There are a few notable age milestones if you live in Singapore, especially when it comes to things relating to personal finance.
Age 25 when we start getting Skillsfuture credits.
Age 30 when we switch out your IC and start paying for Careshield Life.
Age 35 when we can purchase our own HDB flat as a single.
And of course, age 65 when start getting our CPF payouts.
With CPF LIFE being one of the building blocks of my retirement planning, it felt imperative to understand this scheme a little better.
So if you’re also trying to understand this scheme a little better, here’s what you need to know!
TL;DR: Guide to CPF LIFE: Plans Available, Minimum Sums, Payouts and More
- What is CPF LIFE?
- How do I join CPF LIFE?
- Types of CPF LIFE plans available
- How much payouts will I get under CPF LIFE?
- Can I opt out of CPF LIFE?
- Why can CPF LIFE pay me lifelong monthly payouts?
- What happens to my CPF LIFE premium when I pass away?
- CPF Shielding Hack
What is CPF LIFE?
According to the CPF website, CPF Lifelong Income For The Elderly (LIFE) is a national longevity insurance annuity scheme.
It provides a monthly payout for as long as we live so that we will not run out of our retirement savings.
It is also the new and improved version of the Retirement Sum Scheme (RSS).
If you’re wondering what’s the difference between these two schemes, here’s a quick overview:
|Retirement Sum Scheme||CPF LIFE|
|How You Receive Payouts||Monthly payouts drawn from Retirement Account until $ depletes. ||Lifetime Monthly payouts from CPF LIFE.
Those under the CPF LIFE Basic Plan will receive monthly payouts first from your RA savings from your payout start age until one month before you reach 90 years old. From 90 years old, you will continue to receive monthly payouts from the Lifelong Income Fund for as long as you live.
|Amount of Monthly Payouts||Amount of monthly payouts depends on how much you have in the Retirement Account||Amount of monthly payouts depends on how much you have in your Retirement Account.|
|Interest Rate Returns||Interest paid into accounts||Interest paid into Lifelong Income Fund|
|Can I Buy A Property Using My Retirement Account||Yes. You can use your Retirement Account (RA) that are in excess of your Basic Retirement Sum to buy a property.||Similar to RSS, you can use the RA in excess of the BRS to buy a property.
RA Funds are not deducted automatically at age 65. It is done only when members wishes to start their CPF monthly payouts.
|Lifelong Payouts?||No. |
Retirement Sum Scheme (RSS) payouts will last up to age 90* at most, instead of age 95. Hence older members who are already receiving payouts with duration exceeding age 90 will have their payout amount adjusted upwards.
RSS members who turn age 65 from 1 July 2020 onwards will be on the new payout rules.
For older members, who have started receiving their payouts, the new payout rules will only apply to them if their payout amount is higher under the new rules.
Hence, this group of members will receive either the same or higher payout.
Basically, the Retirement Sum Scheme (RSS) provides monthly payouts from the Retirement account until the money depletes.
The payout would be spread out to last till you are 90 years old.
As for CPF LIFE, you get to receive lifetime monthly payouts.
How Do I Join CPF LIFE?
A Retirement Account (RA) will be created for you on your 55th birthday, and your savings from Special Account (SA) and Ordinary Account (OA) will be transferred to your RA to form your retirement sum.
In general, you will be automatically included in the CPF LIFE scheme if:
- You are a Singaporean Citizen or Permanent Resident born in 1958 or after; and
- Have at least $60,000 in your Retirement Account (RA) six months before you reach your payout eligibility age (PEA)
However, if you don’t satisfy the above criteria to be automatically enrolled into CPF LIFE, you still have the option of joining the scheme if you want to.
This means that there is no minimum sum required to join the CPF LIFE scheme.
However, you will get a lower monthly payout if you have a lower amount of savings in your Retirement Account.
You can join CPF LIFE any time once you turn 65 years old, all the way to one month before you turn 80.
The steps to do so:
1) Login to my cpf Online Services with your SingPass.
2) Click on My Requests > CPF LIFE > Apply for CPF LIFE
Note: If you’re interested to see how much you need to have payouts to sustain your retirement lifestyle, there’s a nifty calculator you can use as well.
Types of CPF LIFE Plans and Payouts Available
As we all have different needs, different CPF LIFE plans are available for us to choose what suits us the best.
|CPF Life Basic Plan||CPF LIFE Standard Plan||CPF LIFE Escalating Plan|
|What Is It?||Gives you lower monthly payouts. |
More savings for your beneficiaries. (Remember to do your CPF Nomination!)
|Default plan for everyone.||Lower initial payouts. The payouts increases by 2% yearly to cope with inflation.|
|Best For...||If you'd want to leave some $ for your loved ones.||Yourself||For future needs.|
|Upon Death||Any unused annuity premium (without interest) and Retirement Account savings, will be paid to your beneficiaries upon your death|
If you’re still confused, here’s an illustration done up by CPF!
Do note that you’ll be placed on the CPF LIFE Standard Plan by default if you do not make a choice by 70 years old.
How Much in Payouts Will I Get Under CPF Life?
How much monthly CPF LIFE payouts you receive will depend on the year you turn 55 and the amount of CPF savings you have at that age.
