As a working adult, you should already be familiar with the CPF system, to which a portion of your salary is automatically transferred every month in order to fund your retirement and healthcare.
But did you know there is a scheme called CPF LIFE, which could potentially be another key component of your overall retirement plan? Here’s what you need to know.
What is CPF LIFE and how do I get it?
CPF LIFE is an annuity scheme that is meant to support Singaporeans and PRs in retirement.
Under the scheme, you will get monthly payouts for as long as you live. This means that if you live a particularly long life, you will not have to worry about running out of CPF savings. In fact, the potential payouts relative to how much you pay are quite attractive compared to similar annuities on the market with similarly low risk.
All Singaporeans and PRs born in 1958 and later who have $60,000 in their CPF Retirement Accounts 6 months before the age of 65 (or those born from 1 Jan 1958 to 30 Apr 1961 who have $40,000 in their Retirement Account at age 55) are automatically enrolled into CPF LIFE.
Those who are not automatically enrolled into CPF LIFE can sign up for it from the ages of 65 to 79, so long as they do so a month before they turn 80.
In order to enrol yourself in CPF LIFE, simply log into the my cpf portal using your SingPass, navigate to “My Requests” and submit an online application to join CPF LIFE. You will be prompted to select the plan of your choice.
Alternatively, you can apply in person at any CPF Service Centre with your NRIC.
What are the different CPF LIFE plans?
There are three different CPF LIFE plans for you to choose from which will affect how much you receive in monthly payouts.
- Standard Plan (default) – The Standard Plan offers higher level monthly payouts and is targeted at those who think they can live longer than their mid-eighties.
- Escalating Plan – The Escalating Plan offers lower monthly payouts at the start with a 2% increment each year. This plan is a good idea only if you think you will live a very long life well into your 90s.
- Basic Plan – The Basic Plan offers lower monthly payouts, where payouts will be reduced gradually once your combined CPF balances (including unused CPF LIFE premiums) fall below $60,000. This is ideal if you think you are likely to pass away in your early eighties or younger.
How can you maximise the utility of CPF LIFE in your retirement portfolio?
Understandably, determining which CPF LIFE plan would be ideal for you requires some guesswork, as nobody is able to predict for certain how long you will live.
To guide you in your choice, here are some tips.
- Compare your returns from CPF LIFE with the CPF Retirement Sum Scheme – While CPF LIFE is generally more advantageous the longer you live, if you suspect you may not live as long (perhaps if you have pre-existing illnesses or conditions), you might be better off opting out of CPF LIFE. You can apply to opt out of CPF LIFE if you have an exemption under medical grounds or if you are already receiving a pension or annuity payout from another source.
- Select your plan wisely – Unless you are somewhat sure you can live beyond 95, it is not a good idea to select the Escalating Plan. The Basic Plan gives the highest payouts upfront but you may not be able to rely on it as much after the age of about 85 due to the decreasing payouts; it can nonetheless be a good option if you already have a decent retirement portfolio and are not relying heavily on CPF LIFE to fund your retirement.
- Maximise your returns by not putting too much into your CPF Retirement Account – CPF LIFE’s returns are highest when you have only the Basic Retirement Sum in your account. On the other hand, if you increase the amount paid in to the Full Retirement Sum or Enhanced Retirement Sum, you actually get lower returns. This is because the increase in payouts is generally not proportional to the increase in funds put in. For instance, your estimated lifelong monthly payouts with the Basic Retirement Sum of $85,000 are estimated at $720 to $770 a month, equivalent to 10.16% to 10.87% per annum. By contrast, if you have the Enhanced Retirement Sum of $256,500, your payouts of $1,910 to $2,060 a month are equivalent to 8.95% to 9.64% per annum. So, if you wish to maximise your returns, consider lowering your CPF LIFE contributions and investing your money in other ways in your retirement portfolio.
I have CPF LIFE. Does that mean I don’t need to make any other plans for retirement?
CPF LIFE is meant to provide only a basic level of retirement payouts, and does not remove the need to plan for your own retirement.
To determine just how much you will need beyond your CPF LIFE payouts, compare the amount of payouts you will receive from CPF LIFE with the income you wish to have in retirement. Have a look at this chart to have a better idea of your CPF LIFE cash flow when you retire.
For the majority of Singaporeans, the CPF LIFE payouts won’t be enough. Hence, it’s better to regard CPF LIFE as just one, low-risk component of a more well-rounded investment portfolio.
What are my options for supplementing my retirement income?
Other than CPF LIFE, there are many ways you can invest in order to grow your retirement income, such as the following.
- Retirement plans can help you craft your own desired retirement lifestyle with options that let you decide when you want to retire and how long you would like to receive your monthly cash benefit.
- Investment-linked plans (ILPs) offer not just life insurance protection but also cash value that you can receive at the end of the plan. Stocks and ETFs are also a popular way to invest. You can tailor your selection and investment strategy to suit your risk appetite.
- If you have extra cash to spare, consider buying properties as they have long-term investment potential and also yield rental income.
Are you ready to start building your retirement portfolio? Contact us to find out more.
FG-info@income.com.sg
