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After reading the CPF life in CPF site, I am still very confuse.
When one choose CPF basic, the balance amount in RA will be used up then CPF life comes in. From CPF Life FAQ, there is too many details one has to take note when making decision. Do they put all or only FRS into RA after 55?
Q What happens if I choose the CPF LIFE Basic Plan?
A
When you join the CPF LIFE Basic Plan, we will deduct about 10 – 20% of your Retirement Account (RA) savings for the annuity premium at the point of policy issuance. The actual percentage will depend on your age and gender. We will inform you on the amount deducted when your policy is issued. The premium deducted will be paid into the Lifelong Income Fund. The rest of your RA savings will stay in your RA.
You will receive monthly payouts from the savings in your RA from your payout start age until one month before you reach 90 years old. Once you reach 90 years old, you will continue to receive monthly payouts from the Lifelong Income Fund for as long as you live.
Payouts under your CPF LIFE Basic Plan will be reduced when the combined balances in your CPF accounts, including the amount committed to CPF LIFE, falls below $60,000.This is due to the reduction in any extra interest earned and paid to you.
ReplyHi May, sorry I missed out your comment. From the CPF handbook:
On your 55th birthday, we will create a Retirement Account for you. Savings from
your Special Account, followed by your Ordinary Account, up to your Full Retirement
Sum of $181,000, will be transferred to your Retirement Account to form your
retirement sum which will provide you with monthly payouts.
Your Full Retirement Sum is fixed when you turn age 55 and will not change.
You do not need to top up your Retirement Account in cash if your savings are
lower than your Full Retirement Sum. Your monthly payouts will depend on how
much you have set aside as retirement sum.
For higher monthly payouts, you may also top up your Retirement Account up to
the Enhanced Retirement Sum of $271,500.
Hi lioninvestor,
say my age is 50. When i reach 55, is it compulsory that i must choose one of the 4 cpf-life plan? Can i wait until 65 to decide or don’t opt in at all? What are the consequences of delayed participation?
thanks in advance.
ReplyDear sender,
The CPF life will become a more or less compulsory scheme for those born 1958 and onwards unless you have less than $40k in your retirement account. Can’t choose to opt-in or out. We will only have the choice of choosing 1 of the 4 options.
1) Automatic inclusion:
Upon reaching age 55 if you have at least $40,000 in RA; or
Upon reaching your Draw Down Age (DDA) if you have at least $60,000 in RA
OR
2) Opt to join after reaching age 55 if you do not have at least $40,000 in RA
Replyall so confusing…
causing less sophisticated elderly folks to possibly make wrong decision?
lion.. you sure 100k at 4% compounded over 10 years can YIELD 148k? or end up with 148k (yield 48k)…
ReplyCPF life is another government scheme that would take money from unsuspecting Singaporeans. I am 56 year old and IF I joined now and I choose the income option where 100% of my retirement account [say $100k] would be transfer to pay for the annuity immediately I would have lost 36k [4% x 9 years] in interest earned in my RA before the monthly payout start at 65 year old. The better choice for Singaporean like me would be to join CPF life just before I turn 65 year old as I would have 36k more in interest earned. The implication would be with this $36k more money in buying the annuity, I would receive higher monthly CPF life payout in future.
Why is this pitfall not make clear in the CPF FAQ is perhaps another example of “let the buyer beware!” mindset that our leaders adopted in their policy of conceiving the scheme, or it could be another example of complacent civil servants failing to see the consequent of encouraging the public to enroll in CPF life now to make the scheme with higher public participation.
At the CPF life seminar, the CPF staff emphasize that members who joined now will receive $2k bonus. What was not told is that this $2k is pay out over 20 to 30 years in your monthly payout and would amount to less than a couple of cents more in monthly payment to you.
ReplyHi Steve,
Actually 100k compounded at 4% will yield almost 148k (and not just 36k) after 10 years. However, your assumption is a bit incorrect as joining CPF Life at age 55 with $100k should give the same monthly payout as joining CPF Life at age 65 with $148k.
The main difference is that if you opt for the highest income plan at age 55, your estate will be left with nothing should you pass away within that 10 years compared to those who wait and leave everything inside CPF RA.
ReplySorry I used age 55 instead of 56 in my calculations but the theory doesn’t change, just that the numbers will be slightly off.
ReplyHow do you know that the monthly pay out would be the same under the 2 scenarios? When a person join now his $100k is transfer to a life fund which may or may not provide a yield of 4% per annum. The chance is that it is lower since the fund need to provide for the less contributing members.
As you mentioned correctly if we join now and kick the bucket before 65, our beneficiaries would lose out on the interest earned. CPF board should disclose this fact in it’s FAQ and this is a material points for Singaporeans to make the right decision. It seems that those who are tasked to roll out the scheme chose to ignore it fearing it’s disclosure may jeopadise it’s implimentation.
ReplyHi Steve,
Both the RA and CPF Life use the same formula – yield of the 10YSGS + 1%, to determine the interest rate.
Replythanks lion for taking the time to post this.
i feel much more relieved knowing it is going to be 10% of the Minimum Sum instead of 10% of my entire CPF savings.
I am definitely going for the lowest tier CPF life plan because I think CPF life is a load of b**lcr*p to trap our money!
Cheers,
Intheknow
Well, we never know how the rules might change later. And what the MS will be by the time we reach 55. 🙁
ReplySorry, but how much additional premium will be deducted upon reaching DDA? Just to confirm there is 2 deductions, one at 55 (Min Sum Age) and another at 65 (DDA)??? This is new to me….
ReplyIn other words, for one who does have a long life expectancy, it is advisable to choose the Basic Plan (lowest Annuity Premium), as the interest on the Annuity Premium is not paid out to one’s beneficiaries ya?
ReplyIn theory yes, but the irony is that they structure it in such a way that the lowest annuity plan also gives you the lowest monthly payout. So your beneficiaries would benefit the most, and not yourself.
Reply