New Cpf Life Calculation

[BBCWatcher]

Is it worth it ?

If you want higher lifetime annuity payouts, sure! Nobody has found a better value Singapore dollar lifetime annuity, at least not anything available to the general public. If someone has, please let us know!

I personally prefer greater than BRS and FRS level lifetime annuity payouts as part of my overall future plan, and I'm expecting higher payouts already, as previously explained. Many people feel the same way, that prudence dictates having more than the rather modest CPF LIFE lifetime annuity stream, along with plenty of retirement savings above that. (If you're able.) However, I don't typically recommend lifetime annuities if you are in poor health.

I would generally recommend deferring the CPF LIFE annuity payout start date to age 70, if you can afford to wait, and opting for the 2% per annum increase option. That again depends on your health outlook when the time comes.

 

[BBCWatcher]

CPF Life gives a fair return, not a fantastic one.

What's the better deal in a lifetime annuity?

I'm really genuinely puzzled there's so much confusion about what lifetime annuities are, especially sovereign administered ones. I guess the concept is just too new here in Singapore to Singaporeans. Sovereign lifetime annuities are literally late 19th century innovations. They're not new! But if you don't know what they are and what critically important role they play, then you're going to draw a lot of bad comparisons.

 

[BBCWatcher]

Anyway, doesnt SG government ability to print notes put it at a better position to manage the black swan events that we are talking about?

That's also a great argument for why the Monetary Authority of Singapore could, in principle, provide some sort of guarantee that they'll print or not print Singapore dollars in certain ways.

As I wrote, sovereigns are special. A sovereign's promise can only be in its behaviors, at the end of the day. There's no higher authority that can interpret or enforce a sovereign guarantee. (Well, excepting bigger invading sovereigns, perhaps.) If you want to lose sleep over what this sovereign does and doesn't write down, that's up to you. But I think that's pretty silly. What's the better option....?

....Well, I have one in mind: reasonable portfolio diversification, and that includes across sovereigns. I've been the one in this forum pushing for the "typical" Singaporean investor to avoid too extreme (such as 100%) concentration of holdings in Singapore. Yet there are plenty of Singaporeans with CPF, bank deposits in Singapore, real estate holdings in Singapore, and a STI stock index fund -- that's one common example. And I think that's really quite risky, enough to lose sleep over. The "correct" answer will vary, but 0% invested outside Singapore is the wrong answer, in my view. At the same time, if that is the profile of so many/too many Singaporean investors, it's really quite ridiculous to single out the CPF leg of that portfolio for criticism. It's the safest part, by far. And most of it is compulsory and laden with tax relief -- another sovereign prerogative!(*) -- so why argue about it? It makes no sense. Optimize it, and sleep well.

(*) Does the sovereign guarantee any particular tax policy, including potential taxation of sovereign and non-sovereign annuity payouts? Sovereigns are special. You're trying to draw comparisons that simply cannot be drawn.

 

[w1rbelw1nd]

As I wrote, sovereigns are special. A sovereign's promise can only be in its behaviors, at the end of the day. There's no higher authority that can interpret or enforce a sovereign guarantee. (Well, excepting bigger invading sovereigns, perhaps.) If you want to lose sleep over what this sovereign does and doesn't write down, that's up to you. But I think that's pretty silly. What's the better option....?

Well for one we can challenge them, write to straits times forum etc.

Like you say, they can easily pass a law to change whatever they have previously legislated. But that is at least at impediment to them. Our government already has a lot of leeway in terms of passing laws in parliament. If there is no significant opposition stopping them, then we, as citizens, should at least make them uncomfortable.

On the point of no comparison, we are not trying to do an apple to apple comparison. There are not many things in life which you can do a extremely fair comparison, anyway. Taking what is offered in the private sector for annuity is a reasonable comparison for what the government is mandating, as what you have done for the returns of CPF Life.

We can agree to disagree, anyway.

