Here’s another way to understand what’s going on.
CPF Retirement Accounts earn 4.X% interest. (The exact X depends on the relative contribution of bonus interest.) That’s juicy. The basic rules with attractive interest are to grab as much of it as allowed, as soon as allowed, and to hold onto it as long as allowed.
Under the most pessimistic Basic Plan assumptions there’s 20% of the total RA that’s principal return only, i.e. 0% interest. So with 80% earning 4.X% and 20% earning 0% you end up with 3.X% on the total, to you and your nominees. Is that comparatively attractive? You betcha.
Why defer to age 70? Well, one reason is that if you die anytime before age 70, or even somewhat after, your nominees are wealthier than had you started payouts earlier. The net effective yield is never worse, but there’s a decent chance it’ll be better, for your nominees, with an age 70 start.
Why not AMP? You still can from age 70 if you wish, with annual January top ups to the new ERS. At that point it doesn’t matter too much whether it’s AMP or more Basic Plan, and the default is AMP, so fine.
To reiterate for the umpteenth time, I don’t recommend that most people do this (try to maximize yield certain for these particular dollars). You’re required to get some longevity insurance, and in my view you should maximize the total extended family “lifestyle certain” across all your assets, using these particular dollars (RA) as an important tool to assure that overarching goal. Longevity insurance is terrific stuff, in some measure (more than most people think) and if you leverage it. Oversimplifying only slightly, it means you can give away all or at least more of your assets sooner, to loved ones with longer time horizons and better investments to make than you have, and that’s...well, now we’re talking true dynastic wealth here. Powerful stuff.
