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Sunday, May 18, 2014

All about CPF minimum sum and CPF life

Is increase in minimum sum a bad thing?

There has been much discussions on the CPF minimum sum recently again. The CPF minimum sum will be raised to $155,000 from July 2014. This amount has been raised consecutively for at least the past 10 years. From $80,000 in 2003 to $155,000 in 2014. Of course, people will naturally be unhappy since they realised that the amount they can take out from their CPF becomes lesser and lesser. If you do not meet the minimum sum, you can only take out a maximum of $5000 from your CPF. I'm only in my 20s now and by the time i'm 55, the minimum sum will be much higher. Some people might ask will we be able to take out our CPF money at all?

I've done some research on the whole CPF structure and now i understand where the government is coming from. My parents have reached 55 and they are still confused about how the whole system works. There is just too much noise and confusion out there. That is why i decided to embark on my own research to find out more. The CPF scheme may not be that bad an impression as what was painted outside and in social media. I'll explain this in a simple and direct way. I'll only touch on what most people are concerned on.


What is CPF for?

This is a simple question with a simple answer. The CPF is for our retirement. We have to understand that this is our own money and the government is in no way trying to keep or take our money. When a person reaches 55 years old, a retirement account will be opened. Let's take a look at 2 different scenarios:



When you reach 55 years old


1) A person who does not meet the minimum sum of $155,000
If a person only has $100,000 in his Ordinary account (O.A) and Special account (S.A) combined, he can only withdraw a maximum of $5000 at age 55 and the rest will be put into his/her retirement account(R.A) in CPF. This works out to be $95,000 in his/her R.A.


2) A person who meets the minimum sum of $155,000
If a person has $200,000 in his OA and SA account combined, he can withdraw all of the money less the minimum sum. He/she can withdraw $45,000 at age 55. Therefore, $155,000 will be put into the RA account.

However, there is also a medisave minimum sum(MMS) which we need to meet. The MMS will be $43,500 from 1 July 2014. If you do not have this amount in your Medisave, you'll need to top it up with your OA and SA to make up for the shortfall before you can withdraw the balance after meeting the minimum sum.


3) A person who meets or does not meet the minimum sum of $155,000 and pledges his/her house
You can pledge your house value up to half of the minimum sum. This means for a minimum sum of $155,000, you can pledge up to $77,500. By pledging your house, you can actually draw out more money, which means you can take out an extra of $77,500 out in cash from your CPF once you reach 55. However, because you draw out more money at age 55, your RA account will have lesser money and you will receive lesser monthly payout at your draw-down age. For those born after 1953, the draw down age is 65.

For example, if you have $200,000 in your OA and SA currently, you can withdraw $122,500 out from your CPF at age 55 if you pledge your house. This is more than the $45,000 previously for a person who does not pledge his/her house. If you have less than the minimum sum in your OA and SA combined, your house will be automatically pledged up to 50% of the minimum sum to make up for the short fall. For example, if you have $100,000 in your OA and SA, your house will be automatically pledged.

However, do take note that you can only pledge up to the amount you pay for your housing loan using CPF. If you used only $50,000 in your CPF to pay for your house, then you can only pledge up to $50,000.

*Note: If you pledge your house and then decide to sell your house after that, you'll have to return back the pledged amount plus interest back to your CPF account.

Sources: http://mycpf.cpf.gov.sg/Members/Gen-Info/FAQ/MinimumSum.htm


What is the retirement account used for?

The RA account is used to pay for your retirement needs. Depending on how much you have in your RA account, you'll receive a monthly sum of money at your draw-down age. As mentioned earlier, the draw-down age for those born after 1953 is age 65.

The money in your RA account can be put into a scheme called the CPF life. You will be automatically placed on the CPF life scheme if you're born in 1958 and after. For those born before 1958, you have a choice to join CPF life or remain on the minimum sum scheme.

So what is the CPF life? As quoted from the CPF life FAQ page: "The CPF Lifelong Income For the Elderly (CPF LIFE) Scheme provides you with a monthly payout starting from your drawdown age (DDA), for as long as you live. It improves on the Minimum Sum (MS) Scheme, where payouts only last for about 20 years."


CPF life scheme

Meets minimum sum and on CPF life scheme

CPF life pays you a monthly sum of money for as long as you live. You do not have to worry about depleting your RA account on the minimum sum scheme which only pays up to 20 years. With this, a person who meets the minimum sum of $155,000 and is put into the CPF life scheme will receive a monthly payout estimated to be around $1100-$1200 at draw-down age. This monthly payout is not fixed and will be adjusted from time to time. I'm not sure how they calculate the payout though. You can use a CPF Life payout calculator to estimate the monthly payout you will receive.

