Retirement Planning: CPF LIFE (3 things to know)
Retirement Planning Singapore: CPF LIFE (3 things to know)
CPF is definitely an integral part of your retirement planning in Singapore. CPF LIFE stands for Lifelong Income For the Elderly scheme is a life annuity that provides Singapore Citizens and Permanent residents with a monthly payout as they live.
In this section, we list out content that can help you know more about retirement planning
- How much do we need to retire Singapore
- How retirement blueprint helps one of my clients retire 5 years earlier than expected
- How to plan for retirement in Singapore ( 3 things you can’t do without)
A new escalating plan has been available from starting this year Jan 2018. This plan will be in addition to the two other plans that have been available which are the Standard plan and Basic plan. With the three plans, members can now choose the desired amount of monthly payout they want to receive in their golden years which is also relative to the savings in the Retirement Account.
#1 The difference between the 3 CPF Life plan?
What is a CPF life Standard plan?
CPF Life standard plan offers higher monthly payouts. This is the standard default plan for the CPF members who do not choose a plan when they enrolled into CPF LIfe.
What is a CPF life Basic plan?
CPF Life Basic plan has a lower payout than standard plan but allows a member to leave a larger bequest or inheritance to loved ones.
What is a CPF life escalating plan?
CPF Life Escalating plan has a payout which will increase 2% every year but it starts with a lower amount at the start. Unlike the other two plans, which has a leveled payout. All Members are able to have a choice to switch to the escalating plan Jan to Dec 2018 and these also included people who are in the standard plan or already have been receiving your payout. Just take note that, the new payout for the escalating plan will reduce the current payout by about 20percent or more and it will take about 15 years to have a similar amount of monthly payout as a standard plan.
An escalating plan is an option for CPF life members who are looking for their monthly payout to hedge against their inflation cost.
#2 What is your interest rate for your CPF funds
Funds in the Ordinary account earn a guaranteed interested rate of 2.5% per year.
Funds in the Speical account, Medisave and Retirement account earn 4% per year.
The first $60,000 of your combined CPF balances and of which up to $20,000 coming from Ordinary Account earns an extra of 1% per year. And if you are above age 55, additional interest is paid on the first $30,000 of combined CPF balances.
The interest rates are kept unchanged in the year 2019 reported in straits times as the CPF account interest rates are hence pegged to the10-year SGS bond rates given for similar long-term, risk-free investments.
#3 Factors to consider when deciding which CPF life plan to take on.
I would say that the most important question you need to ask if you would like your CPF payout to be hedging against inflation.
If your answer is yes, then obviously the choice will the escalating plan as it is the only that provide some form of hedging for the payout. But you will have to accept a lower payout from the start which is about 20% lower. You might want to something form of additional income to supplement your lower payout at the start.
If your answer is no, then you have to decide whether leaving a bequest is something of importance to you. Both standard and basic relatively higher payout compared to escalating plan to meet their needs. They might want other alternative methods to hedge against inflation.
Another factor to consider if you are going to work or stay employed until then. Then you can decide what other forms of income to maintain the quality of lifestyle you want for your retirement.
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