While CPF LIFE can be confusing, it's important to understand how to utilise it for your retirement planning.
You can’t talk about retirement without mentioning CPF LIFE. Launched in 2009, the CPF LIFE scheme supports you throughout your retirement years via different CPF LIFE plans.
While the scheme can be confusing to understand, it’s still crucial that you know how it works so that you can maximise it for your retirement.
What is CPF LIFE?
Basically, the CPF Lifelong Income For the Elderly, or CPF LIFE, is a national annuity plan that provides retirees with monthly payouts over their lifetime, starting from the age of 65.
There are three CPF LIFE plans available: Standard Plan, Basic Plan, and Escalating Plan.
Each of these plans differs in the number of monthly payouts and bequests. You can choose which plan to opt for when you want to start receiving your CPF LIFE payouts, which is any time from the age of 65 to 70 years old.
|Type of CPF LIFE plan||Mountly payouts||Who’s it for|
|Basic Plan||Lower monthly payouts. The payouts will diminish over time when your CPF balances fall below S$60,000||Those who don’t mind lower payouts and lowering your lifestyle for a higher bequest|
|Standard Plan||This is the default plan for every CPF LIFE member.|
Payouts are higher but will remain the same for the remainder of your life
|Those who are willing to make adjustments to their lifestyles with a level payout to cope with inflation while leaving a lower bequest|
|Escalating Plan||Monthly payouts start lower but will increase by 2% each year for life to keep pace with inflation||Those who want to maintain their standard of living and lifestyle even as prices rise over the years|
You may see the word "bequest" and go like: "what?"
Basically, a bequest means any unused CPF LIFE premiums (without interest) and RA savings that will be given to your beneficiaries when you pass away. The amount also depends on the type of CPF LIFE plan as well as your gender.
As such, besides considering how much you need during retirement, it’s also important to consider how much bequest you would like your beneficiaries to have when choosing your CPF LIFE plan.
How do you sign up for CPF LIFE?
You’ll automatically be included in CPF LIFE if:
- You’re Singapore Citizen or Permanent Resident;
- Born in 1958 or after; and
- Have at least S$60,000 in your CPF Retirement Account (RA) before you reach 65 years old
In other words, you’ll join CPF LIFE if you’re 64 years old or younger and have at least S$60,000 in CPF savings before you reach 65.
Note that while you need a minimum of S$60,000 in your RA to join CPF LIFE automatically, it’s not compulsory. In fact, you can join CPF LIFE regardless of the amount of CPF savings you have. However, the less you have in your savings, the smaller the payouts will be.
How does CPF LIFE work?
The premiums for your CPF LIFE payouts are funded from your own CPF savings, or more specifically, from your CPF Retirement Account (RA).
When you turn 55 years old, a CPF RA will be created for you. Your savings from your CPF Special Account (SA) followed by your Ordinary Account (OA) will be transferred to your new CPF RA.
Just how much savings? Up to the CPF retirement sums.
The CPF retirement sums help to determine the monthly payouts you’ll receive via CPF LIFE when you reach the payout eligibility age.
You can choose which retirement sums you’ll want to set aside from the three types of CPF retirement sums: Basic Retirement Sum (BRS), Full Retirement Sum (FRS), and Enhanced Retirement Sum (ERS). The CPF retirement sums are adjusted each year to keep up with inflation.
For example, if you’re turning 55 years old in 2022, the BRS is S$96,000, FRS is S$192,000, and ERS is S$288,000.
Subsequently, the estimated monthly payouts you’ll receive for those turning 55 in 2022 for BRS, FRS, and ERS are S$850, S$1,570, and S$2,300, respectively.
Here are the estimated monthly payouts for those turning 55 in 2022 based on the retirement sums (note that the payout amount is based on the CPF LIFE Standard Plan):
|RA savings required at 55 (as of 2022)||S$96,000||S$192,000||S$288,000|
|Estimated monthly payouts||S$850||S$1,570||S$2,300|
Think of the CPF retirement sums as insurance premiums: the higher you pay, the more payout you’ll receive.
It’s important to know that the retirement sums are just a benchmark to help you gauge the monthly income you’ll receive, so it’s not compulsory. The exact amount you’ll receive will depend on the amount you have in your RA as well as the CPF LIFE plan that you’ve chosen.
