How To Complement Your CPF Life With an Annuity Plan

The Central Provident Fund (CPF) Board introduced the Lifelong Income For the Elderly (LIFE) scheme to provide monthly payouts during the retirement years, starting from age 65. However, should you require more than what the payout can provide to support your lifestyle, you can also tap on a complementary annuity plan. This is a low risk approach to securing the basic needs of your retirement.

We’ll review how much you can expect to receive from CPF LIFE, and how an annuity plan can help supplement your payouts.

What are the CPF retirement sums and monthly payout amounts?

If you are a Singapore citizen or permanent resident, born in 1958 or after, and have at least S$60,000 in your CPF Retirement Account (RA) when you start your monthly payouts, you’ll be automatically included in CPF LIFE. The first critical milestone arrives when you turn 55. At that age, your retirement sums are locked in. You can opt to set aside the Basic, Full or Enhanced Retirement Sum, which determines how much your monthly payouts will be when you turn 65.

For those who are turning 55 in 2022, the Full Retirement Sum is S$192,000. You can check the retirement sum applicable to you, should you be turning 55 from 2022 to 2027, in the table below.

Source: CPF Board

As mentioned, the retirement sum that you set aside will determine how much you can receive as a monthly retirement income payout from age 65.

For example, those who are turning 55 in 2022 can save S$192,000 in their account, which will earn compound interest of up to 6%. At age 65, they can potentially receive a monthly payout of S$1,470 to S$1,570.

Pro tip: Work out your financial needs for retirement using this calculator

The table below captures the monthly payout you can expect based on how much you set aside.

Source: CPF Board

For illustration purposes, Mark, age 40, wants to start planning for his retirement so that he can receive a steady retirement monthly payout when he reaches age 65. He desires to receive a S$4,000 monthly payout based on today’s value.

Assuming that the Full Retirement Sum and corresponding CPF LIFE monthly payout grows at 3.5% for the next 15 years, based on an inflation rate of 3.5%, we can determine how much Mark will need to equate S$4,000 at today’s value when he reaches age 65.

CPF RA savings needed at 55CPF LIFE monthly payout from 65Desired monthly payout from 65
Shortfall to monthly payout from 65

Meanwhile, assuming that the Enhanced Retirement Sum and corresponding CPF LIFE monthly payout grows at 3.5% for the next 15 years, and the inflation rate of 3.5%, this is what Mark will face at 65:

CPF RA savings needed at 55CPF LIFE monthly payout from 65Desired monthly payout from 65
Shortfall to monthly payout from 65

The calculations above will give Mark a good estimate of the shortfall he needs to make up to reach his desired monthly payout by age 65.

If Mark wants to bridge the gap, one of the ways he can consider is starting a savings plan that can complement the CPF LIFE payouts. This can be achieved via a low risk instrument called an annuity plan.

Read more: Retirement Planning: Is S$1 Million Enough?

What is an annuity plan?

An annuity plan is a type of endowment insurance plan which provides a steady stream of income starting from your selected retirement age for a fixed period of time, or for as long as you live.

The retirement income will usually comprise a guaranteed component and non-guaranteed component – which will depend on the performance of the participating fund.

The premium for an annuity plan can be paid in one lump sum or as a regular premium over an agreed payment period with the insurer.

Here’s an example of what an annuity plan can provide for Mark, should he want to take one up to complement his CPF LIFE payouts:

Based on this example, Mark will be able to greatly reduce the gap to his desired monthly payout based on the illustration above assuming he only meets the Full Retirement Sum. However, if Mark is able to meet the Enhanced Retirement Sum, he can take up an annuity plan with a lower monthly payout.

Read more: When Should You Start Planning for Retirement?

In conclusion, there is more than one way to address your retirement needs. Should you prefer a solution that is of lower risk, an annuity plan could be a great way to boost your finances for retirement.

And if you diversify your income into other asset classes of wealth accumulation like property, unit trusts, or stocks/shares, the payouts from these sources can further help to support your retirement lifestyle.

Read more: Investing 101: What You Should Look Out for As A Beginner Investor

10 thoughts on “How To Complement Your CPF Life With an Annuity Plan

  1. Jim S says:

    Thank you for the article. Would you share your thoughts on the benefits (and risks) of applying for a full or partial withdrawal from CPFLIfe for anyone already with an annuity plan?

    • Cherie Wang says:

      Hello Jim, Its important to consider these:
      1. Do you have enough for essentials with your current income from annuity etc? If its not sufficent, CPF Life payout should be withdrawn to help
      2. If you do have enough, its worthwhile considering longevity risks. We’re expected to live longer and longer, keeping your funds in CPF longer will help to grow the funds to manage inflation.
      3. The risk of starting the withdrawal of CPF Life payout earlier than later is if one day your annuity plan is insufficient (its likely to pay a flat amount) then yout CPF Life can supplement more in the future with the higher payout beacuse it had more time to grow.

