Should you delay your CPF Life payout

[dork32]

It is stated in the CPF website that you can up to 7% extra payout if you delay your cpf life withdrawal by one year, 14% for 2 years.. up to 35% for 5 years.

The advantage is your payout is higher, the disadvantage is you can eat grass during the years you do not have payouts.

For simple evaluation, i chose a basis of 100 per month at 65 years old. by the time i reach 66, i would have withdrawn 1200.

if i chose to withdraw at 66, i will have a payout of 107 per month, 7 more than the previous eg. ignoring the time value of money 1200/7 = 171 month or 14 years. In other words, if interest rate is 0, the break even point is age 80.

but if you take interest rates to be 4% (RA Interest rate), it will take 22 years (or age 88) to break even.

but if you decide to delay your payout to 70, you will have to reach 92 years to break even.

it seems that 88 to 92 seems to the expected mortality age according to cpf.

 

[BBCWatcher]

It's more complicated in part because CPF LIFE offers residual bequest payouts. Basically, if you defer to age 70 and then die before age 70, you've done well for your nominated heir(s). Also, my understanding is that you can push your participation level decision (BRS/FRS/ERS) all the way to age 70, too. That flexibility undoubtedly has some value, but exactly how much is difficult to say.

Anyway, I wouldn't overthink this one. My advice would be the same as CPF's. If you're comfortable without the payout, let it ride, defer.

By this way, this part is both annoying and confusing:

but if you take interest rates to be 4% (RA Interest rate), it will take 22 years (or age 88) to break even.

There is no inalienable right to above market interest, and there is no 4% ordinary savings account on offer at that point for those funds. (Ordinary Account funds never pay 4%, for that matter. Well, not in today's interest rate environment anyway.) It's CPF LIFE at 65, 70, or any age in between. That's it. Those are the choices, plus maybe a participation level choice. The 4+% interest is only offered for the premium build-up phase in the run-up to CPF LIFE. There's no "break even" past then that has anything to do with a 4% interest rate -- doesn't exist. Maybe it'd be nice if that alternative reality existed, but it doesn't, at least not below your minimum CPF LIFE participation level.

The only alternatives that exist are (a) replacing CPF LIFE with private longevity insurance, or (b) terminating your citizenship or PR status, then exiting CPF LIFE.

It's utterly useless and confusing to try to draw comparisons to something that isn't available -- and to compare longevity insurance to something that isn't insurance at all. Enough!

 

[intime]

For me, it depends on whether the CPF money I can withdraw at 55 yrs old is enough to last till 70.
And if I have enough passive income from other instruments, then either sticking to default or delay are both fine.

I'm not sure if I care that much about breakeven, if I pass on earlier, I will just treat the leftover CPF bequest money as part of my legacy to my loved ones.

 

[dork32]

There is no inalienable right to above market interest, and there is no 4% ordinary savings account on offer at that point for those funds. (Ordinary Account funds never pay 4%, for that matter. Well, not in today's interest rate environment anyway.) It's CPF LIFE at 65, 70, or any age in between. That's it. Those are the choices, plus maybe a participation level choice. The 4+% interest is only offered for the premium build-up phase in the run-up to CPF LIFE. There's no "break even" past then that has anything to do with a 4% interest rate -- doesn't exist. Maybe it'd be nice if that alternative reality existed, but it doesn't, at least not below your minimum CPF LIFE participation level.

The only alternatives that exist are (a) replacing CPF LIFE with private longevity insurance, or (b) terminating your citizenship or PR status, then exiting CPF LIFE.

It's utterly useless and confusing to try to draw comparisons to something that isn't available -- and to compare longevity insurance to something that isn't insurance at all. Enough!

so i use 2.5%. 2.5% does exist. it will take you up to 89 years old to break even. you cannot up with a proper number
enough! you can stop uttering rubbish in asking people just to defer their payout and buying annuity because they are going to live forever.

whatever that is stated must be analyzed. you get 7% extra payout if you defer by one year. is this 7% fair? this is what the analysis is about. if it is 2% more would you still take it? if it is 20% more, i will grab it.