You can get an accurate picture of the monthly payouts you’ll receive by using the CPF LIFE Estimator calculator.
What if you can't meet the FRS?
When you reach 55 years old, you can withdraw at least S$5,000 from your CPF savings. If you wish to withdraw further funds, you’ll need to meet the FRS (which is the default retirement sum).
However, if you own a property with a lease that can last you until 95 years old, you can also choose to pledge your property to CPF. This allows you to withdraw down to the BRS instead of the FRS so that you have more flexibility to handle your CPF savings.
But note that this comes with several caveats.
For one, you'll have lower CPF LIFE payouts.
Secondly, you’ll also need to return the pledged amount along with any CPF money (including accrued interest) that you used to pay for the property should you sell your property in the future.
How to increase your CPF LIFE payout:
Now that you realise the importance of having higher CPF savings, here’s what you can do if you want to increase your CPF LIFE payouts.
Defer your payouts
If you’re falling short of your monthly payouts, you can choose to delay the payouts. For example, instead of receiving your monthly CPF LIFE payouts when you’re 65, you can choose to receive your payouts when you’re 70 years old.
According to the CPF Board, you’ll receive 7% more per annum if you defer your payouts by five years. Before opting for this route, however, consider whether you need the money and if you’re still earning an income.
Increase your CPF savings
Aside from your regular contributions to your CPF accounts, you can also increase your contributions by making topping up your CPF accounts via the voluntary contribution or the Retirement Sum Top-Up (RSTU) schemes.
Both schemes allow you to build up your CPF savings quicker so that you can enjoy higher monthly payouts during your retirement years. However, note that this is irreversible, and there are also limits to how much you can top up each year.
Don’t make lump sum withdrawals
As mentioned above, you can withdraw at least S$5,000 from your CPF accounts once you reach 55.
However, you could also choose not to withdraw any money in favour of higher CPF LIFE monthly payouts.
Other ways to increase your retirement income
The CPF LIFE is meant to provide you with the basic cost of living. However, let’s face it: the monthly payouts that you receive may not be sufficient, especially with the cost of living rising.
Even if you meet the Enhanced Retirement Sum (ERS) of S$288,000 in 2022, the estimated payout of S$2,300 per month may not be enough.
Here are a few ways you can increase your retirement income:
Supplement your CPF LIFE monthly payouts with your private annuity or pension plan
You may also choose to opt out from CPF LIFE if you have a private annuity or pension plan if you’re 55 years and above.
However, CPF LIFE provides one of the best returns for annuity plans at up to 6% of risk-free interest. Therefore, it’s recommended that you optimise your CPF LIFE as much as possible.
That said, you don't have to pick one over the other; if your budget allows it, you can also use both to supplement your retirement.
For instance, consider meeting the FRS so that it can cover your basic expenses. At the same time, your private annuity plan can help to supplement your CPF LIFE income while protecting you against any gaps that are not provided by CPF LIFE.
Invest in the Supplement Retirement Scheme (SRS)
Besides the CPF, you can also invest in the SRS. Basically, the SRS is a voluntary scheme to help you grow your savings for retirement.
The biggest appeal of opening an SRS account is to save on income tax. In fact, every dollar that you put in your SRS account is tax-deductible. Moreover, you can use the funds in your SRS account to invest in financial products such as shares, bonds, ETFs, insurance, and mutual funds.
The caveat is that you can only invest up to S$15,300 a year. On top of that, you’ll also be charged with a 5% penalty on the withdrawn amount if you withdraw before the statutory retirement age.
Singapore Savings Bonds (SSB)
The SSB is another popular investment among risk-averse investors.
Since the bond is issued and backed by the Singapore government, which holds one of the highest credit ratings from credit agencies, your investment is virtually risk-free. The interest rate is also fixed, so you know the expected returns when the bond matures.
What’s more, it has a low investment requirement, and you can start investing with just S$500. While you need to invest over a 10-year period, you can withdraw your money and any interest earned without any penalty.
The SSB has also surged in popularity in recent months, with SSB interest rates reaching record-high levels.
The downside of the SSB is that you won’t be eligible for tax reliefs, and while it’s highly liquid, withdrawals can take up to 30 days.
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