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cpf life, retirement planning singapore

Understanding The 3 CPF LIFE Plans: The Only Guide You Need

How Do They Serve You During Retirement?

The Need for Lifelong Planning and Annuity in Singapore

Information published by the Department of Statistics shows that about 3 out of 6 persons are expected to live beyond the age of 85 and 1 out of 3 is expected to live beyond 90. With an increase in advanced technology, the likelihood of having higher life expectancy is on the rise. Thus, it is crucial that people are well prepared for life after retirement. With that, helping people prepare for life after retirement is exactly what CPF LIFE does.

This means that there will need to be preparations made for a longer retirement. This fact however, generates mixed concerns for different people because, many people wonder if their savings will be able to last them through their retirement time, this is in addition with the illnesses that come with old age which will definitely require attention and unforeseen expenses. The beautiful news in spite of all concerns is that a great insurance package is available to calm all post-retirement fears. And this often works from CPF LIFE with Private Insurers’ Retirement Plans.

What is CPF LIFE

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 for life.

This scheme is available to Singaporeans or permanent residents given birth to in 1958 or after. Formerly known as the Retirement Sum Scheme (RSS), CPF LIFE was introduced in 2009 as an updated version of the scheme.

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 $155,000 (CPF Minimum Sum, MS).

Having a minimum of $60,000 in your retirement account before the payout eligibility age is one of the conditions for you to be eligible for the scheme. For individuals who do not meet the criteria mentioned above, they can still apply at any time between their payout eligibility age and a month before turning 80 years old.

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. CPF LIFE provides more value by providing high, risk-free returns of up to 6% per annum. Monies in the CPF LIFE scheme are invested in Special Singapore Government Securities (SSGS) which are AAA-rated by the Singapore government.

The aim of CPF LIFE is to help give you a peace of mind during your retirement age. It also affords you the opportunity to cater for your loved ones.

Basically with CPF LIFE, there are only 4 things you need to take note of: Standard Plan, Basic Plan, Escalating Plan and Bequest Amount.

The illustration below explains what the 3 main CPF LIFE plans are:

Source: CPF

Standard Plan

The Standard plan is the default option. What this means is that by 70 years old if you still have not choose the ideal payout plan, you will be automatically be placed in this Standard Plan. The whole of your Retirement Account’s (RA) savings will all be deducted as the premium, paying into the CPF LIFE/ Lifelong Income Fund to provide for the monthly payout, paying you for life.

Out of the 3, this plan offers a highest (starting) monthly payout. This is in exchange of a lower bequest amount.

The Escalating Plan would be the only plan that could rival this in time to come.

​Basic Plan

The Basic Plan is the opposite of the Standard Plan. It offers a lower monthly payout in exchange of a higher bequest amount.

Also to note, about 10%-20% of your RA savings will be used to paid into the Lifelong Income Fund as compared to all of your RA for Standard Plan. The remaining savings in your RA will continue to provide you with monthly stream of income until a month before you reach age 90. At age 90, the Lifelong Income Fund will pay you the monthly stream of income instead.

Escalating Plan

Similar to the Standard Plan, all of your savings in RA will be paid into the Lifelong Income Fund. This plan’s payout is about 20% lower than the Standard Plan initially. The interesting thing is that the payouts increase by 2% every year thereafter. This growth in payouts is to actually help to cope with inflation, or the rising cost of living, over the years.

This is the only plan that may outperform the monthly payout to the Standard Plan due to the 2% of gradual increase over the years.

Bequest Amount

Should in case a CPF LIFE member passes away, their loved ones would most assuredly get back the money left either in the form of payouts, also known as the Bequest Amount.

It is any premium that is paid into the scheme (no interest) plus any remaining amount in the Retirement Account (RA) to be paid to your beneficiaries in the event death occurs to you. This will take into consideration the type of plan you choose above, and when you pass on (age). This is logical because if you had lived a long life (example at age 95), you would have taken a considerable amount of payouts. Thus the bequest amount would logically be lower.

All 3 CPF LIFE plans may be adjusted if needed to better suit any changes in the long term in interest rates or life expectancy. What this means is that if there is suddenly an influx of death rate at age 70, or in the event inflation rate goes up affecting the need for higher interest rates, the plans will be adjusted. But of course the 2 examples listed above are exaggerated as any adjustments, if any at all, are expected to be small and will not be immediate, they will be gradual.

Also to note, the plan that you choose determines your CPF savings that will be left behind for your beneficiaries/family members.

To know exactly how much payout and to compare with the 3 plans, you can use the CPF LIFE Payout Estimator by CPF based on your Retirement Account savings.

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