What do you envision when you think about retirement? Most people think about traveling the world, sipping cocktails on a tropical beach or even buying a house on the hill. While these are wonderful ideas to explore upon retirement, they are unlikely to happen if you put off your retirement plans till later. After all, most of us tend to procrastinate. By introducing CPF LIFE, the Singapore government tries doing its part to ensure we have a lovely retirement scheme to cushion our later lives.
What is CPF LIFE
Before exploring some of the important facts about CPF LIFE, it is essential to understand what it is and how it works. CPF LIFE, also known as CPF Lifelong Income For the Elderly, is a life annuity scheme administered by the Singapore Government. Under this scheme, citizens of Singapore and other Permanent Residents are offered a monthly payout in their golden years.
How does it work? Well, a Retirement Account (RA) is opened for you once you get to 55 years old. This is besides the Ordinary Account (OA), Special Account (SA) and Medical Account that you contribute to regularly, even if you work after age 55. Some of your CPF savings from your OA and SA will then be transferred to your RA to meet the minimum sum of $155, 00 (CPF Minimum Sum, MS).
What if there is not enough in your Minimum Sum of $155,000? Remember the property that you used your CPF to pay for? That will be automatically pledged up to 50% to make up for the difference.
The amount in your Retirement Account (RA) will then be used to buy the annuity plan created by CPF itself, namely the CPF LIFE, and you will then receive the different monthly payouts at age 65 (age 65 is the official age for now in 2019, this may increase in future) for life, as long as you live.
If you have more in your Minimum Sum, eg $155k, you will receive approximately $1,200 to $1,300 monthly. Lesser RA Minimum sum equates lesser payouts upon age 65. This payout is created to provide a monthly stream of income to cover with living expenses in old age, age we advice to complement it with private insurer’s retirement plans.
To find out more about the different plans of payouts, read : Understanding The 3 CPF LIFE Plans: The Only Guide You Need
What you need to know about CPF Life
1. It gives us better living standards in future
One of the main reasons why you should be quick to adopt CPF Life is that no one knows how long they will live. Statistically, life expectancy among Singaporeans has risen to about 80 years for males and 85 years for females. What’s more, the life expectancy rate is set to increase to about 90 years in the near future.
2. Peace Of Mind Through Retirement
Some people would like to work after the retirement age of 65 and there’s nothing wrong with that enjoying your work. However the truth is no one can continue working their entire life. Essentially, certain tasks tend to become a bit difficult as you age and you will have to slow down. With CPF LIFE, you can finally have a peace of mind as monthly stream of income will be payout to you for life. You will also never have to worry if your life savings will take you through your whole retirement. CPF life is a great choice for those who want a peace of mind whether they want to work their whole life or not.
3. Members Do Not Lose Their CPF Savings
Remember, CPF Life does not only assure you of an income during your retirement period but it will ensure you get the money you put into the fund. This means that you or your loved ones will always get back your CPF savings since your CPF Life principal will include your life payouts and any bequests that you may have. A total of $171,000 will be your Full Retirement Sum (FRS) at age 55 will earn interest and you can easily have $266,000 by the time you get to 65. If you were to pass on then your beneficiaries will be bequeathed with the total sum minus any monthly payments that were made to your bank account.
4. CPF LIFE Plans Are Customized According to Your Needs
One of the best things about CPF life is that you get to choose a plan that is tailored to your preferences. There are various plans that are meant to suit different needs and you do not have to choose a plan until you wish to receive your payouts.
The three plans include:
- Standard Plan– This is the default plan that allows you to get more for yourself.
- Basic Plan– With this plan, you get less but your loved ones will get more from your fund.
- Escalating Plan– This plan allows you to leverage the interest received to get more payments in the future.
Read More on These 3 Plans Here: Understanding The 3 CPF LIFE Plans: The Only Guide You Need
5. CPF LIFE – One Of the Best Retirement Scheme In The Market
While we wouldn’t say CPF LIFE is the best, simply based on many factors like liquidity, ease of use and availability to the general public (limited to only those with CPF), the returns are one of the highest and safest in the market, making it well, one of the best in the market. That of course is coupled that you can only draw out after reaching a certain age in life.
However as compared to private annuities, there are some strong points:
Payouts Are Life Long – Most private insurers provide payouts for a specific period. However one thing to note is that even though CPF Life payouts are for life, they are not the only one doing that. More and more private insurers are beginning to provide lifelong annuities and this will only complement the CPF Life, not compete against it.
Payouts Are Highest Value – For every dollar that is grown for you, the CPF LIFE provides the highest value as compared to other annuities.
CPF Context is Safe – The money that sits in CPF are safely grown at a high rate and is backed by the Singapore Government, rated AAA grade. This means that while you can’t take out until after retirement age, and the retirement age may continue to increase, your money grown inside is safe.
The CPF Life is a thoughtful annuity program orchestrated by the Singapore Government, utilizing our CPF funds. It offers you a safe, financially sound and customized annuity plans that you are unlikely to find with other private schemes.
However that being said, this should not be taken on its own entirely, as always it is best to diversify and use private insurers’ annuity plans to complement with the CPF LIFE.
Which private plans to go for depends entirely on what you want.
Not sure what you are looking for? Or perhaps you want to find out more on what other solutions are out there to work together with your CPF LIFE?
Read here to find out more:
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