 

[BBCWatcher]

Well for one we can challenge them, write to straits times forum etc.

Yes, agreed, continuous democratic engagement is important.

 

[xxxjhxxx]

bump this up! this topic came to be of interest to me recently. Hope to get more views.. i have read through both sides that support CPF Life and those that dont. I am not trying to reach a conclusion here but just bringing up some numbers for discussion.

Based on CPF LIFE Payout Estimator for 200k RA at exactly age 65 (today),
Standard plan - $1,096 (3.75%) - $1,159 (4.25%)
Basic plan - $993 - $1,052

Using Excel, based on the same interest rates used and 200k RA, I calculated the PV/FV:

Standard plan drawdown at $1096 / $1159 - You will only gain if you live past 87. If something happen before that you lose out.

Basic plan drawdown at $993 / $1,052 - Looking at the estimated bequest at 75 and 85, you have actually gained even if you pass away early. The breakeven point (without considering bequests) is after age 90. But touch wood, even if you pass away before that, your nominees still gained from your bequests.

To illustrate further:
Say you are drawing $1052 (at 4.25%), and you pass away at 85, the estimated bequest is $69,108 - $69,476. However, the calculated FV is only $60.5k. This translates to a gain of 9k.

If I am comparing just these 2 plans, basic plan seems to be the way to go.

PS: I have not looked at the current annuities offered by insurers. Agents please comment if you have annuities that can beat CPF Life based on the same projections.

 

[henrylbh]

bump this up! this topic came to be of interest to me recently. Hope to get more views.. i have read through both sides that support CPF Life and those that dont. I am not trying to reach a conclusion here but just bringing up some numbers for discussion.



If I am comparing just these 2 plans, basic plan seems to be the way to go.

PS: I have not looked at the current annuities offered by insurers. Agents please comment if you have annuities that can beat CPF Life based on the same projections.

No value to understand those who support or don't support CPF Life. CPF Life if mandatory.

Just need to understand more and decide Basic or Standard and whether to top-up RA (by cash or CPF) to ERS and go for higher annuity payout.

Bet you no insurer can match, not asking for more, what CPF Life is offering and you don't need care about Policy Owner Protection Scheme

 

[BBCWatcher]

No value to understand those who support or don't support CPF Life. CPF Life if mandatory.

I suppose a member could hypothetically terminate citizenship or permanent residence, and thus have the option to withdraw from CPF (then or in the future). That exception aside, I agree. The goal should be to take maximum advantage, in your particular circumstances, of what is a mandatory program.

 

[xxxjhxxx]

Yes, it is a mandatory program but if you have an annuity you can opt out (at least that is what i understand). So our purpose is to maximise the beneifts of it:
1. Find out which is better, standard, basic or the upcoming escalating.
2. See if there are any better annuities out there (dont think theres any now). Based on the CPF LIFE estimator, we can fairly assume that the long term rate will be around 4% (projected rates are 3.75 and 4.25). Benefits include it being risk free, no need to care abt policy owner protection scheme etc. With this being a nation wide plan, doubt the gov will anyhow adjust the rates downwards. Insurers on the other hand...

 

[BBCWatcher]

Yes, it is a mandatory program but if you have an annuity you can opt out (at least that is what i understand).

That's correct, but that's part of optimization. FYI, you would never rationally, voluntarily buy a private sector annuity in order to opt out of CPF LIFE. If such an annuity, such as a private sector pension, "falls in your lap," then you'd consider opting out of CPF LIFE (not a given that you would). But you'd never buy a private annuity for the purpose of replacing CPF LIFE. The former costs more than the latter, so you'd never do it if you're rational.

1. Find out which is better, standard, basic or the upcoming escalating.

"Better" is situational.

2. See if there are any better annuities out there (dont think theres any now).

There are no Singapore dollar lifetime annuities that even come close to CPF LIFE.

 

[oceanicmanta]

Does anyone know why CPF Life Payout calculator caps the Retirement Account amount at $350K ?

