Will double FRS be enough?

mp4005 help

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I just play around with this calculator. I assume I am 55 today (it doesn’t work if u r not at least 55). Entered RA at $300,000.
Age 65: $1,880
Age 85: $2,800
Age 95: $3,410
At age 65, I would like to join CPF life at $445,000 (don’t know what this means).
But to summarise, this looks freaking pathetic. Probably enough to pay for medication if I get any chronic diseases.
For me, I think best to have 1-2 solid property then rent out and be king in Bali. Rather than stay here with simi CPF life. Even with $300,000 RA also get this kind of monthly payout.

$300k but based on this . total payout is $800k to 900k+ ?
not good enough?

can always buy another private tool with cash to provide you what you want. see whether it is more worth it.

you don't need CPF life - you can buy your own private retirement tool.
you can withdraw your CPF out.

If you have a pension or private annuity plan which provides the same or higher monthly payouts for life, you can apply to be exempted from setting aside the retirement sum, and withdraw all your CPF retirement savings.

You’re eligible to withdraw all your retirement savings if you’re:

  • 55 and above
  • Receiving monthly payouts from a private annuity (bought with cash or under the CPF Investment Scheme) or pension
  • Both the policy holder and sole insured person of the annuity policy
 

BBCWatcher

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If you're trying to determine whether a CPF LIFE income stream will be sufficient then the CPF LIFE Escalating Plan is the only way to go. That's the payout plan that holds a constant real payout when inflation is averaging about 2%/year. Both of the other payout plans have declining real payouts, eaten away by inflation over the years/decades of your retirement. So they're not useful for retirement projection purposes.

Whether you actually choose the CPF LIFE Escalating Plan or not is a separate question, but for adequacy determinations/forecasts it's the only way to go. Then you can tweak it if you want to model what happens if inflation is >2% per year. I wouldn't assume it'd be lower in your retirement models.

Also please bear in mind that an age 65 payout start even for the Escalating Plan is expressed in nominal Singapore dollars when you run CPF's calculator. For example, if you run the calculator now with current age 55 and current RA balance $192,000 (the 2022 Full Retirement Sum) you'll get an age 65 payout starting amount of $1,230 per month (male). But that's $1,230 in 2032 Singapore dollars, not $1,230 in 2022 dollars. Be sure to take that fact into account. You have to deflate that amount to translate it to 2022 dollars. Assuming a 2%/year inflation rate over the next 10 years the $1,230 figure translates to about $1,009 in 2022 dollars.

As an aside, the CPF Board really ought to offer this feature in its CPF LIFE calculator: "translate all figures to current dollars assuming a 2%/year inflation rate." Am I just missing it? But this government tends to be really weird about inflation, never wanting to inflation index anything.

If you're a couple with two CPF LIFE income streams you should model what happens in the "worst case": the spouse with the bigger CPF LIFE income stream dies and there's no residual. Because that's going to be your household's most financially stressful period from a CPF LIFE point of view. If you both have identical RA balances (the Full Retirement Sum for example) and are the same age then the male spouse/partner will have the slightly higher payout, so that's who you "kill off" in a model simulation.

What happens if the surviving spouse's CPF LIFE income stream isn't enough? Well, you then have to figure out how much of the total CPF LIFE income stream needs to be saved in order to fund the period when one spouse is alive (and has too little income). Unfortunately the CPF Board doesn't offer a joint/survivor or joint/contingent CPF LIFE payout plan so you'll have to close that gap "manually."

I don't see how a reasonable person could think that FRS-level CPF LIFE is "too much" retirement income. I'm very, very comfortable nailing down foundational income via CPF LIFE at the ERS level because I think it's a very fair deal and just cannot be "too much" retirement income. And for/with my spouse, too (ERS level for her). That's our plan FWIW.
 
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elvintay07

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Living in condo, yet only 300K in RA?

LOL...
I low SES mah. 30+ only clock $300k. Of course there are many who can close millions. Don’t worry about those upper spectrum la. Just use those low SES numbers as calculation
 

fr33d0m

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I low SES mah. 30+ only clock $300k. Of course there are many who can close millions. Don’t worry about those upper spectrum la. Just use those low SES numbers as calculation

300K in SA in 30s is very different from 300K in RA. RA is only created after 55.
 

BBCWatcher

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Another possible quirk when you're trying to forecast retirement: your CPF LIFE income might be taxable if you're a U.S. person or if you retire in another country. I happen to be a U.S. person, so here's what happens:

1. CPF interest is U.S. taxable each and every year it's earned. So on my future Retirement Account (and OA, MA, and SA) I pay U.S. income tax on the interest. Every year. That includes ordinary income tax (same rate as earned income from work) plus in my case the Net Investment Income Tax (NIIT) since I'm lucky.

