CPF @ 55 & after

[dork32]

Okay I did my detailed calculations using apps, correct me if I am wrong:

I am assuming monthly payout of 1220 sgd according to cpf life website, yearly payment is 14640.

This is the capital after 10 years of compounding at 4 % + 600 contribution from the additional 1 %

After 10 years compounding, assume yearly repayment of 149xx sgd, after 17 years, total annuity will be depleted(assuming an interest rate of 4 %).

So the break even period should be between 17 to 18 years.

Assumption: interest rate during payout period stays constant at 4 % and no additional 600 per year during payout period.

That means as long as you lived past 82 years plus, the rest of the annuity will be pure profit.

you have done two things:

1. 161000 in cpf ra will become 247k if you keep in your account from 55 to 65
2. if you start to draw a monthly sum 1220 from 65, it will take you 17 years to draw 247k till it is dry.

What we want is
case 1
you draw 1200 every month

case 2
you draw nothing for the first 12 months, then you start to draw 1272 every month
in the short run, obviously case 1 is better. in the long run case 2 is better. when does case 2 become better than case 1.

answer 21 years later.

 

[tiny]

you have done two things:

1. 161000 in cpf ra will become 247k if you keep in your account from 55 to 65
2. if you start to draw a monthly sum 1220 from 65, it will take you 17 years to draw 247k till it is dry.

What we want is
case 1
you draw 1200 every month

case 2
you draw nothing for the first 12 months, then you start to draw 1272 every month
in the short run, obviously case 1 is better. in the long run case 2 is better. when does case 2 become better than case 1.

answer 21 years later.

Dork32, actually $247k should continue keep growing at 4-5% (first $30k earns 6%) after age 65 while the payouts is being deducted from the nest egg.

 

[OngHuatHuat]

Cna show me how you calculate?
I don't understand why my calculation and yours differ so much?

I am using a simple compound interest for the first 10 years then another annuity with monthly payout to calculate.

you have done two things:

1. 161000 in cpf ra will become 247k if you keep in your account from 55 to 65
2. if you start to draw a monthly sum 1220 from 65, it will take you 17 years to draw 247k till it is dry.

What we want is
case 1
you draw 1200 every month

case 2
you draw nothing for the first 12 months, then you start to draw 1272 every month
in the short run, obviously case 1 is better. in the long run case 2 is better. when does case 2 become better than case 1.

answer 21 years later.

 

[dork32]

Cna show me how you calculate?
I don't understand why my calculation and yours differ so much?

I am using a simple compound interest for the first 10 years then another annuity with monthly payout to calculate.

it differs because my calculation does not care how much you have to draw down from. it also does not matter when your principal hits 0. this is because you continue to draw even if there is nothing left.

you can go to your compound interest calculator and key in the following

years = 21
interest rates = 4
initial balance = 0
contribution = 10000
cont frequency = annually

years = 20
interest rates = 4
initial balance = 0
contribution = 10650
cont frequency = annually

both will give you the same end capital of 330k
it mean if you draw 10k every year for 21 years, it is the same as
you draw nothing for the first year and 10650 every year for the next 20 years.

since this is a trial and error type of problem, i used functions in excel to help me get my answers quickly.

 

[OngHuatHuat]

The way that you calculate quite weird. I not sure how you justify your methods.
My method is based on compound interest of 4 % during payout period and number of years for the capital to reduce to zero, which I think it is most appropriate.

I donno how you derive your 330 k though? Cna share?
I think you fail to consider the reducing balance during the payout period.

it differs because my calculation does not care how much you have to draw down from. it also does not matter when your principal hits 0. this is because you continue to draw even if there is nothing left.

you can go to your compound interest calculator and key in the following

years = 21
interest rates = 4
initial balance = 0
contribution = 10000
cont frequency = annually

years = 20
interest rates = 4
initial balance = 0
contribution = 10650
cont frequency = annually

both will give you the same end capital of 330k
it mean if you draw 10k every year for 21 years, it is the same as
you draw nothing for the first year and 10650 every year for the next 20 years.

since this is a trial and error type of problem, i used functions in excel to help me get my answers quickly.

 

[dork32]

The way that you calculate quite weird. I not sure how you justify your methods.
My method is based on compound interest of 4 % during payout period and number of years for the capital to reduce to zero, which I think it is most appropriate.