Do not meet minimum sum

If a person does not meet the minimum sum, he/she will still be automatically placed on the CPF life scheme if:

1) He/she is born in 1958 or after and
2) Has $40,000 in RA at age 55 or
3) Has $60,000 in RA at draw down age

If a person is born before 1958, he/she can choose to stay on the minimum sum scheme which is to draw down his/her RA funds for 20 years or choose to join in the CPF life scheme to receive monthly payout up till death.

If you are born in 1958 or after, with less than $40,000 in your Retirement Account (RA) at 55 or less than $60,000 in your RA at 65, you can apply to join CPF LIFE instead of remaining on the MS Scheme. While CPF LIFE provides a monthly payment for as long as you live, the MS Scheme provides a monthly payment until the monies in the RA runs out.

Sources: http://mycpf.cpf.gov.sg/Members/CPFSchemes/CPF_LIFE.htm


The more money you have in your RA, the better the payout 

The minimum sum was raised to ensure better payout for Singaporeans when you're old. Imagine if the minimum sum is still at $80,000 in 2003 and has not raised till now, what would be the monthly payout you will receive? Using a CPF Life payout calculator, the monthly payout is estimated to be $695 to $766. Is this enough to survive on?

Of course, we can argue that why not the government give us all our CPF money at age 55 and not have all these CPF life scheme or this minimum sum thing? It's our money after all and we can decide how we want to spend it right? Don't the government trust us to manage our own money? The truth is, very few people will be able to manage their money wisely. Either we spend it lavishly to enjoy or we get cheated of our money at old age. This has happened a lot of times. Some gamble it away while some fall into scams. This is the reality. With this, the CPF schemes act as a safety net to prevent escalating social problems.



So, with the minimum sum raised to $155,000 from 1 July 2014, the estimated payout is about $1200 monthly. This is a decent sum to live on during retirement and we do not have to worry about having not enough money at all if we're under CPF life scheme. It's like an allowance you will get for the rest of your life. Sounds like back to school days when your parents gave you an allowance?


What happens if you die early?

When we talk about retirement, we have to bring in the topic of death. If you die before you can receive the monthly payouts, then the total amount in your RA + interest + the unused annuity premium paid on CPF life, will be paid to your beneficiary whom you nominate under the CPF nomination scheme.

If you die after receiving your monthly payouts say age 75, then the total amount in your RA + interest + unused annuity premiums paid - annuity payouts, will be paid to your beneficiary. You can use the CPF life payout calculator to gauge roughly how much your bequest will receive at different stages of your life.

Sources: http://mycpf.cpf.gov.sg/Members/CPFSchemes/CPF_LIFE.htm

Conclusion

I hope by writing the above information, you can have a better understanding of how the CPF schemes work. CPF is for your retirement. People may not like it since it feels like our money is locked up in it. It is in actual fact a forced savings scheme which delays our gratification. Even when you save money yourself, it's the same feeling. But how many people are disciplined to force themselves to save? Most probably when we see the latest gadget, the great Singapore sale or the travel sales, we'll unknowingly spend it all away.

Of course as with every other schemes, there will surely be weaknesses in it. Some argue that the interest paid on the CPF OA account at 2.5% is too low. Yes i agree its low and not enough to fight inflation but then again for those who have no investment knowledge, getting 2.5% anywhere is virtually non existence now. Remember the banks only pay 0.05% on your savings account currently. We can only hope that the interest rates in CPF will rise in the future. CPF OA interest rates did rise to above 4% during the late 1990s.


*Note that CPF minimum sum has been renamed as Full Retirement Sum. Refer to my other article here for more information on the changes to the CPF system

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Related Posts:
1. The affordability of housing in Singapore and the various housing grants available
2. Queries on CPF minimum sum - Pledging your property
3. Return our CPF?

87 comments:

  1. Hi SGYI,

    Thanks for the effort in writing about this in a much easier to understand way. I think you did a better job then CPF's official website in explaining about CPF life and min sum. They have too many different info under different segments!

    ReplyDelete
    Replies
    1. Hi aceirus,

      I do hope its easy to understand too. The CPF scheme is hard to understand without reading up on it.

      Delete
  2. Think CPF OA as our bond after 55, then we may be smiling.

