CPF Account Value Thread 2024

[hwmook]

I have read, watched or heard recommendations from many "licensed" financial consultants, none have ever recommended Escalating Plan, based on my recall!

I am dropping "hints" again!

Let me know if you have read any? (Singapore CPF Life Only!)

Most financial consultants are bloodsuckers, I will not follow any of their advises. You shouldn't also.

 

[royalmix]

CPF life is definitely sustainable because they can adjust payout as they like so there is practically zero risk of it collapsing. It's also not run like a Ponzi scheme where you need the young people to support the elderly. The government is trying to make sure they don't have to give out subsidies and make the government budget more sustainable.

Most financial consultants are bloodsuckers, I will not follow any of their advises. You shouldn't also.

Good try, you missed or did not catch my "hints"!

 

[dork32]

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!

You are so wrong in your analysis.

Yes there is a break even year. But it does not even out. If you die young, you are not going to get the high payout, so you will not even out.

If you die old, you are going to get more than you deserve, you win.

There is a win lose outcome, and most important it is not right and left pocket.

It is cpf that evens out. Some die young, they win. Some die old, they lose. They even it out, not individuals

 

[BBCWatcher]

Hi, US social security payouts are indexed to CPI. This is a huge trillion dollar type of annuity system.

Several national/public longevity insurance/life annuity systems offer CPI-linked payouts. It's also common for the CPI links to feature deflation protection. That is, beneficiaries never see any reduction in their monthly payouts, even during periods of deflation. When inflation resumes and then surpasses the previous CPI peak then benefits start to rise again in line with the new peak CPI(s). Obviously it can be done! Other systems do it. But the CPF Advisory Panel recommended otherwise in their mid-2016 report.

CPF life is definitely sustainable because they can adjust payout as they like so there is practically zero risk of it collapsing. It's also not run like a Ponzi scheme where you need the young people to support the elderly.

That's not a "Ponzi scheme." Many different longevity insurance system designs are reasonable and work well. And Singapore definitely needs younger people to support the elderly. Who do you think changes elder Singaporeans' diapers (who need changing)?

The government is trying to make sure they don't have to give out subsidies and make the government budget more sustainable.

True, that's part of the policy landscape. Obviously one possible approach is to provide every elderly resident (and child) with a basic, CPI-linked income funded out of general tax revenues. A few places do that sort of thing. The U.S. state of Alaska, for example, pays every resident (of every age) an annual dividend from the Alaska Permanent Fund. But it's only around US$1,000 to US$2,000 per year per resident, and that amount doesn't go very far in high cost Alaska. Still, it's more than zero.

Singapore's government has decided that longevity risks should be primarily (but not exclusively) handled via residents' own individual compulsory contributions to CPF and resulting CPF LIFE annuities, not out of general tax revenues. That's a common approach in other countries too, although the details vary.

Most financial consultants are bloodsuckers, I will not follow any of their advises. You shouldn't also.

Well, I don't think I'd go that far. I listen to and read many points of view, including points of view from commissioned salespeople. I think it's important to disclose (and to understand) what the financial interests at play are, if any. As far as I know (and I think we can safely assume) nobody is getting a commission or bonus when an individual decides on a particular CPF LIFE payout plan or adds funds to his/her CPF Retirement Account. But lots of people collect bonuses, commissions, and management fees with many other financial decisions.

There are a few fee-based financial advisors in Singapore if you'd like to avail yourself of their services. Which doesn't necessarily mean they always provide the best advice, but at least their financial motivations are better aligned with yours. A few employers provide this benefit (they offer straight fee-based financial consultations to their employees but pay the fee), so maybe you're fortunate that way. In the past I worked for an employer that offered that benefit, and I took advantage of that service a couple times. The advice was decent, I think. One thing they could do pretty well that most individuals can't is to run retirement financial models. Somewhere I've got an old model report with pretty graphics. I thought their default average net investment yield forecast was too optimistic, but they were perfectly happy to re-run the model with a lower figure. They also did a good job incorporating future expected life annuity income (CPF LIFE for example) so you could see what important role that income plays.

 

[hwmook]

All this discussion seems to suggest that people rely solely on CPF for their finances. However:

1. CPF is likely not the only source of funds for most people.

2. Studies on retirement spending indicate that, for most (though not all), expenses tend to decrease as they age.

3. Many individuals are competent enough to gradually shift from risky investments to low-risk options like SSBs, bonds, or fixed deposits as they grow older.

