The Government announced the CPF Life scheme sometime last year with mixed responses. What the CPF Life scheme does is to lock up part of  your CPF minimum sum away to fund an annuity, upon which the payouts from age 82 or 85 (depending on your draw down age) and above would come from this annuity.

Under the old CPF scheme, your CPF minimum sum would fund your retirement for 20 years from the draw-down age. But if you out-live that time and have no-other sources of retirement income or savings, then you would be a burden to society.

The CPF Life scheme was meant to address that issue by forcing you to buy an annuity whether you like it or not to fund the remaining years of your retirement living.

CPF Life: What you need to know

This post is not going to debate the advantages and disadvantages of the scheme, because for the majority of us, we have no choice as it is an auto opt-in scheme (without any option to opt out) if you reach 55 by 2013 with at least $40,000 in your CPF retirement account.

So for many of us who will be 55 by 2013, we are given 4 choices for the CPF Life plan, reduced from the previous 12 which is deemed to be confusing for us.

The new CPF Life Scheme really presents yourself with 2 decisions to make:

1) Do you want to leave any of the refundable annuity portion to your beneficiary?

2) How much do we want to do so for (1)?

Leaving nothing to the next generation

Once you decide, you don’t want to leave anything to your beneficiaries, then you only have 1 choice, i.e. to choose CPF Life Income plan which provides for the highest monthly payouts of the 4 plans at $640-$700 per month (assuming 3.75% to 4.25% interest rate and 1% extra interest is paid on first $60,000 of SMRA account balances with half minimum sum of $67,000).

The downside of this option is that should one pass early, then the entire minimum sum goes into the central pool to fund other people’s retirements. So you are taking a risk that if you do not outlive the payouts, you could potentially be donating your minimum sum to the Gahmen who at this point in time didn’t state if they will send you a nice bunch of flowers for doing so.

Leaving something to the next generation

Once you decide to leave something to your next generation, you then have to decide if you want to leave MORE or LESS for them. This is because the more payouts you want for your living expenses, the lesser the refundable portion of the annuity will come back to you. Essentially if you prefer to have higher payouts and leave less for your next generation, then you can consider CPF Life Plus. If you prefer to leave more for your next generation and can live on less payouts, then opt for CPF Life Basic plan.

My thinking now is I’ll probably chose CPF Life Basic as I intend to maximise the amount I leave to my beneficiaries and not the Gahmen. I plan to have retirement income sources beyond my CPF savings so leaving more to my beneficiaries is an important factor.

Leong Sze Hian warned about taking the CPF Life Income plan because of the risk of losing all your CPF minimum sum should you pass away earlier. The payout difference of $100+ per month doesn’t seem to warrant taking such risks.

Which CPF Life Plan would you choose and why?

Tell Panzer in the comment section!

Be well and prosper.

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