CPF SA Shielding hack - RIP (Obsolete)

[DevilPlate]

The payout is just estimated... If so it meant cpf giving conflicting examples

Estimated yes js like the returns for whole life insurance policies hahaha

Thats why some argue RSS old scheme more transparent....

 

[starlight318]

Oh I wasn’t aware that the interest earned in my RA doesn’t come back to me (via monthly payments) or to my beneficiaries if I die. If indeed so, then no real incentive to top up to max ERS.

The main problem is where to invest the funds after you take out, bearing in mind that T bills or other “safe” investments may not yield high interest rates in future

Interest earned in RA belongs to you. It's the RA monies that get deducted to pay into CPF life pool that doesn't earn interest for you (your beneficiary) when you pass on

 

[fire]

Oh I wasn’t aware that the interest earned in my RA doesn’t come back to me (via monthly payments) or to my beneficiaries if I die. If indeed so, then no real incentive to top up to max ERS.

The main problem is where to invest the funds after you take out, bearing in mind that T bills or other “safe” investments may not yield high interest rates in future

Where to invest, you have to do some study into it. As long as above the OA interest rate, then better than nothing.

Else just keep it inside OA which for me is a nono when they can shift goalposts anytime they like, anyhow they want.

 

[fire]

Interest earned in RA belongs to you. It's the RA monies that get deducted to pay into CPF life pool that doesn't earn interest for you (your beneficiary) when you pass on

Think you got it the other way around.

RA monies belong to you (your benficiary) but interest earned from RA are put into the life pool instead.

 

[magicming]

Here’s what I understand:

From 55 to 65, the RA interest belongs to individual. At 65 or later, all or part of our RA balance can become premium for CPF LIFE. Depends on plan we choose. This amount includes the accrued 4% interest over the 10 or more years. However, once CPF Life starts, whatever RA money that was used to pay into CPF Life no longer accrues interest to the individual; this interest goes into CPF life pool.

So, RA interest goes to individual. And can form part of CPF life premium at 65 or later. But can only take out as retirement income. Or via death. Beneficiaries can get.

CPF Life interest goes to common pool. We get the benefit of it by our extended CPF life payouts. That’s the only way to personally benefit. Beneficiaries cannot get.

 

[BBCWatcher]

Ic but what you had mentioned doesn't seem to conform to the below from cpf board:

"Does the interest earned on my retirement savings form part of the retirement sum that I am required to set aside at age 55?

No, the interest earned on your retirement savings does not form part of the retirement sum that you are required to set aside at 55."

This SA closure change already demonstrate govt can change CPF policies anytime.

Let me fix this for you... "The government can change policies any time."

CPF is not unique in this respect! Literally everything you can possibly do with Singapore dollars (and more) is subject to government policy decisions. Just to pick one example, if the government wants to inflate away the real purchasing power of the Singapore dollar faster than you expect it certain can.

For the few people making this "argument," what exactly are you proposing in the alternative? Particularly to defend against longevity risks? Be specific.

Better think twice about topping too much to RA. Too risky if solely depending on CPF Life as only source of income from 65.

Nobody (not even the government) suggests it's ideal to rely on CPF LIFE as your sole source of retirement income. However, if you had to pick a sole source of retirement income (for retirement in Singapore at least) then CPF LIFE is unbeatable. But if you disagree with the previous sentence, OK, please tell us what sole source of retirement income would be better and why. Be specific.

How is interest fully taken into account if beneficiary only gets back principal amount paid into CPF life minus the payouts received over the years? The interests stay within the pool no?

U can do yr maths lah.
ErS new limit 426k with payout 3.3k per mth can only last u 10-11 years if there is ZERO interest earned.

Exactly. Some people are so weird about this! The monthly payout amounts are literally impossible without interest fully incorporated into the computation of the payout amount. Your example is exactly correct. Take $426K, divide it by $3.3K per month, and you get about 129 months. That's what zero interest would mean. OBVIOUSLY the $3.3K figure is computed interest inclusive. Does anyone seriously believe about half of 65 year olds are dead before 76? Does. Not. Compute. OBVIOUSLY not.

If u are someone totally dont believe in insurance, then this is not for u.

Yes, and please don't buy any Integrated Shield plans, any life insurance (term or otherwise), any Disability Income Insurance, any Critical Illness or Early Critical Illness policies, any Personal Accident policies, any travel medical insurance, any homeowners insurance (except the minimum your mortgage lender and/or HDB require), or any personal liability insurance, as examples. Because obviously all insurance premiums are a waste of money. Even when there's not any insurance company collecting any profits and low overheads.

Would y'all like to see a simple computation demonstrating how much you'd need to self-insure against longevity risks?

 

[fr33d0m]

Here’s what I understand:

From 55 to 65, the RA interest belongs to individual. At 65 or later, all or part of our RA balance can become premium for CPF LIFE. Depends on plan we choose. This amount includes the accrued 4% interest over the 10 or more years. However, once CPF Life starts, whatever RA money that was used to pay into CPF Life no longer accrues interest to the individual; this interest goes into CPF life pool.

