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

[maple96]

Ready my question to Henry for the answer (#169).

Glad that you can manage your retirement, Let’s stop this bickering so that ideas on both plans can continue to be discussed. It’ll be beneficial to readers still contemplating on either plan.

I will share but not for your benefit. U surely think u are right? There is no answer at all, u are still wrong, I let others help u. Goodluck

 

[BBCWatcher]

Currently the mean life expectancy for Singaporeans at age 65 is 21. On average, anyone age 65 now will pass away at age 86. However, studies have shown that median life expectancy is about 3 years higher than mean (meaning 50% of people will live to age 89), and the mode is about *7* years higher. Meaning there will be a lot of people aged 65 today that will pass away at age 93.

At age 93, the escalating plan payout will be 37% higher than the standard plan payout. The pool has to be able to support all these people, and this is something we need to take into perspective.

Yes, and I'd add that life expectancies continue to improve. Some argue that it'll be at least extraordinarily difficult to increase lifespans beyond a certain point, but if there is such a barrier we're still a long way from it.

"Guaranteed Life Annuity has been withdrawn for new submission as of 23 November 2018.

Boo, hiss! That was only one of two fully SRS qualified annuities. Unless NTUC has a replacement that's SRS qualified, Manulife has the SRS market all to itself.

 

[henrylbh]

You adjust your standard of living to adapt to that loss. This way, you can maintain your standard of living all the way until the end of your life, whenever that would be.

The alternative would be to live with a reducing standard of living as you age.

What is maintaining same standard of living means?

When a person reaches say 85 or 90 and beyond, he would naturally spend less. He no more energy even to walk to the kopi shop to lim kopi. The visit,if any, would be less then when he was 65 or 70. He no more energy to go where he used to etc.

 

[henrylbh]

I agree, there other better ways to combat inflation, those are my secrets which I will not share here, tho some hints have been dropped

Naturally a person's propensity to spend goes down with his age. The time going geylang gets lesser to zero So does one really need escalating payout to maintain the same energy? I happy with more now than in the future.

 

[JuniorLion]

What is maintaining same standard of living means?

When a person reaches say 85 or 90 and beyond, he would naturally spend less. He no more energy even to walk to the kopi shop to lim kopi. The visit,if any, would be less then when he was 65 or 70. He no more energy to go where he used to etc.

Exactly right. He thinks that one should adjust his standard of living from 65-77 so that he can enjoy it from 78-120. They didn't think there's a limit to human lifespan.

 

[Opps-gal]

Naturally a person's propensity to spend goes down with his age. The time going geylang gets lesser to zero So does one really need escalating payout to maintain the same energy? I happy with more now than in the future.

More likely spend more $ on hospital and supplements?

 

[BBCWatcher]

When a person reaches say 85 or 90 and beyond, he would naturally spend less.

No, the research doesn’t support that idea — and there is a fair amount of empirical research looking at the spending and consumption patterns of elderly consumers, including efforts to construct “Consumer Price Index-Elderly” (CPI-E) measures of inflation. Opps-gal is on the right track. The composition of consumer spending shifts, but the total is actually more sensitive to inflation than for other cohorts. One important reason is that elderly consumers find it much more difficult to benefit from “substitution effects.” What they buy they need to buy, with very little variation possible.

For example, medical inflation in Singapore is running at about 3%/year in the public sector and 7%/year in the private sector. That’s above general inflation, and elderly consumers tend to spend more on medical care than other cohorts. There are some buffers to that higher inflation, but the buffers aren’t perfect.

Practically every social insurance program in the world incorporates inflation adjustments. U.S. Social Security, U.K. National Insurance, even the Japanese national pension (and there’s very little inflation in Japan) — they’ve all got it, and that’s just scratching the surface. (It’s also not optional.) This is a nearly perfectly standard feature around the world. Singapore is way, way behind the curve on this one.

 

[maple96]

More likely spend more $ on hospital and supplements?

Spend less on others, spend more on supplements, balancing act?

Why govt impose mandatory medishleld life? U have health insurance to cover hospitalisation, Why govt keep increasing medisave BHS, to help u cover medicals. Why govt made careshieldlife mandatory?

Why u should not just depend on CPF Life? Why u should have other sources of income/savings? Why u need to have family care and support?

One more why = why u buy insurance to cover ci/tpd ? (I have)

 

[dork32]

More likely spend more $ on hospital and supplements?

hospital for medisave and medishield

 

[dork32]

Exactly right. He thinks that one should adjust his standard of living from 65-77 so that he can enjoy it from 78-120. They didn't think there's a limit to human lifespan.

again there is no right or wrong answer.

you can get a bit more now and less later
or
you can get a bit less now and more later

you choose what suits you

 

[Papermate]

Think of it from the point of view from the actuarial scientists. They have to make sure that the system is sustainable. Their job is to calculate a payout schedule to make sure that the money that is paid out is not higher than the money that is put into the pool.

You can't have an escalating payout schedule that starts off with the same monthly payout as the flat payout schedule, if that is what you really want. Obviously the starting payout has to be lower in order for the system to be sustainable. How much lower depends on the life tables.

