The Need for Lifelong Planning and Annuity in Singapore
As healthcare and technology advances, the life expectancy is also improving.
Statistics has shown that the life expectancy of Singaporeans is increasing. In figures, it is estimated that one in two Singaporeans will live up to eighty-five years and one in three Singaporeans will to live up to ninety years years old
Aside from the obvious need for retirement payouts, healthcare costs are a bomb, basically 5 figures when above retirement age. With that in mind, how do one make preparations for retirement, rising healthcare costs and still have enough to get by?
And also, will the CPF LIFE and MediSave account be enough to last us through old age?
What is CPF LIFE and MediSave
The CPF is a social security savings plan that works through different schemes, and it has six schemes in all; retirement, housing, healthcare, investments, self-employment and others(https://www.cpf.gov.sg/Members/Schemes).
The Central Provident Fund Lifelong Income for The Elderly (CPF LIFE) Scheme is a life annuity scheme that provides Singapore Citizens and Permanent Residents with monthly payouts as long as they live. What this means is that, once you are enrolled in the CPF Life, you will receive lifelong monthly payouts that will help with your daily living expenses during your retirement period in Singapore even after you have outlived your retirement savings.
The MediSave on the other hand, is a national medical savings scheme which helps CPF members put aside part of their income into their MediSave Accounts to meet their future personal or immediate family’s hospitalization, surgery and certain outpatient expenses. Your MediSave can be used to pay for medical care and inpatient hospitalization, approved day surgeries and rehabilitative care of various kinds. The CPF LIFE and Medisave provides many working Singaporeans insurance and a sense of confidence and security.
CPF Life and MediSave: How to Join
As a Singaporean citizen, you will automatically be placed on CPF LIFE and you can join the CPF LIFE upon meeting the retirement account balance requirements- having $40,000 in Retirement Account (RA) once you reach fifty-five years old and $60,000 in your Retirement Account (RA) when you are near payout eligibility age.
You can apply to the CPF and join CPF LIFE any time between the payout eligibility age (the payout eligibility age starts between 65-70 years) and eighty years. The retirement account which is created on your 55th birthday will contain savings from your Special Account (SA) and Ordinary Account (OA) and these form your retirement sum. You can either choose to opt for CPF LIFE that will provide you lifelong payouts or choose to stay on the Retirement Sum Scheme that will provide you payouts for approximately 20 years.
There are three options for the retirement sum. You can either choose the Basic Retirement sum (BRS), Full Retirement Sum (FRS) which is two times your basic retirement sum or the Enhanced Retirement Sum (ERS) which is three times your retirement sum. (https://www.cpf.gov.sg/Members/Schemes/schemes/retirement/cpf-life)
For the CPF LIFE plans, there are three types which can be chosen from, they include: Standard Plan- which is designed for self and makes lesser arrangement for bequest or beneficiaries, which is mostly referred to as the default plan. The Basic plan is mostly used and targeted at loved ones (bequest) and lastly, the Escalating Plan- which is tailored to meeting future needs and the monthly payouts are lower in the initial years but it increases yearly by 2%.
However, choosing a plan will be made between your payout eligibility age and seventy years, and also at the time when you prefer to start receiving your monthly payouts. You can choose a plan that offers level payouts such as the Standard plan or Basic plan and you can also choose a life plan that offers escalating payouts which increases yearly such as the Escalating plan. It is best to choose a plan that best suits your future retirement needs.
CPF LIFE and MediSave: How it Works
The CPF seeks to benefit Singaporean citizens especially the elderly and retired Singaporeans. It works in an efficient manner such that; while you work, your CPF contributions accumulate, and these funds can be directed towards different schemes under the CPF, such as housing, health cover or other investments.
Your CPF LIFE monthly payouts depends on factors such as the CPF LIFE plans you have chosen, your retirement sum, your gender, age, Retirement Account (RA) savings used to join CPF LIFE, CPF interest rates and mortality rates. Depending on the CPF LIFE plan you have chosen, an exact amount of retirement sum will be deducted as your annuity premium (the amount of Retirement Account savings that is paid into the Lifelong Income Fund to join CPF LIFE) and will be made known to you when your CPF LIFE plan is issued, the interest on this annuity premium is then pooled into the Lifelong interest fund for every surviving member of the scheme, this is where you will be paid for the rest of your life.
The MediSave is simply a healthcare saving scheme that contributes 8% to 10.5% of your wages into an account known as the MediSave Account. You can then use these savings to fund your medical care like operations, outpatient treatments, and that of your immediate family, leaving you with lesser burden in case an illness arises after your retirement. The MediSave Withdrawal Limits are generally enough to pay for the charges incurred by a patient staying in B2 or C ward types in a public hospital making your health payment covered.
CPF LIFE and MediSave: What you can do on the Scheme
The aim of the CPF schemes (CPF LIFE and MediSave) is to allow you have a solid plan for the future specifically after retirement and you can enjoy the benefit of the CPF LIFE Schemes. You can also choose or switch to any CPF LIFE plan. The CPF LIFE provides you monthly payment for the rest of your life after retirement and the MediSave caters for your health needs through the funds you have made into your MediSave Account (MA). The great news about this social security savings plan is that, CPF Life is the only life annuity backed by the AAA-rated Singapore Government, also, CPF LIFE provides the highest payout for every dollar committed compared to other private annuities and is a guarantee for a peaceful retirement and assures you of lifelong savings, getting monthly payouts, no matter how long you live.
MediSave Account on the other hand ensures your hospitalization is covered. However one thing to note is that the MediShield Premiums will continue to increase upon retirement age and will continue to only go upwards.
As you go through the different stages of life or key life events, having an understanding of your CPF savings will give you insights on how to manage your finances and help you work towards having a secured retirement.
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The question is, upon retirement when income is already limited and at an age where we need it the most, how do we sustain healthcare premiums like the MediShield and Integrated Shield Plans? Is my MediShield Life enough for me right now? Does it have complete hospitalization care (the answer is no actually)? What can I do to upgrade and get better healthcare coverage?
Should we go for private insurers’ annuity plans or just rely on CPF Life and MediSave/MediShield? Why do we advice to go on either? What are the differences between both?
If that is your concern, feel free to drop us an inquiry below and let our experienced team of advisors to help you based on your given input. All advices are based only on your needs and your details will only be used for communication with you.