Unless you never turn on your phone notifications, you should know by now that CPF Special Account (CPF-SA) will be closed after age 55. This is one of the bigger news in the personal finance space.
If you have $100k excess in your SA, this $100k will be moved to your Ordinary Account (CPF-OA) once you set aside the Full Retirement Sum (FRS) in your Retirement Account (CPF-RA). You will lose 1.58% interest immediately for the $100k in your OA, which is $1580/year, just because of one announcement made on 16th Feb…
While the government has explained the reason for closing CPF SA, which is to avoid having high return and also having liquidity, the decision for CPF holders will now be to:
- follow the default arrangement of moving SA to OA, getting liquidity but lose the additional 1.58% interest, or
- move SA to RA until you reach the Enhanced Retirement Sum (ERS) to continue getting 4.08% interest.
But WAIT, are you really able to use the 4.08% interest?
Remember, the fund in RA is getting 4.08% interest, but you cannot take it out as you wish. RA will be used to join CPF LIFE from age 65. So, on paper, you are getting 4.08%, but you are not allowed to cash out directly. Hence, we should look at CPF LIFE returns instead of RA returns.
Ever since 16th February, I have seen many articles, videos, Facebook posts talking about OA, SA, RA return, but nobody is talking about CPF LIFE return!
In this article, I am going to delve into CPF LIFE return for you!
How do you calculate your CPF Life Return?
Firstly, CPF LIFE provides payout to you for as long as you live, with the payout age starting from age 65. Let’s focus on the default option (CPF Life Standard Plan), which is parking $213k (FRS for 2025) at age 55 and getting a payout of $1730/month from age 65 for life. You can use CPF LIFE estimator to calculate the payout amount: CPF LIFE Estimator
However, the bequest (death payout) is missing in the CPF LIFE Estimator. The only information that you can get for the bequest is from the CPF FAQ page:
“After you pass away, your beneficiaries will receive your CPF LIFE premium balance, which is the total CPF LIFE premium that you have paid minus the total payouts you have received, together with any remaining CPF savings.
For example, if you paid a CPF LIFE premium of $200,000 and pass away after receiving a monthly payout of $1,000 for 10 months, we will pay your CPF LIFE premium balance of $190,000 (i.e. $200,000 – [$1,000 x 10 months]), together with any CPF savings to your beneficiaries.”
CPF FAQ
Based on the formula provided, we can calculate the bequest amount for death at 70 years old for a male enrolled in the CPF Life Standard Plan.
| At Age 55 | Full Retirement Sum | $213,000 |
| At 4.08% Compounding Interest in RA | ||
| At Age 65 | Full Retirement Sum Grows to = | $317,725 |
| Payout Amount Per Month = | $1,730 | |
| Age 65 to 70 | Total Payout from CPF Life = 5*12*$1730 = | $103,800 |
| Death at 70 years old | Bequest = RA at 65 – CPF Life Payout Received | |
| Bequest = $317,725 – (5*12*$1730) = | $213,925 |
You will notice that the total CPF LIFE payout ($103,800) + bequest ($213,925) is still the same as the RA amount at age 65 ($317,725)….
You may ask, does this mean that the $317,725 never grows from age 65? Where does the interest go? The interest earned goes to the CPF LIFE pool, the pooling interest is the concept of annuity, those people who have a shorter lifespan, unfortunately, the interest earned will be used to support a lifetime payout for those people who live longer…
So, how to calculate CPF LIFE return? This is a classic cash flow analysis, nothing complex. You just have to input how much you invested at age 55 into RA, and how much you get back from CPF LIFE. Using Internal Rate of Return calculation, you will get the return for CPF LIFE. I have done the calculations for you, refer to the images for Male/Female entered FRS/ERS at age 55, and the detailed explanation below:
Male 55 years old with Full Retirement Sum (FRS)
Male 55 years old with Enhanced Retirement Sum (ERS)
Female 55 years old with Full Retirement Sum (FRS)
Female 55 years old with Enhanced Retirement Sum (ERS)
Some important points to take note:
- There are two yields in the image. The annualized payout yield calculates the return based solely on the CPF LIFE payout, excluding the bequest. This is useful for people who are just looking at how much they will receive from the RA savings as bequest payout is not for them. Yield to death is the total return including CPF LIFE payout and bequest.
