CPF Easy Info Thread. :)

[Okenba]

Sorry, I don't follow your reasoning, you are talking about mitigating longevity risk of the younger spouse(usually the ladies):

1. Does CPF LIFE Basic stop payout at 95? Doesn't it continue past 95 because of the premium paid to the pool?
2. AMP payouts as long as there's money in RA, correct? And since ERS is raised every year, you can top up RA every year to ensure AMP payout doesn't stop past 95.
3. Between the couple, there are 2 sets of OA/SA/MA/RA accounts to manoeuvre. You can do top-ups between them so long all the conditions for top-ups are met.
4. Non-CPF wealth to cover longevity risk.

AMP if i'm not wrong does stop at 93 or something like that. Follows RSS.
Basically, the payouts are calculated to stop at that age.
Basic scheme is similar. It doesn't stop entirely, but we should expect lower payouts at about that age.

That's what I'm thinking about basically. They both either end or get reduced at a particular age, and that is probably the age when stable income becomes ever more important.

I guess I'm wondering if there are tools to manage this.
Could I buy a annuity at age 90 to kick in when I'm 95 for eg.

Perhaps its not even worth spending too much time thinking about.
ERS, Standard, Top-Ups for AMP might be a simple way to ensure some for of mitigation for longevity, and then I can always get an annuity later in life if I think the sum is insufficient...

 

[BBCWatcher]

I believe Okenba is basically highlighting the point that CPF LIFE, particularly the Escalating Plan, is a “fire and forget” retirement income solution. Yes, I agree with the logic. In my view protecting at least a basic, dignified lifestyle for the rest of one’s life (and a loved one’s life) is the whole ballgame. Squeezing relatively few dollars out of CPF LIFE, speculatively and usually mistimed, is just not worth it — it’s the wrong objective for this particular vehicle. And one has to assume diminished faculties at some point, which is also why the Escalating Plan (with age 70 payout start) has a lot of appeal.

I seem to be in the minority in this forum, but I am correct. I don’t think you should fool around and play games with this particular small (hopefully) part of your financial life. Let it do what it does best.

 

[BBCWatcher]

I guess I'm wondering if there are tools to manage this.
Could I buy a annuity at age 90 to kick in when I'm 95 for eg.

Hypothetically you could, but that’ll be expensive (higher premium cost relative to payouts) and not well protected/defended against your future incompetence. Your crazy future self could surrender the policy and hand the proceeds to a con artist, for example.

“Don’t play games with this particular element,” I advise.

The basic deal with the Escalating Plan is that NO MATTER WHAT it’ll be at least a good outcome. Or better than good, but at least good. That assurance is valuable.

 

[zoneguard]

AMP if i'm not wrong does stop at 93 or something like that. Follows RSS.
Basically, the payouts are calculated to stop at that age.
Basic scheme is similar. It doesn't stop entirely, but we should expect lower payouts at about that age.

RSS stops at 90 and this change kicked in this year.
AMP doesn't stop at 90. CPF FAQ states the following:

However, if you choose to leave the inflows in your RA, we will take them into account during the yearly review and stream them out as Additional Monthly Payout (AMP) until your savings are depleted. We will inform you of the exact revised monthly payout about two months before it takes effect.

 

[celtosaxon]

Was just thinking about this. I understand that the plan for some is ERS, Basic, and then top-up RA for AMP.

While more troublesome, this allows for a higher payout then just everything into CPFlife.

My question is: What happens if you live past 95?
Maybe the chances not high, but wouldn't this be something to think about?
And when one is older and less mentally agile, that is when the solid income of CPFlife would be the most useful I would think.

What happens if your wife lives past 95? (Female life expectancy is higher.)
And if you have been the one managing the money, and now at 95, she is even less able to manage the money by herself.

I buy into kenny's idea, but this is the one question that I personally am still thinking about. I may not go so far as Escalating, but Basic + AMP really seems to be putting everything into 1 basket. The basket works so long as you (and/or wife) don't live past 95.

If CPF is the majority of your retirement assets when you approach age 65 and you have little or no equity exposure to fight inflation, that would seem to be a much stronger case for Escalating.

 

[zoneguard]

I seem to be in the minority in this forum, but I am correct. I don’t think you should fool around and play games with this particular small (hopefully) part of your financial life. Let it do what it does best.

I think you are wrong about CPF LIFE escalating and dork32 and others have used math to prove the point.

My personal choice for LIFE will definitely not be escalating in its present form.

 

[Okenba]

RSS stops at 90 and this change kicked in this year.
AMP doesn't stop at 90. CPF FAQ states the following:

Thanks. I think the "until your savings are depleted" part is the thing that concerns me I guess.

 

[BBCWatcher]

Another possible solution to this class of problems (real lifestyle preservation for whole life/future crazy or incompetent self) is to have a reputable trustee managing wealth prudently to provide a steady real income stream, with an irrevocable trust. But this solution is also quite expensive, and you certainly wouldn’t do it in lieu of CPF LIFE. The CPF LIFE Escalating Plan is, effectively, the #1 low cost trust fund available to Singaporeans and PRs. It still amazes me how many people evidently don’t understand that that’s the offer on offer, but OK, whatever.

 

[Okenba]

If CPF is the majority of your retirement assets when you approach age 65 and you have little or no equity exposure to fight inflation, that would seem to be a much stronger case for Escalating.

I guess my concerns are less about this and more about things like mental capacity when you reach an advanced age.

