Complete Guide To CPF LIFE: Facts, Myths And How To Make It Work Harder

CPF has forever been a matter of incessant national debates. You’re likely to have had at least one heated conversation with a family member or a friend at some point. 

If you’ve been confused, frustrated, annoyed or even alarmed by how Singaporeans are made to work all the way till they’re 70, without even letting us have our money back, there’s a slight chance you might be a little bit misinformed. 

Here’s an in-depth Q&A on CPF LIFE that could change your mind about those endless discussions. 

Section 1: What is CPF LIFE?

• What is CPF LIFE?
• How do I sign up for CPF Life?
• How does CPF LIFE work?
• Since CPF LIFE is actually an annuity, how much will my premiums cost?
• But what about BRS, FRS and ERS? Are they compulsory?
• Ok, so how much will I actually receive from CPF LIFE?

Section 2: Debunking the biggest CPF LIFE myths

• Myth 1: I will forfeit the remaining amount in my CPF LIFE if I die early
• Myth 2: I have to use my HDB flat to fund my CPF Life
• Myth 3: If I don’t have enough money in my CPF by 55, I have to top up using cash
• Myth 4: I cannot retire before 70, because CPF LIFE payouts only start at 70
• Myth 5: I cannot withdraw my CPF money at all
• Myth 6: CPF Life is compulsory

Section 3: How to make CPF LIFE work harder for you

• Top-up your CPF accounts (VC or RSTU)
• Defer your CPF LIFE payout start age
• Avoid lump-sum withdrawals

Section 1: What is CPF LIFE?

What is CPF LIFE?

CPF LIFE is Singapore’s national retirement plan that aims to help retirees achieve lifelong income to support their financial needs in their golden years. Under this annuity plan, Singapore Citizens and Permanent Residents (we’ll refer to this group as ‘Singaporeans’) will receive monthly payouts for the duration of their life. 

The name of the scheme is an acronym, of course — LIFE stands for Lifelong Income For the Elderly.

How do I sign up for CPF Life?

You will be auto-included into CPF LIFE as long as:

• You’re a Singaporean born in or after 1958, and
• You have at least $60,000 in your Retirement Account (RA) 6 months before you are eligible to start receiving CPF LIFE payouts

In addition to the above, Singaporeans turning 55, between 1 Jan 2013 and 30 Apr 2016, with at least $40,000 in your RA will also be auto-included in CPF LIFE.

Any Singaporean who wishes to join CPF LIFE may apply to do so between your payout eligibility age and one month before you turn 80. 

Here’s the payout eligibility age according to the CPF Board.

How does CPF LIFE work? 

CPF LIFE is an annuity plan, a type of insurance plan that converts your premiums into monthly sums, which are paid out to you over your entire lifetime. 

The premiums for your CPF LIFE annuity plan are paid using your CPF savings. They are specifically taken from the Retirement Account (RA), which is automatically created for you at age 55. Upon reaching your 55th birthday, the balances in your Ordinary Account (OA) and Special Account (SA) are combined and transferred to the RA, which continues to accrue interest (up to 6% per annum).

When you arrive at your payout eligibility age, you will automatically start receiving monthly payouts. You will also be asked to choose between three plans, each with their own features and benefits:

Do bear in mind that adjustments to payouts may be carried out to account for long-term changes in interest rates or life expectancies for all three plans. 

Since CPF LIFE is actually an annuity, how much will my premiums cost?

Strictly speaking, there’s no fixed amount you have to pay for your CPF LIFE annuity plan. This is because, unlike other annuity plans, how much you stand to receive in your monthly payout depends on how much money is in your RA. For a breakdown of the details, read this article, this one and this one.

The following table illustrates how your CPF LIFE is paid for. Let’s try and make this easier for you.

But what about BRS, FRS and ERS? Are they compulsory?

Ah, now we come to one of the more confusing aspects of CPF LIFE — the Retirement Sum. Here are the Retirement Sums for 2021. 

To help Singaporeans reap their hard-earned money, the three Retirement Sums — Basic (BRS), Full (FRS) and Enhanced (ERS) are there simply to help you gauge the monthly income you will be receiving. Despite their officious-sounding names, they are not guarantees; the actual payout you will receive per month depends on how much money is in your RA to begin with. 

Plus, remember how we said above that regardless of how much you actually have in your CPF accounts, any Singaporean can join CPF LIFE? Therefore, no, the Retirement Sum figures are not compulsory, so you can stop stressing about this seeming do-or-die mission. 

Ok, so how much will I actually receive from CPF LIFE?

The above figures, taken directly from CPF Board’s website, are commonly quoted when people ask about the payouts they can expect to get. However, given that there are three plans (Basic, Standard and Escalating) and the amount you can put into CPF LIFE is pretty flexible, the best thing to do is to estimate your own payouts. 

You can easily do so with the CPF LIFE payout calculator. Try entering a range of high and low RA amounts to have a better grasp on your likely CPF LIFE payouts, and plan your finances accordingly. 

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Section 2: Debunking the biggest CPF LIFE myths

Myth 1: I will forfeit the remaining amount in my CPF LIFE if I die early

No, you won’t. At the point of your death, any leftover amount (whether they are unused premiums or savings in your RA) will be disbursed to your surviving family members. 

