What's CPF at old age for?
It is to support you in your retirement.
If it's not able to do that well, maybe it's not suitable for you?
What is CPF LIFE Basic Plan?
Basically, you are taking lower monthly payouts so that your dependents will get more of the money when you passed on.
If what you want is a comfortable retirement, why you leaving bulk of your money for your dependents who should be in charge of their own life/retirement?
Why I Think CPF LIFE Basic Plan is a Bad Plan
Lower Monthly Payouts
It is as simple as that.
The Standard plan provides higher monthly payout.
The Escalating plan provides growing monthly payout.
Why do you not want to have a higher monthly payout for yourself?
Especially if you don't think you're having a lot of money every month for retirement already. 🤷♂️
"Because I want to leave more for my children."
Leaving More $ For My Children
It's a nice thing to have something to leave behind for your kids.
Not so much if they have to financially support you just so you could leave them something behind when you passed on.
Firstly, the bequest is not guaranteed to have one.
If you draw finished all savings in your CPF, then your children won't have any money to inherit as a bequest.
It's how the plan was designed.
If you have $100,000 in your CPF Retirement Account (RA) at 65, and you picked the Basic Plan, the following happens.
- $10,000 is put into the CPF Lifelong Income Fund.
- The rest is kept in your RA, and your monthly payout will be paid out from your RA.
- So from 65 to 90, you are drawing your monthly payout from your RA.
- If you passed on anytime before 90, $100,000 from the Lifelong Income Fund + all $ still in your CPF Accounts, will be given to your dependents as a bequest.
- By the time you are 90, your RA would have $0 inside.
- From then on, you will draw your monthly payout from the Lifelong Income Fund until you passed on.
- If you passed on after 90, what's left of that $100,000 not paid out + all $ still in your CPF Accounts, will be given to your dependents as a bequest.
Recommended Read: What Happens After I Join A CPF LIFE Plan?
Higher Yields from Basic Plan
One common response I get from people who say the Basic Plan is better is because it has higher yields compared to the other 2 CPF LIFE plans.
How?
Let's say you have $100,000 in your RA.
In Standard & Escalating Plan, all $100,000 in your RA is put into the Lifelong Income Fund.
All interest (4%+1%+1%) goes back into the Lifelong Income Fund, not your RA.
The $100,000 in your Lifelong Income Fund will not grow.
And as you draw your monthly payouts, that $100,000 will decrease.
The yield improves as you live longer because you will then be drawing more than you have contributed.
In the Basic Plan, $90,000 stays in your RA while $10,000 goes into the Lifelong Income Fund.
The interest your $90,000 earns goes back into your RA while the interest the $10,000 goes back into the Lifelong Income Fund.
Because the interest goes back into your RA, it makes the yield higher.
But, does the yield matter to you?
Nope, cause you don't get to withdraw any of that yield anyway.
You're still going to get that lower monthly payout even though the yield is higher.
If anything, it's better for your dependents than you.
To Each Their Own
Of course, everyone's circumstances are different.
Maybe Basic Plan is more suitable for them.
Ya, sure, that argument makes sense.
There's no one-size-fits-all policy.
But if you are like a normal person, think about your own retirement, not what you want to leave for your children.
It'll be better if you have more in monthly payments so that your children can save their money for their own retirement instead of giving you money to support you.
Avoid making your children the next sandwich generation.
Your kids are not your retirement plan.
Recommended Read: Answering 2 Common CPF “Complaints”
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Beside the standard and escalating plan, I think that the government should come up with another plan for people without children. I have a lot of friends who fall under this category.
ReplyDeleteGovernment should allow people without children to have the option to withdraw all their cpf at age 80 since they have no children to inherit the balance in their cpf account.
They will need more money for their medical expenses because they have no children to take care of them.
They have worked hard and should be the one to enjoy the fruit of their own labour.
I don't see the reason why after their demise, their hard earn money in the cpf are given to their nephews and nieces who did not take care of them at all.
Hi
DeleteBy all their CPF money, do you mean $ in excess of their Retirement Sum, or money in their RA/Lifelong Income Fund?
If it's the $ in excess of the Retirement Sum, CPF members can already do that.
If its $ in their RA/Lifelong Income Fund, if members withdrew everything at age 80, then what money will they get every month for the rest of their life?
PS,for medical expenses, there's Medisave.
Cheers!