Understanding CPF Life
In 2017, Singapore topped the whole world in life expectancy with a lifespan of 84.8 years, overtaking the long-term champion, Japan by 0.5 years. As of this year, the lifespan expectancy for females and males are 85.4 and 81 years respectively, marking the average life expectancy as 83.2 years. Due to improved chronic disease management and treatment, Singaporeans are leading longer lives.
If longevity is on our side, one thought will naturally come to mind: do I have enough for my retirement?
In Singapore, this worry is present in every adult with responsibilities. It has become customary in our society to plan and manage our funds for the future. This article is to allow you to catch your breath, know your options and to be less worried and more hopeful about your retirement.
What is CPF Life?
CPF Life is a life annuity plan and retirement scheme implemented by the government to take care of its people. The purpose of this scheme is to ensure a stable retirement and prepare Singaporeans for a longer life. Starting on the day you turn 55 years old, a Retirement Account (RA) will be automatically created for you.
When you transfer a sum of money into your RA at the age of 55, the CPF Board deposits a variable (yes, monthly income amount is not fixed nor guaranteed) amount of money every month to your bank account once you turned 65 years old, regardless of whether you are retired or still working. This is the only insurance scheme in Singapore that ensures such a stable income.
How Does It Work?
When you turn 55 years old, you can choose between 3 schemes of retirement sum to be put into your RA. These levels are in increasing order and the sum for each level is subjected to changes every year due to inflation and increasing standard of living. As of January 2020, the first level, Basic Retirement Sum (BRS) is $90,500; Full Retirement Sum (FRS) is $181,000; Enhanced Retirement Sum (ERS) is $271,500.
NOTE: The amount that contributes to your RA comes from your CPF-SA first (paying you 4%). If there isn’t enough to meet the minimum sum of $181,000, then CPF-OA (paying you 2.5%) will be tapped on to top it up. Planning can be done to alter the sequence so that you can enjoy the higher rate paid to your in CPF-SA.
What Is My CPF Monthly Payout?
When you turn 65 years old, you have 3 choices known as Standard Plan, Escalating Plan and Basic Plan. As the default plan, Standard Plan means you get higher than average monthly payouts. As for Escalating Plan, your monthly payouts will start lower, but it will increase by 2% every year. Basic Plan means you choose to receive lower monthly payouts.
To know exactly how much your monthly payouts will be from age 65 onwards:
You may also choose to defer payments till you turn 70 years old. This is for people who want their funds to continue compounding for another five years, where you earn an interest of an estimated 6% p.a. This means higher monthly payouts, a 7% increase each year.
What Happens If I Pass On?
If you pass on, your family will receive the rest of the money in your RA, excluding the interest in the CPF Life scheme. The money will be given totals up to at least the original amount of money you put into CPF Life scheme.
With us leading longer lives, retirement becomes a major part in our life planning. To ensure you choose the suitable retirement plan, think about your situation, your future plans and what is best for you. If you need better clarity into your Retirement planning, contact us or click on the whatsApp Ryan button below to start a conversation with us.