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CPF Life Escalating Plan.

Friday, August 11, 2017

Reader:
(On CPF Life)
Is 70 the max age to leave the money there?
Can continue to leave it there, and then bequeath everything?

AK:
We can choose our CPF Life payout start age to be any age between 65 to 70 years old.
If we did not make a choice, the payout will start automatically under the CPF Life Standard plan at age 70.





We must remember that CPF Life is an annuity and not a legacy planning tool. It is meant to help fund our retirement.

If we would like to use the CPF as a legacy planning tool, we could choose to leave some or all of the remaining money in our CPF-OA and CPF-SA untouched from age 55 instead.

On the subject of CPF Life, there is another plan which will be available from 2018. 





In addition to the Standard and Basic Plans, we will have the option of the Escalating Plan.

*Available from January 2018.
I feel that the Escalating Plan will appeal to people who would like to have a later payout start age, later than age 70, because they want a bigger monthly payout to address the issue of inflation.

How is this achieved?

The payouts under the Escalating Plan will be smaller than even the Basic Plan's payouts in the initial years but will grow at 2% a year.





Since the latest payout start age for CPF Life is age 70 which already allows for another 5 years of accumulation from age 65, the Escalating Plan helps to address the desire for larger payouts when members are older by allowing some of the funds to continue accumulating instead of being paid out from the payout start age.

I feel that the Escalating Plan is a prudent one and if we believe that an annuity is a good retirement funding tool in case one should be blessed with longevity, then, the Escalating Plan is the obvious choice for anyone with this belief.

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UPDATE (23 Oct 17):
Which CPF Life Plan for me?
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Related post:

CPF Life estimator.

5 comments:

thomas said...

Thank you for always being so generous with your advises :)

AK71 said...

Hi Thomas,

Alamak. I talking to myself only lah. ;)

I where got give advice? Where? Where? ;p

K said...

Hi AK,

Would you leave your money in CPF-OA (beyond 55)? I can understand CPF-SA @ 4%. Wouldnt it be better to move in into CPF Life for better returns? Noted that leaving it in CPF-OA will provide more flexibility.

Thanks.

AK71 said...

Hi K,

This is blog worthy and here is my reply:
60% higher interest income from age 55?

AK71 said...

The report highlighted that with CPF's interest rate structure, CPF Life is able to provide an effective annuity rate of 7.1 per cent based on a $100,000 premium.

"This compares favourably with life annuities in most markets," stated the report. The annuity rate was calculated based on the ratio of annual payout to premium paid, for a male member born in 1962, or is 55 this year, who receives payouts at age 65.

http://www.straitstimes.com/business/invest/is-the-new-cpf-life-plan-ideal-for-you

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