Last Updated on February 16, 2022
Think about retirement, and you’re probably imagining trips to places you’ve never been, or just relaxing with a cup of tea in your humble abode.
But without sufficient savings, you may not be able to retire in ease.
In Singapore, the CPF Lifelong Income For the Elderly (LIFE) scheme was introduced to make sure the elderly have enough to get by in their old age. It provides monthly payouts from the age you retire till the end of your life, based on the funds in your Retirement Account.
Whether it will be enough to fund your desired lifestyle is another question.
What is CPF LIFE?
CPF LIFE is a national insurance scheme you are automatically enrolled in if:
- You’re a Singapore Citizen or Permanent Resident, born in or after 1958
- Have at least S$60,000 in your Retirement Account before you reach 65
It replaces the Retirement Sum Scheme (RSS), which applies to those who don’t meet these criteria. CPF LIFE provides payouts till the end of your life, while the RSS only provides payouts till your retirement savings run out.
CPF LIFE payouts start between age 65 and 70. There are three main plans: Basic, Standard, and Escalating.
The Basic plan payouts are the least among the three, and progressively drop. The Standard plan offers a fixed monthly payout. The Escalating plan gives you lower payouts initially, but rises by 2% every year to keep pace with inflation.
How much do you get?
When you turn 55, CPF will create a Retirement Account for you, and your Ordinary Account and Special Account savings will be transferred over.
Your monthly payout depends on the total amount in your Retirement Account — known as your Retirement Sum — together with the CPF LIFE plan you opt for.
Caption for table: Payouts for someone turning 55 in 2021, who opts for the Standard plan. If you are on the Basic or Escalating plan, payouts will be lower (but later increase for Escalating).
|Retirement Sum||Amount in Retirement Account||Monthly payout from age 65|
Will it be enough?
Before you choose your CPF LIFE plan, work out your retirement expenses and income, funds and assets, and adjust them for inflation.
We suggest that you estimate your retirement expenses at two-thirds to three-quarters of your pre-retirement spending.
But if you plan to go on regular overseas trips, remember to budget these holidays in as well.
Meeting your retirement goals
After you’ve figured out how much you’ll need when you retire, you’ll need to work towards that corresponding Retirement Sum.
You can top up your Special Account to the Full Retirement Sum when you are below 55.
Your Special Account earns a 4% annual interest, more than the Ordinary Account’s 2.5%, so topping up your Special Account earlier in life could help you meet your Retirement Sum goal much faster.
But if you need to use your CPF funds right now, you can also top up your Retirement Account after you turn 55 up till the Enhanced Retirement Sum.
The account also has a 4% interest rate. You can continue topping up your account even after you’ve started receiving the payouts if you want a higher monthly sum.
What if I need more than CPF LIFE payouts?
CPF LIFE may become your primary retirement income, but it probably cannot cover all your retirement needs. You should also make sure you have other sources of passive income.
These can come from private annuity plans, investments — especially those that can offer dividends — and rental income.
Private annuity plans
Generally, it is hard to find a private plan with guaranteed returns that are as good as what CPF LIFE can provide, which can go up to 6% per year.
However, private annuities can still provide another steady but smaller source of lifelong payouts. Unlike CPF LIFE, these can start before you turn 65.
You should start investing when you’re young because the dividends from assets like stocks compound and provide another income stream. Just remember that investments carry risks and are subject to market downturns.
Buying properties and renting them out for income used to be very popular among Singaporeans, but the Additional Buyer’s Stamp Duty has made it too expensive for most to buy more than one house.
Even if it seems like others are investing in a second property, don’t jump the gun and do the same if you have to worry about paying off the mortgage during your retirement.
Instead, you could downsize to a smaller home, or rent a spare room out for extra income. If you live in a flat, you could sell the tail-end of your lease to the Housing and Development Board (HDB).
The proceeds can be deposited into your Retirement Account. HDB also issues cash bonuses of up to S$30,000 under this scheme, which you can receive as cash.
Taking stock early
Start planning for your retirement in your 20s and 30s. Tools like Planner Bee’s Retirement Calculator helps you determine if you’re on track.
Using the calculator is easy. Type in your current age, planned retirement age, and your estimated monthly retirement income — you don’t need to account for inflation as the calculator automatically factors that in. Enter details of any current investments, and likely retirement income sources including your CPF LIFE payouts.
The calculator tells you whether you’re on track to meet your retirement goal, and how much more you should invest to meet your target.
Assume you want to retire by age 65 and spend about S$2,500 every month. You currently only have S$10,000 in investments. When you retire, you’ll get S$1,000 in monthly income and you opt for a CPF Life monthly payout of S$1,390.
Based on these figures, it shows that you’ll be short of more than S$1 million. To meet your goal, you need to start investing at least S$1,654 every month.
While the CPF LIFE scheme provides decent monthly payouts, you won’t be able to retire on it alone. Review your financial goals and talk to one of us at Planner Bee (firstname.lastname@example.org) to help you live comfortably in your old age.