FRS or ERS?

[magicming]

Well, the ERS is better than the FRS in the same way and measure that the FRS is better than the BRS, right? Let's use the CPF LIFE Estimator for reference and with these assumptions: male, born in 1968 (age 55 now), Standard Plan. OK, here we go with the projected monthly payout amounts at age 65:

BRS: $850
FRS: $1,600 (+$750)
ERS: $2,360 (+$760)

I think there's a rounding "error" in there since the CPF LIFE Estimator evidently rounds to the nearest $10 increment, but the basic point is that BRS→FRS (+$99,400 in your RA at age 55) increases your age 65 CPF LIFE monthly payout (Standard Plan) by about $750. And then adding another $99,400 increases your payout by the same increment. So that +$99.4K is equally productive whether you're going from the BRS to FRS or from the FRS to the ERS. More generally, every dollar above minimum mandatory is equally productive.

Anyway, if you think the "upgrade" to FRS (which is voluntary for anybody with a house, really) is a good enough deal then further upgrades, up as a high as the ERS if you wish, are exactly the same deal. Since my household's view is that the FRS is a good deal then we logically view the ERS as also a good deal (since it's the same deal, with equal productivity). And since we're fortunate that we can easily afford the ERS(*) we're taking the deal. One spouse already has, and the other plans to.

(*) And this is really the key. If you can't afford the ERS, or FRS+25% (for example), OK then. You stop at some point below the ERS. But the FRS is merely a default, not an obligation. You can go lower or higher. You should go higher if you can afford it and if you view the BRS to FRS increment as a good deal.

Thanks for illustrating. I agree with most of this. Only that for myself, FRS to ERS top up dollars were not as productive as BRS to FRS. But I didn’t mind as I wanted the extra peace of mind, and like your household, I found the top up to ERS “easily affordable”. which as u say, is key.

 

[BBCWatcher]

Thanks for illustrating. I agree with most of this. Only that for myself, FRS to ERS top up dollars were not as productive as BRS to FRS.

Why were those dollars not as productive?

Anticipating your answer, if you choose the Basic Plan in the CPF LIFE Estimator you'll see some weird effects rolled in since the CPF Board assumes that your bonus interest will "roll off" at some point. But that's a general assumption. If for example you merely leave your MediSave Account at or near the Basic Healthcare Sum you'll qualify for maximum bonus interest — for the rest of your life, if you wish. For premium dollar productivity purposes you should look at the Standard Plan, really. It's the easiest to interpret. Whether you actually choose that plan or not is a separate question.

Anyway, yes, it's really true that raising a RA from the BRS to FRS has exactly the same impact on your monthly payout amount as raising your RA from the FRS to the ERS. As long as you're holding the effects of bonus interest constant, and that's very fair in these circumstances.

But I didn’t mind as I wanted the extra peace of mind, and like your household, I found the top up to ERS “easily affordable”. which as u say, is key.

To be clear, that's not some sort of bragging — not really. It's $99,400 (2023) to raise a Retirement Account from the FRS to the ERS. In my household's case that was from a mixture of cash and OA dollars, not all unrestricted cash. And this isn't a binary choice. For example, you can add $17,843.92 to your Retirement Account if you wish so that it's FRS+$17,843.92. The (current) ERS is only the maximum allowed. You can pick any intermediate figure you want if that's what you can afford.

 

[magicming]

Why were those dollars not as productive?

Anticipating your answer, if you choose the Basic Plan in the CPF LIFE Estimator you'll see some weird effects rolled in since the CPF Board assumes that your bonus interest will "roll off" at some point. But that's a general assumption. If for example you merely leave your MediSave Account at or near the Basic Healthcare Sum you'll qualify for maximum bonus interest — for the rest of your life, if you wish. For premium dollar productivity purposes you should look at the Standard Plan, really. It's the easiest to interpret. Whether you actually choose that plan or not is a separate question.

Anyway, yes, it's really true that raising a RA from the BRS to FRS has exactly the same impact on your monthly payout amount as raising your RA from the FRS to the ERS. As long as you're holding the effects of bonus interest constant, and that's very fair in these circumstances.

To be clear, that's not some sort of bragging — not really. It's $99,400 (2023) to raise a Retirement Account from the FRS to the ERS. In my household's case that was from a mixture of cash and OA dollars, not all unrestricted cash. And this isn't a binary choice. For example, you can add $17,843.92 to your Retirement Account if you wish so that it's FRS+$17,843.92. The (current) ERS is only the maximum allowed. You can pick any intermediate figure you want if that's what you can afford.

