Two months ago, our Prime Minister spoke on how the average Singapore can hope to retire. One of the components mentioned was CPF Life (this is not to be confused with the upcoming "Medishield Life"). In this month's issue, we take a closer look at how CPF Life can be used as one of the components in our retirement plan.
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What is CPF LIFE?
It is a lifelong income scheme for CPF members. Upon members’ Draw-Down Age (DDA) i.e. of 65 years old, there will be a monthly payout for as long as he or she lives.
How will CPF LIFE start?
When we reach 55 years old, CPF will create our Retirement Account (RA) using the savings in our Ordinary Account (OA) and Special Account (SA). Based on our choice of plan and the savings set aside in our RA, CPF will deduct CPF LIFE premium in instalments from your RA.
What are the CPF LIFE plans available?
A ‘bequest’ is the money that we leave to our beneficiaries when we pass away.
What if I am not placed on CPF LIFE?
You will have to stay on the existing Minimum Sum (MS) Scheme and receive monthly payouts for about only 20 years, starting from your DDA. If there is not enough money in your fund to make payouts for 20 years, CPF will let you know. Or, you may choose to join CPF LIFE any time between age 55 and one month before your 80th birthday.
Case Study:
Mr. Tan has $100,000 in his RA and will be placed on CPF LIFE.
As he chooses the LIFE Standard Plan, CPF will deduct $77,500 (the Minimum Sum Cash Component that applies to him after pledging his HDB flat) from his RA as the first annuity premium for his LIFE Standard Plan. The rest of his RA savings ($22,500) will stay in his RA until his DDA.
About 1-2 months before Mr. Tan reaches 65 years old, CPF will deduct the rest of his RA savings ($22,500) together with any interest that has built up and any other new money in Mr. Tan’s RA as the second annuity premium for his LIFE Standard Plan.
When he reaches 65 years old, Mr Tan will receive a monthly payout of between $822 and $908 for as long as he lives.
If we do not have enough in our RA even after pledging our property, we will not be put on CPF Life. Thus, some people choose to grow their CPF money through investments, so that they will have a larger amount at the end of the day for retirement.
