New Cpf Life Calculation

[thekang]

Any excel expert?

In my post #34, I use formula "=IF(E561>60000,30000*$I$2/12,(E561-30000)*$I$2/12)" for the numbers in the last column. At certain point the numbers become negative. What should I add to return zero if negative? Thanks.

Use max (formula,0) to floor at zero

 

[windwaver]

What I suspect is possible is that rather well-to-do people are making these sorts of arguments because they think they're invincible, and they don't like the idea of universal participation. But I think that's pretty ridiculous. Even if you are one of those people and think that you're exceptional, and you ought not be required to participate in CPF LIFE, if you are truly wealthy then CPF LIFE is so tiny you really ought to get a life (pun intended) and worry about real problems. This tiny bit of longevity insurance simply won't affect you, the filthy rich invincible.

Man, I was laughing non stop when I read that last sentence .

We should have more of these healthy exchanges in a forum.

 

[dork32]

That doesn't follow.

Insuring against outliving your savings, with ironclad protection (extremely reliable payout), isn't necessarily "cheap." That's rather the point. It takes some financial backing to make and to keep that commitment.

so if it is not cheap, why do you want to buy?

By what standard? If there's little or no inflation, or deflation, 0.1% truly is fantastic. Are you familiar with Japan?

this is not the point. what i am trying to say is that there may a situation where nothing is worth buying.

Usain Bolt ran the 100 meter dash in 9.572 seconds. There have been other many other sprinters who have run the 100 meter dash in under 10 seconds. Sports researchers believe that the fastest among our species might be able to get as low as 9.27 seconds. Theoretically. So is Bolt's 9.572 second sprint "rubbish"? No, of course not. He holds the world record. He's the best. The theoretical best performance is only theoretical. We live in the real world.

who cares about bolt? we are talking about cpf. stick to the point

CPF LIFE is the best value (and highest quality, as it happens) guaranteed lifetime annuity paying in Singapore dollars. Metaphorically, it's also a 9.7 second 100 meter sprinter among U.S. lifetime annuities. CPF LIFE is world class. There's a benchmark here.

cpf may the best in its class but there may be better alternatives. i dont have to run 9,7 s to beat usain bolt. i just climb onto a horse or a motor bike. there are alternatives.

If you want to describe all guaranteed lifetime annuities as "rubbish" then what's the alternative insurance to protect against outliving savings? For example, is your alternative proposal that the children and grandchildren of elderly Singaporeans be required to backstop their elders? (And what about elder Singaporeans with no children?) What's the alternative, realistic proposal to address this very real problem (elder destitution)?

What other instrument(s) insure against outliving one's savings?

you dont have to be bill gates or hassanal bolkiah to have enough savings to last your whole live.

That calculation is wrong, as already pointed out. You can't assume that CPF's interest rates are some universal constant, and then plug those into an annuity calculation. The world doesn't work that way.

the calculation is not wrong. you can assume the rates that henry used it is the rate that is used in the cpf life calculator which is used by cpf. if not which rate can we use?

But no, you don't "lose." You might otherwise be destitute at age 65 or at any point thereafter. CPF LIFE means you won't be, not utterly. The monthly payment stream is itself an important aspect of the insurance. Just as it was with the Retirement Sum Scheme. The problem with RSS was that it was/is common to outlive RSS. CPF LIFE fixes that.

yes there is win and loss. if you live beyond 92 you win otherwise you lose. if you are getting more that you deserved, you win. if your family is getting less than what they are supposed to get, they lose.

And beyond that, do you still not understand what insurance is? You're not a property insurance "loser" when your home fails to burn down. You were simply insured against a risk that did not befall you, personally. Thank goodness it didn't befall you. A lifetime guaranteed annuity is like that, with only one difference: you're hoping to live a long time. You're hoping for the fire, so to speak. You're insuring to protect against the happy event of living a long, long time. But it's otherwise the same basic insurance principle.

you buy insurance, your house did not get burnt down, you lost the insurance premium which can be used to buy something else. you are one dimensional. you only see your own side. alternatively, i can also not buy insurance and my house do not get burnt down and i get to save the insurance premium.

