Sunday, 5 July 2020

How to have a good, long life with CPF

Those who put more in CPF LIFE and defer payouts till 70 will have more cash each month
By Tan Ooi Boon, Invest Editor, The Sunday Times, 5 Jul 2020

The longer you keep your money in the Central Provident Fund (CPF), the more you will earn because of its high interest rate. This is why more Singaporeans are trying to keep their funds for a longer period in this safe haven.

No wonder the CPF Board has to do more to get eligible members to start collecting payouts when they hit 65. At that age, members can start receiving monthly payouts under CPF LIFE, the Board's longevity insurance scheme. But many choose not to ask for the payouts.

Although members get reminders six months before their 65th birthday, about 60 per cent let their funds stay in their CPF accounts.

And even after four more rounds of yearly reminders, half of those reaching 70 still do nothing.

To solve this problem, the Board now automatically disburses the funds the moment members hit 70.

While it tries to help vulnerable seniors who may not understand the scheme, many do not want to get their payouts at 65 as they will gain even more with each passing year.

Some of these retirees are likely to be savvy investors or even professionals who are still working. Indeed, a few wrote to Invest to ask whether they can pay into a second CPF LIFE account!

As they are still enjoying a steady flow of income, they choose to receive their CPF LIFE payouts only from 70. They can receive up to 7 per cent higher payouts for each year they defer their payouts.

Take a member who plans to set aside the maximum retirement amount of $288,000 in 2022. If he takes the payout at 65, he will get an estimated $2,400 a month. But if he does so at 70, he will get over $3,200.

Just like the tortoise that wins the race with the rabbit in the children's fable, members who start receiving their payouts later in life will slowly catch up and get even more.

Imagine a couple with two sets of such payments - they will have over $6,000 to spend every month just from CPF LIFE. This alone can pay for a comfortable retirement, leaving aside cash savings they are likely to have as well.

The reason CPF LIFE is the best longevity insurance scheme that money can buy is because it is backed by the Government. Unlike some other plans that may end after a number of years, the CPF LIFE payment will continue as long as you live, even beyond 100.

This is good news for future generations of seniors as their average life expectancy is likely to go up. As it is, about a third of today's 65-year-olds are expected to live beyond 90.

Also, unlike private annuities that may cost over $1 million for similar payouts, the threshold for CPF LIFE is far lower. This is possible because the "premium" that you set aside for CPF LIFE will continue to earn up to 6 per cent minimum interest.

The monthly payouts will first come out of your CPF LIFE premium. When your own premium is depleted, you will continue to receive the monthly payouts from the interest that you have accumulated within your plan, as well as the interest from the CPF LIFE pool.

You should go to the CPF website and use its very informative CPF LIFE "estimator" to see the patterns of monthly payouts based on the retirement sums you have set aside.

This interactive tool is only a guide and the results do not reflect the actual payout that members will get, due to their varied profiles.

But it does give a very insightful peek into the three CPF LIFE payout plans that you can choose to have when you hit 65.


People who do not pick any plan will be put on the Standard Plan, which pays a fixed sum each month. About 70 per cent of eligible members are now on this plan.


The other 30 per cent have chosen the Basic Plan, which also pays a fixed monthly sum. But this amount is less than those on Standard Plan because members who choose this option want to make sure they will have something left for their beneficiaries.

While the Standard Plan will not provide any residual sums for beneficiaries if members live beyond 80, those on the Basic Plan can get a 10-year extension, all the way to their early 90s.

Basic Plan members who live beyond this age will still continue to receive monthly payouts but their beneficiaries, like in other plans, will not get anything.

An important point on Basic Plan is this - as members have chosen to leave some money for their beneficiaries, their own monthly payouts are likely to see small decreases after the age of 85. This is especially so for those who set aside only the minimum retirement sum.

But for those who put up the maximum Enhanced Retirement Sum, such decreases take place only beyond 90. The decrease in payouts is small - only a few dollars every year, according to the estimator.


From 2018, members can also choose the Escalating Plan, which starts at a monthly payout that is lower than the other two plans.

But the amount will increase by 2 per cent annually so that it eventually becomes the highest payout among all the plans.

Figures for the take-up rate are not available yet.


A common feature of all the plans is that members are likely to hit their break-even milestones in about 10 years. What this means is if a member starts to receive his payout from 65, his cumulative payouts at 75 will likely be more than what he set aside two decades ago.

For instance, if a member sets aside $181,000 as his Full Retirement Sum at 55 this year and starts collecting monthly payouts when he is 65, the total payout that he is likely to get at 75 can be as high as $190,000, more than his initial sum.

And this cumulative sum will be doubled to almost $380,000 at 85. If he lives to 90, the total amount will be about $475,000.

If the same member sets aside $271,500, the Enhanced Retirement Sum for this year, he will reach his break-even point in about 10 years as well. But as he has set aside more, his cumulative payout at 85 and 90 will be far more - about $550,000 and $690,000, respectively.

A simple way of looking at the numbers is this:

• Most prudent working adults should be able to save for CPF LIFE. Even if you aim for the highest sum, the target amount is $288,000 by 2022. Do not worry if you do not have so much - you can still sign up with just $60,000 as long as you are below 65.

