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Worried you won't live to enjoy all your CPF savings?

Saturday, June 18, 2016

Added (20 Jan 17):
Reader says:
I was talking to my colleagues today about CPF life.

They are very concerned about the payout starting at 65 and they not being able to live long enough to fully draw out their CPF money.

I tried to explain that they might outlive the $166k and receive free income for life, but they are skeptical that they will live beyond 80+...

AK says:
I rather have the assurance that I won't be old and destitute than worry about whether I would be able to enjoy all my savings before I die... chances of us living past 85 are quite good.


A reader's questions after reading a recent blog post of mine:

My reply:
Hi iwimsasl,
If we do not believe that having an annuity is a good idea to help fund our retirement, then, this is probably a bother. 

However, if we believe that an annuity is a good idea, then, there isn't a better annuity offer than the CPF Life out there.

CPF Life is meant to start paying out at age 65 but we can choose to defer the starting age till 70. 

The benefit is that the payout will be bigger monthly because the CPF-RA funds will have another 5 years to accumulate. 

Allowing earlier withdrawal would translate to a less meaningful monthly payout which is why it is not a good idea.

Will the minimum age be raised from 65 to 67? 

I don't know but I don't think it is a bad thing if it should happen.

It would probably mean that Singaporeans are living longer and we would receive larger monthly payouts because the accumulation period is longer.

Upsize $100K to $225K?
Insurance is about transferring risk and also the sharing of risk. 

Annuity is an insurance. 

For having the certainty of a basic level of lifelong retirement funding in my old age, I think bearing some cost is reasonable. 

What if we happen to be blessed with longevity? 

It could happen and insurance is about guarding against what we cannot foresee.

Very often, the preoccupation with trying to get back some money from buying insurance after X number of years leads many to overpay for insurance. 

This is probably why so many are under insured or pay too much to be adequately insured.

Know which insurance products are essential and get the best value for our money. 

I believe that an annuity is essential and as an annuity, CPF Life gives me the best value for my money.

FB (31/12/16)

Related posts:
1. Mom stunned by what happened to her CPF-RA!
2. Retirement funding for our parents.
3. Funding XX% of our retirement with CPF.


AK71 said...

On ASSI FB page:

Fast Twitch:
I think the issue is that for a young adult, it is tough for him to take CPF life into consideration in his retirement planning. For instance, a chap who is 30 this yr plans to retire at 65. In years to come, the pay out eligibility age shifts to 70. So for this young chap, he needs to find another source of income to support his lifestyle from 65 onwards.

The 30 year old guy will be doing himself a disservice not to consider CPF Life as part of his retirement funding strategy, This is a bond and an annuity. It should be in his plan.
Consider this a cornerstone of his strategy and make sure he has other sources of income if he decides to retire earlier or if he fears that the minimum age to draw upon the CPF Life might shift from 65 to 70. :)

bQ said...

AK, in that case, I think a good in-between is to choose Basic Plan instead.
From my understanding, under the basic plan, only 10 percent of your money in RA will be used to purchase the annuity, the remaining amount will stay in your RA to earn interest.
Upon hitting 65 (or later if govt decides to shift it), we will start to draw down on the amount we have in our RA. This will last us till one month before 90 year old. After which, our RA will be emptied, and we will receive payout for the rest of our lives from CPF Life.

If we should pass on before our RA is emptied, the monies in our RA will be left behind for our beneficiaries.

Please let me know if my understanding is wrong.

My only question is, how much will we receive from CPF Life from 90 year old onwards? The 10% of our RA that we used to buy into CPF Life, this amount will be left there to compound until we hit 90? If we only paid with 10% of our RA funds, I am just wondering how much can we possibly expect to receive from 90 year old onwards.

Siew Mun said...

Look ahead in decades. CPF Life is a one of the means to provide a monthly retirement income be self reliant.

AK71 said...

Hi bQ,

This is from my FB wall:

Raymond Ng: "For whatever reason if one don't think he can live beyond 80, he may consider choosing CPF Life Basic Plan (lower annuity but higher bequest)."

This is my understanding too. The rest of the stuff you mentioned, I am not in the know. -.-"

AK71 said...

Hi Siew Mun,

I feel that same way. To me, CPF Life as an annuity will provide a basic safety net in my old age whether from age 65 or 70. I have an inkling that I would probably choose age 70. Till then, I will have other sources of retirement income to depend on. I like to think that my approach is a prudent one.

Mao Mao said...

I guess there are people who are worried that they could not live to such a long age e.g. beyond 65 years old. The worry is valid as some people have family history of certain health issues or existing health issues.

AK71 said...

Hi Mao Mao,

We know ourselves best and should take appropriate action based on what we know.

Generally, however, I would like to say that nothing is for sure. A child born to 2 short parents has a 25% chance of being tall as an adult, for example. Insurance guards against uncertainty. ;)

So, if we believe in insurance, we might want to have an annuity and if we believe in getting an annuity, CPF Life is the best deal out there. :)

iwimsasl said...

Hi AK,

Thanks for your long reply.

My consideration is that CPF members do not have much option to choose and rules keep evolving. As the officer at CPF when answer to some of my Qs also said it's too far & complex.
Can I say I dun want to participate in CPF life?