- Based on the annualized payout yield, the breakeven point where you get back the same or more from CPF LIFE than your RA savings invested at age 55 is around age 75 or 76. If your lifespan is shorter than this age, you will be losing money if you do not take the bequest into consideration.
- The worst age to die is age 80… Yes, you heard that right. The reason is that from age 65 to age 80, the bequest payout decreases by the amount that you received from CPF LIFE. The total payout for CPF LIFE + bequest remains constant until around age 80. Your yield to death at worst could be just 2.27%, this is worse than the OA account!
- Before age 65, if you pass on, you don’t get any single cent for yourself. This is obvious as you cannot touch RA before age 65. So, it’s critical to ensure that you have sufficient savings for yourself before age 65.
- You need to live until age 88/90 to see the 4+% yield. This is critical. Don’t just decide to go all in to RA to the ERS just because RA is giving 4.08% – you may end up only seeing a 4+% return after age 88/90!
- If you live long enough, you can get 5+% from CPF LIFE. This is because you will receive CPF LIFE for a longer period. So make sure you manage your health and live long enough to outperform 4.08%.
Summary:
In summary, having a CPF SA is definitely better than RA as SA 4.08% is real and you can use it anytime. RA 4.08% is on paper only; you should look at CPF LIFE return to decide if you want to leave your excess SA to OA or top up to RA to the ERS.
So, will you do FRS or ERS after reading this article? For me, I will go for FRS, but I still have about 20 more years to hit age 55; by then, CPF rules may change again, and this is the biggest risk for CPF.
It is important to note that CPF Life primarily serves to insure against outliving one’s savings rather than focusing on generating returns.
The interest is factored into the monthly payouts and you receive a higher payout from the start.
The reassuring aspect is that you can receive a continuous stream of income, irrespective of their lifespan or the depletion of their CPF savings.
Note that the above information is generic and not personal advice. You should not take any action based solely on reading one article. If you need personal advice, please reach out to Louis here.
For more articles on how the CPF SA Closure affects you, read:
- Budget 2024 CPF changes: How much do you need to commit to your CPF Retirement Account?
- Budget 2024 CPF changes: A best-effort attempt to replace the 4% return of the CPF Special Account
- CPF Changes: ERS Now 4x BRS But Kiss CPF SA Shielding Goodbye
- 4 alternative to CPF SA Shielding
For an in-depth video explanation on annuities and how you can use a Dividend Portfolio to enhance your CPF Life strategy, watch Chris here: CPF SA closed: What should you do now?
Correct me if i am wrong, my understanding is interest earned in your RA is not paid out to your beneficiaries as bequest.
https://www.cpf.gov.sg/member/infohub/cpf-clarifies/policy-faqs/why-interest-earned-on-cpf-life-premium-not-paid-to-beneficiaries
Hi KC, RA savings will be distributed.
https://www.cpf.gov.sg/member/account-services/account-closure/paying-out-cpf-when-you-pass-away
Rgds,
Louis Koay
My understanding is that whatever you commit to the common pool, the interest goes to the common pool which is the case for standard plan. For basic plan, not all RA is committed to the common pool. So whatever remains in the RA continues to be compounded at 4.08% and if our amount in the common pool runs out, our payout will be drawn from our remaining RA.
Hi Colin,
The problem is CPF LIFE has removed the bequest information in CPF LIFE Estimator, I can only based on CPF FAQ to work backward for the bequest payout amount.
Rgds,
Louis Koay
Hi kc,
You will not earn any interest for the amount you put in at age 65 onwards when joining the CPF life. The interest earned will be put into a common pool so that it is used to fund those who have lived long and have depleted the their CPF life premium.
Thus, if one pass on, only the balance of undrawn amount will be paid out to your beneficiaries as bequest.
The interest you earned from 55 to 65 is already included into your CPF life premium.
Hi Dr wealth, my understanding from the CPF FAQ page is similar as well so is the table you provided for bequest correct? Or should it (base on if death at 70yrs and 55 at year 2025) as Bequest = $213,000 – (5*12*$1730) = $109,300 instead, since the CPF life premium is the FRS amount at 55yrs and the interest accumulated from age 55-65 will not be included nor returned to the beneficiary as it is already factored into the payout. Can you clarify your table?
Hi Adam,
CPF LIFE premium is RA at age 65. bequest is CPF LIFE premium – CPF LIFE payout. from age 55 to age 65, RA will earn interest and still credit to the RA account.
RA account is still like a “savings” account from age 55 to age 65.