Are you a MediShield Life "loser" when you don't get sick, die suddenly of a stroke at home in your sleep, and go directly to your funeral? No, you were lucky, healthy, and had basic medical insurance just in case you weren't. You can't predict this stuff, and that's why there's insurance.

alternatively, i can dont buy medishield life and i dont fall sick and i get to keep the extra money.

What I suspect is possible is that rather well-to-do people are making these sorts of arguments because they think they're invincible, and they don't like the idea of universal participation. But I think that's pretty ridiculous. Even if you are one of those people and think that you're exceptional, and you ought not be required to participate in CPF LIFE, if you are truly wealthy then CPF LIFE is so tiny you really ought to get a life (pun intended) and worry about real problems. This tiny bit of longevity insurance simply won't affect you, the filthy rich invincible.

i am ok with my finances but i do not think i am invincible. that is why i am still trying to optimize. yes universal participation is rubbish. everyone have their individual needs. we are now in the world of mass customization. there is no one size fit all solution.

 

[henrylbh]

Use max (formula,0) to floor at zero

Can you write the exact formula as I know nuts about macro? Thanks.

 

[dork32]

i use this cpf life calculator
https://www.cpf.gov.sg/eSvc/Web/Schemes/LifePayoutEstimator/LifePayoutEstimator

if you key some numbers, it is indicated that the cpf life interest is 3.75 to 4.25%. When henry used 4%, it is fair.

 

[windwaver]

Nice chart from age 65 to age 90 where money runs out for FRS.

How about those who join CPF life with less than FRS? The money gets pooled and forms a giant account?

Once you have joined CPF LIFE, you can only leave the scheme for the following reasons:

You have a medical condition which causes you:

- to be permanently unfit for any employment;
- to have a severely reduced life expectancy; or
- to be terminally ill.

You are about to leave, or have left Singapore and West Malaysia permanently with no intention of returning for work or to live.

You are a Malaysian citizen and have left Singapore permanently to live in West Malaysia.

 

[dork32]

How about those who join CPF life with less than FRS? The money gets pooled and forms a giant account?

if you have less than FRS then you will have a less monthly payout. you will still use up everything at about the same time

 

[windwaver]

if you have less than FRS then you will have a less monthly payout. you will still use up everything at about the same time

Yeah, tried the calculator and understand what you mean.

I guess there is this bunch of people that fall into the old Retirement Sum Scheme (RSS) or CPF LIFE. Those people can stay with RSS or join CPF LIFE.

Which is better huh?

 

[henrylbh]

You can't just plug in CPF's current non-annuity interest rate and call it a day. CPF is paying above market interest, and that's part of CPF LIFE, too. It's supporting a bigger entry premium for more people. It's part of the program. But that doesn't mean CPF LIFE's imputed actuarial return post-entry necessarily must be as wonderful as the pre-entry portion of CPF LIFE.

Here's the calculation you should run. Suppose a 25 year old deposits $60,000 into her Special Account. Now calculate the CPF LIFE annuity. Compare that to the 25 year old depositing $60,000 into NTUC's lifetime annuity with a deferred payout starting at age 65. How do these compare?

But, bottom line, you cannot say "CPF SA pays 4% (or more), so therefore CPF LIFE annuities suck because the imputed actuarial return during the payout years is lower." That doesn't make any sense. It's all one program.

I take what's on the table with no loquacious statement

From 55 to time (up to 70) when one chooses CPF Life plan, RA is earning 4% + additional 2% on first 30k + additional 1% on next 30k.

Now you are indirectly saying that it's not right to use the same rates for CPF Life annuities "because the imputed actuarial return during the payout years is lower". Why must settle for lower than what's on the table.

