CPF after 55

[zoneguard]

So does it mean we should keep more money in the SA which still earn us interest after 65?

RA will only be funded up to FRS by drawing from first SA then OA at 55. If you aim to hit ERS in RA, you need to make a request to move more funds from SA/OA to RA.
This is at the expense of losing liquidity as monies from SA/OA can be withdrawn once you hit FRS in RA.

There is discussion of the withdrawal of just SA/OA interest annually from 55 to complement LIFE payout in other threads.

 

[a4973]

RA will only be funded up to FRS by drawing from first SA then OA at 55. If you aim to hit ERS in RA, you need to make a request to move more funds from SA/OA to RA.
This is at the expense of losing liquidity as monies from SA/OA can be withdrawn once you hit FRS in RA.

There is discussion of the withdrawal of just SA/OA interest annually from 55 to complement LIFE payout in other threads.

On subject of withdrawing OA & SA interest from 55. Are there any material differences between monthly vs annual withdrawal? Thanks for your insights.

 

[celtosaxon]

CPF Life premium do earn interest, but the interest will be makan by CPF and not pass to your beneficiaries if one passed away early.

https://www.cpf.gov.sg/members/abou... Monthly Payouts&folderid=19774&faqid=6791249

TBH, I had the exact same reaction when I first learned about CPF LIFE. I’m not a big fan of insurance in the first place, and being forced into this really didn’t sit well.

However, after pouring over the numbers many, many times, I slowly started to understand and even appreciate it. I’m not saying that you will ever be convinced, I am just suggesting that it is possible to become convinced if you take the time to do a full and complete assessment, compare the value of what you are getting against alternatives and understand how to best leverage it as part of your overall retirement portfolio, so that your beneficiaries end up with even more than without CPF LIFE.

The good news, even if you are never convinced, you can always cut it to the bone and minimize it — opt for BRS with property pledge. I like to say, BRS stands for better rely on savings… because it’s not going to be sufficient for most.

 

[homedriver]

The 4% interest earned in your RA prior to CPF LIFE gets credited to your RA. Therefore, in the example given, if you have $200k at 55, the balance should be around $296k at age 65 at a 4% CAGR. You can postpone CPF LIFE all the way to age 70, in which case you would continue to earn 4% in your RA for 5 more years.

Once CPF LIFE is activated, and assuming you choose the Standard or Escalating plan, all of the interest earned from that point onwards is used to pay for a longevity insurance premium — this ensures you don’t outlive the payments.

The monthly payments are deducted from the principle, which becomes completely depleted after around 15 years. Once you run out of money, there won’t be any more bequest… but your payments will still continue (because the longevity insurance you paid for earlier, now kicks in).

So interest is always earned, but with CPF LIFE it goes to pay for your longevity insurance premiums. That gives you the security of guaranteed payments over your entire lifetime, even if you become a centenarian.

Yes, this is my understanding. In summary interest gain in the CPF Life only benefit the insured person if he/she live long enough.

 

[homedriver]

CPF Life premium do earn interest, but the interest will be makan by CPF and not pass to your beneficiaries if one passed away early.

https://www.cpf.gov.sg/members/abou... Monthly Payouts&folderid=19774&faqid=6791249

Yes, exactly correct. So should be wiser to keep more money in the SA which still earn interest and benefit the insured person for people that not live long enough to enjoy the CPF Life common pool amount.

 

[homedriver]

You cannot say makan away. CPF will say you are fake news lol.

The correct term is interest goes to the pool and paid out as monthly. Your dependents beneficiary's does not get it haha.

Technically it is wrong, as you can receive the interest and more IF you live much longer like 100 years old. Else you still get the premiums without interest.

Same same wording, but the meaning is different (though my thoughts is the same as you)

Elite that propose the plan is really smart.

 

[zoneguard]

On subject of withdrawing OA & SA interest from 55. Are there any material differences between monthly vs annual withdrawal?

Based on this
https://www.cpf.gov.sg/member/faq/r...for-the-balances-in-my-cpf-accounts-up-to-the

You will earn interest for the withdrawable amount up to the month before your withdrawal.

https://www.cpf.gov.sg/members/FAQ/...s&group=Others&folderid=13726&ajfaqid=2192131

CPF interest is computed monthly. It is then credited to your respective accounts and compounded annually. CPF interest earned in the year will be credited to your CPF accounts by 1 January of the following year.

