CPF Life Plan - Standard, Basic, Escalating --- which one better ?

[chiapabuay]

My father got CPF Life Basic plan --- now CPF say can convert to Escalating plan to take in inflation like 2% a year. I read CPF n forums n CPF Life Payout Estimator still undecided if Escalating is better or leave it at Basic. Must decide by 31 Dec 2018.

Escalating --- Bequest $0 at age 81

Basic --- Bequest still got $55,000 at age 81

Pluck figures from graph:

Monthly payout at 65 ----- $596 (Basic) -- $519 (Escalating)
Monthly payout at 81 ----- $596 (Basic) -- $713 (Escalating)
Monthly payout at 90 ----- $576 (Basic) -- $852 (Escalating)


Which one better Basic or Escalating ?

some infos:

RA $100k
Age 63
No mobility issue - Jog 3 times a week
No go check up

 

[maple96]

read this from another thread posted recently:

my view is worth nothing. i chose a plan that is suitable for myself. you choose one that suits you. i would rather list out the advantages and disadvantages and let you decide for yourself.

basic
advantage: the whole ra continues to earn interest for yourself. because of that, it takes a long time before your ra is depleted. your kid will get what is left in the ra should you die.
disadvantage: the payout $100 lower than the standard payout. you have to adjust your lifestyle down by 100 per month. if you die after the ra is exhausted, you will be getting much less in total than standard.
when to choose this: if you decide to die at 87 years old or younger. if you feel that money for your kids is just as good as money to yourself.

standard:
advantage: 100 per month more than standard. if you live long enuf, you will get more than basic
disadvantage: your ra is 0 when you are in standard. so you are not earning interest at all. FRS at 55 would mean 250k at 65. 250k at 4% is 10k per year. you are losing all this interest to the lifelong income fund. as a result your bequest will drop to 0 very quickly.
when to choose this: If you decide to die between 87 to 93. if you have no one to bequest your money to, or you do not want to pass your money onto hopeless unfillial kids.

escalating.
advantage: 2% increase in payout every year. when we just retire, it is common that we still have savings, our dependence on cpf payout is less. we can afford a lower payout. the payout increases over the years. it offsets the depletion of our savings. the 2% increase also helps to fight inflation.
disadvantage: like standard, your ra is 0 and you do not earn interest on your principal. also there is a reduction of initial payout. you have to wait for 12 years before the monthly payout can match that of standard. it is close to 30 years before the total amount can overtake that of standard at 4% rate of return.
when to choose this: if you decide to die after 93. if you feel that you need more money at an older age.

i will choose basic:
-it is a fairer scheme that i take care of myself and not others. i dont have to depend on others to take care of me
-the monthly payout is only 100 less standard. if you die at 80, you kids are going to get 140k less if you choose standard. i am willing to sacrifice this 100 a month for the potential loss of 140k. and 80 seems like a good age to die for me.
-i will not choose escalating because i feel that if i have money when i am a bit younger, i may still be able to enjoy it. i believe i could still be driving or going for holidays at 65. but at 95, i may not have the energy left to spend the money.
-I am quite ok financially. i do not foresee myself depending on the cpf to survive. I do not mind giving what i cannot finish spending to my kids. i believe my savings + srs can last me to close to 95 years old.

Another major difference between Basic vs Std/Escalating:

U earn extra 2% interest in RA with Basic, but with Std/Escalating the extra 2% goes to the CPF Life Pool. Extra 2% = $900 every year that u have combined CPF/CPF Life balances of at least 60k!

 

[Toni90]

My father got CPF Life Basic plan --- now CPF say can convert to Escalating plan to take in inflation like 2% a year. I read CPF n forums n CPF Life Payout Estimator still undecided if Escalating is better or leave it at Basic. Must decide by 31 Dec 2018.

Escalating --- Bequest $0 at age 81

Basic --- Bequest still got $55,000 at age 81

Pluck figures from graph:

Monthly payout at 65 ----- $596 (Basic) -- $519 (Escalating)
Monthly payout at 81 ----- $596 (Basic) -- $713 (Escalating)
Monthly payout at 90 ----- $576 (Basic) -- $852 (Escalating)


Which one better Basic or Escalating ?

some infos:

RA $100k
Age 63
No mobility issue - Jog 3 times a week
No go check up

Your and your father rich or poor? If poor, pls delay the CPF Life until 70 and choose the Escalating. Your father need a peace of mind when he is 80. If Rich then anything also can.

