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

[BBCWatcher]

It’s a very simple question, JuniorLion. Inflation is REAL, and you must have a plan to combat inflation if you are to maintain a given standard of living.

So what’s the plan? There’s lots of noise in this thread, but I want to know what the alternative plan is to combat inflation? It’s a simple question.

 

[Toni90]

It’s a very simple question, JuniorLion. Inflation is REAL, and you must have a plan to combat inflation if you are to maintain a given standard of living.

So what’s the plan? There’s lots of noise in this thread, but I want to know what the alternative plan is to combat inflation? It’s a simple question.

Complain then die loh.

 

[JuniorLion]

It’s a very simple question, JuniorLion. Inflation is REAL, and you must have a plan to combat inflation if you are to maintain a given standard of living.

So what’s the plan? There’s lots of noise in this thread, but I want to know what the alternative plan is to combat inflation? It’s a simple question.

If standard plan gives you 1000 and escalating plan 900 at the start, what's your plan for combatting the loss of 1200 in the first year? Any suggestion?

 

[JuniorLion]

It’s a very simple question, JuniorLion. Inflation is REAL, and you must have a plan to combat inflation if you are to maintain a given standard of living.

So what’s the plan? There’s lots of noise in this thread, but I want to know what the alternative plan is to combat inflation? It’s a simple question.

Assuming a person starts his payout at 65, cpf websites show that escalating plan monthly payout at 77 will equal that of standard plan payout at 65. What's yout strategy for this 12 years? Bite the bullet? It's a simple question.

You talk about the benefits of the escalating plan. Sure, we all know that the payout at 120 years old is great - but what about the interim?

You talk about the end but avoid talking about the journey.

Unfortunately, none of us can jump from 65 to 120 years old in 1 year. I know I probably can't; not sure about you.

 

[Papermate]

The escalating plan is a repacking of standard plan. The money in the pool is drawn for life payout. Either plan, no one is wiser to get more than what's in the pool. Theoretically half of same plan must lose to pay the other half. The gamble is which side you fall into.

Correct.

Actuarial are smart folks. They have done their sums. The escalating plan will not give anyone anything more over the projected lifespan of the population than what the standard plan gives.

What happens is we get a choice of getting the whole chicken ($13,200 in my above example), or leaving the chicken with CPF board, so when we start getting our CPFLife Payment at a later time, we get a wing, a thigh, a breast, bit by bit,...back over and on top of what we would otherwise get from the standard plan. It's using our own $13,200 to make the differential, which makes it look like we are getting a higher payout, and actually getting a net gain.

It encourages people who might have a tendency to spend the $13,200 to leave it with CPF Board as a form of safekeeping, if they don't need the payout and have other streams of income to live on.

But my idea is that when we are 65 years old already, we got to believe we can live till beyond even 75. The probability of people living from 65 to 75 is higher than the probability of people living beyond 75.

If we don't believe we can live beyond 75, then we only have a mere 10 years of CPF Life payouts. In that case, take all that we are entitled to.

However, if we assume we can live beyond that, and want to hedge against the future rises in cost of living, and further assume that the time value of money is a depreciating one, then having a steady stream of payouts of $1,100 and passing it to an insurance company is a more prudent option. I'd suggest a low risk product for someone aged 65 and not suggest playing stocks and shares. They give better returns than what the escalating plan gives.

cc: BBCWatcher.

 

[JuniorLion]

Correct.

Actuarial are smart folks. They have done their sums. The escalating plan will not give anyone anything more over the projected lifespan of the population than what the standard plan gives.

What happens is we get a choice of getting the whole chicken ($13,200 in my above example), or leaving the chicken with CPF board, so when we start getting our CPFLife Payment at a later time, we get a wing, a thigh, a breast, bit by bit,...back over and on top of what we would otherwise get from the standard plan. It's using our own $13,200 to make the differential, which makes it look like we are getting a higher payout, and actually getting a net gain.

It encourages people who might have a tendency to spend the $13,200 to leave it with CPF Board as a form of safekeeping, if they don't need the payout and have other streams of income to live on.

But my idea is that when we are 65 years old already, we got to believe we can live till beyond even 75. The probability of people living from 65 to 75 is higher than the probability of people living beyond 75.

If we don't believe we can live beyond 75, then we only have a mere 10 years of CPF Life payouts. In that case, take all that we are entitled to.