Please do not just listen to the rubbish by bbc. you hardly see any calculations in his arguments. it really sums up one thing. chao ang mo cannot do maths.

it is not about giving up my citizenship or pr. it is just about whether to defer your payout by 5 years.

 

[dork32]

For me, it depends on whether the CPF money I can withdraw at 55 yrs old is enough to last till 70.
And if I have enough passive income from other instruments, then either sticking to default or delay are both fine.

I'm not sure if I care that much about breakeven, if I pass on earlier, I will just treat the leftover CPF bequest money as part of my legacy to my loved ones.

"either default or delay is fine with you". But you still have to make a choice then. there will be conditions that one choice is better than the other. by determining the breakeven, i am drawing the line to determine which is better.

also if i pass on, i will want to optimize such that my loved ones can get more.

i like to look at numbers to help me determine my choices. i do not make choices, using the way bbc does.

 

[BBCWatcher]

so i use 2.5%. 2.5% does exist. it will take you up to 89 years old to break even.

No, no, no, 1000 times no. You cannot compare genuine insurance with non-insurance. It's a meaningless, misleading comparison. Knock it off.

What's the "break even" point on genuine fire insurance? What does that even mean? It's utter nonsense. Compare the value of fire insurance A with fire insurance B with fire insurance C in a competitive insurance market. But you cannot compare fire insurance A with...FairPrice gift vouchers?!?! Yes, OK, they can both be purchased with Singapore dollars, but so what, and WTF? A sovereign assured lifetime income stream is NOT NOT NOT a savings account at any interest rate (that doesn't even exist). Not comparable!

Obviously I'm the last person to defend insurance companies in Singapore, but in at least this one respect they are 100% correct.

....You asked a reasonable question: "When does it make sense to defer?" Please don't screw up this discussion with nonsense.

 

[dork32]

My advice would be the same as CPF's. If you're comfortable without the payout, let it ride, defer.

my advice is different. if you are going to die before 90, do not delay the payout.

if you can live beyond 90, delay the payout it you are comfortable with it.

 

[dork32]

No, no, no, 1000 times no. You cannot compare genuine insurance with non-insurance. It's a meaningless, misleading comparison. Knock it off.

What's the "break even" point on genuine fire insurance? What does that even mean? It's utter nonsense. Compare the value of fire insurance A with fire insurance B with fire insurance C in a competitive insurance market. But you cannot compare fire insurance A with...FairPrice gift vouchers?!?! Yes, OK, they can both be purchased with Singapore dollars, but so what, and WTF? A sovereign assured lifetime income stream is NOT NOT NOT a savings account at any interest rate (that doesn't even exist). Not comparable!

Obviously I'm the last person to defend insurance companies in Singapore, but in at least this one respect they are 100% correct.

....You asked a reasonable question: "When does it make sense to defer?" Please don't screw up this discussion with nonsense.

yes yes yes yes, there is comparison, even in insurances, especially if you have a choice. Even in insurance, calculations will have to be done to determine premiums.

yes even in insurances that are break evens. if you car got scratched and you decide to spray paint, you do not claim insurance. if you crash the car into a tree, you will claim insurance. there is a point in between that distinguished whether to claim or not.

yes cpf life may not be a ordinary savings account but it has interest rates. "interest rates" is a term used by cpf and it exist. it is 6% on the first 30k, 5% on the next 30k and 4% on the rest. now you want to challenge the cpf site. Even if you do not get the interest, it goes into the lifelong dont know what fund.

 

[dork32]

....You asked a reasonable question: "When does it make sense to defer?" Please don't screw up this discussion with nonsense.

yes, this is my question in the first place.

i say 90 and i backed it up with numbers.

you say as long as you can afford but you do not back it up with anything except your support for cpf.

please dont screw up this discussion with nonsense.

