Describe how CPF LIFE turns your Retirement Account into a monthly income for life.
Ask someone in their thirties about their CPF and they can usually give you the balance, roughly, to the nearest thousand. Ask what that money will pay them each month, starting at what age and lasting how long, and most can't answer. For a financial independence plan in Singapore, the monthly figure is the one you need. Income from CPF payouts is the only part of your later income that doesn't rely on markets and won't run out.
This module adds CPF income to your FI number. You met the basics in the course "The Singapore personal finance system, end to end", lesson 5.3, "How CPF turns into retirement income". This time you look at them as a planner.
When you turn 55, the CPF Board opens a Retirement Account in your name and moves savings into it from your other CPF accounts. The transfer stops once it reaches a retirement sum. There are three of these: the Basic Retirement Sum, the Full Retirement Sum and the Enhanced Retirement Sum. The Board sets their amounts separately for each group of members reaching 55.
The sum that applies to you depends on what you choose. Members who own a property with enough lease left can pledge it and set aside a lower sum. Members without such a property usually set aside the Full Retirement Sum. Anyone who wants a bigger income later can top up towards the Enhanced Retirement Sum.
This has two effects on your plan. The amount in your Retirement Account sets the size of your monthly payout. Separately, savings above the sum you set aside may be available to withdraw from age 55, under rules the CPF Board publishes. Check the retirement sums and the withdrawal rules for your year of birth on cpf.gov.sg.
CPF LIFE is the national annuity scheme that converts the Retirement Account into monthly income. Payments begin at the payout eligibility age and continue for the rest of your life.
Planners value CPF LIFE because the payments last for life. If you fund retirement from your own portfolio, you have to size it to last to an age you might reach, say 95 or 100, and if you live past that age the money is gone. CPF LIFE spreads longevity risk across every member, so you don't need to predict how long you'll live. The money left by members who die early pays for those who live longer. Your family still gets some protection: any premium not yet paid back to you as payouts, plus savings still in your accounts, goes to your beneficiaries.
An annuity is designed to remove the risk of outliving your money. The 4% rule you used in module 2 can't do this. A portfolio drawn down at that rate can still run out if you live long enough and markets are weak enough.
You choose from several CPF LIFE plans, and each gives your income a different shape. The Standard Plan pays the same amount every month. The Escalating Plan pays less at first and then raises the payout by a fixed percentage every year, which helps it keep up with rising prices. The Basic Plan starts with lower monthly payouts, and those payouts fall progressively once your CPF balances drop below a level the CPF Board sets. The CPF Board publishes how each plan works and the current escalation rate.
Over a retirement of twenty or thirty years, prices will rise, and a payout that stays level will buy a little less each year. A rising payout starts lower but keeps more of its value. No single plan suits everyone. You choose your plan close to payout age, so the decision can wait. For now, you only need to know which plan your estimate assumes.
All the figures here change over time. Retirement sums are revised for people reaching 55 in later years. The payout eligibility age is set by law and has been raised before. Your payouts will depend on your Retirement Account balance, your plan, the age you start, and interest rates over the years. Take your figure from the planning tools on cpf.gov.sg and ignore numbers quoted in articles or by relatives.
When you sign in to cpf.gov.sg with Singpass, the retirement payout planner reads your actual balances, projects them forward and estimates a monthly payout. It lists the assumptions it used. Write each one down: the age payouts start, the plan, the retirement sum, and whether the amounts are at today's prices or in dollars of the year payouts begin.
The price basis matters because lesson 1.4 set up your whole FI plan at today's prices. If the planner shows payout-year dollars, convert them to today's prices so they match the rest of your plan. Then multiply the monthly amount by 12 to get a yearly figure.
Priya, who you know from the earlier modules, ran the planner (her figures are made up). Converted to today's prices, her estimate came to about S$1,400 a month from age 65. That is S$1,400 x 12 = S$16,800 a year. Next to the number she wrote the date, the plan and the retirement sum the estimate assumed. Next year, if the figure has moved, she can check whether her balances changed or a rule did.
Your own estimate will differ from Priya's, and it will keep changing while you work and contribute. Run the planner again from time to time and record the date, plan and retirement sum each time. This module uses your yearly figure when it adds CPF income to your FI number.
Log in before you start the activity, and keep a pen ready for the assumptions as well as the payout.
Open the CPF Board retirement planner, get an estimate of your monthly CPF LIFE payout, and write down the date and the assumptions it used.
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