Bigcatblue said...

Hello AK,

I am in total agreement with you. Annuities are a safeguard against a financial calamity when we are old. It is longevity insurance for a simple some say spartan retirement. There is no better annuity than CPF life simply because if it run by the government not by financial companies that will be taking a chuck of our annuities as fees.

CPF life is not perfect. The steady cash flow over on average of 10-20 years is not inflation protected but it was not meant to be the sole retirement instrument. I have intention to defer my annuity payout if my retirement income is sufficient.

AK71 said...

Hi iwimsasl,

If you have no confidence in the system, then, the best is to do only what is required by law and not an ounce more. ;)

AK71 said...

Hi Bigcatblue,

I know many would like to be able to get their money earlier but they must understand that if that option is available, it would mean a much smaller monthly payout. There must be a trade off. I am likely to ask for CPF Life payout to start at age 70 instead of 65 too. :)

iwimsasl said...

Hi AK,

Yes, I'm planing to contribute just the required amount since I've no say in the draw down age and I plan to withdraw it once the law allows it....65 hopefully for my cohort.

Shouldn't CPF allow early start of draw down age with reduce amount say 7-8% for each year just like the same increase for each year of delay to be fair? That said, the low income group can't meet the FRS or BRS and job is not secure since the official retirement age is still thereafter is not guarantee. Thus, this people may need to draw down earlier.
As for the middle/top income earners or people with more reserves, they can choose to top up more to their RA to compensate for the potential decrease each year for early draw down in order to maintain the same draw down amount they desire monthly.

What's your opinion?

AK71 said...

Hi iwimsasl,

Another blog post has been inspired by your comment. :)

Why work hard and plan early for retirement?

Kiki said...

Hi ak71

Is me again. I am going through all your post so may be posting in some old topics.

I don't quite get what iwimsasl means.what does it mean by the beneficiary cannot get back the full amount. If I choose the basis where I take more and less for my siblings, how does it work. Shouldn't they be getting the full amount not yet taken by me ? I tried reading in cpf life but theirs have less info than urs. Thanks

AK71 said...

Hi Kiki,

Your understanding is correct. :)

Basically, if we should die at age older than 85, then, our beneficiaries get nothing. If we should live beyond age 85, we continue to receive a monthly payout till we die. If we die before 85, our beneficiaries will get something.

"Under the CPF LIFE plans, we will refund all your unused annuity premium (without interest) ​and Retirement Account savings, if any, after your death. We will pay any refund into your CPF account. This will then be paid to your beneficiaries along with your remaining CPF savings." CPF Board

AK71 said...

From my FB wall:

Jimmy Ng:
"CPF very evil to remove the "highest payout, no bequest" option."

Assi AK:
"I know what you mean... I would like to have that option."

This option, if available, would be good for people who have no dependents at age 65.

AK71 said...

From my FB wall:

Augustine Lim:
Cpf is gd but problem is u can only get to enjoy cpf life when u rch 65. What happens if suay suay u die younger say 60. Can't see my cpf life payout liao.

Cassidy Gan:
CPF is to help to fund your retirement. It is true if you die younger than it was expected then you leave them to your family. The other way of looking at it, it is better to have money to spend at your old age than nothing left left. Dying young is easier for you need no more money to spend after that than not dying old when you are left with nothing to fend for yourself and yet have to suffer daily at the consequences at the penniless way.

AK71 said...

Reader says...
I have 2 dying questionS n hope u can answer:
1. TOUCH WOOD but if u knew u will not live till 55 or 65 would u still top up ur CPF?
2. TOUCH WOOD again but will u regret in Heaven if topped up n do not live till 55 or 65?

AK says...
Eve of Chinese New Year and you ask me something like this?
Read this blog. ;)

AK71 said...

It is better to die as a rich man than to live as a poor man.

If AK says so, it must be so.


AK71 said...

Jackson Yang says...

I more scare when im old and noticed i had zero $$ in my bank account, or have to depends on someone to help me...

That means my life is on someone's mercy now....

AK71 said...

Kenichi Xi says...

A true story.

An auntie at premier lounge told me her classmate A saw his other classmates a few passed away.

So Classmate A decided to withdraw and use his cpf money.

She mentioned he ran out of money 3 yrs ago and they lost touch le.

WTK said...


I believe that one way to treat CPF as an additional buffer and treat it as non-existent. This may be applicable for those who has the cash or investment portfolio to sustain his/her daily lifestyle expense. Such thought may not be accepted by some or the majority of the people. I will say that this is to each of our own. Different people have different views and it is up to them to make the decisions in accordance to their belief and preference. In fact, there is no right or wrong answer and the decisions vary from people to people and depend on their prevailing circumstance.


AK71 said...

Hi Ben

Too many people think that the CPF is not real money and this is a problem (for them).

AK71 said...

Desmond Lee says...
Quite often my friends would tell me they are not going to live till the average lifespan to benefit from CPFLife.
My usual response would be asking them to look at the age of their grandparents, parents or relatives when they pass away. This is a good indicator. Next is to eat healthy and exercise 😄

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