Should you delay your CPF Life payout

[dork32]

when you are tokking about time value of money, the present value of future money depends a lot the the rate of return (or interest rates.)

if you choose a rate of 4% on the money that you have drawn. then mirr for delaying and not is the same

if you choose 2.5%, it is lower than 4%. hence mirr for delaying would be higher.

but if you choose 5%, it is better to not to delay

 

[maple96]

i like this comment. do not just talk about the air and water. give us numbers.

but i can tell you tis. tangent can really count.

he can count but also sometimes count incorrectly! He makes assumptions in his calculations also which is not realistic sometimes

 

[maple96]

when you are tokking about time value of money, the present value of future money depends a lot the the rate of return (or interest rates.)

if you choose a rate of 4% on the money that you have drawn. then mirr for delaying and not is the same

if you choose 2.5%, it is lower than 4%. hence mirr for delaying would be higher.

but if you choose 5%, it is better to not to delay

I choose 5%, so better, I choose 4% still good, worst case I choose between 2.5% to 4% which I think is better than delaying and there are other benefits which many still cannot vision but I can cos its my money

ops wrong channel? I am talking about "reinvesting" the payout at 5%, 4%, 2.5%

 

[dork32]

The issue is when you die between 70 and say 85 (which is the age range in which most CPFLife members die), then you would be financially worse off. For some people, it is a small price to pay for the larger price of mind.

there is no difference if i die in between 70 and 85. tis is because i am drawing on my own money.
and if i die at 80, my kids are going to get 200k. i really do not mind giving my kids the 200k. i will not lose if my kids can get 200k.

i win if i die at 68
i do not lose if i die at 80
i win if i die at 95

anyway choose whatever you want. like i said there is never a definite right or wrong answer. i feel my choice benefits me most. you choose what you feel benefit you most.

 

[dork32]

he can count but also sometimes count incorrectly! He makes assumptions in his calculations also which is not realistic sometimes

i think there is nothing wrong with his calculations

it is how he interprets the numbers that is a suspect.

 

[dork32]

there is no difference if i die in between 70 and 85. tis is because i am drawing on my own money.
and if i die at 80, my kids are going to get 200k. i really do not mind giving my kids the 200k. i will not lose if my kids can get 200k.

i win if i die at 68
i do not lose if i die at 80
i win if i die at 95

anyway choose whatever you want. like i said there is never a definite right or wrong answer. i feel my choice benefits me most. you choose what you feel benefit you most.

i just ran thru the cpf life estimator to verify my numbers. my kids actually get 210k if i die at 80.

the esitmator showed that escalating only overtake standard at 89. this is ignoring the time value of money. put in a return of 4%, it will take until 95 that escalating can overtake standard.
and most of us agree that standard is sucky

 

[SKenny]

when you are tokking about time value of money, the present value of future money depends a lot the the rate of return (or interest rates.)

if you choose a rate of 4% on the money that you have drawn. then mirr for delaying and not is the same

if you choose 2.5%, it is lower than 4%. hence mirr for delaying would be higher.

but if you choose 5%, it is better to not to delay

As they said; "the devil is in the details".

I run through the numbers today, and your observation is correct ie;
- using a 2.5% discount rate, will make delaying a better overall financial decision.
- using a 4% discount, will make delaying a slightly worse off overall financial decision. More or less, they are equal.
- using a 5% discount, will make delaying a worse off overall financial decision.

The main difference between taking @65 or 70, is that the total amount payout NPV basis (even at 2.5% rate) would almost always be more when starting @ 65 than taking at 70. The bequest works in the opposite way.

The overall differences are actually not big. I guess this is one case when the decision should not be too heavily weighted on the financial perspective but rather other factors (eg; would you prefer to spend on on yourself, or leave more bequest etc).

I used the following input data;
- RA amount $175k
- current age 56, male
- Discount rate (2.5%, 4% and 5%)
- Start CPFLife at 65 and then 70
- Death at 75, 80 and 90.
- I used mid point payout of the Basic plan
- all nominal cash flows to be discounted back to present time (ie age 56)

 

[SKenny]

i just ran thru the cpf life estimator to verify my numbers. my kids actually get 210k if i die at 80.

the esitmator showed that escalating only overtake standard at 89. this is ignoring the time value of money. put in a return of 4%, it will take until 95 that escalating can overtake standard.
and most of us agree that standard is sucky

That is why I have said that the Escalating plan, while is an excellent idea, is very expensive in practice. A breakeven age of 90+ is not appealing, to say the least.

Most of us would be better off by doing it ourselves. A simple method is to redeposit some of your payout back to RA (to be withdrawn later as either additional CPFLife or AMP). You enjoy the 4% interest without the 90+ breakeven age.

