CPF Easy Info Thread. :)

[maple96]

people that feel that amp is a better deal than basic will not wait till 70. they will definitely start their withdrawal at 65 so that they can start their amp as soon as possible. they is no denying that amp will draw a higher interest than basic. this is a very unfair comparison.

you skewed the story to your side to suit the argument. it is still 65 and not 70.

this is wat kenny mentioned time and again. this is why he does not want ers or wait for 70

U are spot on (skewed)!

He actually changed his entire past recommendation, his past beliefs/values:

1. from Escalating Plan is the only route to rome to fight inflation to now the Basic Plan give you the best yield

2. from CPF Life should never be your bequest vehicle and MA should be your bequest vehicle, to now CPF Life Basic Plan is your best bequest vehicle.

3. Delay payout till 70 so u get bigger payout to cater to inflation, to in case u die before 70, Basic Plan gives u the best yield, not a single cent lost to the pool. And high chance u will die before 70 based on stats.

Skewed

Wonder what will be his arguments if everything is changed to Escalating Plan, which uncle henry have been poking the past few days (per my interpretation)

If his focus is all based on the assumption that u will die before 70, which plan u choose does not matter any more, so he is implying u can dump his escalating plan recommendation

What if u dun die at 70, how does his recommendation work with Escalating Plan?

 

[maple96]

To age 70, actually, because if you're trying to maximize yield certain -- which seems to be the popular idea in these sometimes silly threads, but OK, whatever -- you would start CPF LIFE payouts at age 70 (the maximum allowable age). That's 15 years (not 10) of annually compounded 4% interest on the age 55 ERS top up, plus the compounded interest on subsequent annual January ERS top ups (and 5 more of them) over that period.

Please note you can still make annual January AMP (or for CPF LIFE payout boosts, as you wish) top ups after age 70, as the ERS increases.

Also please note that an age 70 payout start means your CPF nominee(s) do better[/COLOR] if you should unfortunately die within the 5 year interval from age 65 to age 70, because they get the straight up principal plus compounded interest, pre-longevity risk pooling. That's another reason to defer if you're trying to maximize yield certain. According to Singstat's 2017 life tables there's a ~5% chance that somebody alive on his/her 65th birthday will be dead before his/her 70th birthday. So if you want a ~5% greater chance of beating the longevity risk pool (for your heirs' benefit), there you go, that's another advantage of deferring to age 70. (It's actually >5% chance of pure benefit to heirs due to the way compound interest works, but that calculation is a little more complicated. This is a free bonus, a pure contingent benefit to your heirs. If you love the classic Retirement Sum Scheme and pure, non-pooled Retirement Account funds, then you should also love hanging onto that scheme with the phattest possible balance for 5 more years -- i.e. deferring to age 70, stuffed full with ERS top ups.)


You haven't phrased that well, but sure, go ahead and make the most yield-pessimistic assumption you wish, if you wish, about date of death. First of all, it's not going to be 20% for a male at age 70, but let's outlandishly assume that it's 20%. And then add the most pessimistic personal mortality assumption, which still means (with the Basic Plan) your net effective yield certain on these ERS top ups is somewhere in the mid 3.X%/year range. (The exact X is a little complicated due to the way CPF calculates interest on lowest balance for the month.) That's much higher than all government bonds, and forecastably higher than even the corporate bond fund (MBH).

So to make this math work in favor of deferred AMP top ups over earliest ERS top ups, you have to reliably hit greater than mid-3.X% yields on your top up money. To which I'd say, "Good luck!" One reasonable, underlying assumption here is that both ERS and AMP top ups would be allocated to bond/bond-like investments in any alternative. Your stock/stock-like investments would remain more or less as they are, whatever they are. However, if you're the odd duck that's going to keep 95% (or something like that) of your total investment portfolio in stocks from ages 55 to 70...well, "Good luck!" again. (No, that's not realistic. Realistic is dealing within the bond/bond-like part of your total investment portfolio for these particular dollars.)

Bottom line: take the ERS deal, folks (for those reasonably well-to-do people who are in a position to do so). It's a great deal.

