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How to have a good, long life with CPF

Those who put more in CPF Life and defer payouts till 70 will have more cash each month

Tan Ooi Boon on 05 Jul 2020

The Straits Times


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The longer you keep your money in the Central Provident Fund (CPF), the more you will earn because of its high interest rate. This is why more Singaporeans are trying to keep their funds for a longer period in this safe haven.


No wonder the CPF Board has to do more to get eligible members to start collecting payouts when they hit 65. At that age, members can start receiving monthly payouts under CPF Life, the Board's longevity insurance scheme. But many choose not to ask for the payouts.


Although members get reminders six months before their 65th birthday, about 60 per cent let their funds stay in their CPF accounts.


And even after four more rounds of yearly reminders, half of those reaching 70 still do nothing.


To solve this problem, the Board now automatically disburses the funds the moment members hit 70.


While it tries to help vulnerable seniors who may not understand the scheme, many do not want to get their payouts at 65 as they will gain even more with each passing year.


Some of these retirees are likely to be savvy investors or even professionals who are still working. Indeed, a few wrote to Invest to ask whether they can pay into a second CPF Life account!


As they are still enjoying a steady flow of income, they choose to receive their CPF Life payouts only from 70. They can receive up to 7 per cent higher payouts for each year they defer their payouts.


Take a member who plans to set aside the maximum retirement amount of $288,000 in 2022. If he takes the payout at 65, he will get an estimated $2,400 a month. But if he does so at 70, he will get over $3,200.


Just like the tortoise that wins the race with the rabbit in the children's fable, members who start receiving their payouts later in life will slowly catch up and get even more.


Imagine a couple with two sets of such payments - they will have over $6,000 to spend every month just from CPF Life. This alone can pay for a comfortable retirement, leaving aside cash savings they are likely to have as well.


The reason CPF Life is the best longevity insurance scheme that money can buy is because it is backed by the Government. Unlike some other plans that may end after a number of years, the CPF Life payment will continue as long as you live, even beyond 100.


This is good news for future generations of seniors as their average life expectancy is likely to go up. As it is, about a third of today's 65-year-olds are expected to live beyond 90.


Also, unlike private annuities that may cost over $1 million for similar payouts, the threshold for CPF Life is far lower. This is possible because the "premium" that you set aside for CPF Life will continue to earn up to 6 per cent minimum interest.


The monthly payouts will first come out of your CPF Life premium. When your own premium is depleted, you will continue to receive the monthly payouts from the interest that you have accumulated within your plan, as well as the interest from the CPF Life pool.


You should go to the CPF website and use its very informative CPF Life "estimator" to see the patterns of monthly payouts based on the retirement sums you have set aside.


This interactive tool is only a guide and the results do not reflect the actual payout that members will get, due to their varied profiles.


But it does give a very insightful peek into the three CPF Life payout plans that you can choose to have when you hit 65.




People who do not pick any plan will be put on the Standard Plan, which pays a fixed sum each month. About 70 per cent of eligible members are now on this plan.




The other 30 per cent have chosen the Basic Plan, which also pays a fixed monthly sum. But this amount is less than those on Standard Plan because members who choose this option want to make sure they will have something left for their beneficiaries.


While the Standard Plan will not provide any residual sums for beneficiaries if members live beyond 80, those on the Basic Plan can get a 10-year extension, all the way to their early 90s.


Basic Plan members who live beyond this age will still continue to receive monthly payouts but their beneficiaries, like in other plans, will not get anything.


An important point on Basic Plan is this - as members have chosen to leave some money for their beneficiaries, their own monthly payouts are likely to see small decreases after the age of 85. This is especially so for those who set aside only the minimum retirement sum.


But for those who put up the maximum Enhanced Retirement Sum, such decreases take place only beyond 90. The decrease in payouts is small - only a few dollars every year, according to the estimator.




From 2018, members can also choose the Escalating Plan, which starts at a monthly payout that is lower than the other two plans.


But the amount will increase by 2 per cent annually so that it eventually becomes the highest payout among all the plans.


Figures for the take-up rate are not available yet.




A common feature of all the plans is that members are likely to hit their break-even milestones in about 10 years. What this means is if a member starts to receive his payout from 65, his cumulative payouts at 75 will likely be more than what he set aside two decades ago.


For instance, if a member sets aside $181,000 as his Full Retirement Sum at 55 this year and starts collecting monthly payouts when he is 65, the total payout that he is likely to get at 75 can be as high as $190,000, more than his initial sum.


And this cumulative sum will be doubled to almost $380,000 at 85. If he lives to 90, the total amount will be about $475,000.


If the same member sets aside $271,500, the Enhanced Retirement Sum for this year, he will reach his break-even point in about 10 years as well. But as he has set aside more, his cumulative payout at 85 and 90 will be far more - about $550,000 and $690,000, respectively.


A simple way of looking at the numbers is this:


•Most prudent working adults should be able to save for CPF Life. Even if you aim for the highest sum, the target amount is $288,000 by 2022. Do not worry if you do not have so much - you can still sign up with just $60,000 as long as you are below 65.


• A CPF Life member is likely to receive a total payout that is equal or more than his initial retirement sum when he reaches 75.


• By the time he is 85, he will get almost double his initial sum.


• And if he lives to 90, the "reward" for his longevity will be more than 21/2 times his initial sum.


So if you are 55 this year, you should consider setting aside as much as you can for your CPF Life.


After all, every dollar you put there will give you a lot more later in life, and you can enjoy this every month too.


Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.



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