CPF Accounts Value thread

[dork32]

hi maple, good to see you. i always remember you bang me before because i was wrong.

but most of time we are on the same wavelength

 

[madtari]

Maple you got me perfectly! yes I'm worried abt losing entire pension if I started collecting from 62 n dying soon after that. Need to collect for 14.5yrs then won't lose out to getting lumpsum. U were also right on that I should read up more abt cpf life. I know nuts abt that and intend to start reading sometime when I'm free. Not urgent tho since I'm nowhere near 55. I'm just trying to ask qns here (a bit of spoon feeding, but I will still do my own DD).

 

[BBCWatcher]

Is maple96 accusing CPF (and/or the government) of mismanaging the CPF LIFE pool? It sure seems that way. Got any evidence for that assertion?

The government says that the CPF LIFE pool is invested in exactly the same Special Singapore Government Securities (SSGSes) as all other CPF funds, including Retirement Account funds, and with the same interest. RA interest is credited to individual RAs, and pool interest is credited to the pool. (And you have a claim to that pool.)

The Basic Plan is constructed as a composite of more traditional savings and less longevity insurance. As a consequence, it tries to hang onto a still diminishing residual for a longer period of time. But all you have to do is live long enough, and the residual fades to zero, whereupon the CPF LIFE pool takes over for the tail end. You have a lower nominal payout than the Standard Plan in order to try to cling to an ever fading and not guaranteed bequest longer.

Like the Basic Plan, the Standard Plan offers a level nominal payout (thus an ever declining real payout), and it tries less hard to cling to a still diminishing, still not guaranteed nominal residual (and faster declining real residual). It offers a higher monthly payout than the Basic Plan.

The Escalating Plan is comparable to the Standard Plan, but it just inserts a 2% per year slope. Nominal payouts start lower but rise at 2%/year. Because of this slope the residual decreases very slightly slower but (as with all plans) eventually fades to zero if you simply live long enough.

The pool gets interest, and RAs get interest. There's absolutely no difference there -- you're not "losing interest."

I happen to think when you get longevity insurance it ought to be the best longevity insurance available. You can make the longevity insurance crappier longevity insurance if you wish, and if you have particular/special insight into your life expectancy before you start payouts, maybe you can play that game well enough to beat the actuaries and the life tables. But, aside from that, and since you're effectively required in Singapore to have some longevity insurance, why get the crappier or crappiest on offer? Use the best longevity insurance available to defend your bequest and, better yet, lifetime gifts. Because that's what longevity insurance uniquely empowers you to do, and the best longevity insurance empowers you to do that (defend your bests and your lifetime gifts) the best.

....Or you can join the #returnmycpf crowd and believe that the government is trying to cheat you. It's not true, but if that's what you want to believe, that's your choice.

 

[madtari]

Bro... don't keep doubt my maths leh...

My pension lumpsum is worth 950k. If I were to get monthly payout, it's worth 65k annually. That's y I said 14.5 years. I do understand that I'm comparing lumpsum with monthly payment w/o investing or getting any interest out from the lumpsum, which is illogical, but I did mention that if I were to invest, it won't be that bad. Something along this line.

madguy, you want to put out your lump sum numbers such that we can do some analysis for you? i seriously doubt your maths. there is no such thing as just 76.5 years to break even. you must attached a rate to it. 0% is just not reasonable.

if you are afraid of letting people know your exact sum, you can give us as a proportion of the total amount
eg your lump sum is 400k or you can choose 2k a month,
you can tell us lump sum is 1 mil or you can choose 5k a month

 

[BBCWatcher]

yes I'm worried abt losing entire pension if I started collecting from 62 n dying soon after that.

Sure, it's a bet!

So, what if the lump sum were $500 and the monthly pension were $100? After 5 months (excluding interest) you'd break even, and if you survive to age 62 1/2 or longer you come out ahead. Would you take that bet? Or would you be panicked that you might die at 62 1/4, and so you really ought to take the $500 lump sum? Hopefully you'd take the $100/month. You would win that bet almost always.

The life tables say that if you survive to age 62 then you're much more likely than not to make it past 80. And that's today's life tables.

Now, if you're sick at age 61.8 and expect to die by age 65, OK, easy decision. So you wait, assess your health situation then, and decide what you want to do. Terminal illness diagnosis? Easy decision. But if you're in average or better health, turn off the monkey part of your brain and go look at life expectancies that SingStat publishes. If they say "20.6 more years" (for example), run the numbers and see what you think.

....But if you die too early, OK, you lost the bet. So what? You're dead, and you won't have any regrets.

If you're concerned about a loved one, OK, no problem, put a financial plan in place to protect your loved one. But this particular part of your financial plan should be decided on the merits when the time comes. If you can defer the start of your pension to age 67 for example, that might be a good thing to do because you'll have 5 more years of information about your health by then.

