How can you complement CPF Life with your personal plans?
Here are 3 questions to consider in finding the right fit to your retirement plans:
1) How much do I want for old age?
In a recent article, it was calculated that a 30-year-old who expects to retire at 65 and to live a simple lifestyle by taking public transport and eating at hawker centres rather than restaurants, for instance, would need about S$5,600 per month at the age of 65.
If you’ve no idea how much is needed, you can use the above example as a basis. Do consult a professional if you want to work out your numbers.
2) How do I determine how much payout I can get at age 65?
Your CPF Life monthly payouts will depend on the savings you have in your retirement account.
Most Singaporeans has a property and depending on the type of property that you have bought, a person may have little or no OA to be transferred to the retirement account at the age of 55. This means that the main contribution to retirement account comes only from the growth of SA.
3) How can I do more for retirement on top of what CPF Life can provide?
Here are some suggestions:
a. Plan for payout to start before age 65
Current CPF Life start paying at the age of 65. Because health, youth and employability has a way of changing, it makes sense to plan for retirement income earlier.
CPF has evolved over the years to cope with rising life expectancy and the risk of members outliving their CPF savings. From the early years where members can fully withdraw their CPF savings upon retirement, Minimum Sum Scheme was introduced in 1987, to help members to spread out their savings over their retirement years, by streaming out members’ CPF savings monthly instead of having it withdrawn in a lump sum.
In 2009, the Minimum Sum Scheme (which provides payouts for 20 years), was replaced by CPF Life (which provides payouts for life). As life expectancy improved, CPF Life was designed to cover the longer lifespan of Singaporeans and to ensure that members will not outlive their CPF savings.
To cope with changing times and needs, the government has every good reason to make the necessary changes to our retirement plans. While it has good intention, it is also something that we can’t control.
Part of planning for retirement is to have more control of what we want at old age and planning minimises any impact, regardless of regulatory changes.
b. Consider retirement plans with disability income
With aging comes changes in health and changes in health usually results in more care giving and medical expenses. During the National Day Rally 2017, PM Lee said, “On average, we live to 82 years and out of these 82 years in old age, we experience 8 years of ill health.”
While CPF Life is positioned with lifetime payouts, to cope with increasing life expectancy, there is no additional payout for the additional care giving cost that may arise due to the 8 years of ill health at old age.
One way of complementing with CPF Life, is to consider having retirement plans that provides disability care benefits.
There are retirement plans that provide disability care benefits during the accumulation period and during the payout period. Premiums can be waived during the accumulation period. This provides the certainty that the planned retirement funds will be available at old age even if a person lost the ability to work and to save for retirement. The certainty of retirement funds is important because while health may have a way of changing, it doesn’t mean that life expectancy will change. That is the reason why, when a person lost their health and the ability to work (especially before the intended retirement age), the impact is not just on current life, but also on future because they didn’t get to work and accumulate for their retirement as it was meant to.
c. Incorporate legacy planning
The current CPF Life has a bequest component, meaning all unused annuity premium (without interest) and retirement account savings (if any), will be refunded to the beneficiaries in the event of death.
Consider this example:
Male age 55 with retirement account balance of $176,000
Depending on the plan that was chosen, the following shows the payout and bequest with time.
While CPF Life does provide some form of bequest, it also means that the longer a person lives, the lower the amount of bequest that will be distributed to your loved ones.
Having retirement plans that provide payout with legacy component, let you spend your retirement payout with ease and knowing that there will be wealth that can be passed on, even if you live longer. Whether it is to say thank you to the care givers who has taken care of you, to give for charitable purpose or to leave behind legacy for your loved ones, having wealth to leave behind, impact generations.