By Soh Chin Heng
Mr Soh Chin Heng is the Deputy Chief Executive (Services) of the Central Provident Fund Board Singapore and a non-practising certified financial planner. He gives talks and writes regularly on CPF and financial security. The stories shared in this series are based on real life experiences, suitably anonymised to preserve confidentiality.
It is useful to think about the income you need when you are not working as being made up of two parts, which, according to financial expert, Tom Hegna, can be referred to as the pay cheque and the play cheque. Your pay cheque is meant for your needs and to pay your bills. Your play cheques, on the other hand, is for your wants and for the finer things in life.
You would want your pay cheques to arrive every month, and for the amount to be fairly constant. They should therefore be funded by assets which are not volatile. This is where your CPF comes in.
The CPF savings you have depends on the amounts you have contributed, and the interest earned. The more you contribute and the more interest you earn, the bigger your pay cheque will be. Based on the illustration above, assuming you are 55 years old in 2018 and have accumulated $171,000 in your CPF savings, you can expect to receive around $1,320 - $1,410 per month from age 65. And this amount is for life. This is possible through the CPF LIFE scheme.
CPF LIFE is an annuity. It works on insurance principles and makes payments as long as the insured person is alive. There are two plans which you can choose from – the Standard Plan which pays more for yourself and leaves less for your beneficiaries, and the Basic Plan which pays less for yourself but leaves more for your beneficiaries. From 2018, there is a new CPF LIFE plan – the Escalating Plan – where the payout increases every year and it caters to those who are concerned about inflation.
Members on CPF LIFE can start receiving monthly payouts from their payout eligibility age, which is from 65 for those born in and after 1954. If you are still working or have additional sources of income at 65 and do not wish to start receiving payouts, you can defer the payouts to start anytime between age 65 and 70. The benefit of deferring is that your monthly payouts may increase up to 7% for each year of deferment. There is flexibility in the plan types and payout start age to cater to the different needs of members.
With CPF LIFE, you will have peace of mind that you will not outlive your savings.
This article is part of a series by Mr Soh, who will be sharing tips on how you can chart your way towards financial security. Read more:
The Most Important Financial Question
Your Financial Security Compass
Your Lifetime Financial Partner
Albert Einstein and Warren Buffet
My Three Generational Story
A Mountain of Debt
A Most Wonderful Emergency Fund (For Some)
The Valley of Risks
The Peaks and Troughs of Investments
Are You Retireable?