CPF Account Value Thread 2024

[kickass22]

Here is another point of view that I think others have discussed from a Financial Planning perspective.

In retirement, it's essential to have a reliable income source that covers all your basic survival needs. This income should come from a very secure instrument, unaffected by economic or stock market fluctuations.

CPF Life ERS can support this basic income in 10 years with no to minimal risk . You can use the other investments to support the inflation increments after 65 . The inflation amount depends on your lifestyle.

You don't want to take risk on the income that is going to be support your basic needs.

Whether 3 X BRS or 4 , depends on your cost of basic lifestyle.

Just my 2 cents.

 

[BBCWatcher]

You can always take the excess of normal over escalating in the first few years and invest yourself to hedge against inflation for the subsequent years

In retirement, it's essential to have a reliable income source that covers all your basic survival needs. This income should come from a very secure instrument, unaffected by economic or stock market fluctuations.

OK...

CPF Life ERS can support this basic income in 10 years with no to minimal risk . You can use the other investments to support the inflation increments after 65 . The inflation amount depends on your lifestyle.

You could. But why? The Escalating Plan is a fair offer. All it does it take the Standard Plan but add a 2%/year slope. It doesn't charge anything extra for adding this slope. It straightforwardly shifts monthly payouts from the "left side" to the "right side," with no markups.

Laokorkor made exactly the right point: you cannot assume that your future self will be rational or competent. But you can assume if you're alive that you'll need a basic real lifestyle. So why not nail that down (per Kickass22's point) in real terms as best you can? That's what the Escalating Plan does. No tricks, no games. It's just a straight life annuity with the same actuarial value as all the other CPF LIFE payment plans, but it actually escalates.

Don't fool around with this stuff. Not this part.

 

[kickass22]

OK...

You could. But why? The Escalating Plan is a fair offer. All it does it take the Standard Plan but add a 2%/year slope. It doesn't charge anything extra for adding this slope. It straightforwardly shifts monthly payouts from the "left side" to the "right side," with no markups.

Laokorkor made exactly the right point: you cannot assume that your future self will be rational or competent. But you can assume if you're alive that you'll need a basic real lifestyle. So why not nail that down (per Kickass22's point) in real terms as best you can? That's what the Escalating Plan does. No tricks, no games. It's just a straight life annuity with the same actuarial value as all the other CPF LIFE payment plans, but it actually escalates.

Don't fool around with this stuff. Not this part.

I think this is a personal decision that everyone has to make . There is no one fixed solution like use escalating plan for everyone.

You do not know the inflation rate during your retirement years. The escalating plan is a fixed escalation and not based on the moving inflation so it might not be based on real terms.

I am sure if you are at that elderly age , you should be competent enough to take money from savings / fixed deposit account.

 

[laokorkor]

Laokorkor made exactly the right point: you cannot assume that your future self will be rational or competent.

Thanks for agreeing with me.

I've heard lots of anecdotes from retail investors - you might think you're smart/rational/competent in old age, but most smart people can't make a profit in the stock markets, much less the 4% CPF offers. Case in point, GIC, with the best talents around the globe, has portfolio returns somewhere around 4%. Therefore, my position is, I'll overaccumulate my CPF LIFE payouts in old age with 4x BRS 70yo escalating plan. Of course, personal finance is personal, this is just me. YMMV.

Another benefit of CPF - it holds a special position in the courtroom. It's protected from divorce settlements, lawsuits, creditors, accident claims etc. This perk is much needed if your day-to-day stipend depends on it. LOL!

 

[BBCWatcher]

I think this is a personal decision that everyone has to make . There is no one fixed solution like use escalating plan for everyone.

Obviously there are currently 3 payout plans to choose from.

You do not know the inflation rate during your retirement years.