Let me try to summarise your basic/underlying assumptions in your recommendation to topup ERS at 55:

1. You want to maximise yield
2. High chance u will die before 70
3, Cannot achieve at least 3.x% yield in a bond like investment alternative. - the only acceptable alternative in his recommendation.
4. Reasonably well to do person

So BBC insist that if your answer to all the above is true, u should topup to ERS at 55.

For me, I just need item 3 to be not true to dump the recommendation. I have bond-like investment earning more than 4-5% pa compounded. I dun adopt assumptions #1 & #2, so also dump his recommendation.

So what is your circumstances/situation? To each his own!

 

[lifeafter41]

no. this statement is very wrong. you only get a 3.x% at the start. towards the end you receive almost 0% on basic. i have mentioned this many times.

you can take the following example:

you have 100k in you ra. at 65, 20k is taken out of the ra leaving 80k in it to earn 4%. You earn 3.2k or 3.2% interest.

you start to draw. you will draw from the 80k rather than from the 20k. eg at age 78, you have 40k in your ra and 20k in your dont know what. your 40k earns an interest of 4% or 1.6k. 1.6/60 = 2.67%. it is clear that the interest rate has dropped. tis 2.67 will continue to drop. it will hit 0 when your ra hits 0. it will continue to stay at 0 till your final 20k is wiped out. after that you start to win.

your additional top-up to ra earns the full 4% for the duration it stays in the ra.

Hi Dork, question here.
Assuming at age 55 in 2019, say 1 Dec.
Top at to ERS at age 55 or 264K
What would be the RA (say its amount X)at age 65.

Using X, what would be the numbers based on your calculations to compare with AMP.

Thanks!!

 

[SKenny]

Hi Dork, question here.
Assuming at age 55 in 2019, say 1 Dec.
Top at to ERS at age 55 or 264K
What would be the RA (say its amount X)at age 65.

Using X, what would be the numbers based on your calculations to compare with AMP.

Thanks!!

AMP will be zero.

Only top-up AFTER CPFLife payout has started, can be converted to AMP.

 

[henrylbh]

Hi Dork, question here.
Assuming at age 55 in 2019, say 1 Dec.
Top at to ERS at age 55 or 264K
What would be the RA (say its amount X)at age 65.

Using X, what would be the numbers based on your calculations to compare with AMP.

Thanks!!

Up to 20% of X or the whole of X will go to LIF according to the plan chosen.

Like what SKenny said, there is no AMP.

Only top ups or inflows to RA after CPFL payout starts will there be AMP. See post #873.

 

[BBCWatcher]

I don't think most people should try to maximize yield certain from their CPF Retirement Accounts. I think most people should be using their CPF Retirement Accounts as an instrument to maximize lifestyle certain.

However, if you are trying to maximize yield certain, the particular recipe I've outlined is the correct one.

 

[lifeafter41]

Up to 20% of X or the whole of X will go to LIF according to the plan chosen.

Like what SKenny said, there is no AMP.

Only top ups or inflows to RA after CPFL payout starts will there be AMP. See post #873.

Hi Henry, in this case 264k in ERS, after 10 years is estimated at 394k. Almost 80k will go to the pool.

Or 176k in FRS, after 10 years is estimated at 263k. Almost 53k will go to the pool.

Wouldn’t it be better to go for BRS with property pledge, to minimize the amount going to pool.

Meanwhile invest the 176k, assuming at 2.5%, simple compounding, will give 226k by going for VC and take it out again and place it into RA for AMP, after going selecting Basic CPF Life at age 65.

Won’t that minimize the monies going into the pool instead by going for BRS?

Just off the cuff, looking at the above, would make sense.

 

[BBCWatcher]

Wouldn’t it be better to go for BRS with property pledge, to minimize the amount going to pool.

No, if your goal is to minimize the amount going to the CPF Lifelong Income Fund ("the pool") then you would do the following:

1. Buy a private life annuity;
2. Opt out of CPF LIFE.

Then $0 goes into CPF's pool. Some dollars go into another pool, but that's not "the pool."(*)

....Oh, you say that's expensive and a poor net effective yield compared to CPF LIFE? Why yes, yes it would be!