So, RA interest goes to individual. But can only take out as retirement income. Or via death. Beneficiaries can get.

CPF Life interest goes to common pool. We get the benefit of it by our extended CPF life payouts. That’s the only way to personally benefit. Beneficiaries cannot get.

not true...

if you choose CPF LIFE Basic plan, interest still accrued to you except the money you have put into the pool, which is 10 - 20% (?) of your premium.

 

[magicming]

not true...

if you choose CPF LIFE Basic plan, interest still accrued to you except the money you have put into the pool, which is 10 - 20% (?) of your premium.

Yes. I agrée. It’s only the CPF Life part that goes to common pool. I mentioned all or part of RA balance.

 

[BBCWatcher]

CPF Life interest goes to common pool. We get the benefit of it by our extended CPF life payouts. That’s the only way to personally benefit. Beneficiaries cannot get.

No, that's not correct. It's all part of the same deal. Nominees enjoy the benefits of a principal guarantee, that the residual (if any) plus total payouts will at least equal pre-payout principal. This principal guarantee is mathematically impossible without interest fully factoring into the deal. The monthly payouts are too high. Without interest the payouts would have to be significantly lowered in order to maintain the principal guarantee for nominees.

Also the Basic Plan, but the above is true regardless of payout plan. The payouts and residual are too high without interest fully factoring into the computation.

Guarantees aren't free! CPF LIFE is double guaranteed: there will be payouts for life, however long it lasts, and payouts plus residual will always equal or exceed total pre-payout principal. It's also nonprofit, extremely low overhead, and backed by near guaranteed 4.0% floor rates (plus bonus interest). That's...incredible. If you understand it at least at little.

 

[magicming]

No, that's not correct. It's all part of the same deal. Nominees enjoy the benefits of a principal guarantee, that the residual (if any) plus total payouts will at least equal pre-payout principal. This principal guarantee is mathematically impossible without interest fully factoring into the deal. The monthly payouts are too high. Without interest the payouts would have to be significantly lowered in order to maintain the principal guarantee for nominees.

Also the Basic Plan, but the above is true regardless of payout plan. The payouts and residual are too high without interest fully factoring into the computation.

What’s not correct? I’m referring to the interest portion. Not the principal.

 

[JustDoLor]

I think it means to say, at 55 if you did not meet your FRS, the interest earn in your RA account will not add up to form part of your FRS that you are required to set aside at 55.

In this case, there will be another transfer of monies from SA and/or OA to your RA before you start your monthly payouts

Ic but what you had mentioned doesn't seem to conform to the below from cpf board:

"Does the interest earned on my retirement savings form part of the retirement sum that I am required to set aside at age 55?

No, the interest earned on your retirement savings does not form part of the retirement sum that you are required to set aside at 55."

 

[DevilPlate]

not true...

if you choose CPF LIFE Basic plan, interest still accrued to you except the money you have put into the pool, which is 10 - 20% (?) of your premium.

There was another thread last time discussing about Basic, Standard and escalating.
In a nutshell, go for Basic if u have dependents/descendants. Else, standard or escalating.

There are some speculation that CPF might remove Basic plan.
If scared, then leave it at BRS/FRS at 55yo and then consider to top up at 65yo if Basic plan still there.

 

[BBCWatcher]

DevilPlate provided the figures above: $426K at age 55 (corrected!) will generate a Standard Plan payout of $3.3K per month for life from 65. So let's now look at what annualized interest rate/yield you'd need to generate the same amount of income and self-insure against longevity risks. I'll look at 3 terminal ages: 95, 100, and 105. These figures are rounded to the nearest tenth of a percentage point.

To age 95: 4.5%
To age 100: 4.8%
To age 105: 5.0%

Check my math, please!

Those are high interest rates/yields for a retirement portfolio.

 

[fire]

Let me fix this for you... "The government can change policies any time."

CPF is not unique in this respect! Literally everything you can possibly do with Singapore dollars (and more) is subject to government policy decisions. Just to pick one example, if the government wants to inflate away the real purchasing power of the Singapore dollar faster than you expect it certain can.

For the few people making this "argument," what exactly are you proposing in the alternative? Particularly to defend against longevity risks? Be specific.

Everyone know govt can change policy any time, it had been fully demonstrate frequently already. I was just trying to clarify which is correct, your version or cpf board own version, there was Jo argument about it.

 

[fire]

I think it means to say, at 55 if you did not meet your FRS, the interest earn in your RA account will not add up to form part of your FRS that you are required to set aside at 55.

In this case, there will be another transfer of monies from SA and/or OA to your RA before you start your monthly payouts

This i understand, then where the interest go? This is the point I clarifying what's the benefit of still topping up the RA.

Some here are saying the interest will still flow back to for payout.

 

[fr33d0m]

There was another thread last time discussing about Basic, Standard and escalating.
In a nutshell, go for Basic if u have dependents/descendants. Else, standard or escalating.