However, if we assume we can live beyond that, and want to hedge against the future rises in cost of living, having a steady stream of payouts of $1,100 and passing it to an insurance company (I assume a low risk product for someone aged 65 and would not suggest playing stocks and shares). They give better returns that CPF Board than what the escalating plan gives.

cc: BBWatcher.

For some reason, people here hates agents making commission on products. Looking at costs is the wrong way of looking at things, but that's besides the point of this thread.

From the perspective of my household and I, we'd prefer if more people take up escalating plan though. That way, we get subsidized

 

[Papermate]

Assuming a person starts his payout at 65, cpf websites show that escalating plan monthly payout at 77 will equal that of standard plan payout at 65. What's yout strategy for this 12 years? Bite the bullet? It's a simple question.

You talk about the benefits of the escalating plan. Sure, we all know that the payout at 120 years old is great - but what about the interim?

You talk about the end but avoid talking about the journey.

Unfortunately, none of us can jump from 65 to 120 years old in 1 year. I know I probably can't; not sure about you.

Well said.

It's really like balloon sculpting.

The standard plan is like a balloon in the shape of rectangle while the escalating plan is reshaped from the standard plan to look somewhat like a triangle. Mathematically, the area of both are the same. It's not as if the triangle has a bigger area. Actuarial have ensured that.

 

[BBCWatcher]

What's yout strategy for this 12 years? Bite the bullet? It's a simple question.

With a simple answer: live a stable real lifestyle, for life, consistent with what the Escalating Plan payout can support, preferably with an age 70 deferral and preferably with a buy-up to ERS (or nearer anyway).

Defending against destitution, for life, means firmly holding the line on a specific baseline lifestyle threshold, with a real supply of baseline goods and services (food, electricity, etc.) Dollars only have value in what they can buy, and they can buy progressively less over time. So I pick a baseline REAL lifestyle threshold below which I can never fall for the rest of my life, and that’s the plan. (And for my spouse as well.)

If you’re advocating for an ever diminishing baseline real lifestyle threshold, I disagree, at the very least because that’s not a plan to aspire to. Nobody I know is planning to be defenseless against inflation in their retirement years. So I’m asking: WHAT’S THE ALTERNATIVE PLAN consistent with the outcome of holding a baseline real lifestyle threshold for life?

Nobody has posted any such plan yet.

This is not a videogame, or a game of any sort, where the “score” matters. What matters is the real lifestyle outcome.

However, if we assume we can live beyond that, and want to hedge against the future rises in cost of living, having a steady stream of payouts of $1,100 and passing it to an insurance company (I assume a low risk product for someone aged 65 and would not suggest playing stocks and shares). They give better returns that CPF Board than what the escalating plan gives.

OK, what’s that “low risk product,” and let’s see the math. What’s the actual plan?

 

[JuniorLion]

Nobody has posted any such plan yet.

Plans have been posted several times; you chose to ignore it.

Most recent one by Papermate.

 

[BBCWatcher]

Plans have been posted several times; you chose to ignore it.
Most recent one by Papermate.

That's not a plan, and I've asked Papermate to outline his/her plan to combat inflation. What's the insurance carrier, what's the product, how would it be used, and what's the math?

Handwaving is not credible.

 

[JuniorLion]

The concept of the Escalating plan is good but the implementation is abysmal. Acturials ensured that, on average, you can't benefit from it.

The current implementation is like: you start off 10% lower per month (in comparison to standard) and get 2% increment per year.

If they change it to: you start off 4.5% lower per month and increase by 2% per year, I'll take it up in a heartbeat.

But they will never do that.

 

[maple96]

For some reason, people here hates agents making commission on products. Looking at costs is the wrong way of looking at things, but that's besides the point of this thread.

From the perspective of my household and I, we'd prefer if more people take up escalating plan though. That way, we get subsidized

totally agree!

If the most looked upto hwz advisor cannot offer a better alternative to escalating plan to combat inflation, more people choosing escalating plan helps to sustain the CPF Life programme for the good of the country.

 

[dork32]

Assuming a person starts his payout at 65, cpf websites show that escalating plan monthly payout at 77 will equal that of standard plan payout at 65. What's yout strategy for this 12 years? Bite the bullet? It's a simple question.

You talk about the benefits of the escalating plan. Sure, we all know that the payout at 120 years old is great - but what about the interim?

You talk about the end but avoid talking about the journey.

