Lifelong Income With CPF LIFE Plan – Here’s 8 Things You Need To Know

Lifelong Income With CPF LIFE Plan

Here’s 8 Things You Need To Know

PSA: Your kids should not be your retirement plan. So then, what is?
For Singaporeans and PRs, it’s the CPF LIFE plan by default.

What is this?

CPF LIFE stands for CPF Lifelong Income For the Elderly and helps ensure that you have a lifelong monthly income stream for greater peace of mind in retirement. It provides you with a monthly payout from age 65 (the current payout eligibility age), for as long as you live!

So who is eligible for this?

On your 55th birthday, a Retirement Account (RA) will be set up for you and savings from your Special Account (SA) and Ordinary Account (OA) will be transferred to your RA.

These savings from your SA and OA, up to $181,000 for those turning 55 in 2020, will make up your Full Retirement Sum (FRS). We’ll get back to the FRS later!

What remains in your OA and SA, then, will be the first $5,000, and any excess savings after deducting the $181,000 that is put into your RA. If you have less than the FRS amount of $181,000, then only the first $5,000 will remain and the rest will be put into your RA.

So this retirement sum is what will be used to buy your CPF LIFE Plan when you turn 65! The retirement sum you set aside in your RA will grow with interest over the next 10 years, so that when you turn 65, you will have more savings available in your RA to buy a CPF LIFE Plan.

It’s also worth to note that you will automatically be included in a CPF LIFE Plan if you were born in 1958 or after, and have at least $60,000 in your RA six months before you reach your payout eligibility age – so 64 and a half years old for now.

If you have less than that $60,000 in your RA when you reach that age, you will be placed on the Retirement Sum Scheme (RSS) and receive monthly payouts until your RA balance is fully drawn out.

A little more about the retirement sums…

There are actually three levels of retirement sums that you can set aside in your RA. The FRS, Basic Retirement Sum (BRS), and the Enhanced Retirement Sum (ERS). While the value of the FRS is $181,000, the value of the BRS is $90,500 and ERS is $271,500. Do note that the value of your account can still fall in between the three thresholds!

These amounts determine how much our monthly payouts will be with the CPF LIFE Plan bought. So how do we choose which retirement sum is best for us?

Well, the BRS actually only applies to property owners, assuming that you won’t need to pay rent, and can then live on a smaller paycheck. If you do opt for the BRS, you’ll need to ensure that your RA balance + the CPF savings you used to pay for the property can add up to the FRS ($181,000). If not, you’ll have to pledge your property to CPF.

What exactly does this mean? Should you sell or transfer your property, you legally agree to put a certain amount of the proceeds back into your CPF – just enough to hit the FRS.

And for the ERS? That’s entirely voluntary, if you have the means.

Essentially, these retirement sums help you decide how much to leave in your CPF when you turn 55. Either way, you can still withdraw the first $5,000 in your account! And if you were born in 1958 and after, you can also withdraw up to 20% of your RA savings when you turn 65, on top of the $5,000 you took out when you turn 55!

How does it work?

When you buy a CPF LIFE Plan, you use your RA savings as the original premium. The interest earned on the premium is pooled and shared with all the other members in Singapore who have bought a CPF LIFE Plan too (that’s a really large pool!).

And even if your original premium is exhausted (no more RA savings), you will still continue to receive monthly payouts! This comes from the pooled interest contributed by everyone else who has bought a CPF LIFE Plan too.

And even when you pass on, any excess premiums will be given to your beneficiaries together with the remaining CPF savings in other accounts.

The 3 CPF LIFE Plans

Now on to the different plans you can choose from – the Standard Plan, the Basic Plan, and the Escalating Plan. Regardless of which plan you stick with, it will still provide you with monthly payouts for as long as you live, using the Retirement Sum you set aside in your RA.

The Standard Plan is the default plan. It gives you higher monthly payouts, so you get more money for yourself. However, this means that there is less money left in your RA for your beneficiaries when you pass on.

The Basic Plan allows you to lower your monthly payouts, meaning less money for yourself, but leaving more in your RA for your beneficiaries.

There is also the escalating plan, which gives you lower monthly payouts at first, but then the payouts increase at a rate of 2% annually. This gives you a larger monthly payout for the future, when you might need it more.

So here’s the next catch. If you opt for the Standard or Escalating Plan, 100% of your RA savings will be placed into the lifelong income fund at the point of policy issuance. You will receive monthly payouts from the lifelong income fund after the policy is being issued, for as long as you live.

But if you opt for the Basic Plan, only 10-20% of your RA savings will be placed in the lifelong income fund (the actual percentage will depend on your age and gender). This leaves you with some savings left in your RA, which continue to accrue interest.

You will continue to receive monthly payouts from your RA savings up till you turn 90. From then on, your payouts will come from the communal CPF LIFE fund pool – so the payouts are still for life!

But once you hit 90, the payouts will actually decrease once your RA balance falls below $60,000 – this is because of the decreasing Extra Interest! And we’d want to avoid this when we’re that old. So only opt for the Basic plan if you’re completely comfortable with this!

When will I get the monthly payouts?

When we turn 65, payouts will be credited to our registered bank accounts monthly.

You will receive a letter from CPF about six months before your payout eligibility age, to explain CPF LIFE Plans and the options you have.

You can choose the plan anytime you want from age 65 to 70 to start your payouts. And if you don’t choose, the government will automatically put you on the CPF LIFE Standard Plan.

Alternatively, you can choose to defer all monthly payments up till you reach 70. This is so that your funds are able to earn additional interest of up to 6% per annum. That tallies to about earning 7% more in payouts each year we defer!

To try out how much you can get under the different plans, use this CPF LIFE Estimator to estimate your monthly payouts and bequest!

How can I receive higher monthly payouts?

So this begs the question, how do I make the most of it and receive higher monthly payouts?

There are a couple of options. If you’re below 55, you can make cash top ups to your Special Account, up to the FRS limit of $181,000. And if you’re above 55, you can make cash tops to your Retirement Accounts, up to the ERS limit of $271,500.

However, this should be thoroughly thought through because these top ups are purely for the purpose of topping up your retirement savings and increasing your monthly payouts. They cannot be withdrawn in a lump sum. So do it only if you can!

How can I grow my retirement savings?

To do this, you can transfer your OA savings to your SA or RA account, depending on your age, to earn higher interest on your savings. But do note that these transfers are irreversible, so plan carefully! Ensure that you won’t need these funds for other purposes such as housing instalments or car loans. There is also no tax relief for CPF transfers.

So once you’ve taken care of your own retirement needs, you can also consider helping your loved ones. After setting aside your BRS, you can transfer your OA savings to your spouse’s OA, SA or RA account, or your parents’ or grandparents’ SA or RA account.

And after setting aside your FRS, you can transfer your OA savings to other loved ones such as your in-laws or siblings, or top up in cash to the prevailing retirement sums applicable to their age.

Alternatively, you can also top up using cash. You can do a cash top up to your own SA or RA depending on your age. For cash top ups to yourself, you are eligible for $7,000 tax relief per year (not to be confused with cash top ups from your FRS to ERS, which do not enjoy tax relief).