today is the last day for topping up CPF/SRS and Jan 1 is the first day to top up again

[PNGMK]

I don’t mean to poo poo CPF, but a few things have me disillusioned at the moment…

My wife’s CPF has hit FRS and BHS, which makes interest rates unattractive on any top ups.

SA shielding is now gone; that has dampened my spirits about wringing a bit more value out of CPF post-55.

With interest rates today, you can actually find better deals than CPF LIFE in the private annuity market.

My wife and I are also covered by social security, and CPF LIFE is relatively small (and U.S. tax unfriendly) by comparison.

I’m not saying it’s a bad deal… if CPF is your main retirement income vehicle, you absolutely need to make the most of it.

I assume she is under 55 so this makes some sense. Post 55 you can treat RA as a type of HYSA if you can pledge a property. Post 65 I am not sure what happens as CPF Life kicks in.

Policy risk is the biggest issue with CPF (i.e changes in the rules).

[PNGMK]

I don't recall the 20% of RA at 65 either. Based on some searches, it may have been agreed on a few years back. However, per above it only kicked in last year, so maybe many of the pages discussing withdrawals did not list it until recently.

It's probably put in because 'gahmen take my cpf' complaints.

[malcontent]

I don’t mean to poo poo CPF, but a few things have me disillusioned at the moment…

My wife’s CPF has hit FRS and BHS, which makes interest rates unattractive on any top ups.

SA shielding is now gone; that has dampened my spirits about wringing a bit more value out of CPF post-55.

With interest rates today, you can actually find better deals than CPF LIFE in the private annuity market.

My wife and I are also covered by social security, and CPF LIFE is relatively small (and U.S. tax unfriendly) by comparison.

I’m not saying it’s a bad deal… if CPF is your main retirement income vehicle, you absolutely need to make the most of it.

I assume she is under 55 so this makes some sense. Post 55 you can treat RA as a type of HYSA if you can pledge a property. Post 65 I am not sure what happens as CPF Life kicks in.

Policy risk is the biggest issue with CPF (i.e changes in the rules).

CPF LIFE doesn’t kick in at 65 unless you request it… if you wait until the maximum (age 70) then it will kick in, and you’ll get permanently higher payments for life.

[malcontent]

I don't recall the 20% of RA at 65 either. Based on some searches, it may have been agreed on a few years back. However, per above it only kicked in last year, so maybe many of the pages discussing withdrawals did not list it until recently.

It's probably put in because 'gahmen take my cpf' complaints.

I have some faint recollection of this 20% option; I believe it has been around a while, but not much talked about. By 65 most people are a little more sensible and start to better appreciate the idea of lifelong income security. Even wealthy people who think they don’t need it should… because CPF is protected from creditors if sh*t hits the fan.

[NYY1]

I assume she is under 55 so this makes some sense. Post 55 you can treat RA as a type of HYSA if you can pledge a property. Post 65 I am not sure what happens as CPF Life kicks in.

Policy risk is the biggest issue with CPF (i.e changes in the rules).

The other big one is inflation. While the current situation is improving, inflation over the last few decades has been pretty benign, and many probably underappreciate the tail scenarios here.

CPF is still OK/good (as a base savings programme); it has its pros while other programmes have their relative advantages too. However, as alluded to elsewhere, it was relatively more attractive when global rates were nothing (and inflation was very low).

[NYY1]

CPF LIFE doesn’t kick in at 65 unless you request it… if you wait until the maximum (age 70) then it will kick in, and you’ll get permanently higher payments for life.

But at that point you'd expect to collect payments for fewer years. Around life expectancy, I don't think it will make that big of a difference either way. If one lives a long time, then you will come out ahead.

Other than betting on one's longevity, liability protection is probably the better reason to let it sit there (if you don't need the money).

[malcontent]

Policy risk is the biggest issue with CPF (i.e changes in the rules).

I would say there is a very high chance that the basic plan goes away in the future.

[PNGMK]

Policy risk is the biggest issue with CPF (i.e changes in the rules).

I would say there is a very high chance that the basic plan goes away in the future.

What makes you say that Mal?

[malcontent]

Policy risk is the biggest issue with CPF (i.e changes in the rules).

I would say there is a very high chance that the basic plan goes away in the future.

What makes you say that Mal?

It’s the way they talk about the basic plan on the CPF website:

“CPF LIFE Basic Plan is a legacy plan carried over from the time CPF LIFE was first introduced in 2009. Many members would find the Standard or Escalating Plan more suited to their needs.”

“As less is used for your CPF LIFE premium, the monthly payout will be lower compared to the Standard Plan.”

“The monthly payouts under Basic Plan will get progressively lower”

They don’t mention a single benefit. In reality, the basic plan offers the highest probability of a member (with beneficiary) achieving the maximum ROI on the annuitized amount. The only way to beat basic is to live into your 90’s (for women) or late 80’s (for men) and TBH, it’s not really a compelling differential until you become a centenarian.

If you don’t have a beneficiary, then it’s a totally different story — take standard or escalating. These two are virtually identical from an ROI perspective, so I would pick escalating just to better match spending needs. I also assume escalating will be the plan that my wife will end up with in the end.

[malcontent]

For reference, the annual payout rate for these plans for males with at least FRS at age 65 is roughly as follows:

Standard: 6.25%
Basic: 5.75%
Escalating: 5.25%

I just checked and this has not changed since I did the math around 10 years ago.

