CPF @ 55 & after

[OngHuatHuat]

Forget about the link. Ask CPF Board.

Here are some of the answers -

MS 123k payout $1,100
MS 131k payout $1,170
MS 139k payout $1,240
MS 148k CPF Life starts

i think the part of the reasons are because at that time, singapore interest rate was higher.

Then it dropped to a low at close to zero from 2011 onwards.

http://www.moneysmart.sg/home-loan/sibor-trend

This seems to be consistent with the trend we observe.

We need to know the formula they used to calculate interest rate during payout period.

Coz now we are calculating payout based on low interest rate environment. With Sibor rising, the payout should increase as well(not sure about the lagging factor).

Obviously, it is not a fixed value that we assumed right from the starts. That means it is subjected to interest rate fluctuation and increased in singaporean median life expectancy.

 

[henrylbh]

hi yy, i have just checked that to exhaust 247k in 17 years require a payout of 20k and not 15k. there is something wrong with your apps.

henry's calculation is much more accurate than yours.

i can understand how henry is deriving his calculations, but i am not sure if it is correct. his method is not the real compound interest method but cpf could be using his method for calculation of interest.

CPF calculates interest base on the lowest balance in each month and the interest for 12 months is added to the balance at the beginning of the following year. Interest is not compounded monthly.

 

[OngHuatHuat]

For members turning 55 before 1 July 2015, we will send you a letter to choose your CPF LIFE plan one month after your 55th birthday. You have six months to choose your plan. If you do not choose a plan, we will place you on the CPF LIFE Standard Plan.

From January 2016, members will only need to choose their CPF LIFE plan from their payout eligibility age at the point when they wish to start their CPF LIFE payouts.

In view of this upcoming change, members who are turning 55 from 1 July 2015 to 31 December 2015 would also have the option to choose their CPF LIFE plan at the point when they wish to start their CPF LIFE payouts, from their payout eligibility age. We will write to you nearer to your payout eligibility age to further explain the options you have and the choices you have to make.

Choose the plan that best meets your retirement needs. Each LIFE plan provides a different combination of trade-offs between the amount of monthly payout that you would receive and the bequest that you would leave for your beneficiaries.*

While stable, the monthly payouts are not fixed. The payout amount will be reviewed annually and we may adjust your payout due to changes in mortality experience, interest rate and transactions which affect your Retirement Account balance. This will ensure that the CPF LIFE annuity fund is sustainable in the long run.

We will notify you two to three months before we make any adjustments to your monthly payout. *

this is the key here. I realized we made a mistake for assuming interest rate of RA is applicable to the annuity as well.

The figure of 1220 is based on the lowest possible interest rate(am I safe to assume that since past few years Sibor rate is at a low of close to 0%)

 

[OngHuatHuat]

CPF calculates interest base on the lowest balance in each month and the interest for 12 months is added to the balance at the beginning of the following year. Interest is not compounded monthly.

this shouldn't make a big difference since I assume no one would suddenly top up the money for CPF life.

 

[henrylbh]

i think the part of the reasons are because at that time, singapore interest rate was higher.

Then it dropped to a low at close to zero from 2011 onwards.

http://www.moneysmart.sg/home-loan/sibor-trend

This seems to be consistent with the trend we observe.

We need to know the formula they used to calculate interest rate during payout period.

Coz now we are calculating payout based on low interest rate environment. With Sibor rising, the payout should increase as well(not sure about the lagging factor).

Obviously, it is not a fixed value that we assumed right from the starts. That means it is subjected to interest rate fluctuation and increased in singaporean median life expectancy.

Under MSS, the fixed monthly payout is calculated to exhaust the min sum in about 20 years at 4%. If interest drops, the min sum would be exhausted over a shorter period. Under CPF Life we are all screwed regardless of standard or basic.

 

[OngHuatHuat]

Under MSS, the fixed monthly payout is calculated to exhaust the min sum in about 20 years at 4%. If interest drops, the min sum would be exhausted over a shorter period. Under CPF Life we are all screwed regardless of standard or basic.

Thanks for pointing out.
It is not totally screwed, the payout is not consistent but subjected to change. We do benefit if the interest rate goes up.

we can reduce the damage by pledging our property.

 

[OngHuatHuat]

a reply from a blog about pledging of property:

Hi,

Don't worry about being homeless. When your hdb is auto pledged, it only means that you'll have to return the amount pledged back to your cpf in the event you sell your house. The whole purpose is to make sure people have enough for retirement and not sell their house for profits and take it to spend on luxury items. If you did not sell your house, the auto pledge does not affect you. The ownership of the house will remain unchanged. It doesn't mean it is transferred to the government. There is no way to opt out of the auto pledge.

 

[henrylbh]

If 161k is under the MSS, we should be getting fixed monthly payout about $1,440 for about 20 years based on my excel worksheet, or more if the additional interest is taken into account. Hell with CPF Life.

 

[OngHuatHuat]

If 161k is under the MSS, we should be getting fixed monthly payout about $1,440 for about 20 years based on my excel worksheet, or more if the additional interest is taken into account. Hell with CPF Life.

I think the key was QE and low interest rate environment at that time, they think 4% is unsustainable based on increasing singaporean life expectancy.

Learnt something new today.

this 161 K going to fix for how long?

 

[antonpoh]

If 161k is under the MSS, we should be getting fixed monthly payout about $1,440 for about 20 years based on my excel worksheet, or more if the additional interest is taken into account. Hell with CPF Life.

The problem with CPF Life is it start too late. The huge amount hold from 55-65yo want to last for whole retirement.

If it had start at 45yo with just 90-100k, what will you be getting at 65yo? Able to get close to that payout amount?

 

[OngHuatHuat]

The problem with CPF Life is it start too late. The huge amount hold from 55-65yo want to last for whole retirement.

If it had start at 45yo with just 90-100k, what will you be getting at 65yo? Able to get close to that payout amount?

20 years of compounding, assuming 4+ 1 % interest rate fixed, you will get 240596.94 based on 100 K at 45 years old, slightly less than what 161 K with 10 years of compounding.