To reiterate, 950K/65K seems like a very fair pension to me, meaning that the monthly payment looks attractive. Tangent314 is probably in a better position to run the numbers to decide how good it looks, but I like that second figure. Assuming you're in average or better health just before you make your decision.

 

[tangent314]

My pension lumpsum is worth 950k. If I were to get monthly payout, it's worth 65k annually. That's y I said 14.5 years. I do understand that I'm comparing lumpsum with monthly payment w/o investing or getting any interest out from the lumpsum, which is illogical, but I did mention that if I were to invest, it won't be that bad. Something along this line.

If you take 950k and self invest at a 4% interest rate, while withdrawing 65k per year, your money will run out after 22 years, so numbers will be quite a bit different.

That said, 950k is a lot of money that I can see why one would feel uncomfortable if it just disappears because you die the next day right after you begin the payouts.

Do you have the option to take say half as lump sum and half as life annuity?

 

[Toni90]

Bro... don't keep doubt my maths leh...

My pension lumpsum is worth 950k. If I were to get monthly payout, it's worth 65k annually. That's y I said 14.5 years. I do understand that I'm comparing lumpsum with monthly payment w/o investing or getting any interest out from the lumpsum, which is illogical, but I did mention that if I were to invest, it won't be that bad. Something along this line.

U man or woman? Where do u live? Who manage your pension?

 

[maple96]

Is maple96 accusing CPF (and/or the government) of mismanaging the CPF LIFE pool? It sure seems that way. Got any evidence for that assertion?

.

U do seriously have serious comprehension problems, dun understand simple Singaporean English! Me not into politics, dun like to play your political way of writing to personal attack.

If I were into politics, maybe sue u for libel

But excuse u for not being able to comprehend simple Singaporean English

Dun waste my time and everyone's time here

 

[SKenny]

If you take 950k and self invest at a 4% interest rate, while withdrawing 65k per year, your money will run out after 22 years, so numbers will be quite a bit different.

That said, 950k is a lot of money that I can see why one would feel uncomfortable if it just disappears because you die the next day right after you begin the payouts.

Do you have the option to take say half as lump sum and half as life annuity?

Taking half-and-half often is a good option when you are unsure.

You can also deposit the lumpsum into your RA, which by the time you are 65 would have an ERS limit of $400+k. This way you still have a pension (aka CPFLife) which comes with a bequest clause.

 

[BBCWatcher]

You can also deposit the lumpsum into your RA, which by the time you are 65 would have an ERS limit of $400+k. This way you still have a pension (aka CPFLife) which comes with a bequest clause.

OK, but that figure isn't $950K, and somebody with a $950K/$65K pension is likely to have no problem hitting the Full Retirement Sum in his/her Retirement Account at age 55. The current difference between the Full Retirement Sum and the Enhanced Retirement Sum is only $88,000.

There's no such thing as a government guaranteed 4% nominal return for any significant portion of this $950K. That's really not a valid baseline comparison, not in today's environment anyway.

A partial lump sum/partial life annuity selection might be interesting if available, but fundamentally it's way too early to make this particular decision. Decide closer to the last available decision date when there's much more accumulated knowledge about one's health and financial situation.

 

[SKenny]

OK, but that figure isn't $950K, and somebody with a $950K/$65K pension is likely to have no problem hitting the Full Retirement Sum in his/her Retirement Account at age 55. The current difference between the Full Retirement Sum and the Enhanced Retirement Sum is only $88,000.

There's no such thing as a government guaranteed 4% nominal return for any significant portion of this $950K. That's really not a valid baseline comparison, not in today's environment anyway.

A partial lump sum/partial life annuity selection might be interesting if available, but fundamentally it's way too early to make this particular decision. Decide closer to the last available decision date when there's much more accumulated knowledge about one's health and financial situation.

Not always.

I know of a civil servant who is on a pension scheme of a lump sum higher than the 950k here. However he has ZERO CPF contribution (or at least next to zero CPF contribution).

 

[madtari]

Unfortunately no... its either full lumpsum or monthly till death. I agree with you, most probably will take lumpsum and put in some investment.

If you take 950k and self invest at a 4% interest rate, while withdrawing 65k per year, your money will run out after 22 years, so numbers will be quite a bit different.

That said, 950k is a lot of money that I can see why one would feel uncomfortable if it just disappears because you die the next day right after you begin the payouts.

Do you have the option to take say half as lump sum and half as life annuity?

 

[BBCWatcher]

Madtari, before you leap to your conclusion way too early, I just want to give you some idea of how very fair your monthly pension offer is.