    ReplyDelete
    Replies
    1. Hi Uncle CW,

      It is better than a bond. After 65 still pay monthly coupons. Better than half yearly coupons on all other bonds.

      Delete
  3. "own money? The truth is, very few people will be able to manage their money wisely."

    Who are you/Government to say that? Just because of few unlucky black sheeps?

    If gov were to say that 30 years ago, then I understand. But now we're in this new world where majority is pretty educated. After all SG education system is top of the world right?

    This whole scheme is great n beneficial. Esp to those who didnt get married.

    But for us who have filial children who're able to support us in our old age, because that is what our religion teaches us, we would like to have the option to take out all the money in our cpf.

    To do what gov ask? Its none of ur business. But if u ask me, id travel the world.

    ReplyDelete
    Replies
    1. Hi,

      If given the choice, I would like to take out all of my money from CPF too. But its a fact that we can't take out everything so might as well understand the scheme and put it to better use for ourselves.

      How many people who can't manage their money properly I don't know. But it seems more and more people are spending without control even from a young age. Over commiting to buying a house, taking huge loans for weddings are some of the rising cases we're seeing today.

      Delete
    2. who says it is FACT ha you cannot take out the entire sum form your CPF upon turnibg 55?

      The law was created by the PAP,( in reality to satisfy their own needs), VOTE THEM OUT in 2016 and you might get a better deal or what you termed as FACTS, isn't FACTS as what you think is it.

      Delete
    3. Government is protecting your money for people like you. Travel the world?? Ha... spend everything, then after that realise your 'filial' children not that filial after all, or maybe they got their own financial burdens, then how???? Then complain to government how come no welfare again?

      Delete
  4. Thanks. Well written. But may I know what is Special Account for?

    ReplyDelete
    Replies
    1. Hi,

      The SA is mainly for retirement. You can't use it for housing loans or for education unlike the OA which you can tap on.

      You can also use your SA for investments into approved products but I don't think its necessary since SA already gives a 4% interest currently.

      Delete
  5. Very nice and easy to understand articles, you've covered some salient points in layman term that the official site lack!

    ReplyDelete
    Replies
    1. Hi Richard,

      Thank you for your kind words. I'm glad the post did its job well. :)

      Delete
  6. Most drivers believe they are above average. Same as most retail investors. Right?

    ReplyDelete
    Replies
    1. Hi Uncle CW,

      Yes, it is only when something happen that we realise we are just an average human being.

      Delete
  7. May I know whether you can use a property to pledge if you did not use CPF to fund it?

    ReplyDelete
    Replies
    1. Hi,

      From my understanding, if you did not use CPF to pay for your housing loan, then you'll not be able to pledge it. You can refer to the FAQ here for more info: http://mycpf.cpf.gov.sg/Members/Gen-Info/FAQ/MinimumSum.htm

      Delete
  8. Hi,

    I refer to "3) A person who meets or does not meet the minimum sum of $155,000 and pledges his/her house"...

    I think the withdrawal rules have changed. Even with a property pledge, one will not be able to withdraw cash in excess of the minimum sum with a property pledge. It used to be allowed but no longer now.

    Perhaps you can point me to the relevant section in CPF's webpage which illustrates the withdrawal of cash from CPF with a property pledge.

    Perhaps someone can share an recent example of a friend or relative who managed to withdraw cash from CPF with a property pledge?

    ReplyDelete
    Replies
    1. Hi NV,

      The cpf website states that a person can only withdraw cpf funds if he/she meets the minimum sum and medisave minimum sum.

      In the faq, it states that:
      If you had pledged your property to withdraw your RA savings, you would need to refund the pledged amount including any interest accrued (where applicable) when the property is sold or transferred. If you have also used CPF for the pledged property, you would need to refund the CPF principal amount that you had withdrawn for the property and the accrued interest as well.

      You can refer to the faq here:
      http://mycpf.cpf.gov.sg/Members/Gen-Info/FAQ/MinimumSum.htm

      I tried to find more information on the property pledge but could not find any.

      Delete
    2. Hi SGYoung Investment,

      Many thanks...The issue i have with the above extracted from CPF's faq is that one have to sell the property purchased with CPF funds in order to hv the opportunity to get some money from CPF. Many people will only hv one property bought with CPF - are they prepared to this property, and then able to stay somewhere either at a second property or say they move in to a siblings' property?

