Which CPF Life Plan for me? Basic, Standard or Escalating? (UPDATED JULY 2018).

An annuity is supposed to help fund our retirement. 

So, I should be looking at getting a bigger payout, if possible, and not a smaller one.

So, my choice is the Standard Plan.

I know there are people who would like to leave more money behind for their children and they might say I think the way I do because I have none (or at least I think I have none).

OK, maybe so.

However, I do feel that children should take care of themselves once they are adults. 

Some might tell me that this is a Western idea. 

OK, then, how did this Chinese saying come about?

儿孙自有儿孙福，莫为儿孙作马牛。

Bad AK! Bad AK!

Now, for some numbers.




Following my last blog on annuity rates, if we were to choose the CPF Life Basic Plan in order to possibly leave more money behind when we die, the annuity rate is approximately 7.16% (i.e. $991 x 12 /$166,000). 
- Refer to Ervin's comment on annuity rate at the end of this blog.

If we were to choose the Standard Plan, the annuity rate is much higher at approximately 7.88% (i.e. $1,090 x 12 /$166,000).
- Refer to Ervin's comment on annuity rate at the end of this blog.

I feel that when it comes to an annuity, the bequest should not be a primary consideration because leaving a legacy is not the purpose of an annuity.

An annuity is not a legacy planning tool. 

An annuity is a retirement funding tool.

What about the new CPF Life Escalating Plan?

I would probably stick to the Standard Plan as receiving a more meaningful sum of money right from the start and for many years after that is intuitively more attractive to me.

Intuition is fine but let me see if I can explain my choice mathematically.

The CPF Life Escalating Plan's annuity rate will escalate at 2% every year. 





Therefore, for the annuity rate to be on par with that of the CPF Life Standard Plan's, it would take about 11 years.

Only from the 12th year, the Escalating Plan's annuity rate would be higher than the Standard Plan's. 

This means its monthly payout would only become higher than the Standard Plan's then.

This seems attractive but in terms of total dollars received from the first payout, it would have lagged behind the Standard Plan and, logically, it would take many more years to catch up with the Standard Plan to make up for the "shortfall".

If we take into consideration the time value of money which says a dollar today is worth more than a dollar tomorrow, the difference in value spanning a period of years is probably quite stark.
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I have never been very good at Math and, like with all my blogs, this is just me trying my best to make sense of things but maybe not doing a good job of it.

You have been warned.


So, why would I choose CPF Life Standard Plan?

You blur?

I also blur.




Please remember that I think this is right for me but it might or might not be for you.

Yes, you have been warned again.



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Lee Keh Yi:
CPF has updated their CPF Life Calculator.
It show much more details now

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Ervin Ong says...
Your annuity rate calculation is wrong: "CPF Life Basic Plan in order to possibly leave more money behind when we die, the annuity rate is approximately 7.16% (i.e. $991 x 12 /$166,000)". This is because $166,000 is what you have at age 55, but you only start collecting annuity at age 65. You have missed out all the interest for the 10 years period.

Related post:
1. CPF Life estimator.

2. Annuity rates.