Of course there are other considerations such as how much SG people spend in retirement and why.

While I do anticipate that stable income at an advanced age would be very useful, I am not sure if expenditure would rise as much. Or perhaps it would due to medical costs.

Perhaps the easiest way to do this is to think of someone who I can trust to manage my estate once I reach an advanced age.

I don't really think escalating is very worth it at this point. I also don't think waiting to 70 is a good idea for me.
I do think that it is likely that we would want to enjoy retirement more while we are relatively younger. So, deferring gratification at that age doesn't speak to me as much.

 

[BBCWatcher]

I think you are wrong about CPF LIFE escalating and dork32 and others have used math to prove the point.

There’s no major argument about “the math.” I just don’t think you should optimize 100% of your wealth/income for IRRs (for example), and of course I’m correct about that. Let’s just start with the basic fact that you cannot assume lifetime rationality, competence, and absence of financial errors. (Why do you think wealthy scions set up irrevocable trusts? It’s not for IRR game playing, no way.)

 

[BBCWatcher]

I guess my concerns are less about this and more about things like mental capacity when you reach an advanced age.

And you are correct! You cannot assume lifetime rationality, competency, and lack of grave financial errors.

So, what do you want NO MATTER WHAT? The answer is pretty simple: at least a stable, basic, dignified real lifestyle for the rest of your life (and the rest of your loved one’s life). What’s the cheapest, easiest, highest assurance way to achieve that reasonable goal, NO MATTER WHAT?

 

[Okenba]

And you are correct! You cannot assume lifetime rationality, competency, and lack of grave financial errors.

So, what do you want NO MATTER WHAT? The answer is pretty simple: at least a stable, basic, dignified real lifestyle for the rest of your life (and the rest of your loved one’s life). What’s the cheapest, easiest, highest assurance way to achieve that reasonable goal, NO MATTER WHAT?

Teaching my kids financial management and filial piety.

 

[zoneguard]

Thanks. I think the "until your savings are depleted" part is the thing that concerns me I guess.

That's exactly how AMP or RSS is supposed to work and Excel's PMT formula calculates the payout when fv is zero.

=PMT (rate, nper, pv, [fv], [type])

I guess my concerns are less about this and more about things like mental capacity when you reach an advanced age.

There's the Mental Capacity Act and LPA.

 

[dork32]

I think you are wrong about CPF LIFE escalating and dork32 and others have used math to prove the point.

My personal choice for LIFE will definitely not be escalating in its present form.

actually my maths shows that both basic and escalating have their plus points.

it is that escalating is worth it if you can live to ripe old age of 90+++. if you pass on when you are 80, you will lose big.


i do not like the large fluctuations in returns. it is like playing a high beta stock.
so i choose basic.

 

[dork32]

i go stupid when i am at 85. does it really matter what plan i am on?

 

[BBCWatcher]

Teaching my kids financial management and filial piety.

OK, and tomorrow they're run over by a bus, metaphorically or actually. (Sorry.) NO MATTER WHAT means no matter what, more specifically that a high quality sovereign (AAA rated in this case) with a high quality currency is assuring the outcome.

Is no-matter-what lifetime real lifestyle defense worth something? Yes, yes it is. And in this case it's cheap, and so I'll take it, thanks very much. If something like this offer didn't exist I'd be looking at some sort of more expensive irrevocable life trust as an alternative to solve this class of problems, but thank goodness there's a better and more affordable choice, to a particular level "X" of real lifestyle defense anyway.

i go stupid when i am at 85. does it really matter what plan i am on?

Yes, it could.

 

[celtosaxon]

And you are correct! You cannot assume lifetime rationality, competency, and lack of grave financial errors.

This is why everyone should try to reach ERS regardless of whether they choose Basic, Standard or Escalating.

Jack Bogle’s quote comes to mind: “Successful investing involves doing a few things right and avoiding serious mistakes."

 

[qhong61]

This is why everyone should try to reach ERS regardless of whether they choose Basic, Standard or Escalating.

Jack Bogle’s quote comes to mind: “Successful investing involves doing a few things right and avoiding serious mistakes."

Provided u have extra cash...

 

[BBCWatcher]

This is why everyone should try to reach ERS regardless of whether they choose Basic, Standard or Escalating.

Jack Bogle’s quote comes to mind: “Successful investing involves doing a few things right and avoiding serious mistakes."

Exactly right. That Bogle guy was wise. We should all aspire to be at least wealthy enough that funding our CPF Retirement Accounts (self and spouse/partner, if you have one) to the Enhanced Retirement Sum at age 55 (and pegged thereafter if you're able) isn't even worth a second thought. ("Four percent interest on Singapore dollars feeding into a low priced, government managed life annuity? Sign me up!")

As for the payout plan decision, I don't plan to make that decision until age 69.9. Today I expect I'll choose the Escalating Plan, but the future is in the future. For example, if unfortunately I'm in poor health at age 69.9, I'm very unlikely to choose the Escalating Plan.

Provided u have extra cash...

Yes, absolutely.

 

[zoneguard]

actually my maths shows that both basic and escalating have their plus points.

it is that escalating is worth it if you can live to ripe old age of 90+++. if you pass on when you are 80, you will lose big.

Until the median life expectancy of Singaporeans increases to touch this break even age for Escalating plan, mathematically, it is a bad deal. And it is bad advice to dispense to anybody to take up this plan.