Never once I said CPF Life sucks. It's an unnecessary gamble and without any transparency in the calculations and applications. It should be abandoned and tweet RSS with lower payout for RA to last to say 95 or 100 yo (not enough?). For those who managed to live beyond, let that be the state's liability as bonus to centenarians instead of taking from those who lived shorter than 95 or 100 yo (and that will be quite many to support just a few - with big opaque buffer ).

So much has been spent to study CPF Life annuities and options have been changed several times and now left with 2 and it is still evolving (with no end in sight) and adding to the confusion even to the educated. Save all the trouble of monitoring payout and LIF with a straightforward payout from RA with only interest rate affecting it.

 

[dork32]

Yeah, tried the calculator and understand what you mean.

I guess there is this bunch of people that fall into the old Retirement Sum Scheme (RSS) or CPF LIFE. Those people can stay with RSS or join CPF LIFE.

Which is better huh?

most of us dont have a choice. we are forced into cpf life scheme.

if you happen to be the lucky one that can choose, you will choose rss if you think you will die young. if you feel that you are going to live forever, choose cpf life. according to henry, the cut-off is 92.

for myself, i probably will not depend on the cpf for retirement. i would rather use the cpf as a high interest savings account. i would delay my draw down age if it is rss scheme. for the cpf life scheme, i will start my draw down even as early as possible. otherwise i may not break even at 92.

 

[BBCWatcher]

A couple more points:

1. If you hate CPF LIFE, no problem. Find the best lifetime guaranteed annuity you can elsewhere that's comparable and at least as generous, then apply for a complete opt-out from CPF LIFE. Go forth and compete if you think you can do better.

2. I've heard these arguments before, that longevity insurance isn't essential because you can be "rich enough" to avoid needing it. Wrong. Anybody can become destitute practically overnight. That can be through error, lawsuits, addictions, mental incompetence, or any number of other causes. There are many very rich people who have been completely wiped out.

Practically every (or maybe even strike "practically") developed country insists on some form of base longevity insurance. The United States, to pick an example -- home to the world's wealthiest individuals -- has U.S. Social Security which pays even those wealthiest individuals a lifetime income stream starting at age 62 to 70, with a higher monthly benefit the longer you wait to collect. Bill Gates will collect U.S. Social Security, too. (U.S. Social Security happens to be a joint/survivor annuity, meaning if he should predecease his spouse then his spouse will start receiving his benefit. Even if she never contributed into U.S. Social Security, although she did, as it happens. And it happens to be an inflation-adjusted income stream.)

Hypothetically you could design CPF LIFE such that it pays a bigger benefit to those with less wealth and income, a progressively smaller benefit to those with more wealth and income, and no benefit to those with the highest wealth and income. But it turns out that if you did that then CPF LIFE wouldn't be that much more generous for those who receive a monthly payout. There just aren't enough rich people to matter much, basically. Even in Singapore. So does anyone want to recommend that -- that everybody still has to pay the CPF LIFE premium but that the monthly payout is means tested? I don't recommend that.

 

[dork32]

A couple more points:

1. If you hate CPF LIFE, no problem. Find the best lifetime guaranteed annuity you can elsewhere that's comparable and at least as generous, then apply for a complete opt-out from CPF LIFE. Go forth and compete if you think you can do better.

it does not seem to get into your head. i dont have to get a lifetime guaranteed annuity. eg i will have close to the ers in my sa by the time i hit 55. i will chose the brs scheme and whatever i can in the sa. my sa is an alternative to cpf life ers

2. I've heard these arguments before, that longevity insurance isn't essential because you can be "rich enough" to avoid needing it. Wrong. Anybody can become destitute practically overnight. That can be through error, lawsuits, addictions, mental incompetence, or any number of other causes. There are many very rich people who have been completely wiped out.

yes, there is a non zero chance that a comet is going to hit earth tomorrow and we will all die. this is rubbish. if the probability is low enough, we can ignore it. you mentioned that i will be a destitute soon. i am still holding onto my assets now. i can assure you that the chance of me being a destitute is like the chance of a comet hitting us during our lifetime