      If i am not mistaken, the rules regarding CPF withdrawal with a property pledge used to be something as follows as an example:
      1) At retirement, OA+SA+RA = $200K
      2) Current MS = say is $155K
      3) Property pledge = $155K/2 = $77.5K (also assume CPF funds used to buy the property already exceeds $77.5K).
      4) Further assume Medisave MS already met so no need to up from the other CPF accounts.

      Withdrawal from CPF = $200K - ($155K - $77.5K) = $122.5K

      Whereas under the current rules, using above example, one can only withdraw $200K - $155K = $45K

      I actually checked with a few friends older than myself (one is 45year old and the other 50year old). They are aware of the older rule but they werre shocked when i told them the rules may hv changed. But i am not sure.

      Anyway, i sent you an article - you may need to spend some time cross-referencing the documents to CPF website.

      Delete
    3. Hi NV,

      Thank you for your inputs. I hope I'm getting this right as well. From what I read, if you've met your minimum sum of say $155k and you pledge your property, you can still withdraw half of it. But if you did not meet your minimum sum and you pledge your property, you can only pledge up to 50%. The key word is up to. So assume you have $100k in your OA + SA and you pledge your property, by right you can withdraw some money (100k-77.5k). But the article you sent me mentioned that according to the new rule, it means you can only pledge your property just nice to 155k which means there will not be any access for you to draw out. This is something I would like to know too.

      Delete
    4. To illustrate further, it means if you have 100k, you can only pledge your property for 55k which just nice meets the MS instead of the 50% at 77.5k(assuming MS is 155k). I've yet to find evidence for this point.

      Delete
    5. I intend to email to cpf providing them an example similar to the one I illustrated above. Will ask them for he references to the relevant sections in their website.

      Delete
    6. Hi NV,

      Thanks. Once you find out, you can put up a comment here for others to know as well. Appreciate your effort :)

      Delete
  9. Hi SGYoungInvestment,

    Perhaps you can take some time to read the attach. Let me know the article isn't talking right? I am worried....

    http://sgforums.com/forums/10/topics/401669


    Thank you!!

    ReplyDelete
    Replies
    1. Hi NV,

      I did see this article while doing my research. However, I'm not able to find evidence with regards to what it said on the property pledge. The reaching 55 booklet doesn't clearly states how much you can withdraw when you reach 55 if you pledge your property. Let me read on further and I'll reply back here if I find something to substantiate it.

      Delete
  10. When come to managing our money, nobody can be "rational" all the time. Not even WB. If not he wouldn't have lost over >$800 million recently.
    The problem is almost all of us think we are rational until sxxx hits the fan(aka a market that crashes 40 to 50 then see how rational you can be with your money?)

    ReplyDelete
    Replies
    1. Hi temperament,

      Agreed. Humans are emotional creatures. Without emotions, we'll not be humans. Become robots already.

      Delete
  11. Almost all of us will be sure that we are rational with our money until Shit Hit The Fan. Have you seen your money got trapped in a "Black Swan" event stock market? Can you survive that?
    Anyway, nobody can be rational about his money all the time.
    No! Not even WB. Who recently lost > $850 millions of his money. imo.

    ReplyDelete
  12. A good article, thanks. I think one point we need to understand is IF there isn't such a scheme, what would happen when people get old and couldn't even support the bare minimum. The burden will be on those younger and working people who are paying tax, and more resources will be spend on supporting these old people and less on improving our overall living standard. Of course, some can manage their money well if there isn't such a scheme, but asking the rest to support those who couldn't manage well isn't always acceptable to everyone.

    ReplyDelete
    Replies
    1. Hi,

      You brought up a good point there. If people get old and can't support themselves then there will indeed be social problems. Look at Europe where the older generation enjoyed the welfare and free money which ended up now the younger generation having to pay the price for it. In Spain alone, the youth unemployment is more than 50%. Can't imagine more than half of the population's youth can't even find a job. How can they survive?

      Delete
  13. Hi SG Young Investment,

    I have emailed to CPF regarding 3 scenarios and requested them to let me know the cash that can be withdrawn from CPF for a CPF member that has reached 55years old. Will share the scenarios and the reply from CPF once i get them.

    Searching further, I believe i have got my answers that may serve to reconfirm my initial doubts and probably answers my scenario too. Please see following links :

    1) http://mycpf.cpf.gov.sg/Members/Gen-Info/FAQ/CPFWithdrawalsat55.htm

    refer to the Q&A under "Q: How much can I withdraw from my CPF Account when I reach 55?". You will notice it only mentions cash balances in OA, SA, RA and MA as being relevant to the calculation in the amount of cash that can be withdrawn. I think we are clear on the definition of "cash balances". You will notice property pledge is not mentioned.

