CPF SA

[maple96]

For me, the choice is Basic due to spouse and children... the bequest is a factor for us so we have to look at the highest benefit on a collective basis. If we use current life expectancy in Singapore as a guide, Basic should deliver a 1.2% higher IRR. Even after 10 years beyond current life expectancy, it is only a 0.9% lower IRR versus Escalating. This is an acceptable loss.

Thanks for sharing.

I sort of “suspect” Basic CPF Life Plan is your choice based on most of your questions and discussions with your “sifu', tho recently I thought I read a change in your mind towards Standard Plan.

Anyway, from most of your discussions, I know u researched hard to find your own answers. I particularly like your view on “hedge the risk with Basic Plan”.

Sharing of your own choice with reasons provides better “feedback/pointers” for others to make their own choice. Help them to fish rather than give them the fish. Giving the fish is idealistic, not practical, not realistic, as everyone's priorities, financial situation, health, needs/wants, etc are different. There are many other considerations besides those criteria/factors u listed in your earlier "recommendations", u thought u know but dunno.

My view is there is no need to do any irr calculation if one knows how CPF Life works cos the return of 4% is guaranteed as of now to the future. Unlike any insurance policy with surrender values (eg annuity) u buy from pte insurers as I do not know exactly how they compute the guaranteed and non-guaranteed portions of the surrender values/payouts. That is my personal view, just sharing.

 

[dork32]

For me, the choice is Basic due to spouse and children... the bequest is a factor for us so we have to look at the highest benefit on a collective basis. If we use current life expectancy in Singapore as a guide, Basic should deliver a 1.2% higher IRR. Even after 10 years beyond current life expectancy, it is only a 0.9% lower IRR versus Escalating. This is an acceptable loss.

you seriously sounded that you wanted escalating.

anyone that can do a bit of maths will know that Basic is the choice for most people. Well some people still advocate escalating.

anyway welcome to the Basic club. it is really growing.

 

[dork32]

Anyway, from most of your discussions, I know u researched hard to find your own answers. I particularly like your view on “hedge the risk with Basic Plan”.

some people also say that basic is the most risky. escalating is the least risky. some people's favorite words are "dont take the risk. choose escalating or you will become an elderly destitute"

 

[dork32]

"ownself check ownself"

(popular catchphrase in this GE )

i say that we all could be wrong because we assumed this:

the money paid to the annuity in basic is still ours. it is just not earning interest. i combed the cpf site but they did not explicitly state this anywhere.

based on the numbers on the cpf calculator, i should be right. otherwise, the bequest would have dropped sharply at 65.

 

[Kaypohji]

It tells u clearly how much payout and bequest u left with each year lor

No need to calculate every year and guess guess

What u wanna understand? How they derive the numbers?

Actually u all don’t have to think so much.

Just look at payout and bequest and how much they took from u as ‘premium’ as stated in the table.

From there u can calculate irr for different plans....

Nice? That's obtained from CPF Life Estimator.

Clear? I am still trying to understand the numbers

 

[rrr2015]

thanks … so i guess that explains about the payout range.

Quite clear that withdrawal (including payout, I believe) is inclusive of interest earned to the previous month. Jan payout has no accrued interest (as Dec interest has been capitalised) whereas Feb payout includes interest accrued in Jan and so forth.

 

[celtosaxon]

you seriously sounded that you wanted escalating.

anyone that can do a bit of maths will know that Basic is the choice for most people. Well some people still advocate escalating.

anyway welcome to the Basic club. it is really growing.

Yes, I would have preferred Basic Escalating if that was an option. Unfortunately there is only Standard Escalating.

Agree, if you are looking for the absolute best odds of wringing the most out your CPF dollars beyond just your lifetime... then Basic is the clear mathematical winner.

The maximum advantage for Basic is right when the bequest for the other plans hits zero (at around age 80 if you started payments at 65). This is because the other plans have exhausted your RA balance and all interest earned up to that point went to the pool. The IRR for non-Basic plans up to that point is 0%. You only start to benefit from “pool participation” beyond that, and it takes about 10 years for the IRR to catch up to Basic (around age 90 if you start at 65).

 

[celtosaxon]

It tells u clearly how much payout and bequest u left with each year lor

No need to calculate every year and guess guess

What u wanna understand? How they derive the numbers?

Actually u all don’t have to think so much.

Just look at payout and bequest and how much they took from u as ‘premium’ as stated in the table.

From there u can calculate irr for different plans....

You can also reverse engineer from their charts — the one that shows the bequest curve over time. I reproduced the exact same charts with my own data in Excel to be sure my calculations were accurate. Once you have that data, you can see all the moving parts and compare the value of each plan (payments+bequest) at each point in time.