Currently the mean life expectancy for Singaporeans at age 65 is 21. On average, anyone age 65 now will pass away at age 86. However, studies have shown that median life expectancy is about 3 years higher than mean (meaning 50% of people will live to age 89), and the mode is about *7* years higher. Meaning there will be a lot of people aged 65 today that will pass away at age 93.

At age 93, the escalating plan payout will be 37% higher than the standard plan payout. The pool has to be able to support all these people, and this is something we need to take into perspective.

Well said.

If the escalating plan (EP) pays better than the other plans, everybody will opt for the EP. This begs the question: where will the money come from?

It will have to come from future taxes. This will be a burden for the next generation to carry, which I am not sure if they would be willing to.

As the payouts are based on the individual initial amounts in the respective Retirement Accounts, the future taxes would be distributed to the cpf account holders in that ratio. What this means is that the rich (in cpf balance) would be getting more than the poor (in cpf balance). No government should design a system of payouts that does that.

 

[maple96]

Every year CPFB will review the mthly payouts and adjust accordingly, meaning there is no guarantee u will still get the same payout every year.

For escalating plan, the mthy payout amt may be adjusted before the 2% is applied. No guarantee it will increase by 2% every year, only guarantee 2% rate. Can CPFB reduce the 2%?

 

[Papermate]

No, the research doesn’t support that idea — and there is a fair amount of empirical research looking at the spending and consumption patterns of elderly consumers, including efforts to construct “Consumer Price Index-Elderly” (CPI-E) measures of inflation. Opps-gal is on the right track. The composition of consumer spending shifts, but the total is actually more sensitive to inflation than for other cohorts. One important reason is that elderly consumers find it much more difficult to benefit from “substitution effects.” What they buy they need to buy, with very little variation possible.

For example, medical inflation in Singapore is running at about 3%/year in the public sector and 7%/year in the private sector. That’s above general inflation, and elderly consumers tend to spend more on medical care than other cohorts. There are some buffers to that higher inflation, but the buffers aren’t perfect.

Practically every social insurance program in the world incorporates inflation adjustments. U.S. Social Security, U.K. National Insurance, even the Japanese national pension (and there’s very little inflation in Japan) — they’ve all got it, and that’s just scratching the surface. (It’s also not optional.) This is a nearly perfectly standard feature around the world. Singapore is way, way behind the curve on this one.

Para one
The substitution possibilities are constrained in the healthcare part of things. Other than that, all other changes to lifestyle are possible.

Para two
Unless there is a change in policy directions, healthcare in Singapore is heavily subsidised, though not if you choose to go to private hospitals. It's worrying if you are the government when the population is aging and what's more, living longer but with a poor quality of life due to ill health, while the tax revenue has shrunk due to a smaller number of young people paying taxes. So either you tax the young more, or you bring in foreigners and tax them. Both are not solutions that are going to be popular with the young especially.

Para three
For Singapore to do what other countries like the UK is doing, taxes will have to be increased. Instead of raising income tax rates, a proposal has been made to raise GST by 2% in the near future. It has already caused a lot of mumblings, amplified by some sectors with political motives. Staying abreast with the curve is easy to say, but doing populist things is a lot easier. The government decided to do what is right and not what is popular.

 

[maple96]

I always choose C ward in public hospital cos of the heavy subsidies during hospitalisation as well as all outpatient costs. Outpatient costs can prolong so high subisdies is important, then I can claim the outpatient costs if it qualifies from medisave. Plus my isp will pay me a cash benefit to help cover whatever other costs.

So know how to manage yourself.

C wards are now better. Maybe depend on circumstances I might still stay in B ward.

Locals get more subsidies compared to PR

If u still choose to live in luxury with pte hospitals or higher class wards plus same standard of living, maybe escalating plan is your only choice if u dun have other sources of income, u pay for the insurance.

 

[BBCWatcher]

The substitution possibilities are constrained in the healthcare part of things. Other than that, all other changes to lifestyle are possible.

Healthcare is only one example. And whether other substitutions are hypothetically possible or not, the empirical research is quite clear that elderly consumers’ spending patterns are more rigid than for other cohorts. Advertisers, for example, are acutely aware of how elderly consumers behave.

I don’t think it’s useful or productive to run around in circles and pretend that inflation doesn’t matter. Of course it does. Elderly consumers, in particular, are quite sensitive to inflation — that’s just the reality. They don’t cope well at all with continuously eroding real purchasing power.

Would anybody in this thread plan to have, and aspire to have, a salary that is stuck at $6,000/month (for example) for 30+ years? Is that your plan, your aspiration? REALLY?

Come on, folks! Get real here, pun intended. Stop being silly.

 

[Papermate]

I believe I had already shown in previous posts that:

1) There is a biological life span limit to all humans (based on latest scientific research), so all those talk about continuing life expectancy as though there is no limit is just "fear mongering".

2) The so-called long life expectancies of 85 for women and 82 for men are really ESTIMATED figures for people who are born now, not 65 years ago who have much shorter life span vs their estimated (inflated) figures they are using now to calculate CPF Life insurance costs, so yah, I would say >95% can't benefit from CPF Life based on current low payout.