The United States life annuity market is the world's largest and most extremely competitive. I went and took a look at what you would get in this scenario:

• age 62
• immediate life annuity
• fixed nominal payout
• US$950,000 single premium
• hypothetical male resident of New York
• no joint/survivor, no residual (pure longevity insurance)

Life expectancies are a little lower in the United States, the inflation rate is a bit higher, nominal yields are a bit higher, and US$950,000 is a bigger premium than S$950,000, so all those factors should conspire to push up the monthly payout figure, other things being equal. And what's the payout figure from the best available life annuity in the United States with these parameters? US$5,068 per month or US$60,816 per year. (Source: ImmediateAnnuities.com.)

Your offer is $65,000 per year ($5,417 per month) or a $950,000 lump sum at age 62. Your payout offer is about 6.8% higher than what the very best U.S. life annuity can manage under more actuarially favorable terms.

That's a genuinely fantastic pension offer, really -- excellent value for money, especially in Singapore. Or, if/as you prefer, not a great lump sum payout offer. (You can view it either way. It amounts to the same thing.)

 

[madtari]

Thanks BBC, no hurry as I have at least a good 20yrs before I can get my pension. I should not count the chicks before they are hatched. Anything could happen (eg. death, dismissal from service etc) and I might not get the pension. But if I eventually get it, I think I will prefer to get the cold hard cash at once. I'm not someone who spends mindlessly and I do my own savings/investment so I think I should be better off getting lumpsum. There's a saying "an egg in hand is worth two in the bush". If I happen to outlive my pension, I shall count it a blessing then.

Madtari, before you leap to your conclusion way too early, I just want to give you some idea of how very fair your monthly pension offer is.

The United States life annuity market is the world's largest and most extremely competitive. I went and took a look at what you would get in this scenario:

• age 62
• immediate life annuity
• fixed nominal payout
• US$950,000 single premium
• hypothetical male resident of New York
• no joint/survivor, no residual (pure longevity insurance)

Life expectancies are a little lower in the United States, the inflation rate is a bit higher, nominal yields are a bit higher, and US$950,000 is a bigger premium than S$950,000, so all those factors should conspire to push up the monthly payout figure, other things being equal. And what's the payout figure from the best available life annuity in the United States with these parameters? US$5,068 per month or US$60,816 per year. (Source: ImmediateAnnuities.com.)

Your offer is $65,000 per year ($5,417 per month) or a $950,000 lump sum at age 62. Your payout offer is about 6.8% higher than what the very best U.S. life annuity can manage under more actuarially favorable terms.

That's a genuinely fantastic pension offer, really -- excellent value for money, especially in Singapore. Or, if/as you prefer, not a great lump sum payout offer. (You can view it either way. It amounts to the same thing.)

 

[dork32]

If you take 950k and self invest at a 4% interest rate, while withdrawing 65k per year, your money will run out after 22 years, so numbers will be quite a bit different.

That said, 950k is a lot of money that I can see why one would feel uncomfortable if it just disappears because you die the next day right after you begin the payouts.

Do you have the option to take say half as lump sum and half as life annuity?

hi madguy,
you probably take 950/65 giving you 14.5. this is wrong because you cannot expect a return of 0% on your principal. only cpf life escalating plan is like than for the first 15 years.

tangent has shown that if the irr is 4%, 22 years. for me i rather use 2.5%. the reason is i can easily pump quite a lot into oa. it is not easy to get money into sa or cpflife. if you are not into investments, you will not get 4%

if it is 2.5%, it is going to last you 18.4 months.

at 14.5 years to draw down, it is worthwhile to get the payout. 14.5 years is a "short" time. 76.5 is not too old, compared to the numbers that we are talking about in cpflife (close to 90).

one of the reason why the reason the payout is higher is that there is no bequest to the pension. on you are jumping from one without bequest to one that gives little bequest(escalating). is that wise?

 

[dork32]

Madtari, before you leap to your conclusion way too early, I just want to give you some idea of how very fair your monthly pension offer is.

The United States life annuity market is the world's largest and most extremely competitive. I went and took a look at what you would get in this scenario:

• age 62
• immediate life annuity
• fixed nominal payout
• US$950,000 single premium
• hypothetical male resident of New York
• no joint/survivor, no residual (pure longevity insurance)

Life expectancies are a little lower in the United States, the inflation rate is a bit higher, nominal yields are a bit higher, and US$950,000 is a bigger premium than S$950,000, so all those factors should conspire to push up the monthly payout figure, other things being equal. And what's the payout figure from the best available life annuity in the United States with these parameters? US$5,068 per month or US$60,816 per year. (Source: ImmediateAnnuities.com.)

Your offer is $65,000 per year ($5,417 per month) or a $950,000 lump sum at age 62. Your payout offer is about 6.8% higher than what the very best U.S. life annuity can manage under more actuarially favorable terms.