Regards,
Louis Koay
– RA + int from 55 to Payout age (ie age you start the CPF Life payout, between 65-70 – you decide when) are your beneficiaries’ if you go upstairs before Payout Age.
– At Payout age:
— (1) for Basic CPF Life plan, 10-20% of your RA will go to CPF Life pool as premium. The balance will be left in RA.
—- int in RA is still yours. CPF Life premium’s interest belongs to the pool, ie not yours, so to speak.
—- (1A) Payout will be drawn down from your RA until all amounts (including interests) are depleted. Thereafter, (1B) payouts will be drawn down from your 10-20% premium. Once premium fully depleted, then (1C) payout will come from the interests generated by ALL CPF Life participants.
—- if you go upstairs during (1A), balance in RA, (including interest, less total payout received) + your premium will go to your beneficiaries.
—- if you go upstairs during (1B), balance in premium (ie after deducting the payouts drawn) & without interests, will go to your beneficiaries.
—- if you go upstairs during (1C), then nothing goes to your beneficiaries. You sort of ‘benefit’ (in mandarin, we say 赚到) from the plan, provided you outlive to collect the accrued interests you were supposed to earn from the premium also 🤭)
— (2) for Standard & Escalating CPF Life plans, 100% of your RA will go to CPF Life pool as premium.
—- CPF Life premium’s interest belongs to the pool, ie not yours, so to speak.
—- (2A) Payout will be drawn down from your premium. Once premium fully depleted, then (2B) payout will come from the interests generated by ALL CPF Life participants.
—- if you go upstairs during (2A), balance in premium (ie after deducting the total payouts drawn) & without interests, will go to your beneficiaries.
—- if you go upstairs during (2B), then nothing goes to your beneficiaries. You sort of ‘benefit’ (in mandarin, we say 赚到) from the plan, provided you outlive to collect the accrued interests you were supposed to earn from the premium also 🤭).
Hi,
Can you check to confirm that from age 55 to 65 – the RA interest is pooled ? I was under the impression that it was CPF life interest that is pooled . RA interest is attributed to you.
Hi C, yes RA interest goes to you. Interest after 65 goes to CPF Life pool
https://www.cpf.gov.sg/member/retirement-income/monthly-payouts/cpf-life
Under view payout examples:
https://www.cpf.gov.sg/content/dam/web/member/retirement-income/documents/CPF_LIFE_Payout_Examples.pdf
Hi,
I am born in 1957 and have the choice to stay on Retirement Sum Scheme (RSS) or CPF life.
Does it make more sense for me to maximise my RA to ERS and stay on RSS or to opt for CPF Life.
Seems.like the monthly Payout under RSS is higher than CPF life.
RSS is supposed to provide Payout for up to 20 years.
Thanks for your input.
Willie
I cannot decide for you but I can lay down the pros and cons for each scheme:
RSS gives higher payout but the payout end at the end of 20yrs, the interest earned in RA account under RSS will be distributed to beneficiary and not going to the CPF LIFE pool. you have more certainty in payout and duration and bequest amount under RSS, but if you live longer, CPF LIFE provide a higher payout as you can continue to receive payout for life.
Rgds,
Louis Koay
How about brs vs frs? Seems like the better roi is to downgrade and invest the difference to get a higher return and actual liquidity?
Hi David,
If you go for BRS, you have to find alternative ways to generate return.
As there are so many possible instruments out there to generate returns, this will be difficult for me to say that parking BRS +invest the rest is better than FRS.
Regards,
Louis Koay
Interesting calculation based on standard plan. It will be good if the same analysis is calculated for basic plan.