True! And it sure would be nice if the CPF Board offered a CPI-linked life annuity. But they don't, so you just have to do the best you can. Would you like to bet that inflation will be approximately zero over the whole of your ~40 year retirement planning horizon? That the price of a plate of chicken rice 30+ years from now will be about the same as it is today? Or would you like to bet inflation will end up being at least closer to 2%/year? "One of these inflation forecasts is not like the other."

The escalating plan is a fixed escalation and not based on the moving inflation so it might not be based on real terms.

No, it won't be exact. But it'll be closer to real lived experiences.

I am sure if you are at that elderly age , you should be competent enough to take money from savings / fixed deposit account.

Really? You want to assume that, too? There's no dementia, for example? Moreover, savings and fixed deposits are predictably low yielding.

What are you accomplishing here by avoiding an escalating payout? What's the benefit?

 

[dork32]

OK...

You could. But why? The Escalating Plan is a fair offer. All it does it take the Standard Plan but add a 2%/year slope. It doesn't charge anything extra for adding this slope. It straightforwardly shifts monthly payouts from the "left side" to the "right side," with no markups.

This is totally fake news. This is so typical of bbc. he will blast the advantages and hide all the disadvantages.

It is not standard plan + 2% slope. It is standard plan - 20% + 2% slope. it -20% is the extra charge that you pay for the escallating plan. Notice that this point totally not touched at all.

Whether this 20% vs the 2% is good or not, let the people decide on their own.

 

[dork32]

I've heard lots of anecdotes from retail investors - you might think you're smart/rational/competent in old age, but most smart people can't make a profit in the stock markets, much less the 4% CPF offers. Case in point, GIC, with the best talents around the globe, has portfolio returns somewhere around 4%. Therefore, my position is, I'll overaccumulate my CPF LIFE payouts in old age with 4x BRS 70yo escalating plan. Of course, personal finance is personal, this is just me. YMMV.

Since when are you getting the 4% cpf offers when you are on escalating plan? all the 4% goes to the pool. if you are into the 4%, then there should be no escalating plan. If you are in for the 2% increase every year, yes it is a good choice.

 

[laokorkor]

The escalating plan is a fixed escalation and not based on the moving inflation so it might not be based on real terms.

CPF LIFE escalating plan is not inflation-linked plan. Even if CPF LIFE is an exact inflation-protected annuity based on the CPI, it's not a cure all cos individual cost-of-living does not follow the national CPI which it's based on. For example:

- CPI for lower-middle/middle/upper-middle class are different
- a major illness will blow cost-of-living out of propertion
- a marriage, divorce, widowing will change cost-of-living drastically
- new birth, kid's graduation, moving out will change cost-of-living
- moving to low cost destination such as Malaysia will change cost-of-living
- new expensive hobbies such as Europe holidays will change cost-of-living
- paying off of liabilities such as mortgage will change cost-of-living

The current CPF LIFE escalating plan, IMHO, is nevertheless, a good starting point. LOL!

 

[BBCWatcher]

It is not standard plan + 2% slope. It is standard plan - 20% + 2% slope. it -20% is the extra charge that you pay for the escallating plan. Notice that this point totally not touched at all.

You're mischaracterizing the Escalating Plan. It's not: take the Standard Plan, deduct an additional 20% premium (that goes to some fund manager?), and then apply a slope on the remainder. It's the Standard Plan with a slope applied. The monthly payout amount starts lower then rises. That's what applying a slope means.

There's no additional charge for tilting the payout schedule. No fund manager or bureaucrat is collecting any commission for applying the 2%/year slope.

 

[dork32]

You're mischaracterizing the Escalating Plan. It's not: take the Standard Plan, deduct an additional 20% premium (that goes to some fund manager?), and then apply a slope on the remainder. It's the Standard Plan with a slope applied. The monthly payout amount starts lower then rises. That's what applying a slope means.

There's no additional charge for tilting the payout schedule. No fund manager or bureaucrat is collecting any commission for applying the 2%/year slope.

Yes. it is. Your initial payout is 20% less than standard. This is not -20%?