That's a genuinely fantastic pension offer, really -- excellent value for money, especially in Singapore. Or, if/as you prefer, not a great lump sum payout offer. (You can view it either way. It amounts to the same thing.)

thats the way to do it. put in some numbers to back you statement. i agree with your calculations.

furthermore us interest rates are usually higher than sg. this makes the pension even for attractive.

but does the us pension scheme offer any bequest? in sg, pension scheme offers you 0 bequest, even if you die 1 month later.

 

[madtari]

no worries. I do agree with you. but bear in mind that I do post my reply on my mobile sometimes on the go... I don't have the means nor knowledge to calculate XIRR/IRR on the fly therefore for simplicity I assume 0% (which I know is illogical, therefore I used 'worthwhile' with inverted commas to mean that. in actual fact of course I know the situation for taking lumpsum will be much better considering interest over the years, and if I don't touch the principal, it will be compounded interest, which will last for a infinite time.).

I think I might have given the wrong impression, the pension clause did state that if I were to die in the 1st year while on monthly payment, there is certain value for bequest. but it is as good as none since anytime after that, it will be 0. and below you probably mean at 2.5% interest rate, my lumpsum should be able to last for 18.4 years instead of month as compared to me drawing monthly payout right?

hi madguy,
you probably take 950/65 giving you 14.5. this is wrong because you cannot expect a return of 0% on your principal. only cpf life escalating plan is like than for the first 15 years.

tangent has shown that if the irr is 4%, 22 years. for me i rather use 2.5%. the reason is i can easily pump quite a lot into oa. it is not easy to get money into sa or cpflife. if you are not into investments, you will not get 4%

if it is 2.5%, it is going to last you 18.4 months.

at 14.5 years to draw down, it is worthwhile to get the payout. 14.5 years is a "short" time. 76.5 is not too old, compared to the numbers that we are talking about in cpflife (close to 90).

one of the reason why the reason the payout is higher is that there is no bequest to the pension. on you are jumping from one without bequest to one that gives little bequest(escalating). is that wise?

 

[JuniorLion]

no worries. I do agree with you. but bear in mind that I do post my reply on my mobile sometimes on the go... I don't have the means nor knowledge to calculate XIRR/IRR on the fly therefore for simplicity I assume 0% (which I know is illogical, therefore I used 'worthwhile' with inverted commas to mean that. in actual fact of course I know the situation for taking lumpsum will be much better considering interest over the years, and if I don't touch the principal, it will be compounded interest, which will last for a infinite time.).

and just to correct you in another post, the pension clause states that if I were to die in the 1st year while on monthly payment, there is certain value for bequest. but it is as good as none since anytime after that, it will be 0. and below you probably mean at 2.5% interest rate, my lumpsum should be able to last for 18.4 years instead of month as compared to me drawing monthly payout right?

What I would do if I were in your shoes:
Get a comprehensive health checkup at age 62, and decide whether to take lumpsum or not.

 

[BBCWatcher]

in actual fact of course I know the situation for taking lumpsum will be much better considering interest over the years....

That’s not factually true, Madtari. We’re telling you that the monthly payout offer is generous, and the lump sum payout is not. The odds are seriously in favor of the monthly payout being the winner.

my lumpsum should be able to last for 18.4 years instead of month as compared to me drawing monthly payout right?

Current average life expectancy at age 62 for males is much longer than 18.4 years. It’s more like 22 years. Roughly speaking, using your math, taking the lump sum is equivalent to about a $260,000 (future dollars) loss under current conditions. That’s a big penalty.

Get a comprehensive health checkup at age 62, and decide whether to take lumpsum or not.

Exactly. This decision is ~20 years into the future anyway.

I would also look at the terms of the offer and determine whether age 62 is a required starting age or can be deferred. If you can defer the starting age, then you’ll have that much more health and wealth information available to make that decision when the time comes.

However, if you’re in average or better health, the monthly is the clear financial winner under current conditions. About 20 years from now, we’ll see. Now stop bothering us about a decision you’ll decide two decades from now.

 

[dork32]

I think I might have given the wrong impression, the pension clause did state that if I were to die in the 1st year while on monthly payment, there is certain value for bequest. but it is as good as none since anytime after that, it will be 0. and below you probably mean at 2.5% interest rate, my lumpsum should be able to last for 18.4 years instead of month as compared to me drawing monthly payout right?

2.5% is very achievable. i am not talking about investing.

i am tokking about cpf. even on pension scheme, you would have cpf. most sg people would have used their oa for housing. you can pay back the amount withdrawn + interest.

not only that, you can vc. because you are on pension, you do not need to trap any of your money in the stupid ra or cpflife. it is all oa, sa. which can be withdrawn anytime.

the sequence should be vc first, followed by pay back property.