CPF Life Plan - Standard, Basic, Escalating --- which one better ?

[Toni90]

U failed math then throw smoke bomb to confuse people?

Where cpf said 12.5 more years to meet the equal sum. It your fail math one said lah. Just admit it and move one pls.

 

[tangent314]

Calculating absolute $, breakeven between Standard and Escalating is 89. Calculating XIRR, breakeven is 95.

Neither $ nor XIRR tells the full story, of course. If you save the extra money from Standard in the bank to try to beat inflation in the latter years, you will fall far behind Escalating. XIRR overweighs the value of money received early, whereas in the real world there is a real need to be increase drawdown in later years to match inflation.

 

[henrylbh]

If you save the extra money from Standard in the bank to try to beat inflation in the latter years, you will fall far behind Escalating. XIRR overweighs the value of money received early, whereas in the real world there is a real need to be increase drawdown in later years to match inflation.

Can you not save the extra money (if not spent or needed for the time being) from Standard as top-up to your RA and becomes bequest or additional payout whenever needed?

 

[BBCWatcher]

Can you not save the extra money (if not spent or needed for the time being) from Standard as top-up to your RA and becomes bequest or additional payout whenever needed?

A roll-your-own Escalating Plan, let's suppose. That is, you take the Standard Plan but siphon off exactly the number of dollars difference between the Standard Plan and Escalating Plan (while the former exceeds the latter) and plow it right back into one's Retirement Account to boost the payout, loop, repeat.

I'm willing to entertain the notion if you've got some math that suggests it works. But I don't think that math is going to work with the possible exception of this combination:

* Below the Full Retirement Sum (i.e. qualify for tax relief with top-ups)
* Have taxable income (i.e. can benefit from tax relief with top-ups)

If you can churn CPF LIFE payouts back into the Retirement Account with substantial tax relief, to get two bites at the apple as it were, that might be interesting as a mathematical curiosity anyway.

There's some interest loss associated with the "minimum balance in the month" CPF interest calculation method when you're roundtripping funds out of CPF back into CPF. But another bite at tax relief could overcome that, maybe. (Would have to see the math, and it's difficult math.)

One problem with condition #1 is that CPF LIFE payouts are never lavish, and they're particularly non-lavish below the FRS. Also, ending up well below the FRS probably means you didn't make the most of top-up tax reliefs available in prior years, so this scenario is threading a difficult needle. And if you have taxable income (chargeable income above $20,000) then you're not too income poor, and longevity insurance is really centrally focused on defending against destitution.

There's a little bit of risk here I should point out since the RA interest rate is not guaranteed but the Escalating Plan's 2% annual increment is guaranteed, atop the actuarial base. That's probably not a lot of risk, but there is some. On the other hand, if the RA interest rate happens to rise (which would/could happen in a high inflation spell), you'd collect a little upside there.

Anyway, it'd be a fun little exercise to run the numbers, just as a possible quirky little corner of CPF LIFE that isn't going to be realistic to execute.

 

[dork32]

toni is right. my number are crab, lky died at 91 not 89.

other than that toni is crab

 

[dork32]

Calculating absolute $, breakeven between Standard and Escalating is 89. Calculating XIRR, breakeven is 95.

Neither $ nor XIRR tells the full story, of course. If you save the extra money from Standard in the bank to try to beat inflation in the latter years, you will fall far behind Escalating. XIRR overweighs the value of money received early, whereas in the real world there is a real need to be increase drawdown in later years to match inflation.

yeah. you number is not far from mine. 89 vs 90 for absolute breakeven. escalating follows an exponential curve. it is going to rise faster and faster.. so break even of 89 is reasonable.

there ways of calculating. you can use xirr or you can use future value. i used future value with rate of 4%. the number may be a bit different, but not much.

hi mod, can you please ask toni to shut up? he is totally not contributing. he is baiting and baiting.

