CPF LIFE Standard Plan or LIFE Basic Plan

[oceanicmanta]

CPF has announced there will be a 2% annual increase option for payouts from 2018. That's a useful feature and one I would recommend for many/most beneficiaries.

If your sole aim is to maximize bequests then you should also defer CPF LIFE payouts as long as possible, to age 70. You should also make a CPF nomination, at any age, so that your heir(s) avoid probate costs.

but with that plan, you get 20%(?) less monthly payout from the onset (cant recall whether comparison was with Basic or Standard payout) ?

With 2% growth, it would take 9+ years to reach payout levels of Basic/Standard plan.

If start payout at 70, this Enhanced Plan would have higher payout (than other plans) for someone living beyond 80yo.

 

[BBCWatcher]

All correct, but if the goal is to maximize a bequest, skewing the payouts further into the future (age, annual increase) is helpful, other things being equal.

 

[elnewbie]

I don't think the new inflation adjusted plan will provide a better bequest than the Basic plan.

The basic plan uses 10% of the FRS to fund the annuity. That is why it can provide a much higher bequest.

All correct, but if the goal is to maximize a bequest, skewing the payouts further into the future (age, annual increase) is helpful, other things being equal.

 

[dork32]

but with that plan, you get 20%(?) less monthly payout from the onset (cant recall whether comparison was with Basic or Standard payout) ?

With 2% growth, it would take 9+ years to reach payout levels of Basic/Standard plan.

If start payout at 70, this Enhanced Plan would have higher payout (than other plans) for someone living beyond 80yo.

please see this link on the 2% growth scheme
https://services.mom.gov.sg/cpfpane...r a CPF LIFE plan with Escalating Payouts.pdf

for the fixed payout, you get 720 a month
for the 2% increase, you start of with 560 a month

after 10 years, the payout would increase to 680. so you are wrong that to say that you need 9 years to break even. in fact, you need 13 years to be level with the 720.

so you think that at 78 you start to win. wrong again. because the other scheme pays out much more in the early years, you are way behind the curve at this stage. also $1000 today is worth more than $1000 13 years down the road. assuming a compound interest of 2.5%, you will break even after 29 years. so the 2% increase scheme is good if you can live beyond 65 + 29 = 94 years.

if you start your withdrawal at 69, you will receive 720 a month at 69. this will increase by 2% every year. but you are already 4 years behind your peers or 400% behind. but you are getting 2% more every year. it will take you till you are 93 years old then you will over take the other guy on the fixed payout scheme at an interest of 2.5%

this is me analyzing the cpf article.

 

[dork32]

All correct, but if the goal is to maximize a bequest, skewing the payouts further into the future (age, annual increase) is helpful, other things being equal.

the goal is to maximize returns, not bequest.

 

[dork32]

you want to maximize your bequest. you put in ers. you dont withdraw at all, that will definitely maximize bequest.

when people say maximize bequest, they mean they rather give the money to their kids that the garmen.

 

[oceanicmanta]

9+ years is my simple breakeven calculation for taking a 20% upfront "pay cut" (22.22% to be more correct).
Even with this, the Escalating Plan already does not appeal to me.

The CPF article just confirms it to be much worse & I dont know why it is so lauded.

Also, I wonder why the CPF article (in Fig 4.5) compares delaying payout of Escalating Plan vs not delaying payout under Fixed Payout.

If one delays 4 years under fixed payout to 69yo, wouldn't fixed payout amount also start at a higher level as well ?

Similarly, Fig 4.4 compares Top Up with Escalating vs No Top Up Standard ? Of course if u top up more, u get more !!??

Comparing apples & durians or what ?

 

[elnewbie]

Its all smoke and mirrors. Which is why, if your intent is to maximise the bequest, then you delay the initial payout as much as possible and select the Basic plan.

If you need money, can always withdraw from OA or do property pledge withdrawal.

9+ years is my simple breakeven calculation for taking a 20% upfront "pay cut" (22.22% to be more correct).
Even with this, the Escalating Plan already does not appeal to me.

The CPF article just confirms it to be much worse & I dont know why it is so lauded.

Also, I wonder why the CPF article (in Fig 4.5) compares delaying payout of Escalating Plan vs not delaying payout under Fixed Payout.

If one delays 4 years under fixed payout to 69yo, wouldn't fixed payout amount also start at a higher level as well ?

Similarly, Fig 4.4 compares Top Up with Escalating vs No Top Up Standard ? Of course if u top up more, u get more !!??

Comparing apples & durians or what ?

 

[wisely98]

Can I withdraw if meet FRS at 55?

The answer to your question below depends on a few factors:

1. Current SA balance
2. Age
3. Tax bracket. If your tax bracket is too low, it really doesn't make sense to do this, unless you are really after the 4% risk free return.

By the way, you are aware that such topups can only increase your monthly payouts after age 65 ?? You can't withdraw these topups in lump sum nor be withdrawn in lieu of the property pledge.

 

[dork32]

If one delays 4 years under fixed payout to 69yo, wouldn't fixed payout amount also start at a higher level as well ?

my comparison is made against withdrawing fixed payout at 65. on the surface it seems that it is a good idea to start at 69 with 2% vs fixed at 65. both receive the same amount but 2% will have an increase every year. but you have already missed out on 4 years of payout. this sum is huge compared to the 2% increase. it will take you many years to claw back this sum

 

[dork32]

The CPF article just confirms it to be much worse & I dont know why it is so lauded.

i did not say it is good or no good. i just make some mathematical analysis

 

[dork32]

I don't think the new inflation adjusted plan will provide a better bequest than the Basic plan.

The basic plan uses 10% of the FRS to fund the annuity. That is why it can provide a much higher bequest.

basic plan gives higher bequest because the money in basic is earning 4% or more interest.
standard plan gives lower bequest because it earns 4% or more interest but your kids will get none of it. is this politically correct?

 

[dork32]

actually the bequest is amount is very easy to calculate.

for standard, it earns interest but it will not go into your account. you just draw down from your principal. if you die along the way, whatever is left is given to your kids.

for basic, it earns interest and it goes into your account. the money will go down at a much slow rate when you draw down because the monthly amount is less and the money is earning interest. And if you die, your kids get whatever is left.