4. With a fixed income from CPF Life, combined with returns from other low-risk instruments that are simple to manage, most people should be able to meet their financial needs as they age.

@BBCWatcher If someone has Dementia, they need a caretaker not a escalating plan.

CPF life is going to be a small portion of my portfolio so I am just going to go all out for max ERS and escalating plan and push out the withdrawal age. I will draw from my own portfolio during the earlier years.

 

[dork32]

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.

thanks for this good analysis.

At 82, you did not breakeven, you only caught up with the payout for standard. Because standard is paying higher payout for the past 12 years, you have to survive another 10 years to catch up with it. By then you are 92 and you have breakeven with standard. Is this good? To me it is not. Well, for some like bbc which is escallating at all cost, it is good

 

[shingo86]

CPF life is going to be a small portion of my portfolio so I am just going to go all out for max ERS and escalating plan and push out the withdrawal age. I will draw from my own portfolio during the earlier years.

Hi, just wanna understand ur tot process and learn from it. Y not the other way rd? Maximise cpf life output as early as possible and draw on portfolio in ur later yrs?

 

[BBCWatcher]

CPF life is going to be a small portion of my portfolio so I am just going to go all out for max ERS and escalating plan and push out the withdrawal age. I will draw from my own portfolio during the earlier years.

Typically that's the smart play (IMHO), although I suggest reserving judgment until age 69.8. Then evaluate your health status as objectively as possible. To pick an obvious example, if you've got a well-confirmed terminal illness diagnosis at that point in life then the Escalating Plan is not for you.

 

[BBCWatcher]

Hi, just wanna understand ur tot process and learn from it. Y not the other way rd? Maximise cpf life output as early as possible and draw on portfolio in ur later yrs?

I'll answer that: because it's quite simply riskier and more expensive at any/every constant real standard of living in retirement. Assuming you're in decent or better health when you have to make this particular decision.

 

[dork32]

This is cheap insurance against this class of risks. Do it. Don’t fool around. It’s not complicated.

DPS is cheap insurance against sudden death or disability. Do it Dont fool around. It is not complicated

 

[shingo86]

I'll answer that: because it's quite simply riskier and more expensive at any/every constant real standard of living in retirement. Assuming you're in decent or better health when you have to make this particular decision.

If i assumed myself to be ill and required medical expenses a fair bit at 70yrs old (preparing for a worst case scenario), would escalating plan still be wise?

 

[dork32]

Hi, just wanna understand ur tot process and learn from it. Y not the other way rd? Maximise cpf life output as early as possible and draw on portfolio in ur later yrs?

This guy is probably damn well to do. he will probably have quite a lot of srs. he would probably use his srs first before using cpf. srs gives you 10 years to draw down everything. so might as well as use it up first.

cpf life output is a constant and it does not run out.

 

[dork32]

If i assumed myself to be ill and required medical expenses a fair bit at 70yrs old (preparing for a worst case scenario), would escalating plan still be wise?

if you are looking at winning or losing, it does not matter if you are forever ill or very healthy. It depends on how long you live.

If you are depending on cpf life payout to pay your medical bills at 70, then escalating is a terrible plan

 

[BBCWatcher]

DPS is cheap insurance against sudden death or disability. Do it Dont fool around. It is not complicated

Sure, OK, if you have any dependents, don't have better alternative term life insurance already, and haven't built up enough wealth to self-insure against the risk of your too early death (and your dependent's loss of your income). That other, different insurance decision is not particularly complicated either.

If i assumed myself to be ill and required medical expenses a fair bit at 70yrs old (preparing for a worst case scenario), would escalating plan still be wise?

Well, are you referring to a known medical issue (or issues) that are likely to end your life earlier rather than later? Or are you simply referring to the common, conventional, ordinary worry practically everyone has about how to handle possible future large medical bills? If the former, the CPF LIFE Escalating Plan probably isn't for you. If the latter, the CPF LIFE Escalating Plan can often be most helpful with the proviso that you're not financially "gasping for air" on the pathway/bridge to a CPF LIFE Escalating Plan retirement income stream.

 

[JuniorLion]

I'm on the other side.

I am and will continue to contribute to SRS as long as I am working. SRS is 100% equities.

