Is CPF Life enough for me to retire?

We know, we know, Singaporeans love to think of buying Toto as their “retirement plan”. Nevertheless, you should know that this is not a viable way to plan for your retirement. Since our last article on CPF Life (I Already Have CPF Life, Do I Still Need Annuities?) was written awhile back, we feel that it is time for an update. These are the few things you need to know about CPF Life in 2021 and how these will fit into the narrative of your retirement planning.

Quick facts about CPF Life

A national scheme that aims to help Singaporeans with their retirement planning, these are some points you must know about CPF Life:

Now that we better idea of what CPF Life is, let us move on to the details.

CPF Life – What is the minimum sum?

When you look at CPF Life, you will always see three different sums being mentioned. They are the Basic Retirement Sum (BRS), Full Retirement Sum (FRS), and Enhanced Retirement Sum (ERS).

While there is no minimum amount required in order to join CPF Life, there is a minimum sum that you cannot withdraw from your CPF Retirement Account. This refers to the BRS and FRS and are the amounts that you must keep in your Retirement Account in order to withdraw any excess CPF monies.

CPF Life – Which plan should I choose?

There are three CPF Life plans available, namely the Basic, Standard, and Escalating plan.

All members will automatically join the Standard plan when they enroll into CPF Life. However, while the Standard plan is the default option, it is important that you choose a plan that will fit your retirement lifestyle. For example, are you willing to adjust your lifestyle to cope with the rising cost of living? If you are willing to do so then the Standard plan may be suitable for you. However, if you still wish to maintain the same standards of living even as prices increase over the years, then an Escalating plan may be more ideal.

CPF Life - How much will I get?

Apart from the BRS, FRS, and ERS being the minimum sum that you must-have in your Retirement Account in order to withdraw any excess CPF monies, this also determines the pay-outs you receive from CPF Life. To put it simply, the more you put into your CPF Retirement Account the higher your monthly pay-outs will be.

_{Pay-outs are computed using the CPF Life Estimator tool for the year of 2021.}

For Standard and Escalating plans, you will receive monthly pay-outs for as long as you live regardless of the amount that you have in your Retirement Account.

Should I delay my CPF Life pay-outs to age 70?

Did you know that you for every year that you defer pay-outs, your pay-outs can increase by up to 7 per cent? Assuming that your CPF Life pay-outs increase at a rate of 7 per cent per annum, this could result in your pay-outs increasing by $309 to $334 a month.

_{Pay-outs shown are based on an individual who has $93,000 in his/her CPF Retirement Account at age 55 for CPF Life Standard plan, computed for the year of 2021. A 7 per cent rate of increment is assumed.}

Alternatively, as shown on the CPF Life Estimator tool, even at a lower interest rate of 4 per cent per annum you will still receive an increase in pay-outs of $250 per month just by deferring pay-outs to age 70.¹

_{Pay-outs shown are based on an individual who has $93,000 in his/her CPF Retirement Account at age 55 for CPF Life Standard plan, computed for the year of 2021.}

If you wish to receive a higher monthly pay-outs but do not wish to top up your Retirement Account, we recommend considering this option to defer your pay-outs to start at age 70. However, before doing so, do ensure that you have sufficient savings or income to sustain your daily expenses until your pay-outs commence at age 70. Also, do note that the interest rate for deferred pay-outs are not guaranteed and actual results may vary.

Top up your CPF Retirement Account for higher pay-outs

Alternatively, another way to get higher pay-outs is to top up your Retirement Account. For example, a woman with the BRS in her Retirement Account at age 55 would get $770 monthly pay-outs from age 65. This could increase to $1,420 if she tops up to the FRS amount and up to $2,080 with the ERS amount.

However, do note that these top ups are irrevocable and irreversible. Therefore, do only top up your Retirement Account if you do not need the liquidity from that sum.

In conclusion,

Whether the pay-outs from CPF Life is enough for your retirement is highly dependent on your retirement lifestyle. If you want a higher monthly pay-outs but yet are uncomfortable with the illiquidity of CPF RA top-ups, we share an alternative to CPF Life in our next retirement planning article: Are annuities good for retirement planning?.

Interested to learn more? Check out these articles:

What durians can teach you about your Critical Illness plan

Am I Ready To Retire?

All you need to know about the new integrated shield riders

Cheap Cancer Insurance Singapore 2021

What should I do with my maturing endowment plan?

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_{¹Source: https://www.cpf.gov.sg/eSvc/Web/Schemes/LifeEstimator/GetLifeEstimatorResults}