 

[w1rbelw1nd]

Well, dork32 is of the view that CPF life can and should be optimised as a financial instrument perspective but BBCW thinks that it is a lot more like an insurance product and should be considered more like an insurance policy (what do you need? How much are you comfortable with?)

I would make a guess that both of them don't need CPF life as a retirement (BBCW would argue otherwise, because probably from his perspective longevity risk has to be insured) tool.

I would also argue that both are correct, just coming from different views/perspective. Depending on your own inclinations both sharing is useful. I rather look at it leaning towards dork32 perspective though.

 

[dork32]

No, no, no, 1000 times no. You cannot compare genuine insurance with non-insurance. It's a meaningless, misleading comparison. Knock it off.

lets say you have 100k.

you can put it into an endowment plan for 30 years.

or you can buy saf aviva and put the rest into sti etf.

even in insurance there will be choices, especially if there is a final amount to be drawn at the end.

 

[ocs_woodlands]

Is there any illustration on effect on *bequests* for delayed CPF life payouts?

Sent from Common Sense using GAGT

 

[dork32]

Well, dork32 is of the view that CPF life can and should be optimised as a financial instrument perspective

this is what i am driving at. to me cpf is big money. 171k at 55 would turn into 260k at 65. with this large sum of money, i would like like to optimize it.

 

[shareholder]

If the cpf site says up to 7% extra, it may be worth if the market yield is low during the time of deferring. If not, then take the payments and invest in the market at higher than 7% returns. Stock market average yield of about 8% is still better. Personally, cpf is like gold, if bad things happen, that’s when it is needed.

 

[dork32]

Is there any illustration on effect on *bequests* for delayed CPF life payouts?

Sent from Common Sense using GAGT

if there is bequest, then there is not much difference for basic. you just take out your own money. cannot finish then give to your kids. it is when there is no more bequest that the differences sets it. anyway, your bequest hits 0 about the break even point.

for standard, the bequest hits 0 very quickly (80 years old) after that.

 

[dork32]

If the cpf site says up to 7% extra, it may be worth if the market yield is low during the time of deferring. If not, then take the payments and invest in the market at higher than 7% returns. Stock market average yield of about 8% is still better. Personally, cpf is like gold, if bad things happen, that’s when it is needed.

this 7% should be compared directly with stock returns or interest rates.

i used an interest rate of 4% for my calculations. though 7%>4%, i will not delay my payout.

 

[fr33d0m]

@dork32,

From the way you write, you should think about purchasing a large sum term life insurance and die the next day to earn the highest return. I can't think of another way with higher return.

You can leave a big legacy

 

[crimsontactics]

Depends on how much money you have outside of the Minimum Sum and how much money you need a month.

In general, it's better to defer as long as possible because CPF is an insurance against longevity. It protects people against living a long life without money rather than enrich a person. Deferring allows you a higher monthly payout for as long as you live.

Sent from . using GAGT

 

[Mecisteus]

my advice is different. if you are going to die before 90, do not delay the payout.

if you can live beyond 90, delay the payout it you are comfortable with it.

When you are at 65, how do you know you will live till a certain XY age?

 

[qhong61]

It is stated in the CPF website that you can up to 7% extra payout if you delay your cpf life withdrawal by one year, 14% for 2 years.. up to 35% for 5 years.

The advantage is your payout is higher, the disadvantage is you can eat grass during the years you do not have payouts.

For simple evaluation, i chose a basis of 100 per month at 65 years old. by the time i reach 66, i would have withdrawn 1200.

if i chose to withdraw at 66, i will have a payout of 107 per month, 7 more than the previous eg. ignoring the time value of money 1200/7 = 171 month or 14 years. In other words, if interest rate is 0, the break even point is age 80.

but if you take interest rates to be 4% (RA Interest rate), it will take 22 years (or age 88) to break even.

but if you decide to delay your payout to 70, you will have to reach 92 years to break even.

it seems that 88 to 92 seems to the expected mortality age according to cpf.

Dont delay.
U wont know if you will still be around at 66yo.