It just less with CPF life estimator. I’m not sure why. But as I said, I don’t mind. And nope, I do not take your affordability factor as bragging. It’s Just a fact. And it is an IMPORTANT fact. In this discussion. I am glad you were willing to share. Too many posts are vague on real facts. Most people just not willing to share for some reason or other.

 

[chong18]

The (current) ERS is only the maximum allowed. You can pick any intermediate figure you want if that's what you can afford.

Thanks, didn't know I can choose to top up to any amount below ERS. My estimation of FRS when I turn 55 is 300k, and I will have slightly more than this amount in OA so after shielding all my SA (except for the first 40k) I wil probably keep just a few K in OA for the DPS premium deduction till 64 and use the rest of OA + abit cash to top up RA to 400k instead of the full ERS 450k. That's just 2/3 of a full top up.

 

[vsvs24]

There are alternatives to CPF LIFE. They're called (other) life annuities. You can buy them, and there are several of them available for sale in Singapore. A couple years ago I tried compiling a list of them. Anyone/everyone is most welcome to compare them with CPF LIFE then choose the best alternative for themselves.

Are you aware that Great Eastern cut bonus rates this year ? Even declared surrender value was cut (ie you get lesser surrendering this year after the cut compared to if you had surrendered last year). Heard AIA too.

Going for alternative life annuities has the risk of the insurance companies cutting projected payouts at their fancy.

 

[BBCWatcher]

Thanks, didn't know I can choose to top up to any amount below ERS. My estimation of FRS when I turn 55 is 300k, and I will have slightly more than this amount in OA so after shielding all my SA (except for the first 40k) I wil probably keep just a few K in OA for the DPS premium deduction till 64 and use the rest of OA + abit cash to top up RA to 400k instead of the full ERS 450k. That's just 2/3 of a full top up.

That sounds reasonable, but as far as maintaining dollars in OA for DPS premiums you have some choices:

1. Stop paying DPS premiums. If you no longer need that coverage why pay for it?

2. If you’re still getting compulsory inflow into OA then you can drain OA at age 55. Your OA balance will then “catch up” to handle DPS premiums.

3. You can pay for DPS premiums in cash, and you probably should if market interest rates are reasonably beating OA’s 2.5% interest rate when you arrive at age 55.

Are you aware that Great Eastern cut bonus rates this year ? Even declared surrender value was cut (ie you get lesser surrendering this year after the cut compared to if you had surrendered last year). Heard AIA too.
Going for alternative life annuities has the risk of the insurance companies cutting projected payouts at their fancy.

Sure, but that’s why you ought to focus on the insurer-guaranteed portions of life annuities (and other insurance products) — and the quality of the insurer (how likely it is to deliver on its guarantees).

 

[dork32]

3. You can pay for DPS premiums in cash, and you probably should if market interest rates are reasonably beating OA’s 2.5% interest rate when you arrive at age 55.

can you explain this? i will use cash if market interest rate lose to oa interest rates

 

[BBCWatcher]

can you explain this? i will use cash if market interest rate lose to oa interest rates

First you make a yield/investment returns decision. At age 55 you have the option to withdraw remaining OA dollars. You probably would/should if market interest rates look "good" at that time because your alternatives, such as Singapore T-bills and SSBs, would earn more interest than OA (2.5% interest). Whether you actually invest your OA dollars in T-bills or SSBs is a separate question, but if those alternatives look attractive at that time then you probably wouldn't keep OA dollars as OA dollars.

Then (next decision) you pay for whatever expenses you have. You might still have OA dollars streaming in, and those new OA dollars can be used to pay DPS premiums. If not, OK, you use some cash.

I'm not sure if you can pay DPS premiums using cash even if you have OA dollars available. If you can, and if cash is substantially lower yielding at that time, great, use cash instead of OA if you wish.

 

[dork32]

the logic is simple.
if oa gives 2.5, and i get 4 outside. i will use oa to pay for dps and use my cash to earn 4

if oa gives 2.5 and i get 1.5 outside, i will use cash to pay for dps and use my oa to earn 2.5

 

[BBCWatcher]

Dork32, calm down and just read what I wrote again. We're probably not disagreeing.