3) Which CPF Life plans is best for you depends on what age you are likely to die. You can do an educated guess based on your family history. Worst come to worst even with CPF Life Basic you still are getting money for life! Why need to care so much about continuing life expectancy? The calculated figures I had already provided in another thread previously. Not going to repeat myself (and waste my time).
Just to summarize, the worst plan is Escalating, then less worse is Standard, then Basic.
I would take the least evil, though better still if I don't need to subscribe to CPF Life, because money on my hand grows faster than with CPF!

4) You should ask CPF Board to reveal how many people has opted for CPF Life's Basic, Standard, and Escalating so far. There is no need to be secretive about this information right? Also how much insurance premiums they are deducting for CPF Life's Basic? Don't tell us 10-20% because that is a big wide elephant gap! Just feel that there is not enough transparency on all these plans, so I better play safe and prefer to keep money in my pocket (than CPF Life)

5) Why are you all out to "sell" Escalating Plan when the best is according to (3) above?

Need I say more?!

Very eloquently put.

Point 2
I had this argument before with none other than someone who worked as a CPF Officer. I said what you said, and he said what he was hired to say. We were getting no where.

Point 3.
Agreed fully.

 

[henrylbh]

No, the research doesn’t support that idea — and there is a fair amount of empirical research looking at the spending and consumption patterns of elderly consumers, including efforts to construct “Consumer Price Index-Elderly” (CPI-E) measures of inflation. Opps-gal is on the right track. The composition of consumer spending shifts, but the total is actually more sensitive to inflation than for other cohorts. One important reason is that elderly consumers find it much more difficult to benefit from “substitution effects.” What they buy they need to buy, with very little variation possible.

For example, medical inflation in Singapore is running at about 3%/year in the public sector and 7%/year in the private sector. That’s above general inflation, and elderly consumers tend to spend more on medical care than other cohorts. There are some buffers to that higher inflation, but the buffers aren’t perfect.

Practically every social insurance program in the world incorporates inflation adjustments. U.S. Social Security, U.K. National Insurance, even the Japanese national pension (and there’s very little inflation in Japan) — they’ve all got it, and that’s just scratching the surface. (It’s also not optional.) This is a nearly perfectly standard feature around the world. Singapore is way, way behind the curve on this one.

That rebuttal is mixing life payouts for retirement spending (with similar standard of living propagated) with medical spending. I don't want to comment.

 

[maple96]

Healthcare is only one example. And whether other substitutions are hypothetically possible or not, the empirical research is quite clear that elderly consumers’ spending patterns are more rigid than for other cohorts. Advertisers, for example, are acutely aware of how elderly consumers behave.

I don’t think it’s useful or productive to run around in circles and pretend that inflation doesn’t matter. Of course it does. Elderly consumers, in particular, are quite sensitive to inflation — that’s just the reality. They don’t cope well at all with continuously eroding real purchasing power.

Would anybody in this thread plan to have, and aspire to have, a salary that is stuck at $6,000/month (for example) for 30+ years? Is that your plan, your aspiration? REALLY?

Come on, folks! Get real here, pun intended. Stop being silly.

Good luck to u if u dun have other sources of income. If your fear is so great, escalating plan might not even help u with just 200-300 more per mth, not guaranteed.

 

[henrylbh]

Every year CPFB will review the mthly payouts and adjust accordingly, meaning there is no guarantee u will still get the same payout every year.

For escalating plan, the mthy payout amt may be adjusted before the 2% is applied. No guarantee it will increase by 2% every year, only guarantee 2% rate. Can CPFB reduce the 2%?

They already said clearly that payout depends on longevity, interest rate etc and hence not guaranteed. 2% just follow the amount of payout.

 

[Papermate]

Healthcare is only one example. And whether other substitutions are hypothetically possible or not, the empirical research is quite clear that elderly consumers’ spending patterns are more rigid than for other cohorts. Advertisers, for example, are acutely aware of how elderly consumers behave.

I don’t think it’s useful or productive to run around in circles and pretend that inflation doesn’t matter. Of course it does. Elderly consumers, in particular, are quite sensitive to inflation — that’s just the reality. They don’t cope well at all with continuously eroding real purchasing power.

Would anybody in this thread plan to have, and aspire to have, a salary that is stuck at $6,000/month (for example) for 30+ years? Is that your plan, your aspiration? REALLY?

Come on, folks! Get real here, pun intended. Stop being silly.

Lol!

You gave a strawman argument. Nobody here said that inflation does not happen.

What for eg Evino is asking is, why leave your money with CPF Board when you can take it out sooner?

The EP is not going to pay you more than the SP. What it only does is to take what is yours now and gives it back to you later.

It's good for people who know that they are bad at saving money, people who would not even have a CPF balance if there was no such thing as CPF that forced them to save, who would have spent their entire pay cheque.

Those who are smart investors will make it grow faster than if the money was left with CPF Board. At the very least, they would be disciplined enough to not spend all of it but to leave some for a rainy day, but in effect, the CPF Payout thus saved is the same as leaving a portion of your payout under the EP with CPF Board.