 

[angtc11]

This is incorrect. And I just did the math to confirm. If you die at 75, you would have received less total monthly payout if you delay to 70 than if you immediately start withdrawals at 65, however your bequest is also much much higher because of the 'principle guarantee' feature of the CPF Life plans as there are 5 extra years to accumulate compounding interest in your RA, this leads to the XIRR being higher for delaying to 70.

Edit: My earlier numbers are not complete and I added the formula for anyone who wants to check. CPF calculator cumulative payout needs to be added with bequest to get the full amount while I only used cumulative payout earlier. It is actually better to wait until 70 for Basic and Escalating. Need to get my head around why Escalating has such a conclusion though (maybe because of the different longevity insurance cost mechanism)....

CPF calculator tells you the cumulative payout for different withdrawal age, albeit it probably does not consider time value of money.

Assuming expiry at 75, withdrawal at 70 instead of 65 benefits you (Edit2) you additional money
Formula: [Avg cumulative payout 70] + [Avg bequest 70] - [Avg cumulative payout 65] - [Avg bequest 65]

Edit2: Re-extracted the numbers, hopefully no errors this time. You do not suffer monetary loss by waiting (ignoring TVM)

Standard: 114k+206k-171k-89k ~60k
Basic: 105k+270k-157k-192k ~27k
Escalating: 96k+225k-147k-113k ~61k

The above is based on 176k at age 55 for a person born in Jan 1974 and averaging the min and max cumulative payout.

Edit: Numbers were extracted by toggling between
1) Cumulative Payout & Bequests
2) 65 & 70 payout age

https://www.cpf.gov.sg/eSvc/Web/Schemes/LifePayoutEstimator/LifePayoutEstimator

 

[tangent314]

The comparison is based on XIRR which does take into account TVM.
I don't think anyone would care much about a "TVM loss of $65k" when bequest will be $120k higher...

https://docs.google.com/spreadsheets/d/16_iStt8MTouMHg1BMV6rPH3Q8M4e5_eiUEiOnqF5HjE/edit?usp=sharing

One thing to note is that XIRR will always go down slowly until the point where the bequest reaches $0 and then it will start to go up. For @65, bequest reaches $0 at age 80, and the XIRR starts to overtake @70 at age 82. @70's reaches $0 bequest at age 84 and the XIRR will start chasing after @65 in a convergent manner but not quite reaching there.

 

[dork32]

The comparison is based on XIRR which does take into account TVM.
I don't think anyone would care much about a "TVM loss of $65k" when bequest will be $120k higher...

https://docs.google.com/spreadsheets/d/16_iStt8MTouMHg1BMV6rPH3Q8M4e5_eiUEiOnqF5HjE/edit?usp=sharing

One thing to note is that XIRR will always go down slowly until the point where the bequest reaches $0 and then it will start to go up. For @65, bequest reaches $0 at age 80, and the XIRR starts to overtake @70 at age 82. @70's reaches $0 bequest at age 84 and the XIRR will start chasing after @65 in a convergent manner but not quite reaching there.

thank you tangent. wonderful spread sheet.

i would like to bring up this important point. looking at his numbers, tangent is doing for standard.

1. notice that the xirr values fluctuated wildly. in maths, this is not desireable. variance is a risk. it other words it is a gamble if you go onto standard. and if standard is risky, i think escalating would be worse.

2. notice that the xirr value for delaying the payout never quite catch up, even up to 100 years old. this is wat uncle kenny mentioned. the price of delaying the payout is too high.

3. if tangent has done one for basic. it would be much less exciting. the xirr value will not have changed much.

this is wat i meant that tangent can count

 

[dork32]

Assuming expiry at 75, withdrawal at 70 instead of 65 costs you
Standard: ~65k
Basic: ~52k
Escalating: ~51k

T

this is what i meant by partial info. one look at it, one would think that standard is the choice.

could ang please put up the bequest value of the three examples for dying at 75?

let us know which really is better if we die

 

[angtc11]

this is what i meant by partial info. one look at it, one would think that standard is the choice.

could ang please put up the bequest value of the three examples for dying at 75?

let us know which really is better if we die

This is from CPF calculator. I guess I can put the link below.
The numbers compares the difference between withdrawal at 65 and 70 and does not imply which scheme is better

I mentioned the 3 schemes in refutation of tangent's numbers so that its clear waiting is not beneficial regardless of the scheme

https://www.cpf.gov.sg/eSvc/Web/Schemes/LifePayoutEstimator/LifePayoutEstimator

Edit: I updated the earlier post to put in the bequest amount too. The numbers seem to support the conclusion that we should wait until 70 to drawdown for Basic and escalating. Again this is just comparing when the drawdown should start (when you have already selected your plan), not which plan is better. There are other considerations to selecting the best plan for your situation.