 

[chiapabuay]

Your and your father rich or poor? If poor, pls delay the CPF Life until 70 and choose the Escalating. Your father need a peace of mind when he is 80. If Rich then anything also can.

Thank you, poor lah if rich no need ask liow.

 

[BBCWatcher]

I have a very strong and simple point of view about this, so here it is.

CPF LIFE never guarantees a bequest. If you want to guarantee (or virtually guarantee) a bequest, the only part of CPF that does that reasonably well is MediSave. So, top up somebody's MediSave Account, and that'll pretty well assure a bequest, to the CPF member's nominee.

The only thing CPF LIFE can do is to provide a lifetime stream of income to the account holder. In other words, the only promise it can deliver to anyone is as longevity insurance, to provide some level of income to prevent destitution.

OK, given that -- that the only thing CPF LIFE can assure is to prevent someone from completely outliving his/her savings -- then why not make CPF LIFE the very best longevity insurance it is capable of being? If you're going to enjoy a symphony concert, enjoy the best, with the best violin players, the best clarinet players, the best conductor, with your favorite symphonic selections.... Best, best, best.

So, what's best? Well, simple: start your payouts at age 70 (if you can afford it), and make those payouts Escalating, which is the only CPF LIFE payout plan that does anything to combat inflation. Inflation is real, and you must have a plan to combat it. The Escalating Plan does that.

There are those who argue that you can get $5 more (or whatever) of interest if you do something else, and if you live precisely 92 years and 3 months (or whatever). That's frankly nonsense. Everything that isn't a life annuity can play those games, including parts of CPF such as Ordinary and Special Account funds if you're so inclined. But this is not a game. CPF LIFE can only be a life annuity and only assure that. It can never assure anything else. And with that assurance of real spending power for life (Escalating Plan), however long that life lasts, comes power. As a notable example, if your CPF LIFE Escalating Plan income is sufficient enough to support your modest lifestyle (it has to be modest since CPF LIFE is never lavish), then you can safely afford to give away every other bit of wealth you have -- to enjoy life with your kids, grandkids, etc. while you're all still alive. It gives you the power to give away your bequest today, now, and not wait until you're dead and hope that there's something left over.

Money has zero value to someone who's dead. The ideal outcome is that you enjoy every day of your life, with an adequate (or better) real income for the rest of your life, and give away all your surplus to your loved ones and/or to whatever causes you care about, and do that NOW, to enjoy that generosity while you're still alive, together. The CPF LIFE Escalating Plan starting from age 70 provides the maximum possible foundational assurance of being able to achieve that ideal, blissful outcome. And it's the most attractively priced longevity insurance available for Singapore dollars and one of the most attractively priced longevity insurance offers in any currency.

Anyway, I think it's very, very simple. Now, I do allow a few exceptions to this simplicity. Here are the big ones:

1. If you're already in line to collect lots of escalating annuity income from other governments, private pensions, etc. then maybe you minimize CPF LIFE in certain ways because you feel you have "too much" longevity insurance already.

2. If you're diagnosed with a terminal illness and have good or better visibility on precisely when you're going to die, maybe you make certain other CPF LIFE decisions.

3. If you hate the government and want to make a political statement (that nobody will hear) because that'll make you personally feel better for some odd reason, OK, have fun. Some people have weird sources of pleasure.

4. CPF LIFE is not designed as a joint/survivor annuity, and when you have a spouse/partner who is almost certainly going to outlive you, and if your household is of limited means, you might do some things a bit differently.

 

[maple96]

Your and your father rich or poor? If poor, pls delay the CPF Life until 70 and choose the Escalating. Your father need a peace of mind when he is 80. If Rich then anything also can.

Thank you, poor lah if rich no need ask liow.

dun buy his rich man/poor man logic

if poor, the more he should stay with basic to get higher payout to survive

If he can still save on his mthly payout (ie dun need the full mthly payout to survive), he can still put it back to RA to get higher payout in future. In addition, his RA earns 6% interest.

If he switch to escalating plan, all his RA monies get transferred into the CPF Life pool, he lose on 2% extra interest ($900 per year) gets less mthly payout in initial years.

Just some points to counter his rich man/poor man illogically method of choosing CPF Life plan

 

[JuniorLion]

I have a very strong and simple point of view about this, so here it is.