There are some speculation that CPF might remove Basic plan.
If scared, then leave it at BRS/FRS at 55yo and then consider to top up at 65yo if Basic plan still there.

Either CPF LIFE works for you or it does not. The only reason to choose BRS is that CPF LIFE does not work for you. For majority of Singaporean, it is quite dumb to only have BRS in CPF RA if the person values stability of return.

 

[DevilPlate]

Either CPF LIFE works for you or it does not. The only reason to choose BRS is that CPF LIFE does not work for you. For majority of Singaporean, it is quite dumb to only have BRS in CPF RA if the person values stability of return.

Some argued standard plan bohua if die early mah…..so if there is no Basic plan to choose at age 65yo, then top up RA to max at 55yo is irreversible and machiam kena scam lol

 

[DevilPlate]

DevilPlate provided the figures above: $426K at age 65 will generate a Standard Plan payout of $3.3K per month for life. So let's now look at what annualized interest rate/yield you'd need to generate the same amount of income and self-insure against longevity risks. We'll look at two terminal ages: age 100, and age 105. Here we go!

1. To sustain a $3.3K level monthly payout from age 65 to age 100 (420 months) with a $426K starting principal would require an annualized net yield of about 9.3% (a little over actually). Wow!

2. To sustain a $3.3K level monthly payout from age 65 to age 105 (480 months) with a $426K starting principal would require an annualized net yield of about 9.5% (also a little over). Wow again!

OK, don't like age 100? Think you want to gamble and only defend against 30 years of longevity risk?

3. To sustain a $3.3K level monthly payout from age 65 to age 95 (360 months) with a $426K starting principal would require an annualized net yield of about 9.0% (also a little over). Yikes!

Check my math, please.

Do more people understand now?

It's really expensive to self-insure against longevity risks.

Not so high according to this article.
https://www.drwealth.com/cpf-life/

*i think u need to factor in the first 10years of yield accumulation from 55yo to 65yo payout start.

 

[proton_cannon]

DevilPlate provided the figures above: $426K at age 65 will generate a Standard Plan payout of $3.3K per month for life. So let's now look at what annualized interest rate/yield you'd need to generate the same amount of income and self-insure against longevity risks. We'll look at two terminal ages: age 100, and age 105. Here we go!

1. To sustain a $3.3K level monthly payout from age 65 to age 100 (420 months) with a $426K starting principal would require an annualized net yield of about 9.3% (a little over actually). Wow!

2. To sustain a $3.3K level monthly payout from age 65 to age 105 (480 months) with a $426K starting principal would require an annualized net yield of about 9.5% (also a little over). Wow again!

OK, don't like age 100? Think you want to gamble and only defend against 30 years of longevity risk?

3. To sustain a $3.3K level monthly payout from age 65 to age 95 (360 months) with a $426K starting principal would require an annualized net yield of about 9.0% (also a little over). Yikes!

Check my math, please.

Do more people understand now?

It's really expensive to self-insure against longevity risks.

Hello, you are daydreaming. You sure you confirm will have 3.3k per month for life? Guaranteed?

 

[royalmix]

Hi, I am a noob when it comes to CPF. Am reading with interest about the removal of SA for those reached 55years old. I have a question:


2) I can only receive monthly payouts from 65 years old (is it called CPF Life?). I read that interest on RA cannot take out until I reached 80 years old? If I were to die prior to 80, the interest earned on RA will go to a common pool instead of to my beneficiaries. May I know is this true?

It is important to understand how CPF Life actually works and not be mislead by logical fallacies (theoretical reasons)!

If you opt to start CPF LIfe at 65 and choose a plan, be it Basic, Standard or Escalating, this is how it works:

1. For Basic, about 10-20% of RA balance at 65 will go to the CPF Life Pool as Premium, call this Premium Pocket. This Premium continues to earn 4% pa interest and the interest is credited to the CPF Life Premium Interest Pocket. CPFB will draw monies from RA (which continues to earn 4% interest plus exta interest) first until it is depleted at around 90 age, then draw from the Premium Pocket until it is depleted, then draw from the CPF Life Premium Interest Pocket until it is depleted, then draw from the CPF Life Pool. So if you die at age 80, your RA is still not depleted yet, so your beneficiaries will get RA balance and CPF Life Premium Pocket Balance. Monies in the CPF Life Premium Interest Pocket goes to the Pool.

2. For Standard/Escalating Plan, 100% of RA at age 65 goes to the CPF Life Pool as Premium. Interest on Premium of 4% pa goes to the CPF Life Premium Interest Pocket. Yearly Extra interest on your combined CPF Account Balances also goes to the CPF Life Premium Interest Pocket. CPFB will draw monies from the Premium Pocket until it is depleted, then draw from the CPF Life Premium Interest Pocket until it is depleted, then draw from the CPF Life Pool. So if you die at age 80, your beneficiaries will only get balance monies from CPF Life Premium Pocket. Monies in the CPF Life Premium Interest Pocket goes to the Pool.