 

[dork32]

Neither $ nor XIRR tells the full story, of course. If you save the extra money from Standard in the bank to try to beat inflation in the latter years, you will fall far behind Escalating. XIRR overweighs the value of money received early, whereas in the real world there is a real need to be increase drawdown in later years to match inflation.

yeah, this again is not very fair. you are assuming that this idiot puts the money into the bank and 0.05%

he could have enjoyed life with the money. how to value how much he has enjoyed.

or he could have invested his money in 4d and toto and received a much higher return.

in the absence of this sort of this sort of number, xirr is the next best number to compare

 

[dork32]

Where cpf said 12.5 more years to meet the equal sum.

for the upteen times, it is gotten from the cpf life estimator. can you please go google what is the cpf life estimator.

 

[dork32]

@Toni what is your computed "breakeven" point for total sum of payout between basic vs escalating ?

i am comparing standard with escalating.

 

[dork32]

I'm willing to entertain the notion if you've got some math that suggests it works. But I don't think that math is going to work with the possible exception of this combination:

no need to do maths lah. last time got one guy suggested mirr.

 

[The_Davis]

Very true if got long life Escalating plan make sense but no one can predict unfortunately.
Basic Plan was originally decided until my dad went CPF last month for some other matter when they suggest look into escalating plan due to inflation.

if the plan is too good to be true, it probably is.

if plan is good don't need people to push also

why cpf never publish figures how many people are choosing each of the basic, standard and escalating plans?

 

[Papermate]

If you are confirmed, signed, sealed and delivered, a bbfa till death, forget about having a higher bequest. Go for the plan which gives you the highest payout every month.

The escalating plan is a waste of time.

 

[BBCWatcher]

If you are confirmed, signed, sealed and delivered, a bbfa till death, forget about having a higher bequest. Go for the plan which gives you the highest payout every month.

The escalating plan is a waste of time.

I don’t follow this “logic.” BBFAs are immune to inflation? No.

 

[Papermate]

I don’t follow this “logic.” BBFAs are immune to inflation? No.

Say you delay your payout by one year, and it's $1,100 per month.

One year, that would be $13,200...which would be forgone. If you sign up for the Escalating Plan, you also sign away this payout amounting to $13,200.

What is the incremental payout when you finally start receiving your first payout x years later? The differential? How much must it be before you will breakeven, using $13,200 as the amount you have to recoup over a series of years. In which year would you breakeven? If you delay for more than a year, how much would that be, that you forgo for good?

Will you live long enough to recoup all of it? Of course, this last question, only God knows.

I have written at length about this in one CPF thread sometime in January (I think) of this year. I don't know where it is now.....too many posts to search. I have given a more detailed illustration then.

Suffice to say, I would rather have the payouts in hand, to be used to hedge against inflation my way rather than to have CPF Board pay me back bit by bit as an escalating payout.

 

[henrylbh]

A bird in hand is worth two in the bush?

 

[henrylbh]

If you are confirmed, signed, sealed and delivered, a bbfa till death, forget about having a higher bequest. Go for the plan which gives you the highest payout every month.

The escalating plan is a waste of time.

The escalating plan is a repacking of standard plan. The money in the pool is drawn for life payout. Either plan, no one is wiser to get more than what's in the pool. Theoretically half of same plan must lose to pay the other half. The gamble is which side you fall into.

 

[havetheveryfun]

The escalating plan is a repacking of standard plan. The money in the pool is drawn for life payout. Either plan, no one is wiser to get more than what's in the pool. Theoretically half of same plan must lose to pay the other half. The gamble is which side you fall into.

so if one day everyone starts to live past 100 years old, CPF will need to change its plans and rules again ? since all would have lived past their breakeven age

 

[henrylbh]

so if one day everyone starts to live past 100 years old, CPF will need to change its plans and rules again ? since all would have lived past their breakeven age

Does not matter how long participants live. The life payouts (which can be changed due to longevity, interest rates, etc) will be revised such that one half must lose to the other half, even if FRS or annuity premium is increased.

 

[BBCWatcher]

Suffice to say, I would rather have the payouts in hand, to be used to hedge against inflation my way rather than to have CPF Board pay me back bit by bit as an escalating payout.

What is your “hedge against inflation” then? What do you propose in the alternative to combat inflation?

 

[JuniorLion]

BBCW, your definition of "hedge against inflation" is to forgo money now and get it back later? Even though absolute dollars wise, you're worse off?