CPF balances used for interest computation are affected by the transactions in your account. For instance, contributions (including refunds) received this month start earning interest next month. Withdrawals/deductions in this month will not earn interest from this month onwards.

So for annual withdrawals, do it in beginning of December.
For monthly withdrawals, do it at the beginning of the month since no earned interest in that month.

I'm not sure for the monthly withdrawal in January 2022 as this crosses the annual boundary of 2021: does this draw from the accrued interest of December 2021 or principal as of January 2022?

 

[culture_counter]

RA will only be funded up to FRS by drawing from first SA then OA at 55. If you aim to hit ERS in RA, you need to make a request to move more funds from SA/OA to RA.
This is at the expense of losing liquidity as monies from SA/OA can be withdrawn once you hit FRS in RA.

There is discussion of the withdrawal of just SA/OA interest annually from 55 to complement LIFE payout in other threads.

Yup, so that means for ordinary average income folks, no need to struggle to topup to ERS unless you really have spare amount of cash to do so. Just auto default FRS at 55, the rest can earn interests from SA & OA , to supplement CPFLIFE at 65 monthly payout, drawing from the total interests of OA & SA which can match the FRS monthly payout, if you wish to.

 

[celtosaxon]

You cannot say makan away. CPF will say you are fake news lol.

The correct term is interest goes to the pool and paid out as monthly. Your dependents beneficiary's does not get it haha.

Technically it is wrong, as you can receive the interest and more IF you live much longer like 100 years old. Else you still get the premiums without interest.

Same same wording, but the meaning is different (though my thoughts is the same as you)

If you collect payments from age 65 until 100, that is equivalent to the principle plus > 5.5% CAGR over the entire period!

 

[a4973]

Based on this
https://www.cpf.gov.sg/member/faq/r...for-the-balances-in-my-cpf-accounts-up-to-the


So for annual withdrawals, do it in beginning of December.
For monthly withdrawals, do it at the beginning of the month since no earned interest in that month.

I'm not sure for the monthly withdrawal in January 2022 as this crosses the annual boundary of 2021: does this draw from the accrued interest of December 2021 or principal as of January 2022?

Thanks for the guidance.
Since the interest is credited annually therefore there's no monthly compounding of interest and taking into consideration time value of money does it make sense then to withdraw monthly on the beginning of each month instead of annually?

 

[homedriver]

TBH, I had the exact same reaction when I first learned about CPF LIFE. I’m not a big fan of insurance in the first place, and being forced into this really didn’t sit well.

However, after pouring over the numbers many, many times, I slowly started to understand and even appreciate it. I’m not saying that you will ever be convinced, I am just suggesting that it is possible to become convinced if you take the time to do a full and complete assessment, compare the value of what you are getting against alternatives and understand how to best leverage it as part of your overall retirement portfolio, so that your beneficiaries end up with even more than without CPF LIFE.

The good news, even if you are never convinced, you can always cut it to the bone and minimize it — opt for BRS with property pledge. I like to say, BRS stands for better rely on savings… because it’s not going to be sufficient for most.

For 100k in the SA & RA will earn the same interest from 55 to 65. And after 65, the amount in the SA still earn at least 4% interest and can withdraw anytime. While the amount in the CPF Life can only receive the payout monthly and no longer enjoy the interest personally unless live long enough.

 

[zoneguard]

Since the interest is credited annually therefore there's no monthly compounding of interest and taking into consideration time value of money does it make sense then to withdraw monthly on the 1st of each month?

Yes, agree. Except for the special case of December's interest/ January next year's withdrawal - I don't know how they handle this scenario.

 

[a4973]

Yes, agree. Except for the special case of December's interest/ January next year's withdrawal - I don't know how they handle this scenario.

Thanks for your affirmation. Small issue about the Dec / Jan uncertainty. If want to be really cautious then just skip January withdrawal. Thanks again!

 

[Nofear40]

Lol.. this is like predicting when you will be called to heaven

 

[celtosaxon]

Lol.. this is like predicting when you will be called to heaven

It is the same (or worse) in other countries.