    2) Under the same Q&A, if you click on the hyperlink embedded in the sentence "Examples on the computation of CPF withdrawal.", a few examples are illustrated and you will see that the property pledge does not appear to be relevant in example 2 and 3 where the CPF member have strong OA+SA balance at age 55 ($250k in the examples provided by CPF)

    http://mycpf.cpf.gov.sg/NR/rdonlyres/BC357BE1-4131-4959-AD6E-D2F9F811F9C9/0/RSD_AnnexB.pdf


    The scenarios i sent to CPF are a little different from those provided by CPF - eg. CPF withdrawn for housing is $100k (purposely to set at such level above $77.5k, 50% of CPF MS). Also, to make it simpler, I assumed Medisave MS is fulfilled across the 3 scenarios. The 3 scenarios only differ in the balances in OA+SA+RA (60k, 100k and 200k).

    ReplyDelete
    Replies
    1. Hi NV,

      Really good research you got there. Kudos to you. CPF website does not provide enough examples. That's where the confusion is.

      In the first example they mentioned property pledge I guess is because property will be automatically pledged when your OA and SA does not meet the MS requirement. If you meet the requirement, then you have a choice to pledge or not to pledge. You can pledge up to half of the MS and this info is still valid last year. I do not have any info whether the rule has been changed or not.

      For those who did not meet the MS, property will definitely be automatically pledged according to the CPF website. Whether it will be pledged to 50% or only to the gap of MS is still unsure. That is what I want to know. Looking forward to the reply from CPF on your queries. This will help answer some doubts on it. I'll try to do up another blog post to notify readers on the property pledge rules once you've got the reply.

      Delete
  14. For those who did not meet the MS, property will definitely be automatically be pledged for UP to 50% of your cohort min sum. E.G 1/2(155000)=77500. Amt pledge will depend on how much CPF you utilised. E.g only used 50K then will only be pledged for 50K.

    60K in RA then Property will be AUTO pledged

    100K in RA. Set aside 1/2(155000)=77500. Remainder will be used for housing 22500 or can pledge your property to release up to 22500 as lump sum. Assume used 100K for property then can release out 22500 but this is considered as voluntary pledged. In event sell property, need to refund P+I & the Voluntary pledge amount of 77500 which will then be used to top up Retirement Account to Cohort Min Sum(155000) and Medisave to Prevailing Medisave Min Sum(At point of Sale) before any excess paid into bank account after 5 working days. Co-owner must consent to the creation of statutory charge on the property. If private need to engage lawyer, if HDB just go CPF to get the Pledging Form

    E.G 200K in OA+SA
    Set aside 155K so can withdraw 45K.
    If cannot fulfill Medisave min sum, need to top up Medisave to current medisave min sum before can withdraw out any excess.

    RA is only created at 55 years old.
    So pledging can only take place after your birthday.
    if property used 100K then yes, can pledge to release up to 77500 from your RA.

    Good Article and interesting discussion

    ReplyDelete
    Replies
    1. Hi Funerei86,

      Thanks for your inputs. I also thought that if 100k in RA then can pledge property and release 22500 as lump sum but seems like there is some confusion out there saying if you do not meet your MS then you can't release any lump sum even though you pledge your property. Are you able to confirm if this is the case?

      Anyway, a reader NV has emailed CPF to ask about this issue. We shall wait for CPF to reply formally to confirm this fact.

      Delete
  15. Hi SGYI,
    Just to check, if one has $50K each in his OA & SA ($100K in total) and pledges his property at $77,500 (50% of $155,000), upon 55, will CPF transfer the full $100K into RA or CPF will only transfer $77,500 ($50K from SA & $27,500 from OA) and leave $22,500 in his OA, so that he can continue to service his housing loan using OA?

    ReplyDelete
    Replies
    1. Hi,

      From what I know, the full amount of your SA will be transferred to the RA. The leftovers will always be in the OA.

      Delete
    2. After 55, you will have OA, SA, RA, and MA

      RA = Minisum sum
      SA = (SA - Minimum sum) or Zero

      Don't worry. When you about to reach 55, you will receive a letter from CPF inviting you for a seminar

      Delete
    3. Thanks SGYI & CW,
      My concern is that many have upgraded their houses (therefore their loans) during 40-50 years old without understanding the implication the CPF MMS have on their outstanding loans. My own brother was caught few years ago and now is servicing his $2000 plus monthly instalment via cash.

