https://www.straitstimes.com/business/invest/how-to-get-monthly-payouts-of-over-3300-from-enhanced-cpf-life
2024-02-25
Tan Ooi Boon
Invest Editor
The Straits Times
Getting monthly payments of more than $3,300 to even $4,000 in retirement might sound too good to be true, but it’s certainly doable if you make use of the newly enhanced CPF Life scheme.
The change to the national lifelong annuity scheme should be welcome news to CPF members because they can now save for a viable and guaranteed retirement plan that will pay handsomely in old age.
This is important as many people still get the wrong impression that CPF Life does not pay well, so they end up putting their hard-earned savings into private financial products that not only pay out less but also come with investment risk.
Such ignorance is not something to scoff at because statistics from the Financial Industry Disputes Resolution Centre show that hundreds of people filed claims in the past two years alone after their investments in such products turned sour.
A look at some of these cases shows that those caught in such a predicament probably did not realise that CPF Life offers a far simpler way to earn lifelong income – without the risk.
Here are three important points on how to make the best use of the national annuity scheme that aims to provide seniors in Singapore with a decent retirement.
Save more to get even more
Participants in the recent Forward Singapore dialogue asked the Government to give CPF members the choice to earn higher retirement income. Deputy Prime Minister Lawrence Wong granted their wish by raising the payout limit for CPF Life significantly when he rolled out Budget 2024 on Feb 16.
What this means is that starting in 2025, those turning 55 and even those who are older can opt to save more so that they can increase their retirement income by about a third.
Come 2025, the CPF will move the Full Retirement Sum ($213,000) from the accounts of people turning 55 to the newly created Retirement Account to form the capital for CPF Life.
This part of the exercise is unchanged but the new option is that members can now choose to save up to $426,000, or twice the Full Retirement Sum, under the new Enhanced Retirement Sum (ERS). The ERS used to be $319,500 for 2025 prior to this change.
The change is significant because those who put up the new sum stand to get about $3,330 a month for life when they hit 65, or about $800 more than the payout of $2,530 under the previous ERS.
The top-up to ERS is voluntary, and those who choose not to do so can still receive monthly payouts of about $1,700 after they set aside the FRS.
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But if you want to have more to spend in old age, a simple calculation will show you that it pays to take up the new offer.
If you do so, you can receive almost $40,000 a year from age 65. At this rate, you will receive about $400,000 in total by age 75, $800,000 by 85 and $1 million if you live to 90. Those who live longer will continue to receive the monthly payouts.
CPF Life is the only annuity in the market that can guarantee stable and lifelong payouts because it is backed by the Singapore Government.
It is prudent for Singaporeans to take advantage of CPF Life. You should consider private retirement funds only if you have extra cash after setting aside more than $400,000 for ERS. After all, why miss out on the best retirement deal in town?
That $400,000 sum may look daunting at first glance but it is achievable for many Singaporeans as long as they are diligent about saving throughout their working life.
Moreover, the scheme is very inclusive and flexible: You don’t have to put up the whole ERS amount at 55. You can continue to top up the Retirement Account as and when you have extra funds in CPF or cash.
While you should set the ERS as your target, you can still reap the benefits even if you don’t hit the amount. Every dollar saved will give you more – you may not get $3,330 a month, but you could end up getting $3,000 if you manage to save as close as possible to the target.
Young and older seniors can take part
The best part about CPF Life is that you can still top up with each passing year to get higher payouts, even when you are past 55 years old.
Every year, all retirement sums will go up marginally to cater for inflation. You can log on to the myCPF portal to see how much you can top up for the higher payout.
For instance, those who put up the ERS of $298,200 when they turned 55 in 2023 can top it up by $10,500 to meet the 2024 ERS of $308,700. This will give them monthly payouts of $2,450 when they turn 65 – $80 more than the 2023 ERS payout of $2,370.
When the ERS becomes $426,000 in 2025, you can also top up to this amount to enjoy the enhanced payout of $3,330. The increase of $117,300 from the ERS in 2024 is huge, but you can top up in stages with either CPF or cash.
The good news is that top-ups for subsequent years will be gradual – around $15,000 annually for 2026 and 2027 – to get payouts of $3,440 and $3,550.
Just as the Forward Singapore participants had hoped for, when the ERS continues to inch up in coming years, lifelong monthly payouts of over $3,550 to $4,000 or higher are certainly possible for those who want to plan for more.
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Couples get twice the benefits
When couples plan together now, they can get two sets of CPF Life monthly payments that can add up to $7,000 or even $8,000 when they hit 65.
This raises the ultimate CPF question: Are your savings in CPF alone sufficient to pay for your retirement?
If you look at the sums that couples on ERS can get, the answer is “yes”, so long as your household doesn’t spend more than $8,000 a month. Even for singles, fixed incomes of over $3,000 to $4,000 a month are pretty decent.
Note that the payouts are what you get every month and that you would still have your existing funds in your bank and CPF accounts to draw on. Moreover, retirees no longer pay income tax or insurance premiums for policies that they can cash out, so their monthly outlays should be a lot less.
This is why savvy Singaporeans asked the Government to give CPF Life a boost: If you know how to make use of it, it can really pay the bulk of your expenses in old age.
Even if you are wealthy and have higher retirement income sources, you should still consider joining CPF Life at the highest tier as the monthly payouts can be your additional funds for regular donations to charities.
It is truly a blessing that all families here can have access to an easy, risk-free and achievable option to plan for decent retirement. So it would be wise for Singaporeans to do what they do best, and that is to always pick up the good deals.
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