https://www.straitstimes.com/business/invest/4-myths-that-stop-some-from-enjoying-cpf-s-benefits
2023-01-01
Misconception and ignorance are blinding many people from being able to enjoy a decent and lifelong retirement income. That Singapore has an easy-to-join national retirement scheme will probably come as a surprise to such people given the harmful myths that swirl around the scheme.
Yes, we are talking about the Central Provident Fund (CPF) and its “lifelong income for the elderly” annuity. This retirement scheme is rated by both foreign and local experts as one of the best in the world, yet it remains a misunderstood financial product among many people.
How else can you explain the aversion of gig workers or even some salaried staff to making CPF contributions, even though every dollar they save there will go a long way to ensure that they still have income when they can no longer work.
Here are the top four misconceptions about CPF and what you should really know.
1. ‘My money is locked up’
This complaint probably comes from people who don’t have enough savings, and when the time comes to set aside minimum sums for the compulsory CPF Life at 55, they are upset as they cannot withdraw all the money in their accounts.
Ultimately, the question we should ask ourselves is this: What if we run out of money when we are in our 60s or 70s, and are doomed to continue working in old age until we drop dead?
Those keen to avoid this fate won’t mind having their money “locked up” because one of the quirks about savings is that you need to wait years for the interest to accumulate so that you have more to spend.
This is what CPF Life seeks to do with your money: From age 65, it will start to pay you every month for as long as you live, even if you strive to beat the current world record for longevity, which is 122 years.
2. ‘CPF Life pays only small amounts’
Is getting up to $2,370 a month considered small change for a retiree? With an annual income of over $28,000, it is almost like starting work all over again as a junior executive at 65 except that you don’t have to work.
This is what CPF Life can give those who set aside $298,200 (enhanced retirement sum) when they hit 55 in 2023.
For smaller amounts of $198,800 (full retirement sum), you get a monthly payout of $1,620, and for $99,400 (basic retirement sum), you get $870.
If you are diligent in planning for this with your spouse, you both stand to enjoy a stable monthly income of close to $4,800 a month, or over $57,000 annually. This is just what CPF Life can pay you for setting aside about $596,000 in the scheme.
In 10 years or so, couples would have received the initial sums they put in. By 85, the combined payout would have been over $1.1 million. Surely this qualifies as a decent retirement income for most people.
And if both of you are blessed with longevity genes, the total payout by age 100 is almost as good as winning a lottery – $2 million. You cannot find a private company that can pay you such an income for the same amount you put in CPF Life.
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3. ‘CPF keeps changing the rules to lock up more money’
Ironically, those who complain are probably not affected by the changes to retirement sums as these apply only to future cohorts of 55-year-olds. Even so, what’s so bad about asking you to save more when the product owner wants to give you more money to spend?
Retirement sums are being raised so that more money can be paid to counter higher living costs in future. So every cohort that saves up to $10,000 more will also get close to $1,000 more in annual payouts.
The numbers in the long run will look pretty good – those who put up the maximum sum of $298,200 when they reach 55 in 2023 would receive a total payout of $569,000 by age 85, but those who put up $342,300 as the maximum in 2027 will get $646,000 at the same age, or $77,000 more.
The good news is that you can still join and benefit from this scheme so long as you are below 80 – just book an appointment with the CPF Board to find out how to save for your desired retirement income.
4. ‘My money is confiscated when I die’
You should know that the national scheme not only does not charge any fee, but all payouts and withdrawals are also tax-free. So if this non-profit scheme does not make money from you when you are alive, you don’t have to worry about your money going missing when you are not around.
Indeed, the CPF Board frequently reminds everyone to nominate their beneficiaries, something that can be done online now. It is also transparent on how bequests for CPF Life are calculated: They are derived by deducting the total payouts received from the total “premium”, or retirement saving, that was set aside.
The lesson here is this – stable and lifelong income is not elusive but you must do your part to save for it so that you can enjoy your retirement.
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