At 62, I start drawing down from my insurance savings plan payout (20 years). At 65, drawdown CPF life.

At 75, if needed, to draw down interests from another perpetual plan.

I will only start withdrawing from SRS (in the form of shares transfers) and keep invested as long as I can.

At the same time, continue to make income through selling cash secured puts options.

Looking for alternative post-70 employment if I can.

 

[inmyopinion]

Reading from press....remember somewhere saying if one has 426K at 55 years old, they should be able to get $4000.

 

[BBCWatcher]

I really wish there wasn't so much focus on the CPF LIFE Standard Plan payout at age 65. Yes, OK, I understand for "marketing reasons" why 65/Standard Plan is often the "advertised" figure. But IMHO if you're even half serious about retirement financial planning you should be focusing on the age 70 Escalating Plan figures for given CPF Retirement Account balances whether or not you end up choosing the Escalating Plan. And then convert that 70/Escalating Plan payout figure back to current Singapore dollars. ("Wow, look at that! $3,330 per month! Seems like a lot!" No, it's really not nearly as much as it seems. You've forgotten 30+ years of inflation from 2035 onward, and you've forgotten the next 10 years of inflation until you start getting that amount. HUGE differences! One of my own siblings made this rookie mistake recently. Don't do it! Think/work in real dollars.)

Moreover, there's nothing whatsoever stopping you from adding funds to a CPF Retirement Account except the then-current Enhanced Retirement Sum limit. You're perfectly free to add funds to your RA every time the ERS is raised and to do so for the rest of your life, if you wish. Interest does NOT count against the ERS, so there's always more room to the new ERS whenever the ERS is raised. I guess it's "fun" to look at your retirement finances while pretending your CPF RA savings rate must suddenly fall to zero on your 55th birthday. But you're certainly not required to do that (zero out your RA savings rate from your 55th birthday). Many people can afford to add funds to their RAs (and to their loved ones' RAs) past their 55th birthdays. Most working people continue working past 55.

On top of all that, it's not the BRS, FRS, or ERS. You don't get only 3 choices in terms of RA funding levels. Any amount in between, down to the penny, is available. If for example FRS+29% by age 58 works best for you, fine!

 

[coconut1]

So 1 Jan tomorrow, are we able to further top up our CPF assuming it has hit the cap in 2024 based on the increase in ERS?

 

[BBCWatcher]

Continuing, to convert future dollars (FD) to current dollars (CD) based on annual inflation rate R (and number of years Y) here's the formula:

CD = FD ÷ (1+R)^Y

For example, if you're trying to translate $3,330 in 2035 dollars to 2025 dollars at a 2.5% inflation rate here's the equation:

CD = 3330 ÷ 1.025^10
CD = 3330 ÷ ~1.28
CD = $2,601.40

In other words, a $3,330 payout in 2035 will have the same real purchasing power as $2,601 in 2025, assuming an average 2.5%/year inflation rate over that decade.

Now let's look at how much real purchasing power, in current Singapore dollars, that $3,330/month will have if/when you're getting that same amount at age 95 (30 years after payouts start). We'll use the same 2.5%/year inflation assumption. Here we go!

CD = 3330 ÷ 1.025^(10+30)
CD = 3330 ÷ 1.025^40
CD = 3330 ÷ ~2.685
CD = $1,240.19

Yes, that's right: $3,330 in 2065 will only have the same purchasing power as $1,240.19 in 2025, assuming an average 2.5%/year inflation rate over that 40 year period. Living to age 95 is downright common. (And what about 100? Well above 1% of men alive at age 65 will live to 100, in all probability. It could even be around 2%. And what if the average inflation rate is 3% instead of 2.5%?)

ALWAYS think/work in real dollars when you're planning your retirement!

 

[BBCWatcher]

So 1 Jan tomorrow, are we able to further top up our CPF assuming it has hit the cap in 2024 based on the increase in ERS?

Yes indeed. The hike in the ERS on January 1, 2025, will be a big one. It'll jump from $308,700 to $426,000. Starting on January 1, 2025, every CPF member with a Retirement Account will be able to add at least $117,300 to their RA if they wish. The vast majority will be able to add more, but at least $117.3K.

Of course it usually doesn't make sense to add funds on the 1st day of the month. You earn some bank interest on your cash (presumably), if nothing else. And you don't get any extra CPF interest on cash you deposit into your RA on January 1 compared to January 31.