CPF Life or Minimum Sum Scheme?

If a CPF member has a choice to sign up for CPF Life Scheme or to stay on the Minimum Sum Scheme, which would he pick?

Those born in or after 1958 will have no choice but will be placed on CPF Life Scheme (conditions apply – see CPF webpages). Those born before that year have a choice to stay put on old scheme of Minimum Sum Scheme or to opt for CPF Life.

The main distinction between the two schemes is that CPF Life pays monthly payout for life (until death) while Minimum Sum Scheme pays out monthly sum till the minimum sum of money (in Retirement Amount) is depleted.

For comparison purposes, the following parameters are used:
Current Minimum Sum is $139,000 (member has this amount in Retirement Account)
Prevailing interest rate is 4% for Retirement Account
Drawdown age is 65 years old (member starts to get monthly payout from 65 years onwards)

If a member remains on Minimum Sum Scheme, he is paid $1,240 per month from age 65. Based on prevailing interest rate of 4%, the estimated duration of the monthly payout will last for about 20 years (i.e. age 85). If the person outlives 85 years, there will not be anymore monthly payout. (If CPF interest rate is adjusted in the future, the total payout period may not be 20 years.)

If a member chooses CPF Life Standard Plan (plan with higher monthly payout but lower bequest compared to CPF Life Basic Plan), then the range of monthly payout is between $1,086 to $1,199. CPF Life pays out till death and this can stretch to beyond 85 years old. (The monthly payout amount may be adjusted every year to take into account factors such as CPF interest rate and mortality experience.)

So which scheme will you pick? If one chooses the Minimum Sum Scheme, I would recommend that you have supplementary retirement fund to cover those years after 85 years old (or earlier when the Retirement Account in CPF is depleted).

You may want to read more about this in CPF webpages.

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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