2. Then, when the CPF LIFE payouts start (age 70 I think), a portion of those payouts will be subject to U.S. income tax again. There's a formula the IRS applies to determine what portion of the payout is attributable to principal (meaning it's already been taxed) and what portion is attributable to interest/gains. This tax on the payouts won't be high, but there will be some. Some high single digit percentage, I think.

I have to factor these taxes into my retirement financial planning. It's a bit tricky to do, but I can make reasonable estimates. You may wish to do the same particularly if you think you'll be retiring in another country (such as your spouse's). The net impact is that my retirement income stream has to do more heavy lifting due to some tax headwinds, so I need that much more savings and retirement income to achieve the same real lifestyle in retirement as a similarly situated non-U.S. person living in Singapore.

Are we having fun yet?😃
 

royalmix

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Another possible quirk when you're trying to forecast retirement: your CPF LIFE income might be taxable if you're a U.S. person or if you retire in another country. I happen to be a U.S. person, so here's what happens:

1. CPF interest is U.S. taxable each and every year it's earned. So on my future Retirement Account (and OA, MA, and SA) I pay U.S. income tax on the interest. Every year. That includes ordinary income tax (same rate as earned income from work) plus in my case the Net Investment Income Tax (NIIT) since I'm lucky.

2. Then, when the CPF LIFE payouts start (age 70 I think), a portion of those payouts will be subject to U.S. income tax again. There's a formula the IRS applies to determine what portion of the payout is attributable to principal (meaning it's already been taxed) and what portion is attributable to interest/gains. This tax on the payouts won't be high, but there will be some. Some high single digit percentage, I think.

I have to factor these taxes into my retirement financial planning. It's a bit tricky to do, but I can make reasonable estimates. You may wish to do the same particularly if you think you'll be retiring in another country (such as your spouse's). The net impact is that my retirement income stream has to do more heavy lifting due to some tax headwinds, so I need that much more savings and retirement income to achieve the same real lifestyle in retirement as a similarly situated non-U.S. person living in Singapore.

Are we having fun yet?😃
Congrats! So u die die must delay payout, So u die die must choose escalating plan to delay your tax. Choose Basic, pay big big! Or you might just leave SG for good before 70!
 
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BBCWatcher

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Congrats! So u die die must delay payout, So u die die must choose escalating plan to delay your tax. Choose Basic, pay big big! Or you might just leave SG for good before 70!
Huh?

You can choose to start CPF LIFE payouts at age 65, age 70, or anywhere in between. My current plan is age 70. I assess the (after U.S. tax) interest as attractive enough, I don't expect to need the income earlier than age 70 (if even then), and so I'm happy to collect the 5 years of additional interest without payouts.

The Escalating Plan is the only payout plan that incorporates any inflation assumption (2% in that case). Whether you actually choose the Escalating Plan or not any/every sensible, rational retirement plan must include a reasonable inflation assumption. Start with the Escalating Plan's payout figures and see how your model works. If it doesn't work then don't switch plans in your model. Fix what's broken in your model. What's broken is not the fact there will be inflation during your retirement (you must assume).

U.S. persons are subject to the U.S. tax system no matter where they live. That includes Singapore, where I live. If you move to another country for your retirement, or if you could, then you should incorporate that probability or possibility into your retirement financial planning. That includes the other country's anticipated tax treatment of your CPF savings, CPF LIFE payouts, and any residuals (estate/inheritance tax).
 

royalmix

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I have no problem as CPF Life is not my only source of funds, so I have much flexibility to decide on the best for me, which is Basic Plan.

U are different and have other considerations including tax planning, different from a true blue Singaporean!
 

starlight318

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I'm quite sure that I will go for Basic plan, however I'm starting to feel a bit undecided whether i should choose FRS or ERS. What are the real benefits of choosing ERS over FRS other than the obvious (higher payouts)? Isn't it better to leave the difference (ERS - FRS) in SA to earn 4% interest and have the option to withdraw anytime instead of having it transferred to RA? I can also withdraw the SA interest to supplement the CPF life monthly payouts if I want, there is flexibility unlike ERS.
 

wira

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I'm quite sure that I will go for Basic plan, however I'm starting to feel a bit undecided whether i should choose FRS or ERS. What are the real benefits of choosing ERS over FRS other than the obvious (higher payouts)? Isn't it better to leave the difference (ERS - FRS) in SA to earn 4% interest and have the option to withdraw anytime instead of having it transferred to RA? I can also withdraw the SA interest to supplement the CPF life monthly payouts if I want, there is flexibility unlike ERS.

I am also curious to know if its better to just leave the $ in the SA instead of topping up RA ?

I have no problem as CPF Life is not my only source of funds, so I have much flexibility to decide on the best for me, which is Basic Plan.

U are different and have other considerations including tax planning, different from a true blue Singaporean!