You seem to be operating under a misconception that funds allocated to the pool are somehow lost into the ether forever. No, they're not. The worst that ever happens to those particular dollars is full principal return to you and/or your nominee(s). It's the interest that's funding the longevity insurance portion. At least 80% of the dollars in your CPF Retirement Account earn 4% interest plus bonus interest, and the rest comes back as principal, at a minimum. (Basic Plan mechanics here.)

But sure, if you want to minimize the number of dollars that are allocated to any longevity insurance pool regardless of any other considerations (including attractive net effective yields), then you would keep your CPF Retirement Account as low as possible as soon as possible. That'd accomplish that particular narrow goal.

(*) OK, there's one more potent way to keep all dollars out of all longevity insurance risk pools: terminate your right of abode in Singapore (citizenship or PR) and move to a foreign country (but not Malaysia). For the record.

 

[jeffrey745]

No, if your goal is to minimize the amount going to the CPF Lifelong Income Fund ("the pool") then you would do the following:

1. Buy a private life annuity;
2. Opt out of CPF LIFE.

Then $0 goes into CPF's pool. Some dollars go into another pool, but that's not "the pool."(*)

....Oh, you say that's expensive and a poor net effective yield compared to CPF LIFE? Why yes, yes it would be!

You seem to be operating under a misconception that funds allocated to the pool are somehow lost into the ether forever. No, they're not. The worst that ever happens to those particular dollars is full principal return to you and/or your nominee(s). It's the interest that's funding the longevity insurance portion. At least 80% of the dollars in your CPF Retirement Account earn 4% interest plus bonus interest, and the rest comes back as principal, at a minimum. (Basic Plan mechanics here.)

But sure, if you want to minimize the number of dollars that are allocated to any longevity insurance pool regardless of any other considerations (including attractive net effective yields), then you would keep your CPF Retirement Account as low as possible as soon as possible. That'd accomplish that particular narrow goal.

(*) OK, there's one more potent way to keep all dollars out of all longevity insurance risk pools: terminate your right of abode in Singapore (citizenship or PR) and move to a foreign country (but not Malaysia). For the record.

Actually risk pooling for Healthcare and retirement is a gd concept... But nt everyone likes it...

 

[henrylbh]

Hi Henry, in this case 264k in ERS, after 10 years is estimated at 394k. Almost 80k will go to the pool.

Or 176k in FRS, after 10 years is estimated at 263k. Almost 53k will go to the pool.

Wouldn’t it be better to go for BRS with property pledge, to minimize the amount going to pool.

Meanwhile invest the 176k, assuming at 2.5%, simple compounding, will give 226k by going for VC and take it out again and place it into RA for AMP, after going selecting Basic CPF Life at age 65.

Won’t that minimize the monies going into the pool instead by going for BRS?

Just off the cuff, looking at the above, would make sense.

Compounding at the rate of 1.04+$900 every year to age 65 -

BRS of 88k = 141,067
FRS of 176k = 271,328
ERS of 264 = 401,590

Any subsequent top-ups before PEA will go to CPFL.

From above, it's obvious how much or all would go into the pool

With property pledge, what to do with 88k withdrawn anytime before payout commences?

Would you be willing to forgo the interest by withdrawing 88k at 55 or near 65 before payout commences? If money or liquidity is needed, then nothing more to consider.

Recycle 88k as VC (restricted by annual limit)? Would you forgo liquidity subsequently by moving SA and OA to RA for AMP once payout starts?

Start payout early at 65, gives you the opportunity to dump a big sum of 251k or more into RA for AMP, assuming FRS grows at 5k (ERS by 7.5k) each subsequent year.