      Hope this helps!

      • Jim S says:

        Thanks, Cheri for your comment.
        I am a little confused by your 1st point; that a CPFLife withdrawal should be done to help if my annuity is insufficient for essential needs. Perhaps I misunderstood your point; I’d have thought that with insufficient annuity monthly payouts, one should instead continue to keep the CPFLife policy and accept the monthly payouts to supplement the annuity.
        On the 2nd point on longevity risk, one of the criticisms of the CPFLife policy is that the payouts do not take into consideration inflation. Thank you for clarifying. If, however, the annuity payouts also covers for life, as does CPFLife, would this make a difference in your consideration?
        Thank you.

        • Cherie Wang says:

          Hey Jim, sorry that I was confusing in my text. When I mentioned CPF Life withdrawal, I was referring to the withdrawal of the monthly benefits as an income stream, not cancelling the policy.

          There are some clauses you need to apply to in order to cancel your CPF Life policy, its only allowed under these circumstances: https://www.cpf.gov.sg/member/faq/retirement-income/monthly-payouts/can-i-cancel-my-cpf-life-plan-after-i-have-joined

          On the second point, if you are concerned about inflation, which we all should be, you can opt for the escalating option for CPF Life payout. Downsides of that is you get less each month in the beginning compared to the other option. This article did not mention other ways to supplement reitrement income but we should consider investing as well. Though this is a very personal choice, and I do know many people who do not have the interest or time to invest – having guaranteed instruments like CPF Life and annuity plans is better for this group of people who would otherwise do nothing, and let their money shrink =).

          • Jim S says:

            Thanks for the clarifications, Cherie and for the link to the information on the criteria for canceling CPFLife.
            The 4th criteria suggest that with an annuity plan, it is possible to apply for a full or partial cancellation/withdrawal from CPFLIfe.
            While it is possible to keep both the annuity and CPFLife policies and collect a greater monthly payout than just from either one alone, what are your thoughts about keeping the annuity (that pays for life) and making a full or partial withdrawal from CPFLife? Would it be a good idea to have this resultant cash in hand to do as one wishes instead of having them “locked way” and disbursed in relatively small amounts, albeit regularly?
            Thank you.

          • Cherie Wang says:

            Hey Jim! Welcome! CPF Life is an annuity plan, so doing either is actually the same? Its just that one is managed by the govt and the other by an insurer, and the govt won’t let you withdraw the funds as easily. If I had to choose, with all factors the same, CPF Life payout would be preferred since its done at no profit so I assume the yield should be higher than a commercial plan by an insurer (but it really differs depnending on the age you start). If you want more cash on hand, why not just fulfil the CPF Life basic sum, buy a smaller annuity plan that allows you to withdraw in full anytime and keep the cash for high yield instruments/whatever makes you happy!

  2. Banqwert says:

    What a complete scam.
    If one contributes 48k a year for 15 years, and then waits a further 10 years before withdrawal, even based on a 3% annualized growth (SSB RATE, RISK FREE RATE), he/she should have accumulated close to 1.2M, which should translate to a risk free withdrawal at 4% of 4k a month. MINIMUM.

    If your annuity is guaranteeing only 2k a month, everyone would be better off DIY-ing their own retirement.


    • Cherie Wang says:

      Hey Banqwert, from what I read, the example used actually yield $2K guaranteed + potential $3858 per month, that equates to $5.8k per month on that 1.2M (5.8%p.a.). Though I wouldnt consider it risk free rate but it will provide a smoother payout than investing in dividend paying equity. Its also hard to find anything that is risk free today that would yield 4% for sure in 25 years. I agree that people can DIY their retirement plan, and DIY doesnt mean it has to include annuity, its just an option. There are also some who don’t know how to DIY, so this is a better option than doing nothing, especially if they have maxed out their CPF contributions =).

  3. Anna says:

    $2000 guaranteed is pathetic.
    SSB will do better.
    Alex Wong, in the spirit of integrity (if you claim to be a financial ADVISOR HELPING people to plan their finances), you should at least include a comparison with other equivalent products.
    This sounds like scam.

    • Cherie Wang says:

      Hi Anna, I too wish for much higher payouts than guaranteed $2000 after saving all that money over 25 years. However the annuity rates in Singapore pretty much yields 2-3% p.a., the plan used in the example projected yield at maturity is between 2.63% – 3.6%. Not going to mention which company as we are not here to promote any particular plan, this article is an illustration to help people see how annuity can be used. Agree that other products can be considered too, check out this other article that provides an overview on other investment instruments https://plannerbee.co/learn-personal-finance/investment-portfolio-basics-what-build/
      Just did a quick check on the current SSB rates issue “SBAUG22 GX22080V”, its 3% on average over 10 years, a lot higher at 1.66% from a year ago!

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