Yah i think its obvious CPF life is like your safety net. it can provide you with basic funds during retirement to cover basic necessities ( at least wont starve to death ) but probably will not provide you with better quality of life.
 

fr33d0m

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Inflation after retirement is a real risk.
People on average have around 20 years after CPF LIFE starts. Everything will be doubled by the end of it.

Plus, the expense gets higher and higher as one age.
 

BBCWatcher

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I'm quite sure that I will go for Basic plan, however I'm starting to feel a bit undecided whether i should choose FRS or ERS. What are the real benefits of choosing ERS over FRS other than the obvious (higher payouts)? Isn't it better to leave the difference (ERS - FRS) in SA to earn 4% interest and have the option to withdraw anytime instead of having it transferred to RA? I can also withdraw the SA interest to supplement the CPF life monthly payouts if I want, there is flexibility unlike ERS.
The CPF Board won't fund your Retirement Account beyond the Full Retirement Sum. You get to do that, if you wish. And you don't have to use Special Account dollars to do it. You can deposit as much cash into your Retirement Account as you wish, up to the Enhanced Retirement Sum. And (if you want) you can keep depositing cash into your RA every time the ERS is raised — for the rest of your life if you wish.

On the other hand you cannot deposit dollars into your Special Account once either it reaches the Full Retirement Sum or once you reach age 55, whichever comes first. You can retain dollars in your Special Account if you wish, but you cannot add any once you reach the FRS or 55.

So yes, I plan to retain dollars in my Special Account. AND I plan to add other dollars (from other sources) to my Retirement Account to boost it to the ERS.
 

starlight318

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The CPF Board won't fund your Retirement Account beyond the Full Retirement Sum. You get to do that, if you wish. And you don't have to use Special Account dollars to do it. You can deposit as much cash into your Retirement Account as you wish, up to the Enhanced Retirement Sum. And (if you want) you can keep depositing cash into your RA every time the ERS is raised — for the rest of your life if you wish.

On the other hand you cannot deposit dollars into your Special Account once either it reaches the Full Retirement Sum or once you reach age 55, whichever comes first. You can retain dollars in your Special Account if you wish, but you cannot add any once you reach the FRS or 55.

So yes, I plan to retain dollars in my Special Account. AND I plan to add other dollars (from other sources) to my Retirement Account to boost it to the ERS.
Why top up RA from other dollars (fr other sources) to boost to ERS and not invest it yourself ? Isn't it better for liquidity purpose and you won't lose out on interest to the pool if you don't live past the breakeven age?
 

gold_eagle36

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The thing about escalating is it's all about estimates. There is no guarantee that policy won't change and whether the estimate for inflation gain is adequate.

If inflation shoot up for several years, does it mean the escalating plan will follow suit to adjust ? The uncertainty is one concern.

Standard plan with fixed payout gives u a clearer idea how you could plan separately and with the flexibility adjusting the plan along the way depending on spending habits and inflation rate.
 

BBCWatcher

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The thing about escalating is it's all about estimates. There is no guarantee that policy won't change and whether the estimate for inflation gain is adequate.
Correct, but a zero inflation forecast is a bad forecast. So start with the best available plan for a more realistic model. Then, if you’re still unsatisfied, flex your forecast model.
If inflation shoot up for several years, does it mean the escalating plan will follow suit to adjust ?
No, but if inflation exceeds 2%/year it will lose real purchasing power less quickly.
Standard plan with fixed payout gives u a clearer idea how you could plan separately and with the flexibility adjusting the plan along the way depending on spending habits and inflation rate.
I don’t see how that follows. The Standard Plan is wrong for inflation under every realistic forecast model. So why make more modeling work for yourself? At least the Escalating Plan works without modification under one realistic inflation assumption: 2%/year. It also works well enough if inflation is actually 1.8% or 2.1%.

Whether you actually choose a particular payout plan when the time comes is a separate question. For example, you should never choose the Basic Plan if you don’t have any CPF nominees you particularly care about.

There’s a similar “KISS” model available when you’re trying to judge retirement adequacy. Just take all your savings, go price an escalating immediate or deferred life annuity (joint/survivor or joint/contingent if your have a spouse/partner), and decide if the monthly payout (in current dollars) is adequate. This is quite easy to do online at immediateannuities.com for example. (Residents of Singapore cannot actually buy those annuities, but pretend those are Singapore dollars and you’re a resident of New York. It’ll be a reasonable “sanity check” to decide if your accumulated wealth, or expected accumulated wealth, will be sufficient.)
 