• A CPF LIFE member is likely to receive a total payout that is equal or more than his initial retirement sum when he reaches 75.

•  By the time he is 85, he will get almost double his initial sum.

• And if he lives to 90, the "reward" for his longevity will be more than 21/2 times his initial sum.

So if you are 55 this year, you should consider setting aside as much as you can for your CPF LIFE.

After all, every dollar you put there will give you a lot more later in life, and you can enjoy this every month too.

5 CPF myths debunked
By Tan Ooi Boon, Invest Editor, The Sunday Times, 5 Jul 2020

Some people have the wrong idea of CPF LIFE due to their poor understanding of the scheme.

Chief among all the myths is that the scheme unfairly prevents members from withdrawing all their Central Provident Fund money at 55 and then pays out only a small sum every month.

And when members die, the state allegedly gains by pocketing the leftover savings.

Invest clears the air over the top five CPF myths.


The COVID-19 pandemic highlights the importance of having a regular income, especially for retirees. And this is what CPF LIFE aims to provide.

It requires members to set aside a minimum sum at 55 so that this can grow and provide decent life-long monthly payouts when they reach 65.

Once this sum is met, you can withdraw the remaining amount in your Ordinary Account (OA).

Members who take out every eligible cent from CPF at 55 and do not want to save more in their retirement accounts should realise that they will not get this kind of returns on their own.

The only reason Singaporeans can get so much out of their CPF is that the Government has maintained its high interest rate policy for CPF - up to 6 per cent - even though the global economy is in the doldrums.

Even those who opt for the basic tier of $90,500 this year are likely to get monthly payouts of between $780 and $860 when they are 65.

If you want more, you should aim for the Enhanced Retirement Sum. It pays for all working adults to aim for the highest tier of $288,000 that will come into force in 2022 so that they can receive up to $2,400 a month from 65.

If they delay the payout until 70, the amount goes up to over $3,200 a month, based on the CPF LIFE Estimator.

The best part? If you lead a long and healthy life, you will gain the most - at 90, you would have pocketed about $700,000 in total payouts.


You know this is not true when one of the CPF LIFE payout plans expressly gives members the option to leave some money to beneficiaries.

Assuming a member who has $288,000 set aside dies at 75, in the 10 years before his death, he would already have received a cumulative payout of more than $290,000.

Despite this, his beneficiaries will still receive a bequest of about $150,000, under the Standard Plan.

If he had chosen the Basic plan that is pro-beneficiaries, the estimated bequest would be over $300,000. This is why the CPF Board stresses the importance for members to nominate their beneficiaries.

A check by Invest in April revealed that one in every three members aged 55 and above have yet to name any beneficiaries for their CPF savings.


Again, you know that this is not true because even the CPF LIFE Estimator has provided a payout simulation for those at 95.

If the average longevity of Singaporeans increases, the future version of the calculator is likely to provide estimated payouts for those beyond 100.

If you have led a healthy life, you should aim for the maximum retirement sum. And if you can afford to do so, delay the payout until 70 and opt for the escalating plan.

If you do so, you could well belong to a rare breed of seniors who can get the highest payout of almost $4,400 a month at 95.

This amount will still continue to increase every year.


Instead of taking money out, many savvy savers are trying to find ways to put funds back into their CPF. This includes refunding the money that they have used for home loans as well as paying annual cash top-ups for themselves as well as for their kin.

Cash top-ups allow members to enjoy tax relief of up to $14,000 annually.

After members hit 55, withdrawing excess funds from the CPF OA can be done even from home via e-banking. There is no limit to how much you can withdraw daily.

Unless you need cash urgently, you should use the money from your bank accounts first, because money in your CPF OA earns 2.5 per cent interest.


Unless you are very familiar with the various investment products, you are probably better off by just leaving your money safely in the CPF.

This is because even in good times, more than half of those who used their CPF for investments ended up worse off. They either incurred losses or earned less than the 2.5 per cent interest rate.

Ask yourself this question: why do you choose to remain indoors more during the pandemic?

If your answer is "it is because I want to be safe", the same thinking should apply before you take out the money from CPF to invest, especially now.

If you really want to invest, use the extra cash in your savings accounts instead as the interest rate there is negligible.




How you can make up to $1 million with CPF
It pays to make use of the fund as it is a risk-free investment
By Tan Ooi Boon, Invest Editor, The Sunday Times, 3 Jan 2021

To start the new year on a positive note, here are some tips on how you can invest your money so that you can reap returns of between $200,000 and $1 million for your retirement.

The best part is you do not even need to come up with a lot of cash to earn this amount, and you can start planning for this investment right now in your own home.

No, this is not one of those "too good to be true" get-rich-quick schemes that you may come across on social media.

Indeed, this investment is not only for all residents here, it is also the safest around because it is protected by the Singapore Government.

I am referring to the ubiquitous Central Provident Fund (CPF). Many people are still unsure how to maximise its full potential to generate good retirement income that will last them a lifetime.

