Saturday, December 5, 2009

Retirement and CPF Life


For Singaporean, the CPF Website have improved but still hard. It can be better to have personalized information based on the date of birth instead of looking at generalized tables for different age groups, or flash that requires input of date of birth or OA/SA/RA amount every time.

I decided to find retirement information for my parent since we have no idea about their CPF monies.



CPF Life vs Minimum Sum payout. (Only those born before 1959)Only a choice for older generation since it is compulsory for younger generation to be in the CPF Life. Firstly, you need to know roughly your
1. Annual Value(AV) of your property,
2. Assessable Income.

I know the above are for deciding your CPF Life Bonus. Typically, a male get more payout than a female, probably due to the higher life expectancy of a female. According to IRAS, there should be a portfolio showing the property AV but I cannot find it. However, based on the calculation of the property tax paid (4% of AV if you own and occupy), I can gauge that the AV is in the < $6,000 range.

I added the CPF Life Bonus and calculated a simple compound interest on the RA+CPF Life Bonus and then assuming 5% interest(4% for retirement account and 1% for first $60,000) till the DDA(Drawdown age) and got the estimated amount in RA at retirement. Then, I used an online annuity calculator to determine roughly how many years the amount can last to get the same monthly payout as the CPF Life Income Plan(highest payout w/o any bequest).

I found the breakeven to be
Probable Amount in RA @ DDAAnnuity Interest RateYears it can last to match CPF Life Income Amount
$8,7525%22
$8,7524%(Most likely the estimator used this)19
$8,7523%17


Perhaps I should not used 5% as the interest till the DDA, but regardless if I have just used the way of dividing the RA by the given monthly payout, it will only be 10 years ignoring all interests gained. Seems like joining the CPF Life might not worthwhile unless my parent outlived the years calculated. Regardless, we need to visit CPF to get more details about the estimated minimum sum payout and the CPF Life payout to make a decision. I do believe I overestimated the calculation but I also believe the CPF Life makes profits for the government/insurance companies it buy the annunities from.

Another way of comparison is to compare with other annuities companies like the 3 big banks or NTUC. I think CPF is probably offering a better rate . There is a better blog post with more technical calculation. Someone also post a question to Mr Tan Kin Lian and got a couple of responses from him and the readers.


Life expectancy. Knowing the rough breakeven, the question is the life expectancy of my parent. CPF Life is a gamble that you can outlive the average person they predict. Honestly, when I think about it, I have no clue how long someone can live. I know my parent say the obituary still have people in their 50s or 60s despite media mentioned of increasing life expectancy. It is probably due to the increasing life expectancy is for those who are born later. Singapore Statistics does provide a yearly lifetable showing your life expectancy. Looking at the statistics, I was surprised the life expectancy of everyone seem to keep growing, compared to the lifetable of 2003, and the life expectancy is about the same regardless of your current age. Based on the latest statistics, it is roughly 84 years old. If it is true, it might be worthwhile to get my parent on the CPF Life scheme.

Dependants' Protection Scheme (DPS) as additional term insurance cover. While looking through the CPF, I realized there is a DPS scheme that provides affordable term insurance. It covers $46,000 up to age 60 and costs onl y at most $260 a year for those very close to 60. It does seems very cheap and should be taken into consideration. Not too sure about the restriction yet but it does feel very worthwhile. A blog post with the premium amount, I could not link the website from the CPF help page.

Voluntary Deferment Bonus (V-Bonus). Further reading up, I found about the deferment bonus as incentive for older generation to defer their DDA(Drawdown age) to 65. The CPF Calculator. It is roughly 2% of $30,000 if you have at least that amount in your RA.

Tax relief for parents. You can also get $7,000 tax relief for topping up your parent CPF with cash if it is less than the Minimum Sum. They can be additional savings too and might be worthwhile. For cash top-ups for siblings/spouse, the sibling/spouse must not have earned more than $2,000 in the preceding year.

Medisave Minimum Sum. With effect from 1 July, the Medisave Minimum Sum (MMS) will be raised to $32,000 from $29,500. Members will be able to withdraw their Medisave savings in excess of the MMS at or after 55 years old. I always thought money in the Medisave will be gone but just found out it can be partially withdraw if it above the minimum sum.


Probable tasks. To find out more from CPF,
- CPF Life will get exactly how much? (or is it only known when the annuity is bought at DDA?)
- Minimum Sum payout (how much monthly and how long it can last, interest is CPF RA rate or based on the bank?)
- Life Plus/Income plan, entire RA for annuity premium. (What if still got CPF? the amount in OA/RA?)
- V-Bonus, how will it affect the amount?
- Sign up before 31st Dec 2010 for $4,000 bonus (or pro-rated bonus)

I wonder if CPF will provide a financially skilled assistance that provide on-the-spot calculation/estimate or just a rough assistance that tell you about the various scheme only.

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