Practically every (or maybe even strike "practically") developed country insists on some form of base longevity insurance. The United States, to pick an example -- home to the world's wealthiest individuals -- has U.S. Social Security which pays even those wealthiest individuals a lifetime income stream starting at age 62 to 70, with a higher monthly benefit the longer you wait to collect. Bill Gates will collect U.S. Social Security, too. (U.S. Social Security happens to be a joint/survivor annuity, meaning if he should predecease his spouse then his spouse will start receiving his benefit. Even if she never contributed into U.S. Social Security, although she did, as it happens. And it happens to be an inflation-adjusted income stream.)

it is not gates is receiving social securities or not. it is whether he needs it or not. he is taking it not because he needs it. you go tell gates that there is a non-zero chance that he will become a destitute, he will laugh his toes off. also gates is so rich that he does not care about his money. i am still not up to his level yet. i have to optimize and make the most of my money

Hypothetically you could design CPF LIFE such that it pays a bigger benefit to those with less wealth and income, a progressively smaller benefit to those with more wealth and income, and no benefit to those with the highest wealth and income. But it turns out that if you did that then CPF LIFE wouldn't be that much more generous for those who receive a monthly payout. There just aren't enough rich people to matter much, basically. Even in Singapore. So does anyone want to recommend that -- that everybody still has to pay the CPF LIFE premium but that the monthly payout is means tested? I don't recommend that.

this is what our garmen is doing lah. those will less money will receive a higher payout proportional to their cpf life amount

 

[dork32]

i have nothing against insurance. it is just buy the insurance you need.

eg i drive. the chance of me getting into a serious accident is significant. i buy 1st party car insurance. when my car is close to 10 years, i switch to 3rd party. i dont need 1st party then.

there is also a chance that serious illness may hit me. it can hit anyone. if it hits me and i cannot die, i may go broke because of the medical fees. i buy medical insurance

if i die now, my family will get enough money to last their whole life through if they remain prudent. i dont care about life insurance. but i do have some live insurance. i bought during the time when i do not have that much money to leave to my loved ones if i die. i do not add anymore these days.

you dont have to insure everything under the sun. if you have enough preparation, you do not need insurance.

 

[BBCWatcher]

iif the probability is low enough, we can ignore it.

The government cannot. The government doesn't want to assume your personal risk of utter elder destitution, whatever that risk is. The government insists on your not transferring your personal risk of elder destitution to the public purse.

This is what developed economy governments do. They are the insurers of last resort, and they insist on certain terms and conditions. Singapore's government insists on at least BRS level CPF LIFE, assuming you've had the working income to support enough CPF contributions.

i can assure you that the chance of me being a destitute is like the chance of a comet hitting us during our lifetime

So you're invincible. Right, sure.

You can test your hypothesis. Go to the market and get the best interest rate you can on a long-term unsecured loan. Compare that interest rate to the rate the AAA-rated Singapore government gets on its 30 year bond. Then pause to reflect on what the market thinks about the difference in risks between you and a AAA rated sovereign.

 

[windwaver]

most of us dont have a choice. we are forced into cpf life scheme.

if you happen to be the lucky one that can choose, you will choose rss if you think you will die young. if you feel that you are going to live forever, choose cpf life. according to henry, the cut-off is 92.

for myself, i probably will not depend on the cpf for retirement. i would rather use the cpf as a high interest savings account. i would delay my draw down age if it is rss scheme. for the cpf life scheme, i will start my draw down even as early as possible. otherwise i may not break even at 92.

Good point, I will certainly consider that .

 

[dork32]

You can test your hypothesis. Go to the market and get the best interest rate you can on a long-term unsecured loan. Compare that interest rate to the rate the AAA-rated Singapore government gets on its 30 year bond. Then pause to reflect on what the market thinks about the difference in risks between you and a AAA rated sovereign.

the best unsecured loan that i have taken is 0% and $0 admin fee. i am not bluffing. my enemy yywin has done before as well. ANZ bank.