In the US you are forced to contribute to social security, and all of your contributions go straight to the pool from the very start. There is never any account balance. All that you get is some assurance of future payments, and for retirement that starts no earlier than 62. If you die before age 62, all of your contributions over your entire working career can be completely forfeited!

If you choose to start retirement benefits at age 62, your payments will be reduced by 1/3 for the rest of your life. So, at that point you have to predict how long you might live, and decide if it’s worth postponing and getting higher payments. But, the stakes are higher because it is possible that you will never see a single cent.

This same thing can never happen under CPF, either you get payments or your beneficiaries get a bequest. The absolute worst case is that every cent of your RA balance prior to CPF LIFE is distributed to either you and/or your beneficiaries.

There are only 3 factors to consider when trying to determine how long you will live:

1. Genes - how long did your parents and grandparents live? Any family history of health issues?

2. Lifestyle - active or sedentary, BMI, diet and exercise, smoking, drinking, etc.

3. Luck - impossible to predict

So really just 2 favors to consider.

 

[BBCWatcher]

It is the same (or worse) in other countries.

In the US you are forced to contribute to social security, and all of your contributions go straight to the pool from the very start. There is never any account balance. All that you get is some assurance of future payments, and for retirement that starts no earlier than 62. If you die before age 62, all of your contributions over your entire working career can be completely forfeited!

We should be a little careful here to point out that the contribution percentage is much lower (which means you get to enjoy a better lifestyle and/or higher personal savings rate), there's a modest death benefit (US$255 in 2021 dollars), surviving spouses (same and opposite sex) still qualify for spousal retirement payouts (if your retirement benefit would exceed his/her benefit based on his/her own contributions), there are pre-death disability benefits (if you become disabled), surviving minor children can also receive payouts, and monthly retirement payouts are generally substantially higher than CPF LIFE payouts. Yes, it's a pure insurance program, but it tends to be lower cost and more comprehensive. (The cost will have to increase in the coming years, but the contribution percentage is still going to be MUCH lower than 37%.)

Oh, and U.S. Social Security is extremely popular. I shake my head amazed at how unpopular CPF seems to be. (Although maybe this forum is "special.")

 

[celtosaxon]

We should be a little careful here to point out that the contribution percentage is much lower (which means you get to enjoy a better lifestyle and/or higher personal savings rate), there's a modest death benefit (US$255 in 2021 dollars), surviving spouses (same and opposite sex) still qualify for spousal retirement payouts (if your retirement benefit would exceed his/her benefit based on his/her own contributions), there are pre-death disability benefits (if you become disabled), surviving minor children can also receive payouts, and monthly retirement payouts are generally substantially higher than CPF LIFE payouts. Yes, it's a pure insurance program, but it tends to be lower cost and more comprehensive. (The cost will have to increase in the coming years, but the contribution percentage is still going to be MUCH lower than 37%.)

Oh, and U.S. Social Security is extremely popular. I shake my head amazed at how unpopular CPF seems to be. (Although maybe this forum is "special.")

I would also say it is difficult to compare the two in an apples to apples way once you dive into the details, but broadly speaking, I would not compare the entire 37% CPF contribution, because that covers so much more (housing being chief among them).

It might be a bit more fair to compare the 12.2% social security contribution to the SA allocation rates which range from 6% all the way up to 11.5% at age 55.

Yes, social security covers more than SA (and eventually RA) and generally has higher payments than CPF LIFE, but it’s also a larger (constant) percentage of contribution with a significantly higher income ceiling… plus like you said, it is pure insurance, no bequests to pay out.

 

[henrylbh]

Oh, and U.S. Social Security is extremely popular.

Extremely popular or normal workers have a choice?

 

[celtosaxon]

I was also surprised by the remark about social security being popular in the US. Of course, I would expect it to be popular with those collecting payments in retirement. However, this article seems to indicate that the popularity cuts across all ages and all segments of society.

https://www.nasi.org/education/public-opinions-on-social-security/

 

[culture_counter]

Easy way and for simplicity, just dump cash from savings account into OA, 2.5% interest better than any bank savings account interests.