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24 Nov 2023


Young couple sorting out their finances together

Since it’s impossible to predict the future, it’s normal to project ahead and prepare for potential contingencies. In the event of an undesirable occurrence, you can rest assured knowing that you are equipped to address it with minimal difficulty. This way, you can lead your life with more peace of mind.


Providing peace of mind is precisely what CPF LIFE sets out to achieve, by addressing the uncertainty of us outliving our savings. CPF LIFE, otherwise known as the CPF Lifelong Income For the Elderly, is a national longevity insurance annuity that provides you with monthly payouts for life. An annuity is a long-term financial scheme where the insurer provides a steady stream of payment to the insured, over a long period of time. For CPF LIFE, this period is for as long as you live. The payout amount you receive each month depends on the CPF LIFE plan that you choose.


There are three plans under CPF LIFE that you can choose from based on your desired retirement lifestyle:

1)      Escalating Plan


With the Escalating Plan, monthly payouts start lower initially, but grow by 2% a year for life. This generally helps you maintain your desired retirement lifestyle even as the prices of items increase over the years.


2)      Standard Plan


As its name suggests, the Standard Plan offers a steady monthly payout that does not increase over the years. If keeping to a fixed budget is your preferred approach, the Standard Plan could suit your needs. However, do take note that the payouts do not grow to protect you against inflation.


3)      Basic Plan


Lastly, the Basic Plan offers progressively lower payouts. The payouts start low and fall when your CPF balances fall below $60,000, which also means you have to adjust your lifestyle and buy even lesser in the future.


With all three plans, CPF LIFE will provide you with monthly payouts no matter how long you live. When you pass away, your CPF LIFE premium balance (if any), together with any remaining CPF savings, will be distributed to your loved ones. With that in mind, why should you keep your savings in CPF and join CPF LIFE? Well, there are two considerations:

A) Lump sum withdrawals vs steady returns over time

When you reach 55 years of age, you can start making lump sum withdrawals from your CPF accounts, as long as you have put aside the Full Retirement Sum in your Retirement Account (RA). While having cash on hand may sound enticing, it means you’ll have less savings in your CPF accounts, and benefitting less from CPF’s steady interest rates. You are also likely to have lower CPF LIFE payouts in future. Thus, you should consider seriously before making such withdrawals.


The next question to consider is why CPF LIFE instead of a private annuity plan. For starters, CPF LIFE can offer you payouts for life, in addition to being a safe product with risk-free returns. Even if a private annuity plan can provide payouts for life, it is not as secure as an annuity guaranteed by the Singapore government. Being non-profit and administered by the CPF Board, CPF LIFE also doesn’t incur any costs from advertising and agents’ commissions.


Having the option to choose between three types of CPF LIFE plans also means you can choose how your payouts will grow and are paid out over time. This offers you the flexibility to adjust your payouts to suit your needs.

B) Investments vs security

Another consideration is withdrawing CPF savings to invest yourself, or to continue earning CPF’s steady interest rates. Investments may help grow your savings at a faster rate, but you run the risk of losing money. Before making investments, it’s good to ask yourself: how much are you willing to lose? Your risk appetite and overall financial situation are important, as it’s possible to lose everything you invest. If that happens, it can severely hamper your ability to live out your desired retirement lifestyle.


On the other hand, what CPF LIFE offers isn’t the chance to multiply your money quickly, but rather a secure and regular stream of payouts supported by steady interest rates. Leveraging CPF LIFE provides a sense of security. Your payouts can also increase over time (in the case of the Escalating Plan), providing you with more assurance that you can cope with inflation.

Retirement is the final stretch of our life journey, and the last thing you need is uncertainty. With a steady stream of retirement income from CPF LIFE, you will be able to relax and enjoy the fruits of your labour, without having to worry about potential “thunderstorms” outside.

The information provided in this article is accurate as of the date of publication.