atans1

CPF Life: Don’t choose at 55, wait and analyse

In CPF on 03/03/2016 at 7:28 am

A friend Martin Lee https://www.martinlee.sg/ (He has an MA in a science subject and he’s no second-hand car salesman or insurance agent masquerading as a personal financial expert or planner: he’s the real deal) sent me this, written by Wilfred Ling, his boss, another “real” expert in personal finance matters.

Before the CPF Life change

At age 55, the CPF Member has to choose whether he or she wish to enrol in the CPF Life Standard Plan or CPF Life Basic Plan.

After the Change

With effect from 1 January 2016, the CPF Member does not need to select his CPF Life plan until the payout age.

So when should you select the CPF Life plan?

After going thru the maths, the writer concludes

[Y]ou should NOT select a CPF Life plan when you turn 55. Let the money in the CPF-RA earn interest. You can select the CPF Life plan when you wish to start receiving the payout The minimum payout age is 65.

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  1. If the flexibility is given, yes wait but only to take advantage of any further changes which may be biased to one plan or the other. If Martin Lee’s suggestion to wait is because interest continues to be earned on the entire amount in the RA, it does not make any difference. If choose now, the premium deducted at age 55 as the first installment of the LIFE annuity still earns interests as part of the total balance. I had wondered why CPF makes us choose at 55 in the first place because it makes no difference whether to choose at 55, 65 or anytime in between.

  2. There ARE differences in both the monthly payouts and bequest amounts, depending on whether you choose at 55 or at 65.

    There are more analysis by commentators in that article. Whether it is better to choose at 55 or 65 depends mainly on 2 things:-
    1) Your believe in PAP and CPF to do the “right” thing.
    2) Your preference for Standard Plan or Basic Plan.

    Even without the new ability to defer the choice of plans, the internal workings and computation of CPF Life has already changed from 2 years ago.

    The payout range for Standard Plan in 2014 is LESS than the calculated payout range now in 2016. But CPF Life payouts are fixed — unless CPF does the right thing in increasing the payouts also for those who selected Standard Plan in 2014, otherwise it means those 2014 CPF members are fucked.

  3. If I’m not mistaken, when I turned 55 Jan 2015, the rules then were that if I didn’t make an explicit choice, the default choice would have been the Standard Plan. Not sure if that particular rule (or related ones, if any) is still in force currently.

    I think Chris Kuan did an analysis on the pros & cons of either plan some time back.

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