 

[maple96]

you seriously sounded that you wanted escalating.

.

Now u know there are some people who dun practice what they preach to mislead others?

 

[celtosaxon]

Now u know there are some people who dun practice what they preach to mislead others?

I know many in this forum have strong opinions on which plan is best under various circumstances. I believe it is valuable to consider different viewpoints and perspectives. However, I think we can all agree that everyone should make a well informed decision.

In my case, the choice of CPFL plan makes a significant difference for my family. Here is the rough difference by age (total payments+bequest) between ERS Basic and ERS Standard:

Age 80 = $201,000 more with Basic
Age 85 = $111,000 more with Basic
Age 90 = $18,000 more with Standard
Age 95 = $81,000 more with Standard
Age 100 = $94,000 more with Standard

As you can see, the advantages of Standard in later years are not as great as the advantages of Basic in earlier years. As a family collectively, we are not willing to give up the higher possibility of a larger advantage in exchange for a less likely and smaller advantage later on.

 

[capmcapm]

I'm thinking whether the below scenario is workable:
1 - at age 55, shield the SA, balance in SA+OA -> RA (say BRS amount in RA)
2 - topup RA using cash to ERS amount, because of the high RA interest of 4%
3 - before age 65, apply to withdraw the fund in RA until BRS via property pledge
4 - take CPF Life BRS basic plan at age 65
is 2 and 3 above workable?

 

[BBCWatcher]

I'm thinking whether the below scenario is workable:
1 - at age 55, shield the SA, balance in SA+OA -> RA (say BRS amount in RA)
2 - topup RA using cash to ERS amount, because of the high RA interest of 4%
3 - before age 65, apply to withdraw the fund in RA until BRS via property pledge
4 - take CPF Life BRS basic plan at age 65
is 2 and 3 above workable?

Steps 3 and 4 are not generally allowed because you have much more than the BRS as your top up. Consequently your participation level in CPF LIFE will be at approximately the FRS level in the scenario you've described.

The 4.0% interest rate is attractive, yes. And your Retirement Account top ups, plus interest, then go to buy Singapore's most attractive life annuity.

 

[maple96]

Steps 3 and 4 are not generally allowed because you have much more than the BRS as your top up. Consequently your participation level in CPF LIFE will be at approximately the FRS level in the scenario you've described.

The 4.0% interest rate is attractive, yes. And your Retirement Account top ups, plus interest, then go to buy Singapore's most attractive life annuity.

Who can spot the serious mistakes above?

 

[celtosaxon]

Who can spot the serious mistakes above?

From what I understand, the original BRS amount that funded the RA from CPF accounts is the only part that can be withdrawn later at 65 if the rest was topped up via RSTU.

BRS / FRS / ERS = 0.5 / 1.0 / 1.5

Withdraw the 0.5 and you are left with 1.0 (FRS) from RSTU which can’t come out, right?

The one thing I would suggest, if the intent is to enjoy that 4% in RA as long as possible... why not extend things to age 70?

 

[capmcapm]

From what I understand, the original BRS amount that funded the RA from CPF accounts is the only part that can be withdrawn later at 65 if the rest was topped up via RSTU.

BRS / FRS / ERS = 0.5 / 1.0 / 1.5

Withdraw the 0.5 and you are left with 1.0 (FRS) from RSTU which can’t come out, right?

The one thing I would suggest, if the intent is to enjoy that 4% in RA as long as possible... why not extend things to age 70?

Yes the intention is to enjoy the 4% interest in RA.

Or maybe this way:
1 - at age 55, shield the SA, balance in SA+OA -> RA (say until FRS amount in RA)
2 - topup RA using cash to ERS amount.
3 - before age 65 (or maybe age 70), apply to withdraw the fund in RA until BRS via property pledge (as mentioned above only the transferred amount in step 1 above, ie. FRS can take out.
4 - take CPF Life BRS basic plan at age 65/70

can work?

At age 65/70, I only interested to get BRS basic plan. I feel that the standard/escalating not attractive. I also noted the annuity amount as a % of FRS/ERS is also lower compared to BRS.

 

[celtosaxon]

Yes the intention is to enjoy the 4% interest in RA.

Or maybe this way:
1 - at age 55, shield the SA, balance in SA+OA -> RA (say until FRS amount in RA)
2 - topup RA using cash to ERS amount.
3 - before age 65 (or maybe age 70), apply to withdraw the fund in RA until BRS via property pledge (as mentioned above only the transferred amount in step 1 above, ie. FRS can take out.
4 - take CPF Life BRS basic plan at age 65/70

can work?