Wow, the market thinks that i am more credible than the sg garmen.

to be a bit more correct, of course unsecured loans have to have higher interest rates. i have full confidence in myself, i know i will not default. But does the bank know me? for every me, there may be another esshole trying to cheat them. to fend against these people, i have to bear the high rate. it does not mean that i am a high risk person. if this is the case, then i will not be taking any unsecured loan. you are seriously talking rubbish and making rubbish comparisons.

 

[w1rbelw1nd]

Find that the discussion here on whether cpf life should be imposed is kind of pointless. Dork may be right that he can bear the risk of prolonged longevity without cpf life, and bbcwatcher is probably also right on the principles behind having an annuity for society as a whole.

Shouldn't we stick to how best we work around current government policies based on own personal circumstances?

 

[dork32]

So you're invincible. Right, sure.

you are invincible if you have full confidence that you will not become a destitute? There will be a lot invincibles around

 

[dork32]

The government cannot. The government doesn't want to assume your personal risk of utter elder destitution, whatever that risk is. The government insists on your not transferring your personal risk of elder destitution to the public purse.

This is what developed economy governments do. They are the insurers of last resort, and they insist on certain terms and conditions. Singapore's government insists on at least BRS level CPF LIFE, assuming you've had the working income to support enough CPF contributions.

of course the garmen cannot ignore. there are many out there that squander everything away. how does the garmen know it is me or some other idiots?

they are not wrong in implementing cpf life. but dragging everyone into it is very unfair to us.

i did not say cpf life is total rubbish. it may be good for some people out there. i would definitely prefer the rss scheme.

also with regards to universal participation, even the garmen is aware that it should not be one size fits all. that is why they got so many pattern. unfortunately my preferred one is not there.

 

[BBCWatcher]

the best unsecured loan that i have taken is 0% and $0 admin fee. i am not bluffing.

What was the term? 30 years? 40?

You apparently think you're invincible until you die, perhaps longer. The entire world's financial market thinks your unsecured promise is worth much, much less than the unsecured, long-term promise of even a poorly credit rated sovereign. Your hypothesis is perfectly testable in the global market, and the test fails.(*) Ergo, in developed (and even in some developing) countries, we have compulsory longevity insurance of some kind. And thank goodness. Singapore's (CPF LIFE) is probably the most timid requirement of its kind in the developed world, and it's truly world class in its value-for-dollar. Yet you still complain. Whatever.

Actress Erin Moran died a couple days ago. She was 56, so she didn't collect any U.S. Social Security retirement benefits. She co-starred in the monster hit TV series "Happy Days," starred in a spinoff sequel, had guest starring roles on various TV series, and earned some income from fan convention appearances. She was financially set for life. Except...she died broke, even before she reached minimum Social Security age (62). She was living in a trailer home in Indiana with her family when she died. It can happen, it has happened. Developed countries try to take care of their citizens, to protect against the worst possible downside risks. It's really important that they do that well. All of us are fallible.

(*) As an interesting historical footnote, very rarely the financial market makes a different assessment. One rare example occurred in the late 18th century, when the rebellious British colonies in North America, now known as the United States, had a fairly dysfunctional legislature called the Continental Congress and uncertain future prospects. A Philadelphia-based financier, Robert Morris, had a better personal credit rating than the Continental Congress. He believed in independence, so he personally co-signed many of the debt instruments that the Continental Congress issued in order to raise funds for an army to fight the British. (Those lenders didn't get fully repaid, as it happens.) Anyway, the point is that this is not an academic exercise, to test a risk hypothesis in the financial market. The financial markets are perfectly willing to judge an individual's credit risk as lower than a sovereign's. It doesn't happen very often, but occasionally it happens. It is a real, valid test.