Unfortunately, none of us can jump from 65 to 120 years old in 1 year. I know I probably can't; not sure about you.

hey, somebody say you fail maths. somebody say your 12 years is rubbish. somebody say you must do a spreadsheet as a proof that it is 12 years.

who is somebody? could somebody pls own up?

 

[dork32]

hi papermate and lion.

i will delay my payout to 70. i am not a supporter of bbc.

my reason is very different from bbc. it is taught to me by ocs.

my money kid's money is as good as my money.
because i will be on basic, my ra will be earning interest if i do not draw down.
even if i die at 72, the accumulated interest will be given to my kids.

I do not care about the longevity and inflation crab. i believe i should have more than enuf on hand to survive till i die.

but if i am on escalating. i will not delay. i will want to clear my premium quickly such that i can draw from the lifelong income fund.

i am not asking you people to follow me, but this is one point that you may want to consider if you are on basic.

 

[Toni90]

Correct.

Actuarial are smart folks. They have done their sums. The escalating plan will not give anyone anything more over the projected lifespan of the population than what the standard plan gives.

What happens is we get a choice of getting the whole chicken ($13,200 in my above example), or leaving the chicken with CPF board, so when we start getting our CPFLife Payment at a later time, we get a wing, a thigh, a breast, bit by bit,...back over and on top of what we would otherwise get from the standard plan. It's using our own $13,200 to make the differential, which makes it look like we are getting a higher payout, and actually getting a net gain.

It encourages people who might have a tendency to spend the $13,200 to leave it with CPF Board as a form of safekeeping, if they don't need the payout and have other streams of income to live on.

But my idea is that when we are 65 years old already, we got to believe we can live till beyond even 75. The probability of people living from 65 to 75 is higher than the probability of people living beyond 75.

If we don't believe we can live beyond 75, then we only have a mere 10 years of CPF Life payouts. In that case, take all that we are entitled to.

However, if we assume we can live beyond that, and want to hedge against the future rises in cost of living, and further assume that the time value of money is a depreciating one, then having a steady stream of payouts of $1,100 and passing it to an insurance company is a more prudent option. I'd suggest a low risk product for someone aged 65 and not suggest playing stocks and shares. They give better returns than what the escalating plan gives.

cc: BBCWatcher.

Either U failed probability badly or u not live in Singapore.

 

[maple96]

hi papermate and lion.

i will delay my payout to 70. i am not a supporter of bbc.

my reason is very different from bbc. it is taught to me by ocs.

my money kid's money is as good as my money.
because i will be on basic, my ra will be earning interest if i do not draw down.
even if i die at 72, the accumulated interest will be given to my kids.

I do not care about the longevity and inflation crab. i believe i should have more than enuf on hand to survive till i die.

but if i am on escalating. i will not delay. i will want to clear my premium quickly such that i can draw from the lifelong income fund.

i am not asking you people to follow me, but this is one point that you may want to consider if you are on basic.

will u be having FRS or ERS or BRS in RA?

I plan to start at 65, then put the payout into my WL earning 4-5%, I have mthy premiums to save there.

 

[dork32]

will u be having FRS or ERS or BRS in RA?

I plan to start at 65, then put the payout into my WL earning 4-5%, I have mthy premiums to save there.

i am going for brs. if i do that, my sa will really be puffed up.

sa and ra will earn the interest.
ra forces you to draw down at 70 at a fix amount. sa you happy happy draw, you not happy not happy dont draw. if i really want the frs payout for that month, i will just go to sa and draw out the difference.
by going for brs, i will minimize my contribution to the lifelong income fund.

you are confident that you investment can give you 4-5%. i am not that confident. sometimes can, sometimes cannot. also, i would a sizeable amount in this sort of investment using cash. this is why i choose for my funds to remain in sa.

the big minus to my plan is that if i live till 100, i am going to lose out big.

 

[maple96]

i am going for brs. if i do that, my sa will really be puffed up.

If u go for brs, 50% of FRS in RA will be withdrawn, how u puff up SA?

sa and ra will earn the interest.
ra forces you to draw down at 70 at a fix amount. sa you happy happy draw, you not happy not happy dont draw. if i really want the frs payout for that month, i will just go to sa and draw out the difference.

by going for brs, i will minimize my contribution to the lifelong income fund.

Yes

you are confident that you investment can give you 4-5%. i am not that confident. sometimes can, sometimes cannot. also, i would a sizeable amount in this sort of investment using cash. this is why i choose for my funds to remain in sa.