Hi Camie,
The calculation for basic plan is not the same. only 10-20% of RA savings will be used to join CPF LIFE, impossible to calculate the return without the bequest information from CPF Estimator
Bequest information is missing in CPF LIFE estimator after CPF change to new web design, I am unable to provide accurate analysis, you can refer to my previous article as a guide on the return, I don’t think differ by much
https://www.drwealth.com/cpf-life/
For escalating plan, can use the same formula to calculate but based on the calculation in the above article, you notice that you are expecting to live longer to get better return than the standard plan. I think only minority people will choose escalating plan
Regards,
Louis Koay
You don’t need the residual amounts from the CPF LIFE Estimator, at least not for the CPF LIFE Standard and Escalating Plans because those are easy. The CPF Board tells you exactly what the residual is: the difference remaining (if any) between total payouts and the entry principal (the amount in your Retirement Account just before payouts started). Both of these payout plans return more than entry principal (and specifically to the CPF member him/herself while he/she is still alive and requiring the necessities of life) if you simply live long enough, or longer. For the CPF LIFE Basic Plan you and your nominee(s), collectively, are also guaranteed at least entry principal, and that guarantee is relevant in early payout months (shortly after premium payment). The Basic Plan’s residual plus total payouts will exceed entry principal from an earlier point in time compared to the Standard and Escalating Plans. But that possible larger residual is certainly not free: monthly Basic Plan payouts are permanently lower than Standard Plan payouts because you’re not paying as much premium. (The Escalating Plan is identical to the Standard Plan except for a 2%/year slope layered on top. It’s the only payout plan that even attempts to provide a stable real living standard. The other payout plans feature payouts with declining real purchasing power as inflation eats away the real value of the Singapore dollar over time.)
Well, it seem the Escalating plan is good, however the truth of lifespan of each individual is ‘x’ unknown factor. Unless you know the lifespan is longer, escalating plan make sense for age 100 years old. Sadly, we cant control the lifespan. ALl just based on possiblities.
CPF Life is not an investment, it is an income stream. Hence, using returns to guage is technically not relevant.
It’s bizarre to evaluate (for example) home insurance as if it were a savings account or bond fund. It’s equally bizarre to evaluate longevity insurance (what CPF LIFE is) as if it were a savings account or bond fund. A savings account or bond fund doesn’t guarantee monthly payouts of $X (or $Y with 2%/year growth) for life, however long it lasts. But CPF LIFE does. So why would you ever pretend the longevity insurance doesn’t exist? You wouldn’t, not if you’re trying to understand how much value for money the longevity insurance provides.
The “headline” metric for evaluating a life annuity is the (normalized) payout percentage per premium dollar. For example, assuming a male born in 1969 with the 2024 Full Retirement Sum ($205,800) the CPF LIFE Standard Plan payout is $1,650 per month/$19,800 per year — a ~9.62% payout. You can straightforwardly take that 9.62% figure and compare it to other Singapore dollar life annuities with a premium paid today, 10 year deferral on payouts, guaranteed monthly payouts for life, and guaranteed return of at least entry premium (the RA balance 10 years from now) to the policyholder and his/her nominee(s). And what you’ll find is that the 9.62% figure is very, very good!
It’s a different currency with different life tables and different bond yields (at the moment anyway), but the U.S. life annuity market is reasonably transparent and extremely competitive. CPF LIFE stands up well to this offshore comparison, too.
Hi Timothy,
Yes. i agree with you that CPF LIFE is an insurance, return is not the only factor that we should look at, as the purpose of CPF LIFE is to provide lifetime income to avoid a person running out of income.
The reason of doing this analysis is to show the actual return, for us and also myself, to determine how much i should park in RA, whether BRS, FRS or ERS. I need to weigh the pros and cons by using the return number and of course the lifetime income benefits.
I am not against CPF LIFE and also insurance. When we decide to get an insurance, we will weigh the premium cost and also the benefits. so i am just weighing the CPF LIFE (Premium) and the benefits (return & lifetime income).
To add on, I still think is important to know CPF LIFE return and make comparison to investment. I know CPF LIFE is an insurance, comparison to investment is like comparing apple to orange. but for me, comparison is important is because I want to know whether I should park more fund in CPF LIFE or invest more to generate return. both return and risk have to be taken into consideration. This is like if I have $100, I want to know I should buy more apple or buy more orange. I need to know both benefits and cost for apple and orange in order for me to make a decision.
Regards,
Louis Koay
Thanks for sharing. How do you derive the annualised payout yield?
Hi Joseph,
I am using only the CPF LIFE payout, excluding bequest and use internal rate calculation to determine the annualised payout yield
Regards,
Louis Koay
Hi, I wonder if you would be able to generate the returns for 55 year old male for CPF life escalating or CPF life basic?
Hi CH,
The calculation for basic plan is not the same. only 10-20% of RA savings will be used to join CPF LIFE, impossible to calculate the return without the bequest information from CPF Estimator
Bequest information is missing in CPF LIFE estimator after CPF change to new web design, I am unable to provide accurate analysis, you can refer to my previous article as a guide on the return, I don’t think differ by much
https://www.drwealth.com/cpf-life/
For escalating plan, can use the same formula to calculate but based on the calculation in the above article, you notice that you are expecting to live longer to get better return than the standard plan. I think only minority people will choose escalating plan
Regards,
Louis Koay
Hi, This article is interesting. Could you also on the average return for Basic and Escalating Payout Plan. Is it true that if bequest is not important, we should choose the standard payout plan, otherwise, the basic plan. But if longitivity gene is in the family, then the escalating payout plan.
