CPF LIFE is a national longevity insurance annuity scheme that insures you against running out of your retirement savings by providing you with a monthly payout for as long as you live. The ‘LIFE’ in the name actually stands for Lifelong Income For the Elderly, reflecting its purpose. Here are five things to know:
1. Why do I need CPF LIFE?
Planning ahead for the future can be challenging as there are so many things beyond our control. What is certain, however, is that we will live longer and spend more years in retirement.
About half of Singaporeans who are 65 now are expected to live beyond 85, and a third beyond 90. With improvements in medical technology, life expectancy will continue to increase.
To live a worry-free retirement and not be a burden to our children, we need to make sure we do not run out of savings in our old age, when income may be hardest to come by.
With CPF LIFE, we can be assured that we will continue to have lifelong monthly payouts, no matter how long we live and even after our own savings are depleted.
2. How is CPF LIFE attractive?
CPF LIFE provides attractive monthly payouts for the amount of retirement savings put into CPF LIFE (also known as premiums paid) because the Government provides high interest rates of up to 6 per cent per annum. If you can find a commercial annuity insurance product which pays out the same or higher monthly payout for life, you can apply to be exempted from CPF LIFE and withdraw all your CPF retirement savings.
3. How should I choose between the CPF LIFE plans?
Ask yourself what kind of retirement income you would need.
If you are worried about the cost of living going up as the years pass, then you need a retirement income that increases every year. The Escalating Plan has this feature.
If you prefer to keep your expenses within a fixed budget even if it means that you can afford to buy less as prices rise every year, the Standard Plan offers a level payout.
If you don’t mind starting with lower monthly payouts which will get progressively lower later on, then the Basic Plan is good enough.
Your choice of plan depends on what you value. All three plans will give a payout for as long as you live, but at different amounts. They also allow you to enjoy the interest earned, and any unused premiums upon death will be given to your beneficiaries.
4. How much money will I get monthly under CPF LIFE?
Having chosen your CPF LIFE plan, the amount of monthly payouts that you will receive will depend mostly on how much you have in your Retirement Account (RA) when you join the scheme. The more savings that you used to join CPF LIFE, the higher your payouts will be.
You can increase your payouts by topping up your Retirement Account, up to the Enhanced Retirement Sum, or by deferring the start of your payouts until the age of 70. For every year that you defer, your payouts will increase by up to 7 per cent.
You will always get back at least the amount of money that you put into CPF LIFE, no matter how long you live. If you pass away before your premium is used up, the balance will be given to your beneficiaries.
5. If I am not under CPF LIFE, will I still receive monthly payouts?
You will receive payouts under the Retirement Sum Scheme, but the payouts will stop once your Retirement Account savings are used up. That is why it is generally better to join CPF LIFE so that you receive payouts no matter how long you live.
If you are currently under the Retirement Sum Scheme and wish to join CPF LIFE, you have until one month before your 80th birthday. Simply submit an online request.
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