 

[angtc11]

The comparison is based on XIRR which does take into account TVM.
I don't think anyone would care much about a "TVM loss of $65k" when bequest will be $120k higher...

https://docs.google.com/spreadsheets/d/16_iStt8MTouMHg1BMV6rPH3Q8M4e5_eiUEiOnqF5HjE/edit?usp=sharing

One thing to note is that XIRR will always go down slowly until the point where the bequest reaches $0 and then it will start to go up. For @65, bequest reaches $0 at age 80, and the XIRR starts to overtake @70 at age 82. @70's reaches $0 bequest at age 84 and the XIRR will start chasing after @65 in a convergent manner but not quite reaching there.

From what I understand of it, your mathematical model is based on the premise that there is no cost of insurance (CPF Life) and the funds are all kept with CPF.

Ie: You use the initial sum (181k) and accumulate (@4% ?) for 10 or 15 years depending on the withdrawal age, then de-ccumulate to 100 with a 'minimum bequest' based on the amount at the start of withdrawal.

If this is your understanding of CPF Life, I think you should find out more before advocating the various CPF Life options...

 

[tangent314]

If you have a different understanding of how CPF Life works, I'd like to hear it.

The CPF Life documents states it out fairly clearly, for standard and escalating. Your RA accumulates at ~4% until the payout age. You get paid a monthly sum, and if you pass away early enough such that your total payout received is less than the amount at payout age, then your beneficiaries will receive the difference as the bequest.

You don't have to take my word for it - read the CPF Life documents yourself, or use the CPF Life calculator they have provided - my numbers match those numbers exactly.

 

[angtc11]

If you have a different understanding of how CPF Life works, I'd like to hear it.

The CPF Life documents states it out fairly clearly, for standard and escalating. Your RA accumulates at ~4% until the payout age. You get paid a monthly sum, and if you pass away early enough such that your total payout received is less than the amount at payout age, then your beneficiaries will receive the difference as the bequest.

You don't have to take my word for it - read the CPF Life documents yourself, or use the CPF Life calculator they have provided - my numbers match those numbers exactly.

My dummy understanding of the difference between MSS and CPF Life is the purchase of longevity insurance which is totally not evident in your sheet. The cost of this longevity insurance component is the cause of the debate between which of the various options is most efficient. If you do not consider the cost of the longevity insurance, how can your conclusion be rational?

CPF Life's mechanisms are not so transparent that you can model out the exact values (which is why I never bother to calculate). Case in point being the amount used to buy the longevity insurance is given as a range 10-20%.

You don't have to take 'my numbers' as the gospel truth too, you can try the calculator out at the CPF website, I provided the link and my inputs earlier. You can throw it back at me if my interpretation of the calculator is wrong, but you cannot challenge me on the numbers because it was provided by CPF's own calculator.

Assuming my interpretation is not wrong, you can also save the righteous indignation to challenge CPF Board why CPF calculator's number differs from yours and the purported values you compared against.

Edit: Added in the bequest numbers to the cumulative payout, which tilt the case for Basic and Escalating. However, the conclusion still is against waiting till 70 for Standard, which I believe is what your sheet is based on.

 

[tangent314]

My calculations and numbers are all taken from the same CPF Life calculator that you used. So far no one has proven that they are wrong. Which would be hard because my derived numbers match the numbers that the CPF Life calculator produces.

I'm not disputing your numbers (not that I have checked them myself, but I have no reason to believe they are wrong), however they are incomplete. You calculate the TVM'ed value of the payouts up to age 75 to the difference of ~$65k in favour of @65, but did not mention the bequests at all, which would be ~$120k in favour of @70. You don't have to take my word for it - you can check it from the same CPF Calculator you have been using.

 

[iMac]

Jialat liow....

Looking at how Tangent314 & AngTC11 comments at each other.

If expert like them also having difficulty understanding CPF rules, layman like myself without financial knowledge sure kana pawn deep deep by CPF...

 

[angtc11]

My calculations and numbers are all taken from the same CPF Life calculator that you used. So far no one has proven that they are wrong. Which would be hard because my derived numbers match the numbers that the CPF Life calculator produces.

I'm not disputing your numbers (not that I have checked them myself, but I have no reason to believe they are wrong), however they are incomplete. You calculate the TVM'ed value of the payouts up to age 75 to the difference of ~$65k in favour of @65, but did not mention the bequests at all, which would be ~$120k in favour of @70. You don't have to take my word for it - you can check it from the same CPF Calculator you have been using.

My bad for incomplete numbers earlier, I really mis-interpreted the CPF calculator.
I have edited the post to correct the mistake of missing out the bequests. However, the conclusion still does not match your sheet which I understand is on the basis of Standard.

I did not do any calculation besides averaging the numbers from the CPF calculator, so definitely no TVM unless its baked in the CPF calculator.

 

[angtc11]

Jialat liow....

Looking at how Tangent314 & AngTC11 comments at each other.

If expert like them also having difficulty understanding CPF rules, layman like myself without financial knowledge sure kana pawn deep deep by CPF...

Please relook at the numbers, I have revised them in my post. It seems not so straightforward that waiting till 70 is always bad.