Hi Hock Leng,
The calculation for basic plan is not the same. only 10-20% of RA savings will be used to join CPF LIFE, impossible to calculate the return without the bequest information from CPF Estimator
Bequest information is missing in CPF LIFE estimator after CPF change to new web design, I am unable to provide accurate analysis, you can refer to my previous article as a guide on the return, I don’t think differ by much
https://www.drwealth.com/cpf-life/
For escalating plan, can use the same formula to calculate but based on the calculation in the above article, you notice that you are expecting to live longer to get better return than the standard plan. I think only minority people will choose escalating plan
Regards,
Louis Koay
Doesn’t the payout plans, ie standard, escalating, etc changes the break even point?
Hi Vincent,
For escalating plan, can use the same formula to calculate but based on the calculation in the above article, you notice that you are expecting to live longer to get better return than the standard plan. I think only minority people will choose escalating plan
Regards,
Louis Koay
Could you do the same Annualised payout yield computation assuming it’s Escalating Plan? I think it’ll be even lower return than Standard Plan but curious to see how much lower.
Hi Sharon,
For escalating plan, can use the same formula to calculate but based on the calculation in the above article, you notice that you are expecting to live longer to get better return than the standard plan. I think only minority people will choose escalating plan
Rgds,
Louis Koay
Hi,
Concept is there. But just 1 thing to note that the interest in RA is 6% for first 30k, 5% for next 30k and 4.08% thereafter from 55 to 65. This will change the overall IRR of the cpf life, though not significantly.
Hi Leong,
Yes, i agree but i follow CPF LIFE estimator to get the CPF LIFE payout, so i presume the return has already included the additional interest for RA.
Regards,
Louis Koay
Hi
May I ask where did you get the figures to base your calculation? I had already received my CPF life payout. Basing on my figures, I had also made non-financial trained check, quite similar as yours…. Result is quite different from yours. My check shows that it will hit return of 4% at around age 85, assuming payout start at 65. Maybe my calculation was wrong, or your figures are off. (If it’s of interest to you, I can go check again.)
Hi YC,
Unless i have your excel file, if not i wont be able to check on your calculations..
Regards,
Louis Koay
Does starting the payout at age 70 instead of at age 65 increase the CPF Life return rate?
Hi Philip,
i have not done the calculations but i believe the return would be higher as from age 65 to age 70, you still get 4.08% interest from RA and the interest earned goes to you.
Regards,
Louis Koay
Thanks for sharing.
Hi Louis, I’m Jan 2022 article (https://www.drwealth.com/cpf-life/?), you mentioned you will choose basic plan and pledge property, however now you will choose FRS. Care to share more why?
Hi K,
Well, life keeps changing and i am a father of 2 kids now, having more base payout would be a good idea. i still have 20+ years to think, dont have to decide on this yet.
Regards,
Louis Koay
Hi Louis,
Wonder can u show how you derive of annualised payout yield using IRR, using CPF life payout at age 65 onwards.
Thanks
Hi Jaidee,
RA amount at age 55 is the first inflow, CPF LIFE payout is the yearly outflow from age 65, use XIRR, you will then get the payout yield.
Regards,
Louis Koay
My question is if I choose ERS at age 55 yrs old. But when I turn 65-70 yrs old. Can I “downgrade” to FRS or even BRS (with pledge) so that I can withdraw more funds from RA other than OA?
Hi Jack,
U can pledge property and withdraw BRS equivalent amount (213,000/2) only.
https://www.cpf.gov.sg/member/faq/retirement-income/general-information-on-retirement/what-are-the-retirement-sums-brs-frs-ers-
“you have the flexibility to meet your FRS with a mixture of property (up to half your FRS)”
Rgds,
Louis Koay
Hi Louis,
wrt Jack’s point, his interpretation (and mine) is at at age 65-70, even with ERS from 55-65, we can still “downgrade” to BRS (property pledge) and withdraw 3xBRS (not 1xBRS).
Your reply seems to imply we can only withdraw BRS.
Which is correct ?