I donno how you derive your 330 k though? Cna share?
I think you fail to consider the reducing balance during the payout period.

like i said, it does not matter whether your capital hit 0 or not. in cpf life standard, your bequest hit 0 very quickly. although the bequest is 0, cpf life standard stills pays you every month until you die.

you just key in the numbers in previous post to the compound interest calculator and you will get 330k

 

[OngHuatHuat]

I think you misunderstood what I mean. What I trying to calculate is based on pay out around 12xx, normal annuity of 4 % should last how long, then I used it to compare with cpf life and see how long it takes for cpf life to be better than a typical annuity with 4 % interest.

I don't understand the logic of using 330 k actually.

like i said, it does not matter whether your capital hit 0 or not. in cpf life standard, your bequest hit 0 very quickly. although the bequest is 0, cpf life standard stills pays you every month until you die.

you just key in the numbers in previous post to the compound interest calculator and you will get 330k

 

[dork32]

the question is this

given a choice
you want 10000 every year for 10 years or
you want 10650 every year for 9 years
ans 10000

given a choice
you want 10000 every year for 30 years or
you want 10650 every year for 29 years
ans 10650

given a choice
you want 10000 every year for 21 years or
you want 10650 every year for 20 years
ans no difference because you are at break even point.

 

[dork32]

I think you misunderstood what I mean. What I trying to calculate is based on pay out around 12xx, normal annuity of 4 % should last how long, then I used it to compare with cpf life and see how long it takes for cpf life to be better than a typical annuity with 4 % interest.

I don't understand the logic of using 330 k actually.

you dont like 330k, it ok. you can use any starting amount. since you like 1200 , you can use it. then use 1.065*1200 = 1278. you will get

if you use 14400 per year for 21 years at 4%, you get end capital of 478k
if you use 15336 per year for 20 years at 4%, you get end capital of 475k, which is close to 478

my initial calculation is based on compound interest calculated monthly. in other words interest is 4/12%

 

[dork32]

maybe you misunderstood me in the first place.

the question is :should you defer your draw down if your monthly payout is increased by 6.5% every month if you defer by one year.

 

[OngHuatHuat]

You know Annuity works like a loan with certain repayment period but not a savings account with certain interest right?

First 10 years, with minimum sum compounding,it works the same as Normal savings account with a compound interest of 4 % + 600 per year.
Thereafter, it will be the same as normal annuity plan with compounding 4 % that pays out certain fixed payout with reducing capital over a period of time.

you dont like 330k, it ok. you can use any starting amount. since you like 1200 , you can use it. then use 1.065*1200 = 1278. you will get

if you use 14400 per year for 21 years at 4%, you get end capital of 478k
if you use 15336 per year for 20 years at 4%, you get end capital of 475k, which is close to 478

my initial calculation is based on compound interest calculated monthly. in other words interest is 4/12%

 

[dork32]

You know Annuity works like a loan with certain repayment period but not a savings account with certain interest right?

First 10 years, with minimum sum compounding,it works the same as Normal savings account with a compound interest of 4 % + 600 per year.
Thereafter, it will be the same as normal annuity plan with compounding 4 % that pays out certain fixed payout with reducing capital over a period of time.

it does not matter how other annuity works.

cpf life standard gives you an almost fixed payout for the rest of your life. since you like 1200, cpf life gives you 1200 from 65 till the day that you die.

if you decide not to draw down at 65 but at 66 instead, cpf life standard gives you 1278 from 66 till the day you die.

since the bequest for cpf life standard is a joke, you can almost assume it is nothing.

if i am going to die at 75, should i choose to defer?
if i die at 85 should i defer?
if i die at 95 should i defer?

 

[dork32]

it does not matter whether the monthly payout is 100 or 1000 or 10000, the answer will always be the same

 

[OngHuatHuat]

I was calculating how long an annuity of similar amount should last. Taking first day of 55 years old as starting point till last day of 64 years old to compound the 4% + 600. Then use that as the starting amount to calculate how a typical annuity of similar amount and interest rate would last, the number of years is 17 plus years.

Which means, if you choose to start the payout at the first day of 65 years old, you are kind of earning back if you live past 82 plus years old.

Deferment of payment for cpf life is a no to me.

it does not matter how other annuity works.

cpf life standard gives you an almost fixed payout for the rest of your life. since you like 1200, cpf life gives you 1200 from 65 till the day that you die.

if you decide not to draw down at 65 but at 66 instead, cpf life standard gives you 1278 from 66 till the day you die.

since the bequest for cpf life standard is a joke, you can almost assume it is nothing.

if i am going to die at 75, should i choose to defer?
if i die at 85 should i defer?
if i die at 95 should i defer?