There are other sexy positions. This one cannot help. All depends on your outlook and calculations

 

[lifeafter41]

No, if your goal is to minimize the amount going to the CPF Lifelong Income Fund ("the pool") then you would do the following:

1. Buy a private life annuity;
2. Opt out of CPF LIFE.

Then $0 goes into CPF's pool. Some dollars go into another pool, but that's not "the pool."(*)

....Oh, you say that's expensive and a poor net effective yield compared to CPF LIFE? Why yes, yes it would be!

You seem to be operating under a misconception that funds allocated to the pool are somehow lost into the ether forever. No, they're not. The worst that ever happens to those particular dollars is full principal return to you and/or your nominee(s). It's the interest that's funding the longevity insurance portion. At least 80% of the dollars in your CPF Retirement Account earn 4% interest plus bonus interest, and the rest comes back as principal, at a minimum. (Basic Plan mechanics here.)

But sure, if you want to minimize the number of dollars that are allocated to any longevity insurance pool regardless of any other considerations (including attractive net effective yields), then you would keep your CPF Retirement Account as low as possible as soon as possible. That'd accomplish that particular narrow goal.

(*) OK, there's one more potent way to keep all dollars out of all longevity insurance risk pools: terminate your right of abode in Singapore (citizenship or PR) and move to a foreign country (but not Malaysia). For the record.

Hi bbc, thanks for the reply.
Since you mentioned it, is the any annuity in Singapore or CPF approved that can enable one to opt out of CPF life?

 

[maple96]

Hi bbc, thanks for the reply.
Since you mentioned it, is the any annuity in Singapore or CPF approved that can enable one to opt out of CPF life?

That is his standard -ve reply whenever your type of question is raised, those had been discussed to death long ago, u can google hwz to read the long drawn discussions.

Simple answer:NO, dun make sense!

 

[dork32]

Hi Henry, in this case 264k in ERS, after 10 years is estimated at 394k. Almost 80k will go to the pool.

Or 176k in FRS, after 10 years is estimated at 263k. Almost 53k will go to the pool.

Wouldn’t it be better to go for BRS with property pledge, to minimize the amount going to pool.

Meanwhile invest the 176k, assuming at 2.5%, simple compounding, will give 226k by going for VC and take it out again and place it into RA for AMP, after going selecting Basic CPF Life at age 65.

Won’t that minimize the monies going into the pool instead by going for BRS?

Just off the cuff, looking at the above, would make sense.

actually you raised a very valid point.

bbc says we should not seek to maximize yield. i beg to differ.

first is this, the 20% is not lost. it is just not earning interest.

i assume that your calculations are correct.
176k in ra at 55 will result in 215k in basic and 53k in pool. 215k earns 4% interest. 53k earns nothing

176k in investment will result in 226k in amp ra. 226k earns 4%

diff in principal is 37k. diff in interest earning amount is 11k

it will take your 11k, 30years to hit 37k at 4%

if you start doing this at 65, you will need till 95 then you can catch up. you may want to forget the idea. however your investment can get a higher return eg 3%, then it may turn the tables over.

for your case bbc is right. it is just that he did not back up is suggestion by numbers

 

[maple96]

I don't think most people should try to maximize yield certain from their CPF Retirement Accounts. I think most people should be using their CPF Retirement Accounts as an instrument to maximize lifestyle certain.

However, if you are trying to maximize yield certain, the particular recipe I've outlined is the correct one.

Now u change your mind?

I just want to register my disagreement with your claim that your recipe is correct, but reserve further comments. Just agree to disagree!

 

[maple96]

Extracts from her "speech" Nov 15 2019 (mothership)

Josephine Teo: CPF Basic Retirement Sum should be adjusted regularly to remain relevant

In order to combat inflation, the Basic Retirement Sum (BRS) for Central Provident Fund members should be regularly adjusted.

This is to ensure that the people will receive adequate payouts throughout their retirement, according to Minister for Manpower and Second Minister for Home Affairs Josephine Teo.

Teo emphasised that the BRS is fixed for members in the year they turn 55, and does not change for the cohort as they get older.

Payouts will not start until at least 10 years later, when members turn 65.

The BRS up to 2020 had been decided, and was announced in 2015, according to the recommendations given by the CPF Advisory Panel.

