CPF LIFE - The Singapore Annuity Plan

Most Singaporeans have heard of CPF LIFE but may not know exactly what it is.

Simply put, CPF LIFE is a national longevity insurance annuity scheme that provides you with monthly payouts no matter how long you live.

This makes it a good annuity plan for most Singaporeans, as they never have to worry about outliving their savings since the payouts are for life.

What Makes CPF LIFE a Great Asset

Most annuity plans have a fixed period payout. The previous iteration of CPF LIFE adopted such a model as well before the government decided to change it.

So, not only are you receiving payouts from a savings plan that is guaranteed by the Singapore government, you get to earn high risk-free interest of up to 6% per annum. This sets it apart from most private financial assets, which will always be subjected to market returns and volatility.

In addition, this being administered by CPF Board to be non-profit, the premiums are much more affordable. Not to forget that it's mostly paid off from your CPF Retirement Account (RA).

Under CPF LIFE, payouts will begin at age 65 and continue for as long as you live. You can also choose to defer the payment up to age 70 should you decide to retire later. The amount of payout you receive each month will depend on your account balance, life expectancy and the payout option you choose.

And it being an insurance product and not an investment product reduces the extra market risk making it a great asset for every Singaporean.

This gives you greater peace of mind, knowing that your retirement needs are taken care of. And in the event of a premature departure, your loved ones will any CPF Life premium balance and your balance CPF savings.

Limitations of CPF LIFE

While this is a fantastic asset, it does have its limitations.

The first of which is that it is a non-profit asset and meant to benefit the majority of Singaporeans. This means there is a cap to the monthly payout even if you maximise that amount.

There are three main plans you can choose from to support your desired retirement lifestyle:

1. Basic Plan – Lower payouts than standard plan with higher bequest for premature death.

2. Standard Plan - Level payouts

3. Escalating Plan - Increasing payouts

All three plans will provide monthly payouts no matter how long you live. And once again, your CPF LIFE premium balance (if any) and any remaining CPF savings will be distributed to your beneficiaries in the event of an untimely demise.

Ultimately, an insurance product revolving around how long we live cannot protect against everything since there are too many unknowns.

Even with the escalating plan that increases payouts by 2% a year to combat inflation has its limitations. And since this is a nationwide plan, there is a cap on how much you can receive even if you choose to max out the ERS.

What Sort Retirement Lifestyle Do You Desire?

Additional retirement planning is critical for individuals who intend to live a higher-than-standard retirement lifestyle.

Even those who are comfortable with a basic standard of living should also consider alternatives since at our older age, we are more prone to illnesses.

The other key consideration is that you cannot withdraw or use your CPF LIFE funds for other purposes. Once you start receiving payouts from this scheme, it is meant to last you for life.

There are no early withdrawal options, even in cases of financial hardship.

This makes sense since the primary purpose of this annuity is to provide Singaporeans with a regular income stream during retirement. And not as an emergency savings fund or investment product where your money can be easily accessed.

Conclusion

To summarise, while there are some limitations to CPF LIFE, it remains one of the best annuity plans available in Singapore.

The key is to start early, make the most of your employer’s contributions, and top up your CPF account whenever possible. This will ensure that you have a comfortable retirement, regardless of how long you live.