If your low payout is not a cost, what is?

bbc has certainly lost it

 

[dork32]

You're mischaracterizing the Escalating Plan. It's not: take the Standard Plan, deduct an additional 20% premium (that goes to some fund manager?), and then apply a slope on the remainder. It's the Standard Plan with a slope applied. The monthly payout amount starts lower then rises. That's what applying a slope means.

There's no additional charge for tilting the payout schedule. No fund manager or bureaucrat is collecting any commission for applying the 2%/year slope.

it does not matter where this 20% go to, you are just not getting it

 

[laokorkor]

it does not matter where this 20% go to, you are just not getting it

You've to look at it this way - X years before breakeven year, payout's 20% below standard plan, Y years after breakeven year, payout's 20% above standard plan. Everything evens out, left pocket out, right pocket in. LOL!

 

[JuniorLion]

Yes. it is. Your initial payout is 20% less than standard. This is not -20%?

If your low payout is not a cost, what is?

bbc has certainly lost it

This .

 

[JuniorLion]

There is no magic to the Escalating Plan.

Picture this.

Standard Plan gives 1000/month for life.
Escalating Plan gives 800/month for year 1, 816/month for year 2, 832.32/month for year 3, ...

It will take 12 years to hit 1000/month.

If you start your payout at 70, you will only reach 1014/month at 82.

Sure, that sounds good if you are sure you will leave to 120.

For reference, median lifespan for Singaporeans is between 82-86.

 

[JuniorLion]

By age 82, it will be 200*12*12, you are worse off by 26400.

Assuming your payout is 1000.

Would be worse if your starting payout is 2000.

 

[BBCWatcher]

There is no magic to the Escalating Plan.

Who's claiming there is?

The Escalating Plan is simply the Standard Plan with a 2%/year slope attached. "Slope attached" means nominal payouts start lower then escalate. The actuarial value of both payout plans is identical.

Picture this.
Standard Plan gives 1000/month for life.
Escalating Plan gives 800/month for year 1, 816/month for year 2, 832.32/month for year 3, ...
It will take 12 years to hit 1000/month.
If you start your payout at 70, you will only reach 1014/month at 82.
Sure, that sounds good if you are sure you will leave to 120.
For reference, median lifespan for Singaporeans is between 82-86.

But that's not about longevity risk. This isn't a game, not this part. This is about guaranteeing insofar as possible a particular real lifestyle to the end of your days, no matter what.

Longevity risk is always about the final year or years. Under the Standard Plan you're in serious trouble if the price of a plate of chicken rice rises 50% in 20 years (70 to 90), you're still alive, and you have no other recourse. That's what 2%/year inflation does. You have 2 ways to mitigate this risk: (1) take a portion of Standard Plan payouts and save them (plow them back into a CPF Retirement Account, for example), or (2) let the Escalating Plan combat that risk. The Escalating Plan will do so entirely fairly. It will pool the longevity risk, and with the 2%/year slope applied, so that nobody (including potentially you) will be trying to figure out how to pay for everything that's 50%+ more expensive. There's no free lunch of course, so to do that you start at a lower payout amount. Exactly what you'd have to do anyway if you want to avoid eating cat food at age 90 and beyond.

I really don't think you should fool around. Let longevity insurance due what it's supposed to do as best it can do it. It's quite helpful in reducing an entire class of risks.

 

[laokorkor]

For reference, median lifespan for Singaporeans is between 82-86.

A bit of a caveat.

Longevity is increasing at 0.2 month every calendar year. So, for today's decision making 55 year-old, you've to project perhaps as much as 30 to 40 years into the future regarding your longevity.

Also, people who pumps in 4x BRS into CPF LIFE tends to be upper-middle class and this group is well-to-do and well-educated group who has better longevity prospects. The 4x BRS group will determine the underwriting of the payouts since the gross amount is overwhelming.

 

[JuniorLion]

A bit of a caveat.