What about the CPF LIFE Escalating Plan?

She also brought up the CPF LIFE Escalating Plan, which is an option that was introduced in 2018 for members who are concerned about inflation risk.

Under this plan, instead of fixed payouts for life, the payouts grow at 2 per cent every year, for as long as the member lives.

However, this means that the starting payout is lower than that of the default Standard Plan, by about 20 per cent.

Teo revealed that CPF members were not enthusiastic about the plan, despite the fact that it was a good hedge against inflation.



My further comments:

Looks like low take up of Escalating Plan, most people are aware?

BRS annual adjustment is to cater to inflation, do we need another level of inflation adjustment via Escalating Plan? I dun as I have my own strategy

(note: so far there is only one in hwz who declared his mum took up escalating plan)

 

[lifeafter41]

Extracts from her "speech" Nov 15 2019 (mothership)

Josephine Teo: CPF Basic Retirement Sum should be adjusted regularly to remain relevant

In order to combat inflation, the Basic Retirement Sum (BRS) for Central Provident Fund members should be regularly adjusted.

This is to ensure that the people will receive adequate payouts throughout their retirement, according to Minister for Manpower and Second Minister for Home Affairs Josephine Teo.


What about the CPF LIFE Escalating Plan?

She also brought up the CPF LIFE Escalating Plan, which is an option that was introduced in 2018 for members who are concerned about inflation risk.

Under this plan, instead of fixed payouts for life, the payouts grow at 2 per cent every year, for as long as the member lives.

However, this means that the starting payout is lower than that of the default Standard Plan, by about 20 per cent.

Teo revealed that CPF members were not enthusiastic about the plan, despite the fact that it was a good hedge against inflation.



My further comments:

Looks like low take up of Escalating Plan, most people are aware?

BRS annual adjustment is to cater to inflation, do we need another level of inflation adjustment via Escalating Plan? I dun as I have my own strategy

(note: so far there is only one in hwz who declared his mum took up escalating plan)

BRS/FRS for 2020 is already set.......90.5k/181k respectively.
Now it is for 2021 onwards.....lol

 

[BBCWatcher]

bbc says we should not seek to maximize yield. i beg to differ.

I don’t think most people should try to maximize yield certain on CPF Retirement Accounts, the single best value by far in Singapore dollar longevity insurance. Just as I don’t think most people should use hammers to drive screws into walls. (Use a screwdriver.) It’s the wrong tool for the job. Longevity insurance gives you more ability to maximize yield with other assets, and that’s a better deal.

By the way, if you’re attempting to maximize yield certain on CPF Retirement Account funds you wouldn’t ever start payouts at age 65. You’d start them as late as possible, which is age 70. I would certainly appreciate if those arguing for this approach at least respected the internal logic of their arguments, such as it is.

for your case bbc is right. it is just that he did not back up is suggestion by numbers

Thank you, but you’ve got some problems in your calculations.

Since you mentioned it, is the any annuity in Singapore or CPF approved that can enable one to opt out of CPF life?

Yes, practically all life annuities (must be life) sold in Singapore that are of sufficient guaranteed payout size. Please note that opting out requires a full withdrawal of CPF Retirement Account dollars, which in this case would occur just before age 70 since that’s the latest payout start and full opt out date.

Financially that’s a big loser, but you’re allowed to harm yourself and your nominees if that’s what you wish to do.

 

[henrylbh]

That is his standard -ve reply whenever your type of question is raised, those had been discussed to death long ago, u can google hwz to read the long drawn discussions.

Simple answer:NO, dun make sense!

His is a not happy reply. Not only that, he said abnormal things

 

[maple96]

His is a not happy reply. Not only that, he said abnormal things

100% agree, not happy reply with not sensible answers = no answer

Give up Singaporean status is no answer, pte annuity is no answer, find your own answers

 

[henrylbh]

first is this, the 20% is not lost. it is just not earning interest.

For the 20% that goes into the pool -

You sure it's not lost at any time?

You sure it's just not earning interest?