You will be able to weigh CPF LIFE plan and start age choices against the rest of your income plan.
Jasmine's sister told her to defer CPF LIFE as long as possible, because the payout goes up every year you wait. Her colleague told her to take it at the first chance, because nobody knows how long they'll live. Both sounded sure of themselves. Neither had asked what else Jasmine would be living on.
That is the gap this lesson fills. CPF Mastery: every account and the choices you control, module 7, explains the three plans and how deferral raises payouts, in lesson 7.2, Standard, basic or escalating: payout against bequest, and lesson 7.3, Starting payouts later raises every payment. Read those first if the plans are new to you. Here the question is narrower: given your spending, your savings and your floor, which plan and start age fit?
Deferring raises every CPF LIFE payment for life. It also means that for every year you wait, your savings pay the whole of your spending instead of only the part above the floor.
Using made-up payouts again, with no connection to CPF's real rates: Jasmine's level payout would be S$1,600 a month if it starts at 65, or S$2,150 a month if she waits until 70.
Waiting five years means giving up S$1,600 a month for 60 months, which is S$96,000 of payouts. That money has to come from somewhere, and for Jasmine it comes from her portfolio. In return, from 70 she receives S$550 a month more, or S$6,600 a year, for the rest of her life.
On the simplest arithmetic, ignoring interest and inflation, the extra S$550 a month takes about 175 months, or 14 and a half years, to make back S$96,000. So deferral comes out ahead in this example if she lives past about 84 and a half.
Interest changes that. The S$96,000 she spends from her portfolio between 65 and 70 would otherwise have stayed invested and earned a return. Jumping ahead to the drawdown map Jasmine builds in lesson 3.4, Map your drawdown year by year: when she ran both start ages through it, assuming her investments earn 5% a year, starting at 70 left her about S$668,000 at 95 against about S$710,000 starting at 65. With those assumptions, deferral didn't pay off even at 95.
That doesn't settle it, because her 5% return is an assumption and CPF LIFE isn't. If her investments earn less, or if markets fall in her early sixties, the guaranteed extra S$6,600 a year looks much better. Deferral is insurance against a long life and weak markets. You pay for it with savings in the years you wait.
The plan with rising payouts trades the opposite way. It starts lower and grows every year, which helps against inflation in your eighties and nineties.
Suppose, as an invented example, it would start Jasmine at S$1,300 a month and rise 2% a year. In her first year she gets S$300 a month less than the level plan, S$3,600 less over the year, and her portfolio covers that. The rising payout passes the level S$1,600 in the year she turns 76. In total dollars received, it catches up with the level plan only around 86.
In that same drawdown map, this plan left about S$753,000 at 95, more than the level plan, because the larger payments land in the years when her spending is highest. The cost is a wider gap in her late sixties, exactly when her portfolio is also paying for the bridge years that module 3 covers.
So the rising plan suits someone who expects a long life and has enough savings to carry a wider early gap. It suits someone with thin savings less well, because the lower start puts more strain on the portfolio early, which is when sequence risk is highest.
Four things move the decision more than any rule of thumb.
Health and family history set your odds of reaching the break-even age. A family where people live into their nineties tilts towards deferral and rising payouts.
Other income decides whether you can afford to wait. Part-time work, rent or a spouse's income can cover the years before a later start. Without them, deferral means drawing your portfolio down hard in your sixties.
What you want to leave matters too. The plans differ in the bequest they leave if you die early, which CPF Mastery lesson 7.2 sets out. If leaving money to your children is a priority, a plan that keeps more of your savings in your Retirement Account for longer may fit better.
Then there's the size of your floor against your essentials. If your level payout already covers most of your essentials at 65, you have more room to try the rising plan. If it covers less than half, as Jasmine's does, a lower start leaves even more of your basics exposed to markets.
Jasmine chose to keep two options. One is the level plan from 65, which gives her the largest income in her late sixties while her portfolio is still covering bridge costs. The other is the rising plan from 65, which her drawdown map suggests leaves more at 95, at the cost of a thinner early floor. She ruled out deferring to 70 for now because her plan relies on her portfolio between 60 and 65 already, and adding five more years of full spending would make it depend on good markets at the start. She will rerun the comparison at 64, when the estimator shows her real figures.
Open the CPF LIFE estimator and run it for two start ages and two plans. For each start age, multiply the payout you give up by the months you would wait, so you have the savings each delay would cost.
Write two start ages and two plans you would consider, with the payout for each and the extra savings needed to wait.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).