Hi Christopher,
You can withdraw part of your Retirement Account savings down to the BRS when you pledged property:
https://www.cpf.gov.sg/member/retirement-income/retirement-withdrawals/withdrawing-for-immediate-retirement-needs/withdrawal-of-cpf-savings-for-property-owners
“Because property owners won’t need to worry about rent during retirement, they have the flexibility to set aside their FRS with a mixture of property (up to half the FRS, which is the Basic Retirement Sum (BRS)) and cash…”
Is it appropriate to use IRR to compare CPF Life as though we are “investing”? CPF Life is an annuity that protect against living too long and outliving one savings. Consider the personal accident insurance in your previous article (which was very informative, by the way) – you do not use IRR to evaluate when we will “benefit” from it.
Insurance serves as a form of protection against dying too early or living too long, and there will always be some “opportunity cost” for this protection. For CPF Life or personal accident insurance, the opportunity cost will be the “interest” that we could have earned via investing (or from the retirement account in CPF Life context) in exchange for this protection.
Hi Ming,
Thanks for your feedback and great to hear that articles are informative to you.
Yes. i agree with you that CPF LIFE is an insurance, return is not the only factor that we should look at as the purpose of CPF LIFE is to provide life time income to avoid a person run out of income
The reason of doing this analysis is to show the acutal return, for us and also myself to determine how much i should park in RA, whether BRS, FRS or ERS.
I need to weigh the pros and cons by using the return number and of course the lifetime income benefits.
I am not against CPF LIFE and also insurance. When we decide to get an insurance, we will weigh the premium cost and also the benefits.
So i am just weighing the CPF LIFE (Premium) and the benefits (return & lifetime income).
Regards,
Louis Koay
Hi Louis, alas I just turned 55 and this news came! I have done shielding my RA is lower than BRS. Once the investments from my OA and SA matures and are returned to my OA and SA, will CPFB automatically transfer to SA (and up to BRS or FRS)? According to your article, is it better off to withdraw my CPF monies and invest in private annuities then? Thank you!
Hi Wee Heng,
If you set aside BRS, I believe you have pledged your property.
When you sell your OA SA investment, SA will be closed and all your investment sales proceed will go to your OA.
As for whether to withdraw CPF to invest, have to setup an appointment with me to understand your situation better, can reach out to me here:
https://louiskoay.com/contact-us/
Regards,
Louis Koay
Why is ERS 2x of FRS?
Hi CK,
ERS is 2x FRS in 2025.
This was announced in this year budget. For the year 2025, FRS is 213k, ERS is 426k.
Regards,
Louis Koay
Can i ask ALL RA money will go to RA at 55yo to buy Cpf life. Can I choose BRS to buy cpf life instead of FRS? So to cash out the other BRS?
Hi Nick,
Yes. you can pledge property to withdraw BRS equivalent amount from RA.
Regards,
Louis Koay
Hi Louis,
Great article and very informative! Can you share how you calculate the yield to death? It seems that up to 65 you use the IRR on the total payout but from 66 onwards the formula changes somehow? Thanks
Hi Thomas,
Up to age 65, yield to death is just 4.08%, which is the interest from RA.
After age 65, the amount in RA will be used to pay for CPF LIFE premium. yield to death will have to use IRR to calculate.
IRR formula is RA savings at age 55, yearly CPF LIFE payout + bequest. bequest is unused CPF premium as stated in the article.
Regards,
Louis Koay
Interesting that the ERS yield to death is lower than FRS
Guessing its
– larger negative premium ERS amount at 65
– lack of interest after 65
Hi KK,
When FRS doubled to ERS, CPF LIFE payout is not doubled. this is due to the additional interest earned for the first 60k. the proportion of FRS getting 6% interest is higher than the proportion of ERS getting 6%, that is why ERS has a slightly lower yield:
https://www.cpf.gov.sg/member/growing-your-savings/earning-higher-returns/earning-attractive-interest
Regards,
Louis Koay
Hello
How do you get YTD 3.72% ? age 66 – female 55 FRS. thank you.!
Hi Aileen,
This is using IRR to calculate. inflow is RA savings at age 55, outflow is bequest + CPF LIFE payout.
Regards,
Louis Koay
Hi, thanks for the article
Can I ask why will you not consider Basic?