CPF LIFE never guarantees a bequest. If you want to guarantee (or virtually guarantee) a bequest, the only part of CPF that does that reasonably well is MediSave. So, top up somebody's MediSave Account, and that'll pretty well assure a bequest, to the CPF member's nominee.

The only thing CPF LIFE can do is to provide a lifetime stream of income to the account holder. In other words, the only promise it can deliver to anyone is as longevity insurance, to provide some level of income to prevent destitution.

OK, given that -- that the only thing CPF LIFE can assure is to prevent someone from completely outliving his/her savings -- then why not make CPF LIFE the very best longevity insurance it is capable of being? If you're going to enjoy a symphony concert, enjoy the best, with the best violin players, the best clarinet players, the best conductor, with your favorite symphonic selections.... Best, best, best.

So, what's best? Well, simple: start your payouts at age 70 (if you can afford it), and make those payouts Escalating, which is the only CPF LIFE payout plan that does anything to combat inflation. Inflation is real, and you must have a plan to combat it. The Escalating Plan does that.

There are those who argue that you can get $5 more (or whatever) of interest if you do something else, and if you live precisely 92 years and 3 months (or whatever). That's frankly nonsense. Everything that isn't a life annuity can play those games, including parts of CPF such as Ordinary and Special Account funds if you're so inclined. But this is not a game. CPF LIFE can only be a life annuity and only assure that. It can never assure anything else. And with that assurance of real spending power for life (Escalating Plan), however long that life lasts, comes power. As a notable example, if your CPF LIFE Escalating Plan income is sufficient enough to support your modest lifestyle (it has to be modest since CPF LIFE is never lavish), then you can safely afford to give away every other bit of wealth you have -- to enjoy life with your kids, grandkids, etc. while you're all still alive. It gives you the power to give away your bequest today, now, and not wait until you're dead and hope that there's something left over.

Money has zero value to someone who's dead. The ideal outcome is that you enjoy every day of your life, with an adequate (or better) real income for the rest of your life, and give away all your surplus to your loved ones and/or to whatever causes you care about, and do that NOW, to enjoy that generosity while you're still alive, together. The CPF LIFE Escalating Plan starting from age 70 provides the maximum possible foundational assurance of being able to achieve that ideal, blissful outcome. And it's the most attractively priced longevity insurance available for Singapore dollars and one of the most attractively priced longevity insurance offers in any currency.

Anyway, I think it's very, very simple. Now, I do allow a few exceptions to this simplicity. Here are the big ones:

1. If you're already in line to collect lots of escalating annuity income from other governments, private pensions, etc. then maybe you minimize CPF LIFE in certain ways because you feel you have "too much" longevity insurance already.

2. If you're diagnosed with a terminal illness and have good or better visibility on precisely when you're going to die, maybe you make certain other CPF LIFE decisions.

3. If you hate the government and want to make a political statement (that nobody will hear) because that'll make you personally feel better for some odd reason, OK, have fun. Some people have weird sources of pleasure.

4. CPF LIFE is not designed as a joint/survivor annuity, and when you have a spouse/partner who is almost certainly going to outlive you, and if your household is of limited means, you might do some things a bit differently.

This is your typical one-size-fits-all solution: Escalating plan, delay payout till 70.

Regardless of situation, this is your solution.

 

[maple96]

This is your typical one-size-fits-all solution: Escalating plan, delay payout till 70.

Regardless of situation, this is your solution.

he only knows this

 

[henrylbh]

he only knows this

 

[maple96]

My father got CPF Life Basic plan --- now CPF say can convert to Escalating plan to take in inflation like 2% a year. I read CPF n forums n CPF Life Payout Estimator still undecided if Escalating is better or leave it at Basic. Must decide by 31 Dec 2018.

Why did your father choose Basic instead of Standard last time? One way is to use those similar reasons to decide with " additional considerations"

Escalating plan is a variant of Standard Plan, gahmen trying to get those on Basic to convert to this Standard Plan variant.

If those currently under Basic converts to Escalating Plan, all their RA monies will be transferred to the CPF Life Pool, including their 2% extra interest, the rest me no need to explain. If u decide to pledge property to withdraw some monies in future, u no longer qualify.

 

[tangent314]

My father got CPF Life Basic plan --- now CPF say can convert to Escalating plan to take in inflation like 2% a year. I read CPF n forums n CPF Life Payout Estimator still undecided if Escalating is better or leave it at Basic. Must decide by 31 Dec 2018.

