How to choose which CPF LIFE retirement plan is best for you

In the past, CPF retirement options were confusing. There used to be 12 different methods of getting your pension which only had subtle differences. This has since been reduced to just two basic options: CPF LIFE Basic, and CPF LIFE Standard. Here’s how to pick between the two.

What is CPF LIFE in the first place?

It’s actually an acronym for the Central Provident Fund Lifelong Income for the Elderly. The purpose of CPF LIFE is to provide for your retirement in a way that lasts until the end of your life. This pension scheme comes in the form of regular monthly payouts from the age of 65 onwards.

To join CPF LIFE, you must be born in 1958 or after and have at least $40,000 in your Retirement Account (RA) when you reach 55 or $60,000 when you hit the payout eligibility age (currently at 65). If you do not have sufficient CPF funds at 55 or 65, you can still apply for CPF LIFE if you raise sufficient savings anytime up to the age of 80.

There are two different versions of CPF LIFE that you can choose from: CPF LIFE Basic, and CPF LIFE Standard. Unlike the past, you do not have to choose between Basic and Standard when you turn 55 (although you can). You can choose your CPF LIFE plan anytime between the ages of 65 and 70, so you can see how things play out before making a decision.

In addition, note that you do not have to start payouts from CPF LIFE at age 65. If you so desire, you can postpone receiving monthly payouts until you are 70 years old. If you do so, the money in your RA will grow with interest until your payouts begin.

CPF LIFE Basic

CPF LIFE Basic gives you lower monthly payouts but leaves a greater bequest (more money for your loved ones when you pass away).

For the purposes of this example*, we will assume you turn 55 this year and currently have the minimum sum of $166,000 in your RA. If you opt to receive your monthly payouts at age 65, the payouts will be in the range of $1,167 to $1,287 per month.

Assuming you pass away at age 75, your bequest will be in the range of $188,000 to $200,000. If you pass away at age 85, your bequest will be in the range of $102,000 to $112,000. Note that, if you live to the age of 90 or beyond. there will probably not be any bequest for your children.

*To know your specific situation, check your CPF funds and visit the CPF website where a CPF LIFE payout calculator is provided.

CPF LIFE Standard

The Standard plan is the inverse of the Basic plan. It provides higher monthly payouts but leaves a smaller bequest.

Again, we will assume the same scenario. Monthly payouts would then range between $1,281 to $1,410 per month; a difference of around $100+ a month from the basic plan.

Assuming you pass away at 75, your bequest would range from $78,000 to $83,000. You probably would not have anything much to leave to your children if you pass away in your 80s or later.

So which option is better for your retirement?

Let’s start with the most applicable piece of advice, which everyone can use:

As far as possible, try to wait till 65 before choosing between Basic and Standard.

10 years can see significant changes to your lifestyle and financial situation. While we hate to be doomsayers, we have to point out that the probability of chronic health conditions will rise as you grow older. Think diabetes treatment, cancer, kidney dialysis, and so forth. It’s realistic, not pessimistic, to prepare for such an event between the ages of 55 to 65 onward.

That said, let’s look at who should pick what:

Choose the Basic plan if…

The Basic plan is useful if your children are not in a position to provide for themselves or are financially strapped. If you have children who have special needs, for example, or who cannot work due to medical conditions, the bigger bequest will make all the difference to them.

A Basic plan may also appeal to you if you have other sources of income once you’re retired. If you have a house to rent out, a portfolio of dividend paying stocks, or other income streams, you may realise that an extra $100 a month is not particularly meaningful.

Assuming you pass away in your 80s, do you really want to deprive your children of an $75,000 to $80,000 just for the sake of an extra $100+ a month?

Choose the Standard plan if…

The Standard plan is what most Singaporeans will choose if they can see their children are financially stable. While your bequest is smaller, your children are not entirely deprived of benefit — when you have more money every month to “do your own thing”, you will be a little less dependent on them to support you.

For Singaporeans who have no source of income beyond their CPF, the Standard plan is also preferable. An extra $100+ a month counts for a lot when there’s nothing else. It could mean the difference between buying a new fan, or sleeping in the heat. Or replacing a broken TV, and staring at the wall.

Of course, we’d hate to think that any of our readers would end up in such a situation. Retirement should be about celebrating the free time you’ve earned, not subsisting on a shoestring budget. Like The Fifth Person on Facebook so we can keep you updated on how to retire well.

Ryan is a successful property investor and has been writing about money, saving and spending, and personal finance for the last ten years. His articles have been featured in leading publications including Yahoo! Finance, Esquire, Her World and AsiaOne.

4 Comments

  1. Richard Lim

    March 10, 2017 at 9:59 am

    Hi Ryan;

    Beside Basic and Standard now there is Enhancement CPF Life too. You may want to enlighten us is it good to go for the enhance version.

    • The Fifth Person

      March 10, 2017 at 10:50 am

      Hi Richard,

      There are two plans to choose from for CPF LIFE: Basic and Standard.

      We believe you are referring to the Enhanced Retirement Sum (ERS) where you can choose to keep more money in your Retirement Account.

      Even then, this still leads to choosing the CPF LIFE Basic or Standard plan depending on whether you prefer a lower monthly payout and higher bequest or vice versa.

      Hope this helps! 🙂

      https://www.cpf.gov.sg/members/schemes/schemes/retirement/cpf-life

  2. Pingback: How to choose which CPF LIFE retirement plan is best for you – SG Investor Hub

  3. David

    April 23, 2017 at 3:43 pm

    Hi Ryan,

    I am usually very sceptical/careful when it comes to investments, especially when it pays into any plan as there fees involved. For CPF Life, there doesn’t seem to be much clarity on how the mechanism works.

    Would it be possible to share with us readers the differences in payouts for CPF Life Basic, Standard and the old draw down option over 20 years. A table showing the different pay out amounts it would be great.

    Thanks,

    David

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