If you are particular about how your estate will be distributed among your beneficiaries, please consider drawing up a will and appointing someone to be the executor of your estate.  

Myth 2: I have to use my HDB flat to fund my CPF Life

You’re probably thinking about the ‘rule’ about pledging your HDB flat if you fail to reach the FRS (S$186,000, as of 2021) by the time you reach age 55. 

First, pledging your property doesn’t change the ownership status of your property in any way or shape. Pledging your flat simply means that if you sell your flat, the proceeds of the sale will be used to pay back your CPF money. In case of a loss on the sale, you do not have to top up the difference. 

Second, the pledge is in place to allow you some wriggle room in handling your CPF savings. Let’s explain this with a breakdown of the amounts. 

Let’s say your RA balance is S$120,000 at age 55, which is below the FRS. Without a property to pledge, you will have to put the entire sum of S$120,000 into CPF LIFE. 

However, if you pledge a property (in this case worth S$100,000), the combined pledge and your RA balance comes to S$220,000, which is more than the FRS.

In this case, you can opt to put only the BRS of S$93,000 into CPF LIFE and withdraw the difference in cash (S$120,000 - S$93,000 = S$27,000). 

Of course, there’s nothing stopping you from still putting in all S$120,000 into CPF LIFE, if you want higher monthly payouts. 

Here’s a comparison in payouts between both scenarios (based on the Standard plan with payouts starting at age 65).

Myth 3: If I don’t have enough money in my CPF by 55, I have to top up using cash

No, you don’t. Not having enough money in your CPF accounts by the time you hit 55 simply means you may not be auto-included in CPF LIFE. You can still apply to buy into the annuity scheme and receive payouts for life. 

Myth 4: I cannot retire before 70, because CPF LIFE payouts only start at 70

For eligible members, CPF LIFE payouts automatically commence when you reach age 70. However, if you prefer, you can choose to have your payouts start at 65.

What’s the difference? Up to 7% more per annum — that’s how much the CPF Board estimates you will receive if you defer your payout by 5 years. 

Myth 5: I cannot withdraw my CPF money at all

If you refer to our explanation above, we’ve demonstrated that with sufficient property pledge and a willingness to receive lower monthly payouts, you can still withdraw some of your CPF money after 55.

Besides that, you are allowed to make a one-time withdrawal of up to S$5,000 from your RA upon turning 55. 

Myth 6: CPF Life is compulsory

Given the nature of our government plans and policies, you might think CPF LIFE is compulsory. The truth is, it isn’t. 

You can opt out of CPF LIFE if you are already receiving lifelong payouts from another annuity plan or pension plan. However, would opting out and going with your own private annuity plan be a good option? 

If there’s one thing our government is known for, it's how they rarely make a shoddy plan. So, when it comes to something as important as our national self-sufficiency, it means going the extra mile. 

Word on the streets is that CPF LIFE provides among the best returns when it comes to annuity plans. Having good returns is important, as it means higher payouts for longer — exactly what you want for something that’s supposed to help sustain you in your golden years. 

As you can tell, CPF LIFE provides up to 6% returns per annum. Now, more financially adept readers may scoff at this paltry figure, but remember that this is an annuity plan that auto-includes the majority of Singaporeans. Left to our own devices, honestly, how many of us are able to realise even this level of returns in our retirement years?  

But, even as the best-performing annuity plan there is, it is widely acknowledged that CPF LIFE may still be insufficient to fully fund your retirement needs. As such, it’s beneficial to try to optimise your CPF LIFE as much as possible. 

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Section 3: How to make CPF LIFE work harder for you

Top-up your CPF accounts (VC or RSTU)

By now you’d have realised that the more CPF savings you put into CPF LIFE, the better for your old age. So, if you want to improve the quality of your retirement life, you should know that you can contribute more money to your CPF accounts, above and beyond your regular contributions. 

Both the Voluntary Contribution (VC) and Retirement Sum Top-up (RSTU) schemes are designed to help you do so. However, deposits made cannot be reversed, and there are limits to how much you can top up each year.  

Defer your CPF LIFE payout start age

As we mentioned in the section on myths, deferring your payout start age can have a significant impact on the amount you receive each month. The difference is up to 7% more per year — in actual cash, this can be a huge difference. 

Here’s a look at the difference in numbers. We’re assuming the Standard plan was chosen with an initial RA balance of S$100,000. 

In our example, deferring your payout can give you between S$275 - S$326 more each month. 

Having said that, start your payout at 65 if you need the money. If not, delaying it by even a year or two will give you an advantage. 

Avoid lump-sum withdrawals

Another way to maximise your CPF LIFE payouts is to avoid making lump-sum withdrawals (yes, even that S$5,000) from your RA balance in favour of putting it all towards CPF LIFE premiums. Doing so will result in higher payouts received.

However, if you have to meet short-term cash needs or to set up an emergency cushion, then a withdrawal is likely warranted.

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Read these next:
A Complete Guide To CPF In Singapore
Pros And Cons Of Keeping Your Savings In Your CPF Special Account
How To Buy A House in Singapore: A Complete Guide
How Singapore Budget 2020 Affects HDB, CPF & Living Costs
CPF Has No Equal as Investment Vehicle: Singapore’s Mr. CPF