This question has actually been asked before in a couple of other threads, and you get the same debate with the same points raised by both sides. It's quite telling, however, when one side is obviously using a lot more ad hominem attacks to try to get their point across. Whether you agree with these ad hominem attacks, it's up to you.

I only have one thing to add - it is not true that you do not get the extra 2% interest (2% up to 30k and 1% up to 60k) with the Standard or Escalating plan. It's simply calculated into your monthly payout. This is obvious when you look at the non-proportionate payouts when going from BRS to FRS to ERS. The CPF FAQs even explained that as the cause of the non-proportionate payouts.

 

[maple96]

This question has actually been asked before in a couple of other threads, and you get the same debate with the same points raised by both sides. It's quite telling, however, when one side is obviously using a lot more ad hominem attacks to try to get their point across. Whether you agree with these ad hominem attacks, it's up to you.

I only have one thing to add - it is not true that you do not get the extra 2% interest (2% up to 30k and 1% up to 60k) with the Standard or Escalating plan. It's simply calculated into your monthly payout. This is obvious when you look at the non-proportionate payouts when going from BRS to FRS to ERS. The CPF FAQs even explained that as the cause of the non-proportionate payouts.

From CPF Website:

Q Where will the extra interest be paid to after I join CPF LIFE?

A If you have chosen the CPF LIFE Standard Plan or CPF LIFE Escalating Plan, the extra interest will be paid into the Lifelong Income Fund. By paying the extra interest into the Lifelong Income Fund, you will be able to enjoy a more stable payout for the rest of your life. The extra interest will be pooled and factored into your monthly CPF LIFE payouts.

If you have chosen the CPF LIFE Basic Plan, we will pay the extra interest earned into your Retirement Account and pay it to you in the year it is earned as part of your monthly CPF LIFE payout. When your combined balances fall below $60,000, the extra interest will reduce. This reduces your monthly CPF LIFE payouts gradually.

One of the reasons why bequest is higher for Basic compared to Escalating/Standard Plan is due to the 2% extra interest credited to RA for Basic, dun fail your maths!

 

[tangent314]

Yes, and you have just proved me correct. The additional interest goes into the LIF, which then goes back to you through the monthly payouts calculated. It's obvious you get the benefits of the additional interest when you see that the FRS monthly payout is less than 2x BRS monthly payout.

 

[maple96]

Yes, and you have just proved me correct. The additional interest goes into the LIF, which then goes back to you through the monthly payouts calculated. It's obvious you get the benefits of the additional interest when you see that the FRS monthly payout is less than 2x BRS monthly payout.

U are changing the topic of discussion, we are not discussing FRS vs BRS vs ERS!

Additional note:

We all know monies in CPF Life pool earns interest of 4% and extra interest of 2% for those on escalating/standard plan, and these will ultimately be paid out to u as part of the mthly payout if u survive long enough to receive it. Nobody here is disputing on this.

 

[Mecisteus]

dun buy his rich man/poor man logic

if poor, the more he should stay with basic to get higher payout to survive

If he can still save on his mthly payout (ie dun need the full mthly payout to survive), he can still put it back to RA to get higher payout in future. In addition, his RA earns 6% interest.

If he switch to escalating plan, all his RA monies get transferred into the CPF Life pool, he lose on 2% extra interest ($900 per year) gets less mthly payout in initial years.

Just some points to counter his rich man/poor man illogically method of choosing CPF Life plan

Let me refine the choice based on the poor man logic.

If you are poor, wish to retire early and have no other sources of income, then you should opt for the standard plan. You need the money NOW to sustain your life.

If you are poor, can continue working past 65 or have some other sources of income, then you should opt for the escalating plan. You don't need the payouts from CPF Life yet.

If you are rich, you can choose whatever you want.

 

[JuniorLion]

This question has actually been asked before in a couple of other threads, and you get the same debate with the same points raised by both sides. It's quite telling, however, when one side is obviously using a lot more ad hominem attacks to try to get their point across. Whether you agree with these ad hominem attacks, it's up to you.

I only have one thing to add - it is not true that you do not get the extra 2% interest (2% up to 30k and 1% up to 60k) with the Standard or Escalating plan. It's simply calculated into your monthly payout. This is obvious when you look at the non-proportionate payouts when going from BRS to FRS to ERS. The CPF FAQs even explained that as the cause of the non-proportionate payouts.

