MDRT) member.

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