I attended CPF’s talk “Life @ 55” last night. This is my second attendance at this annual talk. The first was two years back.
Those born in or after 1958 will be placed on CPF Life Scheme automatically (conditions apply – see CPF webpages). For those born before 1958, you can still opt to join the CPF Life Scheme from the Minimum Sum Scheme (the predecessor of CPF Life).
There are two plans now for CPF Life, the Standard Plan and the Basic Plan. Which one would you choose?
Simply put, you decide on whether you want higher monthly payout on retirement or higher bequest to your loved ones after you passed away.
|Type of Plan||Monthly payout||Bequest|
|CPF Life Standard||Higher||Lower|
|CPF Life Basic||Lower||Higher|
Besides differences in monthly payout and bequest amounts, what else can affect your choice? What I am writing from here on is simplified and can be technical for some. (Best to seek advice from CPF Board.)
CPF Life Standard Plan:
At age 55, 50% of Minimum Sum in Retirement Account (RA) is deducted as first annuity payment. At age 65, second annuity payment from remaining balance in RA (cash component) is made. RA (cash component) amount is now fully placed in a common pool called the Annuity Fund
The Annuity Fund will pay out the monthly amount to you after 65 and as long as you live. (Note: RA is exhausted in Standard Plan.)
CPF Life Basic Plan:
At age 55, a small portion say about 10% of your RA will be deducted as first annuity payment. The rest of the RA savings will stay in your RA. At age 65, another small portion of any new money that has built up in your RA between 55th birthday and 65th birthday will be deducted as annuity payment. So you have money in your RA and some annuity payments made to the Annuity Fund.
Your RA amount will pay monthly payout to you between age 65 to age 90. From age 90 onwards, the Annuity Fund will then take over and pay the monthly payout as long as you live.
Based on actuary calculations, both schemes are fair and one should not lose out by choosing either scheme.
CPF Board provides a CPF Life Payout Estimator in their web pages. Use this to see your payout under both schemes before making your decision. I have generated one example and the screen shot is attached.
Which one to choose, the Standard Plan or Basic Plan?
You would realise that CPF Life Basic Plan has substantial amount of your CPF money still in your RA account after age 65. The bequest amount is so much higher than the Standard Plan should one passes away at ages 65, 75, and 85. The monthly payout for Basic Plan is not much lower than the Standard Plan.
I would go for CPF Life Basic Plan. (For readers, consult CPF Board and base your decision on your unique circumstances.)
Copyright © 2014, limkimtong for Living Investment
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