I respectfully disagree that this is an ad hominen attack. BBCW replied me in other threads that he did not/does not provide recommend a one-size-fits-all solution.

However, he has never recommended anything other than "Escalating Plan, Payout starts at 70". Evident that he does not consider the situation of all people who had asked.

 

[dork32]

both mike and maple have their point.

it poor to what extent. if poor till $80 extra also go difference, then standard may be the choice.

if poor but still can afford the $80 shortfall for the next few years, then escalating.

if poor but still want to leave something for the kids, basic

 

[maple96]

Let me refine the choice based on the poor man logic.

If you are poor, wish to retire early and have no other sources of income, then you should opt for the standard plan. You need the money NOW to sustain your life.

Oops, standard plan is no longer a choice for his father!

If you are poor, can continue working past 65 or have some other sources of income, then you should opt for the escalating plan. You don't need the payouts from CPF Life yet.

No, I will stll opt for basic with higher payout then "reinvest the money" at 4% guaranteed !

If you are rich, you can choose whatever you want.

No, I will stll opt for basic with higher payout then "reinvest the money" at 4% guaranteed !

I have a different view above

 

[maple96]

This question has actually been asked before in a couple of other threads, and you get the same debate with the same points raised by both sides. It's quite telling, however, when one side is obviously using a lot more ad hominem attacks to try to get their point across. Whether you agree with these ad hominem attacks, it's up to you.

If TS post his question in BBCW thread, he will not get to read my alternative views for consideration as I ban myself from that thread. U are writing to ??

 

[BBCWatcher]

This is your typical one-size-fits-all solution: Escalating plan, delay payout till 70.

Regardless of situation, this is your solution.

Your reading comprehension is seriously deficient, and that's just a fact, not an ad hominem attack. Here's one of the sentences I wrote, re-quoted:

Now, I do allow a few exceptions to this simplicity....

Followed by an explanation of some notable (not all) exceptions to general advice.

Let me refine the choice based on the poor man logic.

If you are poor, wish to retire early and have no other sources of income, then you should opt for the standard plan. You need the money NOW to sustain your life.

There only one problem: you will get progressively poorer as inflation eats away at the real purchasing power of your fixed nominal stream of CPF LIFE payouts. You won't be mathematically destitute, but inflation is real, and it will bite harder and harder over time. How hard? That'll depend on actual inflation and how long you live.

If you can make it to age 65 (minimum payout start date) and can live on the Escalating Plan, you have high assurance your lifestyle will be maintained for the entire rest of your life. If you're coming up short and cannot live on this combination (age 65/Escalating Plan payout level) then...you've come up short. You're in trouble, financially anyway. That happens, unfortunately.

Yes, the CPF LIFE Escalating Plan is an excellent "sanity check" on whether you've "made it," whether you've cleared the lowest hurdle to assure some measure of dignity at a modest real lifestyle for the rest of your life.

If you are poor, can continue working past 65 or have some other sources of income, then you should opt for the escalating plan. You don't need the payouts from CPF Life yet.

No, not really. You can be of modest means, living modestly, and preserve your non-lavish real lifestyle from age 65 on a CPF LIFE Escalating Plan income stream, for the rest of your life. Other sources of income past age 65 aren't strictly necessary, although they'd be nice.

The age 65 CPF LIFE Escalating Plan monthly payout in 2018, assuming Full Retirement Sum at age 55, is approximately S$1,050. If you're OK living on $1,050/month (2018 dollars) as your sole source of income from age 65 -- and you would be definitionally "poor" if that is your sole source of income(*) -- then that's OK, you can do that. And your real lifestyle should be very well preserved at that non-lavish level for the rest of your life.

If you are rich, you can choose whatever you want.

Maybe, but Bernie Madoff is bankrupt (effectively) because he completely screwed up. It can happen! CPF assets are extremely well protected, and lifetime assured escalating income is exactly that. Defense against destitution works for wealthy people, too. S**t occasionally happens.

I could do without a CPF LIFE (and another two sovereign) escalating life annuities, but that's not my plan. Why? Because I cannot totally rule out screwing up (and/or being screwed), and I don't want to fall all the way to zero in that unlikely but notionally possible event. So it's cheap longevity insurance, and I'll take it.

(*) I literally mean sole source here, as in you've already tapped out the HDB Leaseback Scheme if available to you.