How to calculate: Take the age 65 monthly payment x 12 and divide that by the age 55 sum x 1.5 (compounded interest from 55 to 65).

How does it compare with a private annuity?

immediateannuities.com offers a quick and easy site to check — we can enter the following:

Amount = $250,000
Age = 65
Sex = Male
State = NY
Payments Start = 1 month

Result = $1592 for 10 year period certain. You receive this income for your lifetime. If you die during the first 10 years after payments have begun, your beneficiaries continue to receive this income for the remainder of the 10 years. (10CC)
The Cashflow or Payout Rate is 7.64%. It is the percentage of premium paid out each year and includes interest plus return of principal.

[NYY1]

For reference, the annual payout rate for these plans for males with at least FRS at age 65 is roughly as follows:

Standard: 6.25%
Basic: 5.75%
Escalating: 5.25%

I just checked and this has not changed since I did the math around 10 years ago.

How to calculate: Take the age 65 monthly payment x 12 and divide that by the age 55 sum x 1.5 (compounded interest from 55 to 65).

How does it compare with a private annuity?

immediateannuities.com offers a quick and easy site to check — we can enter the following:

Amount = $250,000
Age = 65
Sex = Male
State = NY
Payments Start = 1 month

Result = $1592 for 10 year period certain. You receive this income for your lifetime. If you die during the first 10 years after payments have begun, your beneficiaries continue to receive this income for the remainder of the 10 years. (10CC)
The Cashflow or Payout Rate is 7.64%. It is the percentage of premium paid out each year and includes interest plus return of principal.

Two changes would be i) make the age ~62 so the life expectancy is about the same (in number of years from when the payments start) and ii) full cash refund matches the CPF Life structure.

The general idea is correct though.

[malcontent]

Another point to consider is the fact that CPF is triple tax advantaged: tax deductible contribution, tax free growth and tax free withdrawals, provided you are only taxable in Singapore.

Unfortunately for anyone contemplating CPF LIFE payments while US taxable, the IRS has some punitive rules for foreign annuity payments from contributions that were never taxed. Each payment is treated as 100% ordinary income (the worst kind of income from a U.S. tax perspective), but… if you withdraw the lump sum before CPF LIFE kicks in, it’s like a withdrawal from a bank account and is fully tax free.

[NYY1]

One other thing is that as individuals we only care about the payments we receive (vs. life expectancy).

However, the economics of the pool are impacted by a few other factors (this is probably beyond the scope of what most people care about, but it does impact how pools are priced).

#1. In terms of total dollars received (monthly payments and any unused premium), people that pass on early don't necessarily cancel out with people that pass on late.
#2. The distribution of when people will pass on is not normal (which impacts #1).
#3. Interest / investment gains are kept in the pool to help make payments to those who live a long time.
#4. The pool’s chance of being in surplus or deficit is highly sensitive to small changes in interest rates (even after adjusting the monthly payment higher or lower to set one individual to break-even at life expectancy).

In total, the above results in a situation where the Expectation of f(x) is not equal to f(Expectation of X).

Accordingly, pricing across countries will be impacted by differences in life expectancy, exact mortality rates (distribution of when people pass on), and interest rates.

[malcontent]

Life expectancy is probably the most contentious issue when it comes to annuities. It can almost feel like you are gambling on when you will pass, and “the house wins” if you pass earlier.

The strongest case for keeping Basic is where a person has a fatal condition at the time they choose their annuity plan. With only x years to live, being forced to over-insure longevity risks that are not present is clearly a waste of their CPF savings. The counter-argument is that a risk pool only works if everyone participates - and such a case is just bad luck for them.

There are some key improvements I would like to see with CPF LIFE.

IMO, the biggest weakness with CPF LIFE today is the lack of a joint-survivor option. Even if both spouses have fully funded CPF LIFE payments, expenses don’t drop by half if one spouse dies. Even if one had to forego the bequest to have a joint-survivor option, I think it would be worth it.

[NYY1]

Life expectancy is probably the most contentious issue when it comes to annuities. It can almost feel like you are gambling on when you will pass, and “the house wins” if you pass earlier.

The strongest case for keeping Basic is where a person has a fatal condition at the time they choose their annuity plan. With only x years to live, being forced to over-insure longevity risks that are not present is clearly a waste of their CPF savings. The counter-argument is that a risk pool only works if everyone participates - and such a case is just bad luck for them.

There are some key improvements I would like to see with CPF LIFE.

IMO, the biggest weakness with CPF LIFE today is the lack of a joint-survivor option. Even if both spouses have fully funded CPF LIFE payments, expenses don’t drop by half if one spouse dies. Even if one had to forego the bequest to have a joint-survivor option, I think it would be worth it.

https://www.cpf.gov.sg/member/retiremen ... expectancy

Also, I believe joint-survivor option (in other countries, USA for example) is most advantageous when one spouse didn't work or there was a large difference in lifetime earnings. If both spouses earned the same and one passes on, the other doesn't get both payments (please correct me if I am wrong - I believe the surviving spouse will get the higher of the two payments).

If so, that is basically the same as two spouses both at the FRS (or ERS). If one passes after the premium has been exhausted, only one payment continues. If one spouses passes before the premium is exhausted, CPF Life gives you something back whereas other plans often give you nothing back.

Other plans do offer better survivor benefits for deaths during working age years. Also, if there was a non-working spouse, then the survivor benefit would be much better(especially if death occurred after the premium was exhausted and/or the surviving spouse continued to live a while).