Yes mine as good as guaranteed

the big minus to my plan is that if i live till 100, i am going to lose out big.

thanks for sharing

 

[dork32]

If u go for brs, 50% of FRS in RA will be withdrawn, how u puff up SA?

less in ra, means less is transferred from sa. so sa will have more money.

this is wat i meant that different people would choose different schemes for different reasons. there is no one perfect one size fit all solution

wat is common between us is that
we do not like we do not like lifelong income fund.
we also do not really like ra because it is not flexible.

 

[BBCWatcher]

hey, somebody say you fail maths. somebody say your 12 years is rubbish. somebody say you must do a spreadsheet as a proof that it is 12 years.

JuniorLion's characterization here is essentially correct.

According to CPF's 2018 estimates, assuming Full Retirement Sum at age 55 and payout start at age 65, the Standard Plan's mean payout would be $1,365 (fixed nominal) and the Escalating Plan's mean starting payout would be $1,060. With its 2% annual increase, the Escalating Plan's nominal payout figure will be lower than the Standard Plan's for 13 years then progressively higher thereafter. Here's the math broken into table form (rounded to the nearest whole dollar, through Year 15, which is well below current life expectancy at age 65):

Year 1: $1,365 / $1,060
Year 2: $1,365 / $1,081
Year 3: $1,365 / $1,103
Year 4: $1,365 / $1,125
Year 5: $1,365 / $1,147
Year 6: $1,365 / $1,170
Year 7: $1,365 / $1,194
Year 8: $1,365 / $1,218
Year 9: $1,365 / $1,242
Year 10: $1,365 / $1,267
Year 11: $1,365 / $1,292
Year 12: $1,365 / $1,318
Year 13: $1,365 / $1,344
Year 14: $1,365 / $1,371
Year 15: $1,365 / $1,399

I don't know if the Escalating Plan adjusts payouts monthly or annually, but if the former the precise crossover point (mean basis) is after 12 years, within the latter half of the 13th year -- after 12-point-something years.

Now let's look at real buying power assuming 2% inflation. The Escalating Plan's real buying power holds steady at $1,060, but let's see what happens to the Standard Plan's real buying power....

Year 1: $1,365 / $1,060
Year 2: $1,338 / $1,060
Year 3: $1,312 / $1,060
Year 4: $1,286 / $1,060
Year 5: $1,261 / $1,060
Year 6: $1,236 / $1,060
Year 7: $1,212 / $1,060
Year 8: $1,188 / $1,060
Year 9: $1,165 / $1,060
Year 10: $1,142 / $1,060
Year 11: $1,120 / $1,060
Year 12: $1,098 / $1,060
Year 13: $1,076 / $1,060
Year 14: $1,055 / $1,060
Year 15: $1,034 / $1,060

....and I'm going to take this one out some more on the Standard Plan's real buying power....

Year 16: $1,014
Year 17: $994
Year 18: $975
Year 19: $956
Year 20: $937
Year 21: $919
Year 22: $901
Year 23: $883
Year 24: $866
Year 25: $849
Year 26: $832
Year 27: $816
Year 28: $800
Year 29: $784
Year 30: $769
Year 31: $754
Year 32: $739
Year 33: $724
Year 34: $710
Year 35: $696

This run of real figures stops just before age 100. Living past 100 is, of course, already possible and (as a reasonable forecast) even more likely 35+ years from now.

As any retiree can tell you who is living on a fixed nominal income as his/her predominant or only source of income, progressively reducing one's lifestyle (food, electricity, medicines, etc.) is painful and difficult. Whack, whack, whack, whack.... the hits keep coming for the rest of your days. This is just not fun.

It's also not fun living solely or predominantly on $1,060/month (2018 dollars), stipulated. (Now how'd you like to live on $937? Or $800? Inflation is real, folks.) Which is why I don't recommend planning to live on $1,060/month, but I (generally) recommend grounding oneself in a real baseline lifetime lifestyle below which you can never fall: Escalating Plan, deferred to age 70, preferably boosted to the ERS. That particular combination maximizes the longevity insurance and inflation fighting (real lifestyle preservation) aspects of CPF LIFE, and that's the highest, best use of CPF LIFE since it's not well optimized for other possible objectives (such as bequests -- all CPF LIFE payout plans end up with zero residual if you simply live long enough).