 

[existence92]

There are no Singapore dollar lifetime annuities that even come close to CPF LIFE.

Would you mind explaining further on this?

Which are the annuities that you are comparing against and the basis of this statement?

 

[existence92]

Does anyone know why CPF Life Payout calculator caps the Retirement Account amount at $350K ?

If I am not wrong,

The current Enhanced Retirement Sum Scheme of 2017 is $249,000.

Accounting for the 10 years interest assuming that you start at 55, your retirement account will have principal amount and accrued interest capped at $350k.

Hence, they have already factored that amount in for you to enjoy the $18xx - $20xx payouts monthly.

TL;DR you cannot put more than $350k in RA.

 

[BBCWatcher]

Would you mind explaining further on this?
Which are the annuities that you are comparing against and the basis of this statement?

All of them, and there are only ~3: NTUC’s, Tokio Marine’s, and Aviva’s (MINDEF/SAF rider).

For every dollar, net of tax, that you put into CPF LIFE, you get more assured money back in your lifetime annuity. And it’s the only payor that is an arm of a AAA-rated sovereign, so the quality and credit worthiness of the payor is unmatched.

I’m not necessarily blaming the private insurers for being less competitive. It’s very hard to compete with a (partially) compulsory program, with its inherent risk pool advantages, and with CPF’s unique tax advantages.

Footnote: Tokio Marine (and perhaps the others, but at least them) offers a “joint/survivor” annuity option which is an attractive feature and not something CPF offers. But it’s not attractive enough to substitute for topping up a spouse’s/partner’s CPF Special/Retirement Account.

 

[existence92]

All of them, and there are only ~3: NTUC’s, Tokio Marine’s, and Aviva’s (MINDEF/SAF rider).

For every dollar, net of tax, that you put into CPF LIFE, you get more assured money back in your lifetime annuity. And it’s the only payor that is an arm of a AAA-rated sovereign, so the quality and credit worthiness of the payor is unmatched.

I’m not necessarily blaming the private insurers for being less competitive. It’s very hard to compete with a (partially) compulsory program, with its inherent risk pool advantages, and with CPF’s unique tax advantages.

Footnote: Tokio Marine (and perhaps the others, but at least them) offers a “joint/survivor” annuity option which is an attractive feature and not something CPF offers. But it’s not attractive enough to substitute for topping up a spouse’s/partner’s CPF Special/Retirement Account.

Ah nice..okays

 

[oceanicmanta]

Say my birthday is 1 Apr.

The year I turn 55, what happens to the SA Interest for that year when my RA is formed ?

Does SA get 3 months of interest credited at year end (being SA interest from 1 Jan to 31 Mar that year) ?

 

[qhong61]

Say my birthday is 1 Apr.

The year I turn 55, what happens to the SA Interest for that year when my RA is formed ?

Does SA get 3 months of interest credited at year end (being SA interest from 1 Jan to 31 Mar that year) ?

Your SA interest for 1st qtr will be transfered to RA.

 

[kehyi4]

Why would SA interest auto-transfer to RA? Is there something in the CPF FAQ that shows this happening?

My thinking: Your SA account does not disappear after 55. In fact if you continue to work and receive salary, your CPF contributions will continue to be apportioned into SA and it will grow. It makes far more sense to think that SA interest will stay in SA, then for it to get transferred to RA

 

[qhong61]

Why would SA interest auto-transfer to RA? Is there something in the CPF FAQ that shows this happening?

My thinking: Your SA account does not disappear after 55. In fact if you continue to work and receive salary, your CPF contributions will continue to be apportioned into SA and it will grow. It makes far more sense to think that SA interest will stay in SA, then for it to get transferred to RA

The interest before 55 will be transferred.

 

[kehyi4]

The interest before 55 will be transferred.

This is very interesting - i've not come across this anywhere in the CPF website. Can you point out where the info comes from?