Saturday, September 12, 2009

CPF Retirement account or CPF Life

Dear Mr. Tan,
For those born before 1954, is it better to:
a) Retain the retirement account or
b) Convert the retirement account into CPF Life?

REPLY
If you convert into CPF Life, you may get a bonus of up to $4,000 (depending on your current earnings and your property value). If you get a good bonus, it is better to convert to CPF Life.

Apart from the bonus, the key difference between the retirement account and CPF Life is that with the latter, a part of your savings is converted into a life annuity payable from age 62. The interest rate earned on your savings varies from 3.75% to 4.25%. This is probably the same as the interest rate credited on your retirement account.

Under the life annuity, your longevity risk is pooled with other annuitants. Those who die younger will leave the balance of their money in the fund to be shared among those who survive longer. (Hopefully, you can be the long survivor).

If you are in poor health, it is better to stay with the retirement account. If you are in reasonably good health (compared to other people of the same age), you should convert into CPF Life (and join the pooling of risk).

You have four options for CPF Life, namely, Basic, Balanced, Plus and Income. These options take away different proportions of your savings to be pooled. The Basic option has the smallest percentage that is pooled. Under the Income option, 100% of the savings is pooled. If you are not sure, take the Balanced option.

Tan Kin Lian

17 comments:

Loh Hon Chun said...

>>If you are in poor health, it is better not to stay with the retirement account. If you are in reasonably good health (compared to other people of the same age), you should convert into CPF Life (and join the pooling of risk).

Good health or poor health also go for CPF Life?

Anonymous said...

Dear Mr.Tan,

I have just retired and I plan to within the next few years live with my son who has migrated to Australia. What would be the best option for me in this instance? Kindly advise.

Anonymous said...

>> If you are in poor health, it is better to stay with the retirement account. If you are in reasonably good health (compared to other people of the same age), you should convert into CPF Life (and join the pooling of risk).

Put in another way: CPF Life is designed to take money from sick people and give them to healthy people, is that correct?

Anonymous said...

Dear Mr. Tan,

Can you advise where is the breakeven point (live to what age) for the "Life Income Plan" when compared to the Retirement account? Assuming I have $100K in the Retirement Account and CPF Life bouns is $3K.

Am I right to say that people who do not expect themselves to live to the breakeven-age should not join the scheme?

Thanks,

Tan Kin Lian said...

The breakeven point at age 62 is 20 years for male and 25 years for female. This is the expected life expectancy at that age.

CPF Life is designed for pooling of longevity risk among people who are of standard health. This represents about 90% of the population.

Each person should not try to gamble on the life expectancy (unless he or she knows that the health is very bad). If you are in reasonably good health, you should join CPF Life.

Anonymous said...

Dear Mr.Tan.
Re news Singapore's second-largestlender UOB is reportedly sellig its life insurance unit
to Prudential or Manulife.
How does it affect people who purchase UOB 8 to 10 years guaranteed rewards single premium
plan ? Will the company who take over UOB life change the term n conditions and cheat the insurer ?

Anonymous said...

Dear Mr. Tan,

I thought CPF Life only pays you when you reached the age 64. Also, is the break-even age (i.e. male at 84 and female at 89) the same regardless of which option plans you choose?

Life expectancy: do you mean 90% of the people would live to 84 and 89 for male and female respectively. Is that the current distribution pattern? I was thinking it would around 50%. Somehow most of the people that I know who passed away don't live to those ages, 90%?

Tan Kin Lian said...

To 8:37 PM

Your understanding of the life expectancy and the 90% are wrong. Read the statements carefully and do not misapply it to the wrong situation.

CPF Life starts at different age for different cohorts of people. Read the details in the CPF website.

Anonymous said...

1) if you don't know how to take care of yourself financially, then you should join CPF Life
2) if you know how to take care of yourself financially, then think carefully before you join CPF Life.

because
1) You'll never see your money again, except for what they decide to pay you every month
2) the amount of money paid every month is not fixed and fluctuates accordingly to how much they decide to pay you

Anonymous said...

Some things to note if you convert to CPF Life:

(1) the money does not belong to you anymore, since it is being used to pay a premium to CPF Life.

(2) the monthly payout amount can be changed from time to time to suit CPF's liking.

(3) they could stop the monthly payout to you if they think it's not beneficial for them to coninute to pay you.

the monthly payout amount is non-gauranteed.

Anonymous said...

But of course, there will be no more choice once CPF Life comes into full swing.

Everybody needs to pay the premiums since it is compulsory.

Anonymous said...

For those who kiasi about living too long, CPFLIFE is good.
For those who are very confident and know when they will die, leave with CPF for better payouts.
For those who have been screwed up by insurance agents, too bad accept a lower payout.
For those who have nothing continue to work until drop dead.
Instead of whinning over CPFlife not having gauranteed payouts and all the downsides, please think of the last category who have nothing but work.

Anonymous said...

I am aged 57 and my CPF Minimum Sum is $99,600-00. I do not qualify for the L-bonus.

If I leave it in my Retirement Account, the monthly payment (based on CPF Minimum Sum Payout Calculator) from age 64 is estimated to be $790 and may last for about 20 years.

If I join CPF LIFE and if I opt for LIFE Plus (This plan provides a higher monthly payout than LIFE Balanced Plan, but leaves less for my beneficiares) my monthly payout (based on CPF LIFE Payout Estimator) from age 64 is estimated to be in the range of $618 to $677 for life.

However, at the moment I am not not keen to join CPF LIFE because :-

a)The monthly payout may be adjusted every year to take into account factors such as CPF interest rates and mortality experience.

b)If I am not wrong, I understand that that there is a provision in the new law which allows the CPF Board to stop CPF Life payments unless the Lifelong Income Fund is solvent.

c)Although the Manpower Minister has given his assurance in Parliament that the monthly payouts will be paid for life, where is the security when payouts are not guaranteed? and what are the safeguards to protect Singaporeans from the risk of the fund's insolvency?

d)I have up to 31 December 2010 to decide to join CPF LIFE.

Hopefully by 31 December 2010, there are favourable answers to my doubts, otherwise I would rather leave it in the Retirement Account.

Anonymous said...

What you want is a guaranteed product. Like all gauranteed products the return is low.So why don't you buy a fixed and gauranteed payout annuity from any one of the insurance companies.
Leaving with CPF doesn't guarantee you guaranteed payouts too. The interest rate may vary too. It may vary within a range of 3.75% and 4.25% or more. And CPFLife payouts vary because of this.
Can understand your fear of dying early and forgo your remaining capital.But the refund is not forever.When you have collected equivalent to your capital the refund stops.
So what do you want? If only CPF allows people like you to withdraw and you do what you want. I bet you cannot achieve like CPF.
Sometimes , it is hard to please everyone.
InSolvency is just a caveat.
Like DBS or NTUC says the guarantee is as good as the company.You want a third party like US or FEd to guarantee CPFLife?

Anonymous said...

To 6.11pm
Thank you for your advice. I am not in favour of buying annuity from any insurance company. At the moment, my best bet is to leave the CPF Minimum sum in the Retirement Account as I know it has the best guaranteed interest rate till dec next year. As mentioned, I have up to 31 dec 2010 to decide to join CPF LIFE as by then maybe better/worse terms may come up.

Anonymous said...

To not decide is TO DECIDE. Anyway if you do not decide, you have decided for the Balance Plan ;)

Anonymous said...

Can i know if the payouts from CPF, annuity schemes etc will be taxed as income?

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