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royalmix

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Escalating Plan gives you additional 2% increase (not guaranteed) in payout:
  1. this is not equivalent to additional 2% increase in interest on your premiums
  2. You are just getting more payouts to deplete your premiums at a faster rate
  3. Get more payouts from the amounts you saved/reduced in the earlier years
  4. Get more monies from the CPF Life Pool (interests) of other people/your premiums if you can live beyond 90+ (estimated)
  5. It is not real increase in money but delaying gratification?
Fight inflation? Now there is inflation, how do you fight? Recession/inflation proof your monies, cut your expenses, increase your other sources of income, etc

Grow my monies in RHB at more than 5% (guaranteed) or Tbills (now more than 4%), but locked in RA/CPF Life you cannot grow your monies beyond 4% (non-guaranteed)!

Which is better way to fight inflation? Bluff yourself with increased payout to deplete your capital faster, or have the power to manage your money to grow it? Bluff yourself cos CPF Life Escalating Plan is your primary and only source of retirement income/funds?
 

Okenba

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Some numbers from the estimator. <<https://www.cpf.gov.sg/lifeestimator>>
Calculated based on Male born in 1967, with 2022 FRS.

FRS Payout at 65 (Year: 2032)
Escalating: $1,230/mth ($1,029/mth in 2022 dollars, with 2% annual inflation assumed.)
Standard: $1,550/mth ($1,297/mth in 2022 dollars.)
Basic: $1,420/mth ($1,188/mth in 2022 dollars.)

FRS Payout at 70 (Year: 2037)
Escalating: $1,700/mth ($1,288/mth in 2022 dollars.)
Standard: $2,100/mth ($1,591/mth in 2022 dollars.)
Basic: $1,910/mth ($1,447/mth in 2022 dollars.)

If you can delay payouts to 70yo, it is more feasible.
Perhaps if you have been contributing to SRS, that could payout at age 62.

If you cannot afford to top-up RA beyond FRS at 55, there is also the option to top-up annually, which may also attract tax relief for yourself and/or children (up to FRS for that year).
You can also top-up RA even after payout starts to increase future payouts.

CPFlife is a good way for people who are not financially learned to have income for life. Even if we are financially smart, we cannot be sure that we will not lose our mental faculties later in life.
 

Okenba

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Data on CPI for Retiree Households from SingStat, 2019. <<https://www.singstat.gov.sg/-/media/files/publications/economy/op-e30.ashx>>

According to 2017/2018 data, Retiree Households spend $1,130 per member per month.
That would be about $1,248/person/mth in 2022 dollars. (Assuming 2% annual inflation.)
This is only slightly higher than the lowest 20% quintile of all households.

So basically, if you go by the stats, yes, possible to live on FRS payouts, but you're not going to be living much better than the poorest households in SG.
If you wait to 70 for payouts, then your living standard would probably be similar to the average household expenditure. Not great, but comparable.
 

BBCWatcher

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Escalating Plan gives you additional 2% increase (not guaranteed) in payout:
The 2%/year is guaranteed atop the possible minor and solely actuarial-based adjustments that apply to all payout plans.
  1. this is not equivalent to additional 2% increase in interest on your premiums
Correct.
You are just getting more payouts to deplete your premiums at a faster rate
No, you “deplete your premiums” at a slower rate. The payouts are “backloaded” to some extent. That’s the whole point.
Get more payouts from the amounts you saved/reduced in the earlier years
Correct. The Escalating Plan is the Standard Plan with a 2%/year (guaranteed) slope added.
It is not real increase in money but delaying gratification?
It’s about avoiding progressive, inexorable diminution in your real standard of living. If you want to describe merely maintaining a constant or near constant real lifestyle as delaying gratification that’s up to you, but all savings is that.
Fight inflation? Now there is inflation, how do you fight?
That’s rather straightforward, conceptually anyway.
Grow my monies in RHB at more than 5% (guaranteed) or Tbills (now more than 4%), but locked in RA/CPF Life you cannot grow your monies beyond 4% (non-guaranteed)!
You’re really going to hang your hat on a T-bill rate that’s existed for barely 5 minutes (in financial terms) compared to a CPF floor rate that’s persisted for decades? I don’t think that’s great thinking, but it’s up to you.

Moreover, to self-insure against longevity risk you need to manage savings to preserve a particular real lifestyle to age 105 (for example). That’s expensive. A high quality life annuity reduce this steep cost — or, as you put it, increases gratification at every age.
Which is better way to fight inflation? Bluff yourself with increased payout to deplete your capital faster, or have the power to manage your money to grow it? Bluff yourself cos CPF Life Escalating Plan is your primary and only source of retirement income/funds?
It’s not a “bluff,” and you have it backwards anyway.
 

DevilPlate

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CPFlife is a good way for people who are not financially learned to have income for life. Even if we are financially smart, we cannot be sure that we will not lose our mental faculties later in life.
Agreed....when we are young and mighty, we do not foresee such circumstances.

In a way CPF Life, Medishield , Careshield etc are also designed to "protect" the govt themselves. There is only a finite sum of subsidies/handout from our reserves.
 
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