Did you do the yield analysis? is it because it is the worse?
thanks
Hi Phoe,
The calculation for basic plan is not the same. only 10-20% of RA savings will be used to join CPF LIFE, impossible to calculate the return without the bequest information from CPF Estimator
Bequest information is missing in CPF LIFE estimator after CPF change to new web design, I am unable to provide accurate analysis, you can refer to my previous article as a guide on the return, I don’t think differ by much
https://www.drwealth.com/cpf-life/
Regards,
Louis Koay
Reason why nobody writes on this is that I think you are barking up the wrong tree. Cpf life is an annuity and pooling of risks. Discussion of returns is irrelevant, in my humble opinion. So could be leading readers down the wrong path and concept. Just a humble comment and perspective.
With these recent CPF changes, would it be better in terms of return etc to start CPF life payout for age 65 or 70?
Hi Jgoh,
i have not done the calculations but i believe the return would be higher as from age 65 to age 70, you still get 4.08% interest from RA and the interest earned goes to you.
Regards,
Louis Koay
Your CPF yearly interest gain calculation is based on yearly rest instead of monthly rest. The monthly rest compounding effect which is used by CPF board will give your SA more return then you shown. Meaning that returns from the CPF Life is even worst than your calculation.
It’s also written that if you have an equivalent of CPF Life with insurance companies, you can actually opt out of CPF life. Does anyone know what insurance policies are available and how competitive are the rates?
Hi Jojo,
based on my understanding, if you are looking for similar payout structure, CPF LIFE will still be better. unless you are looking for annuity without capital draw down, then you can check with me:
https://louiskoay.com/contact-us/
Regards,
Louis Koay
Your Annualised Payout Yield graphs are charted wrongly. Your graph cuts the horizontal axis at an earlier age than the numbers in your table. Please correct your graph. Thx.
Hi Ryan,
I checked my excel file. The data and graph is correct. The horizontal line is the grey color line, slightly above the age figure.
Using Male FRS as illustration, age 76 will be +annualised payout yield which is the same in the chart.
Regards,
Louis Koay
Hi Louis,
Thanks for sharing! I agree your CPF Life return analysis is helpful. Even though no one should be buying annuities for returns, the IRR analysis is still useful because it allows for a baseline comparison between CPF Life and:
a) Annuities offered by private insurers,
b) Retirement Sum scheme (for those who still qualify for this)
c) The choice of BRS, FRS & ERS
If you are so kind as to do a follow-up to this article, it would be very helpful to plug in some figures based on private annuities offered by top insurers. My guess, however, is CPF Life will offer better value. Possibly by a wide margin.
P.S. The headline to your article is correct but somewhat misleading because it leads people to think you’re griping about CPF Life’s embedded returns. The returns of CPF Life is indeterminable but age of death is an unknown. So your article really explains the assumptions embedded in CPF Life and what people should expect from it. Subtle difference. Perhaps it should have been titled “Your RA pays 4.08% p.a. but you must live to 90 for the same return on CPF Life”…
Hi CW,
Thank you. I pulled out some private annuities, but unfortunately, private annuities have different payout structures. Most of them maintain the same death payout while providing a lifetime payout. Therefore, comparing returns may not be meaningful. Additionally, private annuities have a surrender value at any point in the policy, whereas CPF LIFE technically cannot be surrendered.
However, if there were a similar payout structure for private annuities as CPF LIFE, I am confident that CPF LIFE would offer better returns.
Regards,
Louis Koay
Hi, Louis
Can share how to calculate the
i) Annualised Payout yield
ii) yield to death
Example .. male at FRS at age66
i) Annualised Payout yield .. -21.43%
ii) yield to death .. 3.72%
Hi Lawrence,
i) RA amount at age 55 is the first inflow, CPF LIFE payout is the yearly outflow from age 65, use XIRR, you will then get the payout yield.
ii) Up to age 65, yield to death is just 4.08%, which is the interest from RA.
After age 65, the amount in RA will be used to pay for CPF LIFE premium. yield to death will have to use IRR to calculate.
IRR formula is RA savings at age 55, yearly CPF LIFE payout + bequest. bequest is unused CPF premium as stated in the article.
Hi there, was looking at the charts you have provided and was wondering and a little confused about how you derived the figures on your “annualized payout yield” column for it to generate a negative yield of e.g. 21.43%. do you mind showing the steps you have used for this calculation?
Hi Wen,
RA amount at age 55 is the first inflow, CPF LIFE payout is the yearly outflow from age 65, use XIRR, you will then get the payout yield.