 

[withhelds]

Questions

Both my parents are above 55 years old but their retirement account does not meet minimum sum.

Father is self employee thus not much CPF and mother is still working but CPF is still use to pay for monthly HDB loan and sometime still require to use cash to pay HDB due to insufficient CPF contribution.

I would like to know how can I help my parents in terms of using Cash or CPF to assist with the HDB loan repayment as well as planning their retirement. What are the pros and cons to consider?

Hope someone can enlighten me.
Thanks.

 

[OngHuatHuat]

Actualy hard to give you advice leh.
My best advice is you help in repaying the home loan if you are the only kid, since eventually it will be yours anyway and it helps to reduce their burden.
If me, I will do something like that lor.

The annuity aka cpf life is good, you can see from my illustration, no matter what, after 18 to 20 years, it will beat typical annuity plan.
Can ask you dad to continue contributing to cpf first, 10 years down the road can receive payout already, view it like a forced savings.

I believe your parents are not so financial prudent, but cpf life is one of the best annuity available for a basic retirement life in Singapore.

Both my parents are above 55 years old but their retirement account does not meet minimum sum.

Father is self employee thus not much CPF and mother is still working but CPF is still use to pay for monthly HDB loan and sometime still require to use cash to pay HDB due to insufficient CPF contribution.

I would like to know how can I help my parents in terms of using Cash or CPF to assist with the HDB loan repayment as well as planning their retirement. What are the pros and cons to consider?

Hope someone can enlighten me.
Thanks.

 

[withhelds]

Actualy hard to give you advice leh.
My best advice is you help in repaying the home loan if you are the only kid, since eventually it will be yours anyway and it helps to reduce their burden.
If me, I will do something like that lor.

The annuity aka cpf life is good, you can see from my illustration, no matter what, after 18 to 20 years, it will beat typical annuity plan.
Can ask you dad to continue contributing to cpf first, 10 years down the road can receive payout already, view it like a forced savings.

I believe your parents are not so financial prudent, but cpf life is one of the best annuity available for a basic retirement life in Singapore.

Thanks for your reply
I have contribute in helping to pay the hdb loan via cash.

But I'm not sure if I can better utilize it using CPF or Cash?
E.g. top up from my CPF to parents CPF to pay for HDB. (Not sure if it is possible or not).

 

[OngHuatHuat]

The situation is a bit complicated since now your dad cpf din hit minimum sum. Cpf may not allow withdrawal of cpf from ra.

I think the best is to help paying housing loan via cash at the moment.

Thanks for your reply
I have contribute in helping to pay the hdb loan via cash.

But I'm not sure if I can better utilize it using CPF or Cash?
E.g. top up from my CPF to parents CPF to pay for HDB. (Not sure if it is possible or not).

 

[henrylbh]

CPF Life is a big joke, if my calculations are not wrong.

Just before CPF Life, the last min sum was 139k and the monthly payout is $1,240. Based on 4% interest, excluding additional interest, the payout from 65 will last about 19 years and 10 months when the amount is exhausted.

Now CPF Life with min sum of $161k (a much higher min sum), the monthly payout is only $1,220 from 65 and will last for about 25 years and 10 months when the amount is exhausted.

If the min sum of 161k at $1,220 pm can last till age 90 plus, why is there a need for CPF Life that force us to gamble with our bequest?

Can someone point out whether I have made error in my calculations?

 

[rrr2015]

not expert to give advice, just sharing my thoughts ...

Both my parents are above 55 years old but their retirement account does not meet minimum sum.

according to CPF life FAQ
https://www.cpf.gov.sg/members/faq/schemes/retirement/cpf-life
There is no minimum amount for joining CPF LIFE. However, the amount of retirement sum which you have set aside in your Retirement Account for CPF LIFE would affect your monthly payout amount. If you join with more savings, you will receive a higher payout.

FYI, I think before one hits 55, one can actually request CPF to reserve some amounts in OA for HDB loan payment, so that it doesn't get transferred to RA when reaching 55.

I would like to know how can I help my parents in terms of using Cash or CPF to assist with the HDB loan repayment as well as planning their retirement. What are the pros and cons to consider?

if you are their only child, not sure if there's any possibility of "joint tenants" with them, so that you can pay their HDB loan from your CPF?