At age 65/70, I only interested to get BRS basic plan. I feel that the standard/escalating not attractive. I also noted the annuity amount as a % of FRS/ERS is also lower compared to BRS.

The rule appears to be that RSTU and any interest earned in RA cannot be withdrawn. So if the the strategy is to put more in RA for the interest with intention of withdrawing that interest later, you might be disappointed.

However, if you value a 4% return, why wouldn’t you also value CPFL beyond BRS? The returns for FRS/ERS can exceed 4% if you live beyond 90, or if you choose Basic and you’ll achieve at least a 3% return by age 75 which only increases from there.

Yes, BRS gives a bit higher returns, but that is like not wanting to keep more than $60k in CPF because you can’t get bonus interest on amounts above that.

The returns are attractive compared to any other fixed income instruments out there, and every retiree needs some fixed income in their portfolio... this allows you to invest in riskier assets for higher returns outside CPF, to cover inflation.

Let’s say you have $2k/mo from CPFL, and you have $800k in an equity portfolio which at a 3% withdrawal rate would provide another $2k/mo. Assuming you made $5.7k per month before retirement, that $4k/mo replaces 70% of your salary. Let’s say after you retire, the stock market drops by 50% and you’re left with only $400k.. you can lean on CPF to carry you through until stocks recover. That is the point.

 

[capmcapm]

The rule appears to be that RSTU and any interest earned in RA cannot be withdrawn. So if the the strategy is to put more in RA for the interest with intention of withdrawing that interest later, you might be disappointed.

I see. So the maximum we can withdraw from RA is only the transferred amount when RA setup in age 55? (I mean the amount transferred from SA/OA to RA)

However, if you value a 4% return, why wouldn’t you also value CPFL beyond BRS? The returns for FRS/ERS can exceed 4% if you live beyond 90, or if you choose Basic and you’ll achieve at least a 3% return by age 75 which only increases from there.

Hahaha I don't foresee will live beyond age 88. IRR seems better under Basic plan for below age 88.

Yes, BRS gives a bit higher returns, but that is like not wanting to keep more than $60k in CPF because you can’t get bonus interest on amounts above that.

The returns are attractive compared to any other fixed income instruments out there, and every retiree needs some fixed income in their portfolio... this allows you to invest in riskier assets for higher returns outside CPF, to cover inflation.

Let’s say you have $2k/mo from CPFL, and you have $800k in an equity portfolio which at a 3% withdrawal rate would provide another $2k/mo. Assuming you made $5.7k per month before retirement, that $4k/mo replaces 70% of your salary. Let’s say after you retire, the stock market drops by 50% and you’re left with only $400k.. you can lean on CPF to carry you through until stocks recover. That is the point.

This make sense. If opt for ERS instead of BRS, can treat it as bond with >3% interest. Thanks.

 

[celtosaxon]

I see. So the maximum we can withdraw from RA is only the transferred amount when RA setup in age 55? (I mean the amount transferred from SA/OA to RA)

That is what it says on the CPF website. Top ups and interest earned in RA stays in RA.

Hahaha I don't foresee will live beyond age 88. IRR seems better under Basic plan for below age 88.

Yes, the IRR is higher for Basic because of the bequest... as long as you have someone to make use of that bequest.

If not, you (alone) would obviously get more out of the higher payments with Standard (during your life).

This make sense. If opt for ERS instead of BRS, can treat it as bond with >3% interest. Thanks.

I had the same thinking as you when I first starting looking at CPFL... just minimize participation and scoop off the maximum yield with BRS. But when you look at it as part of your overall portfolio, CPFL beats bonds any day... especially considering it is lawsuit proof, age proof and crisis proof.

 

[dork32]

Yes, the IRR is higher for Basic because of the bequest... as long as you have someone to make use of that bequest.

If not, you (alone) would obviously get more out of the higher payments with Standard (during your life).

the higher irr is because basic earns interest and standard do not.

 

[The_Davis]

I know many in this forum have strong opinions on which plan is best under various circumstances. I believe it is valuable to consider different viewpoints and perspectives. However, I think we can all agree that everyone should make a well informed decision.

In my case, the choice of CPFL plan makes a significant difference for my family. Here is the rough difference by age (total payments+bequest) between ERS Basic and ERS Standard:

Age 80 = $201,000 more with Basic
Age 85 = $111,000 more with Basic
Age 90 = $18,000 more with Standard
Age 95 = $81,000 more with Standard
Age 100 = $94,000 more with Standard

As you can see, the advantages of Standard in later years are not as great as the advantages of Basic in earlier years. As a family collectively, we are not willing to give up the higher possibility of a larger advantage in exchange for a less likely and smaller advantage later on.

Hoe many % do you foresee can hit 90 and above?