Longevity is increasing at 0.2 month every calendar year. So, for today's decision making 55 year-old, you've to project perhaps as much as 30 to 40 years into the future regarding your longevity.

Also, people who pumps in 4x BRS into CPF LIFE tends to be upper-middle class and this group is well-to-do and well-educated group who has better longevity prospects. The 4x BRS group will determine the underwriting of the payouts since the gross amount is overwhelming.

There is a limit to human lifespan, 120 give and take.

 

[BBCWatcher]

Also, people who pumps in 4x BRS into CPF LIFE tends to be upper-middle class and this group is well-to-do and well-educated group who has better longevity prospects. The 4x BRS group will determine the underwriting of the payouts since the gross amount is overwhelming.

First of all, plenty of people buy medical, life, and other insurance policies from private insurance companies that skim double digit percentages off and return 80% or less of premiums paid to policyholders. And they should buy these policies (if they're suitable anyway) because the risks of not being insured are too grave to tolerate. Even if the insurance company is collecting significant overheads. CPF LIFE doesn't do that. It's a low overhead system. This is a very fair deal to help reduce or eliminate longevity risks.

Second, CPF LIFE has very effective safeguards in place to defend the integrity of the risk pool. It's effectively mandatory (for practically all CPF members with nontrivial contributions), and that counts hugely. But it also has a maximum payout plan decision date (69.9) and a maximum entry date (79.9). Those are very important features.

Third, the actuaries have separated the pools by gender. They didn't have to do that, and most comparable systems don't. In most systems men slightly subsidize women in longevity insurance risk terms. If you happen to be male CPF LIFE is an even better deal for you compared to those other systems.

Fourth, the CPF Board kicks everyone out who ceases to be a Singaporean citizen or Singapore Permanent Resident. It's likely that this small cohort of globally mobile individuals skews somewhat toward longer lived individuals. After all, they're not bedridden. They moved somewhere.

Fifth, the CPF Board fully factors in bonus interest that "skews" the equation a bit in favor of lower premium paying participants. The maximum bonus interest is $900 per year, but whether you're participating at the FRS, 3XBRS, or 4XBRS (as examples) really doesn't matter much. Bonus interest tends to make "first premium dollars" more powerful, per dollar. (Plus grants which skew the power of low income level participants' premium dollars even more favorably for them.)

Sixth, the ERS is stlil a low cap in actuarial terms. A (2025) ERS-level participant is only equivalent to a little less than 2 FRS-level participants (only one round of bonus interest). And there just aren't that many such participants.

In summary, I think this worry is nothing to worry about.

 

[JuniorLion]

Who's claiming there is?

The Escalating Plan is simply the Standard Plan with a 2%/year slope attached. "Slope attached" means nominal payouts start lower then escalate. The actuarial value of both payout plans is identical.

But that's not about longevity risk. This isn't a game, not this part. This is about guaranteeing insofar as possible a particular real lifestyle to the end of your days, no matter what.

Longevity risk is always about the final year or years. Under the Standard Plan you're in serious trouble if the price of a plate of chicken rice rises 50% in 20 years (70 to 90), you're still alive, and you have no other recourse. That's what 2%/year inflation does. You have 2 ways to mitigate this risk: (1) take a portion of Standard Plan payouts and save them (plow them back into a CPF Retirement Account, for example), or (2) let the Escalating Plan combat that risk. The Escalating Plan will do so entirely fairly. It will pool the longevity risk, and with the 2%/year slope applied, so that nobody (including potentially you) will be trying to figure out how to pay for everything that's 50%+ more expensive. There's no free lunch of course, so to do that you start at a lower payout amount. Exactly what you'd have to do anyway if you want to avoid eating cat food at age 90 and beyond.

I really don't think you should fool around. Let longevity insurance due what it's supposed to do as best it can do it. It's quite helpful in reducing an entire class of risks.

What's stopping you from taking the 200/month and putting it into an FD or MMF?