Singaporeans have had a love-hate relationship with the CPF. Those in the hate camp are resolute in seeing CPF as a "scam" by the Government to prevent them from withdrawing all their funds at age 55.

As they detest receiving their payouts in "dribs and drabs" from 65, many have the mistaken belief that they should deplete their accounts as much as possible, such as by using all their eligible funds to pay for their housing loan.

After all, since they cannot touch much of the money until 65, they think it is better to use CPF to pay their mortgages, as this means they can have more cash now.

But fans of CPF think otherwise - they are mostly savers and even savvy financial planners who know how to use CPF's ability to generate good returns for themselves.

It is not an exaggeration to say that CPF has been making millionaires out of ordinary working-class Singaporeans who will get to enjoy every dollar that they put there, with hardly any risk of losing even a cent.

Of course, such big returns will not appear overnight - you need a lifetime of patience and some planning to reap the rewards.


There is a reason that Singapore's CPF is lauded as the best retirement scheme in Asia. CPF Life, its longevity annuity scheme, can provide a rather substantial monthly payout for life with a relatively low investment.

For instance, those who turn 55 this year can set aside the Enhanced Retirement Sum (ERS) of $279,000 from either their CPF Special Account (SA) or Ordinary Account (OA) to enjoy a monthly payout of up to $2,300 from the age of 65.

If they live until 85, they would have received about $550,000 in all, which means they would have almost doubled their original amount and gained more than $270,000.

At 90, they would have received a total of about $690,000, or more than $410,000.

Do not despair if you do not have enough for ERS - you can still aim for the Full Retirement Sum at $186,000, which will give you a monthly payout of up to $1,500, or the Basic Retirement Sum (BRS) at $93,000, which will give you a monthly payout of up to $800.

Of course, when you set aside a lower amount for CPF Life, you will receive lower returns than those who have put up the highest sum.

If you are still keen to earn more, the good news is that this investment does not end at 55.

You can continue to top up the CPF Life retirement account with either cash or your remaining funds in CPF until you hit the ERS limit for the year.


In the past few years, many savvy CPF fans have been proudly sharing their secret of how to "game" the CPF system by making use of its own rules to make more money.

This is how one tip works:

• A few months before you reach 55, you will receive a written notice from the CPF Board to inform you of the CPF Life scheme and how you can benefit from it. Once you decide that you want to set aside the ERS, the total sum of $279,000 will be deducted from your existing funds in the SA first. If you do not have enough, the remaining sum will come from your OA.

• You should know by now that money in the SA earns 4 per cent interest, while money in the OA earns 2.5 per cent. Of course, those seeking more returns would prefer that CPF deduct the ERS amount from the OA first, rather than the SA, but this is not how the current process works.

• To circumvent the deduction from the SA, you can leave behind the mandatory minimum of $40,000 and invest the rest in a short-term and relatively safe investment product approved under the CPF Investment Scheme.

• When the time for deduction comes, only the remaining $40,000 in your SA will be deducted and the CPF Board has to deduct the rest of the sum for ERS from your OA.

• After the deduction, you can cash out on your short-term investment and all the money will then go back to your SA, which earns more interest.

You may want to commend the person who first thought of this creative plan to "hide money" from the deduction process so that members get to have more funds in their SA.

But this plan comes with some risks, especially if you are not a savvy investor.

First, you need to pick the right investment product and pay the applicable fees even though you plan to park the SA funds for only a short time.

Know that no matter how safe a product is, there will still be risks of losses, especially if a major crisis breaks out suddenly.

So it may not be worth your while just to earn extra interest at 4 per cent. Do not forget that if you leave your money untouched in the OA, it still earns 2.5 per cent.


Whatever method you choose to deal with your fund, the central idea is to inject more cash into the CPF to earn more interests.

• When the transfer date comes, the FRS ($186,000 this year) will be deducted from your accounts. After the deduction, use only cash, not CPF, to top up to ERS. This will leave you with additional cash of $93,000 in CPF.

• Money will be deducted from SA first before OA. If you have plans to use some of the funds in OA for property financing, you can ask to reserve a portion of your money in OA so that this amount stays there and will not be transferred to your Retirement Account (RA). After that you can use cash to top up the shortfall in RA later - top ups to the original FRS amount earns tax relief of up to $7,000 per year. In this way, you can put in more than $93,000 cash into CPF as well as benefit from the relief. 

Many people hope to retain money in SA by taking up short-term investments. But it is not easy to keep it there unless you don’t need the money for a long time - any withdrawal or transfer after 55 comes from there first. 

So rather than to focus on earning 4 per cent over a smaller sum, think about refunding as much of the CPF used for your property (including accrued interest) into OA in the long term. After all, 2.5 per cent interest on say $400,000 in OA still earns $10,000 a year and all the money is available to you anytime. 

If you continue to leave all your money in CPF after 55 and withdraw only sparingly, substantial balances can yield a return of $500,000, if not more, by the time you hit 85, given the high interest rate.

And together with your returns from the CPF Life payouts, you can aim to hit $1 million. After all, we should prosper as we live longer, and not get poorer, right?

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