Here’s a quick look at how much you’ll get each month if you turned 55 in 2020.
If you’re on the CPF LIFE Standard Plan, here’s a quick breakdown of how much you’ll get depending on the retirement sum you have at age 55:
|Retirement Sum At 55||Starting Payouts At 65||Starting Payouts At 68||Starting Payouts At 70|
Can I Opt Out of CPF LIFE?
As mentioned previously, you would be automatically included in CPF LIFE if you meet the eligibility criteria.
CPF will also notify you if you’re included in this scheme as well.
However, you may choose to be exempted from CPF LIFE if you are eligible to do so.
If you’re above 55 years old and are receiving lifelong monthly payouts from either a pension or private life annuity (paid by cash or under the CPF Investment Scheme), you may opt out of the CPF LIFE scheme.
Depending on the level of payouts you receive, you may be partially or fully exempted.
Some other reasons for being exempted by CPF LIFE would include:
- Individual leaves Singapore and West Malaysia permanently
- Individual is a Malaysian Citizen and has left Singapore permanently to reside in West Malaysia
- Medical reasons which include being physically or mentally incapacitated, terminally ill
Why Can CPF Pay Me More Than the CPF Savings That I Have?
As mentioned earlier, CPF LIFE provides monthly payouts for life.
This means that if we were to live till a ripe old age of 120 years old, CPF will still be able to provide us with monthly payouts to supplement our retirement life.
Even after your Retirement Account (RA) savings have been used up.
So… Where does this extra money come from?
When you join CPF LIFE, your CPF savings set aside as your annuity premium in your RA is funded into the Lifelong Income Fund.
(Note: Annuity premium refers to the amount of savings you commit to your CPF LIFE.)
The interest earned from your annuity premiums will be pooled and shared among all CPF LIFE members.
This pool of interest is what ensures you receive monthly payouts even after the savings in your RA have depleted.
This is called risk-pooling, which allows all members to share and protect themselves from the risks of outliving their savings.
It is also commonly seen in insurance schemes, where the payout a policyholder receives (in an event of death, accident etc.) comes from a collective pool contributed by all policyholders via their premiums.
What Happens to My CPF LIFE Premium if I Pass Away?
So it seems like a ‘good deal’ if I were to outlive my RA savings…
But… what if I don’t get to finish using my CPF LIFE premium before I pass away?
If you’re on CPF LIFE, any unused annuity premium and CPF savings will be part of your bequest and will be left for your beneficiaries.
However, the interest earned on the annuity premium does not form part of the member’s bequest and will not be going to your beneficiaries.
|What is left for your beneficiaries||What is NOT left for your beneficiaries|
|Unused CPF LIFE annuity premium (from your RA)||Interest earned on CPF LIFE annuity premium|
|Remaining CPF Savings|
Does This Mean That CPF Took My Interest Away?
While the interest earned would not be left for your beneficiaries, they do not go to CPF.
They are pooled into the fund along with all other CPF LIFE members.
And if you do live beyond a certain age, you may receive more payouts than the premium that has been contributed and the interest earned.
For instance, if a member has $60,000 under CPF LIFE chose the Standard Plan and starts receiving payouts at age 65, his savings would be depleted by age 79.
If he continues to live beyond that, he will still be able to receive monthly payouts.
Just know that you’ll always get your CPF LIFE premium back in full no matter what age you live till, be it in the form of payouts and/or bequest.
Bonus CPF Shielding Hack: How Can I Transfer More Funds From Ordinary Account To My Full Retirement Sum?
If you don’t already know, CPF monies are not transferred equally from your Ordinary Account (OA) and Special Account (SA) to your Retirement Account (RA).
Instead, your monies from your SA will be transferred to your RA first, before any is taken from your OA.
Given the difference in interest rates in each account:
|CPF Account||Interest Rate|
|Ordinary Account||Up to 3.5% per annum|
|MediSave Account||Up to 5% per annum|
It’ll probably be better if we have more OA funds going into your FRS given the 1.5% difference in interest rate.
So how do you transfer more funds from your OA into your RA instead?
All you need to do is to invest using your SA funds!
The range of investment products for SA funds is more limited than that of OA funds.
This method is also commonly known as the CPF shielding hack.
However, do note that this shielding method is not entirely safe and does come with its own risks.
Firstly, it is advised that you choose low-risk investments if you try this method.
This is so that your SA funds would not be exposed to higher investment risks which might ultimately eat into your savings instead.
However, this could be counterintuitive given the usual advice is to beat SA’s interest rates.
Also, as we’re just looking for a temporary space to store our SA funds (returning these funds into your SA after your FRS has been set), your SA investments is somewhat of a temporary account.
This means looking at short-term investments, which we know shouldn’t generally be the way we look to invest.
So if you do wish to look into this CPF shielding hack, please do your own due diligence to decide whether it’s aligned with your financial goals in the long run!
We know that CPF can be a complicated maze of its own with its schemes and terminologies.
And CPF LIFE is just one part of it.
If you want a quick breakdown of everything related to CPF, our ultimate CPF guide will be perfect for you!
Or if you just want to kaypoh about other people’s thoughts on CPF…
You know where to go.