Why CPF Life Basic Plan Makes More Economic Sense
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- Опубликовано: 7 июн 2022
- Ten Seconds of Wisdom on why the CPF LIFE Basic Plan makes more economic sense than the Standard Plan when comparing both the payouts and bequest amount, explained by Christopher Tan, CEO of Providend.
To learn more about how you can optimise CPF as part of your retirement plan, watch • Understanding CPF Series .
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I believe that when CPF said that the Basic Plan is a legacy plan, it really refers to the legacy or wealth estate that one leaves behind rather than legacy in terms of historical legacy. There was an OECD report which states that when CPF was formulating the CPF LIFE, the idea of cpf members having to forego their RA Sum at time of joining the Annuity plan was not palatable to some as they would prefer to have some form of legacy/wealth left behind to their beneficiaries if they were to die early, hence the Basic Plan.
Once again, thank you for taking time to leave a comment!
If one passes on at 86, would there be any bequest amount left Uber the basic plan?
Diff is because the amount of interest that goes to the ‘common pool’
Hi Chris, do we need to discount the future value particularly the lump sum bequest to present value for comparison? With escalating inflation, future payouts may not worth as much.
Another question, does the bequest be payout in cash or transfer to beneficiaries CPF accounts? Thanks.
Hi Derek, thanks for your questions.
Yes, we can do that especially if we want to arrive at an internal rate of return value. Otherwise, by simply looking at the small difference in payout as well as the large difference in bequest of the 2 plans, it is quite clear that the Basic Plan is better. This is also because, under the Basic Plan, only 10% of the RA amount at withdrawal is transferred to the Lifelong Income Fund. Upon demise, the interest on the capital transferred to the Lifelong Income Fund is not "returned" as bequest. Whereas for the Standard Plan, the entire RA amount is transferred to the Lifelong Income Fund at withdrawal and upon demise, the nominees (beneficiaries) do not receive the interest on 100% of the RA capital transferred. I hope I am clear.
As for your second question, this can be found on CPFB Website.
"Your CPF savings will be distributed in cash to your nominee(s). However, if you would like to distribute your CPF savings to your nominees’ CPF accounts or set aside your CPF savings for the long term care of children with special needs, please visit our Service Centres. Alternatively, you can email us at www.cpf.gov.sg/eSvc/Web/FeedbackSubscription/Index; or call us at 1800 227 1188 for more information." -- Chris
@@ProvidendSG Thanks Chris.
If I understand you correctly, are you saying the lumpsum bequest amount is so huge that even the purchasing power of this lumpsum bequest devalue, for example, the 100K you received in 2046 can only buy 50% of the good today with inflation at 3% for 24 years. Hence, it is no brainer to opt for Basic plan if you can sustain with reduce payout.
The only downside will happen if you live so long even beyond the bequest payout then Standard Plan or Escalating Plan makes more sense.
Regards Derek
We are not allowed to choose basic plan now. So would it make sense to highlight it no longer can be chosen?
Really? When did CPF announce that?
Dear foreverone87, thank you for your comment. We understand that there is a rumour going around that the CPF LIFE Basic Plan is not available as a choice now and this is taken from this link on CPF Board website.
www.cpf.gov.sg/member/faq/retirement-income/monthly-payouts/i-know-that-cpf-life-basic-plan-is-a-legacy-option
Please allow us to give a bit of history. When CPF LIFE was first launched, CPFB launched 4 plans. Basic was one of the 4. They subsequently reduced it to 2 plans - Basic and Standard (newly introduced at that time). Subsequently in 2015/2016, CPFB launched Escalating Payout Plan. So when CPFB said that Basic Plan is a legacy plan, they mean it came from the original 4 plans. I can confirm that it is still available as a choice today. Hope this clarifies.
Hi Chris, thanks for your helpful and instructive video. I was just reading an online Straits Times article published today (21 Feb) that said that the Basic Plan offers "progressively lower payouts as one ages." Is this true? Thanks!
Thank you @paullim8042 for taking the time to comment and ask your question.
It is true that the Basic Plan offers progressively lower payouts as one ages. Please refer to the CPF FAQ on various CPF LIFE Plans:
www.cpf.gov.sg/member/faq/retirement-income/monthly-payouts/what-are-the-cpf-life-plans-available
Under CPF LIFE Basic Plan, about 10~20% of your RA savings will be deducted as CPF LIFE premium when you join CPF LIFE (any time from age 65 to 70). Your monthly payouts will first be paid from your RA until age 90. Thereafter, monthly payouts will be paid from your CPF LIFE as long as you live.
In other words, the first phase of monthly payouts drawdown from your RA savings. When your RA savings fall below $60,000, the extra 1% interest earned on the first $60,000 will reduce due to lower RA balance and reduce subsequent payouts. Once your RA savings is depleted by age 90, CPF LIFE will continue paying your monthly payouts for life.
Hope this helps, thank you. - Chris
@@ProvidendSG Thanks, Chris, for your reply, much appreciated!
@@ProvidendSG Hi Chris, can I ask a couple of follow up questions, please... Assuming there's FRS in RA at age 55, and I opt for Basic Plan at age 65... (1) At what age will the monthly payouts start to decrease and how much will these monthly payouts be? (2) At what age will the RA hit zero balance and how much will the monthly payout be after that? Thanks again!
Dear @Providend , is it still possible to get the bequest figures from cpf life calculator ? I believe they removed this function last year ?
Hi Jeff,
thanks for the question.
Unfortunately, you are right - there is no longer a way to estimate your future bequest using the calculator. However, in most cases, it may not be that meaningful to look for an exact figure, as it really depends on when we pass away, which is subject to a good amount of uncertainty. In making the decision of which plan to select, an understanding of how each plan works is likely more helpful. We have other videos in this series that you may find useful - do check them out!
Additionally, my colleague, Kyith, wrote a detailed article about CPF LIFE payouts and bequests that may interest you as well. investmentmoats.com/uncategorized/cpf-life-greatest-return/
I hope this helps! -- Bryan Chan, Client Adviser of Providend
@@ProvidendSG Dear Provided , thanks for getting back to me . Have a great weekend ahead!
Hi, are these calculations from CPF directly?
Dear @YTTH0808, thank you for watching our video. Yes. The numbers in the table were obtained from CPFB website but is now no longer available.
Hv cpf give every account holder letter to sign if they willing to delayed 55 age payout retirement funds to 67 why not this Govt hv no right to place or state cpf age to be at 67
65 probably I under ground
Humans need money until their last hour. No more no life.
If I am healthy near to age 65, I will choose Escalating Plan. If not, Standard Plan. (And I will top up both of our retirement accounts with Enhanced Retirement Sum.)
That’s because you are brainwashed.
Forget basic. Just do standard or enhanced/escalating.
Why?