ipac financial planning explains CPF LIFE.

BY: Esther Seo

 

The CPF Lifelong Income Scheme For The Elderly (CPF LIFE) is an annuity scheme, which provides retirees with a monthly payout for life. This scheme is an improvement over the current Minimum Sum Scheme (MSS) in that the old scheme provides retirement income for only 20 years while CPF LIFE provides lifetime payouts.

 

Who is eligible to join?

All Singapore citizens and Singapore permanent residents who have savings in their CPF Retirement Account will be eligible to join.

If you are born after 1958 and have at least S$40,000 in your Retirement Account at age 55, you will be automatically enrolled into CPF LIFE. If you do not have at least S$40,000 in your Retirement Account at age 55, you can still choose to join when you turn 55.

 

What are the plans available?

The four plans provide alternatives based on the different combinations of amount of monthly payout and bequest to your beneficiaries. If you do not state a preferred choice, the default plan is LIFE Balanced Plan.
 

CPF LIFE Plans	Monthly payout	Bequest
LIFE Income Plan	Highest	None
LIFE Plus Plan	High	Low
LIFE Balanced Plan	Medium	Medium
LIFE Basic Plan	Low	Hig

(Source : www.cpf.gov.sg)   

The plan you choose should depend on how much payout you wish to receive and how much you wish to leave to your beneficiaries. If you choose the plan that has higher monthly payouts, this will mean that less is left to your beneficiaries.

The LIFE Income plan gives the highest payout and leaves no bequest to beneficiaries – this is likely to appeal to those with no beneficiaries and no other sources of retirement income.

At the opposite end, retirees who have sufficient retirement resources could consider the LIFE Basic Plan as it has the lowest monthly payout but provides the highest bequest. Note that after you have joined the scheme, you cannot change the plan or withdraw (except on medical grounds or if you are leaving Singapore and West Malaysia permanently). 

 

When does the drawdown start?

This depends on when you were born. For those born after 1954, the current drawdown age is 65.

 

How much monthly payout can I expect to receive?

The balances in your CPF Ordinary Account and Special Account will be combined at age 55, forming the Retirement Account and this is the source of funding for CPF LIFE. The amount of monthly payout you receive will be calculated based on the amount in your Retirement Account at that time.

Here is an illustration used by the CPF Board based on the average Retirement Account balance of S$67,000 for a male turning age 55 in 2013.
 

	LIFE  Income Plan	LIFE Plus Plan	LIFE Balanced Plan	LIFE Basic Plan
Monthly payouts from age 65	S$530 to S$580	S$570 to S$620	S$600 to S$660	S$640 to S$700

(Source : www.cpf.gov.sg)   

Note that the monthly payouts are in ranges as the payouts will be adjusted depending on the actual interest rates and mortality experience. The interest rates assumption used in the example ranges between 3.75 and 4.25 per cent.

You can make cash or CPF top-ups to your Retirement account up to the prevailing Minimum Sum (currently at S$123,000) – this will give you higher payouts during retirement.

You can use the CPF LIFE Payout Estimator on the CPF website to find out how much you can expect to receive under each plan.

 

Is this sufficient to provide for my retirement needs?

A quick way to estimate how much you would need at retirement is to look at your current expenses and eliminate the expenses that you will not be incurring at retirement. Whatever expenses are left behind is a rough gauge of how much you will need to spend during retirement. It is also prudent to factor in medical bills for your old age. Also take into account inflation, as this will affect the value of your payouts over time.

For most people, the monthly payout from CPF LIFE will not be sufficient to provide for all their retirement needs. It is thus important to plan for your retirement needs outside of CPF LIFE. Your retirement income can be supplemented through other sources such as annuities with private insurers, an investment portfolio or income through a part-time job. Another alternative is a reverse mortgage which allows the retiree to draw a gradual pension on his mortgage. Speak to a professional financial adviser to review your retirement plan and to discuss what is appropriate for your lifestyle and needs.

 

This article is contributed by Esther Seo, associate sdviser and a licensed financial adviser representative with ipac financial planning Singapore private limited, which is licensed with the MAS, Financial Adviser’s Licence No FA100003-3. For more information, please email: financial.planning@ipac.com.sg  

In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any person. Before making an investment decision, you should speak to a financial adviser to consider whether this information is appropriate to your needs, objectives and circumstances.

 

(PHOTO CREDIT: istockphoto) 

 

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