CPF Life Quick Guide: Tips and Tricks to get the most out of it
What is CPF?
CPF, also known as Central Provident Fund is an obligatory savings fund that the government has put in placed for all Singapore citizens and permanent residents. Every Singaporean’s CPF account consists of an ordinary account, a special account, and a medisave. In Singapore, as much as we would not want to admit, not everyone would have that proper discipline and the habit of saving their salary, some would splurge on branded goods, while others would use their salary to sustain their luxury lifestyle and keep up their social status, hence, CPF would be beneficial especially to these people.
Some may question, “why of all accounts, should this three be chosen?” Logically, everyone would need shelter, medical care, insurance and education. These few aspects have been identified to be crucial to aid the livelihood of all Singaporeans, that explains why these are the only three accounts one will find in their CPF.
What Is CPF LIFE?
CPF LIFE, in short for Lifelong Income For the Elderly, was Introduced in the year 2008. It is a new dynamic approach that allows contributing CPF members the flexibility to draw a monthly disbursement sum during their retirement period. This was established by the Government to help ease the retirement of all senior citizens and to further strengthen the CPF structure. As Singaporeans continue to age, they are prone to outlive their savings. To be able to have some cash to survive and tide over would be ideal in the event that savings are being depleted. With the implementation of CPF LIFE, it will disperse a steady flow of monthly payouts (depending on which plan you choose), acting as an assurance to the ageing population. CPF LIFE can also be seen as a life annuity where you are able to nominate beneficiaries to receive bequests when you pass on.
CPF LIFE had a variety of plans to choose from, but as years has gone by, it has been trimmed down to just three plans; Standard, Basic, and Escalating Plan. CPF contributing members are able to opt decide when they want to receive their monthly payouts anytime beyond the age of 65 – 70. Upon the age of 55 years old, there will be an additional Retirement Account(RA) that will automatically be created in the CPF account. Funds from the Ordinary account and the Special account will be consolidated to form the retirement amount.
Do refer to the table to check on your eligibility age. You may also wish to visit CPF LIFE Payout Estimator to estimate your disbursements.
CPF LIFE PLANS
Upon selection of your preferred CPF LIFE plan, all savings under the retirement account will be deducted and this amount will be used to pay off the annuity premium of that particular plan. This premiums that has been paid off will go to the Lifelong Income Fund, where you are able to receive your monthly payouts based on your nominated eligible age onwards. If one were to pass on during the period of disbursement, all payouts will stop upon death and the remaining amount will be transferred back to your CPF account, where it will be paid out to your nominated beneficiaries.
CPF LIFE – LIFE Standard Plan
Upon the choice of CPF LIFE Standard plan, members who are under the standard plan will be able to reap a higher fixed monthly payout for themselves during their retirement and probably go on vacations more frequently. The tradeoff that these group of people have to forgo is the low bequest amount that is being left for their beneficiaries.
CPF LIFE – LIFE Basic Plan
As compared to the Standard Plan, the Basic Plan totally inverse. The Basic plan will also deplete the entire retirement account and the amount will then be used for the annuity premium. The Basic plan would allow members to draw a lower fixed monthly payout. If your monthly expenditure is not that high, you are able to make do without splurging on luxurious dining or go on long holidays, your beneficiaries will benefit from the large amount of bequest left for them.
CPF LIFE – LIFE Escalating Plan
This plan can only be chosen on the January 2018 onwards. Deduction of the retirement account and premiums processing would be the same as the Standard and Basic plans, the only difference is that members would be able to enjoy a monthly payout that increases 2% annually from the year the first payout was made if they were to choose the escalating plan. This plan is suitable to those who has a large amount of retirement sum where a 20% difference does not affect them at all, as they have to be able to withstand a 20% lower monthly payout.
How to get the most out of CPF LIFE?
Making a habit to save money will only do you good. Savings will always come in handy and serve its purpose during rainy days or any unforeseen circumstances. Besides opting for CPF LIFE, you should aim to set aside at least 20% of your monthly salary as savings. Upon retirement, you should have a good amount of savings to tide you over. Ration your personal savings and split them into different baskets, one for groceries, another for family outing/entertainment, and the last for bills.
The best way to maximise and get the most out of your CPF LIFE plan is to defer your payout age. The Government has capped the age of deferment from 65 till 70 years old. For every year that you have deferred, the monthly payout will increase by roughly 7%. Utilise your personal savings to tide you over from the age of 65 to 70, for another 5 more years. Opt for the basic plan although it promises a lower fixed monthly disbursement but it will benefit your loved ones ultimately when you are not around. Kickstart your monthly payout at the age of 70 to reap the maximum monthly payouts.
The Standard Plan has a higher monthly payout, whereas the Escalating Plan would mean that members have to take a 20% cut as compared to the basic or standard plan, which is quite a lot. For instance, 2% of a S$1,000 monthly payout is only $20, it does not make much difference if you were to get an increase of 2% yearly at the age of 70 onwards. Hence, the wiser choice to get the most out of it is to go for the basic plan with a delayed payout age.
If you are still have any further queries pertaining CPF LIFE, you may wish to get in touch with them or visit the CPF LIFE FAQ page to find out more. Choose your plan wisely.