      Delete
    4. My wife has not touched her OA, SA, RA, MA from 55 until now 60+. She still has her CPFIS account. And is operational anytime.
      i was foolish then to close my CPFIS, SA,. Just imagine how much guaranteed interest i have lost. Not to mention OA too.

      So don't closed your CPFIS & SA if you can live with it. Now SA is very good at 4 to 5 % interest and is guaranteed.
      Where to find?

      But most probably you still need to cash out some CPF's money. but don't closed your CPFIS & SA. if you can.

      Me, foolish oldman afraid of the G taking my money ma!

      Delete
    5. Hi,

      That's why its always better to not have too much outstanding loans in your 50s. There's a limit how much cpf you can use for housing loans at different stages. Its important to check it out before upgrading and extending loans.

      Delete
    6. It is challenging to pay housing loans past 55 as older folks are prime target for staff cost cutting

      Delete
  16. I would like to share with you and your readers about my view on CPF LIFE.

    I reached 55 in May 2013 and I have set aside the minimum sum of $139K in my RA. If given a choice, I would not have opted for any of the two CPF LIFE plans that give lifelong income because I do not find the plans attractive. I will explain later on.

    I would prefer the old minimum sum scheme be tweaked, keeping my full minimum sum in the RA to earn interest; then pay monthly income from age 65 to 85 or even 90 than to use the money to buy annuities in the CPF LIFE plans. This scheme is also neater in that whatever sum that is left in my RA will be my bequest when I go. I believe those capable of setting aside this minimum sum will have many other means to support themselves if they live beyond 85 or 90.

    Why the CPF LIFE plans are not attractive?

    Between the two plans, I opted for the Basic that will provide a higher bequest to my love ones should I go early. This plan will give me about $1,000 monthly income starting from age 65 for as long as I live. The Standard plan will give me about $100 more each month but with substantially less bequest.

    The Basic plan deducted about 10% from my RA (about $13K) at age of 55 and will deduct another 10% (about $19K, working at 4% interest for RA) at age of 65 to purchase annuities that will provide me the lifelong monthly income. These sums deducted will go to a common annuity pool and will not earn interest for my RA.

    As I understand, when I reach 65, CPF will start pay my monthly income from my RA until it is depleted when I reach 90 years old. The annuities that were purchased at age 55 and 65 will then kick in to provide my monthly income for as long as I live. So this lifelong income only comes in if I can reach age 90.

    Assuming an annual interest rate of 4%, with $13K over 35 years plus $19K over 25 years, these sums will have grown to slightly more than a $100K. With $100K, the annuity pool can easily provide me a monthly income of $1,000 till I reach 100 years old without making any losses. So I really do not benefit from the plan if I do not live beyond 100 and I truly do not wish to benefit from the plan either.

    I am very doubtful that I can live till age 90 and then beyond to enjoy the annuity payouts. So what happen if I go at age 90? If the sums that were used to purchase the annuities were kept in my RA, I would have $100K extra to bequest to my love ones if I go at 90. I don’t know how much bequest my love ones will get if I go at 90 but the CPF LIFE calculator indicates the bequest amount is about $68K if I go at age 85 and nothing at 95. That is why I don’t find the plans a bit attractive at all.

    I hope the minimum sum scheme can be reintroduced with the tweaks suggested above and allow those who have opted for the CPF LIFE plans earlier a chance to switch to this scheme.

    Larry Lai

    ReplyDelete
    Replies
    1. Hi Larry,

      Thanks for sharing. You have brought up valid points regarding cpf life scheme.

      To me, CPF life does not benefit everyone. It only benefits those who live longer. From what I heard from a financial expert, the CPF life was designed so that Singaporeans can help one another without the government stepping in. The annuity pool benefits some while not others. I'm sure our govt has calculated everything in their favour to make this a fool proof plan to support the ageing population. Those who die younger help to support those who live longer. Making the CPF life scheme compulsory makes it easier to calculate for the govt. They are just good at statistics.

      There may be other reasons to it which we're not told off. But I shall not speculate here any further.

      Delete
    2. Hi Larry (sorry to hijack SG young investment's post),

      It appears you may have met the CPF MS and Medisave MS fully in cash. Back in 2013, did you explore as an option to pledge your property to withdraw an additional amount up to 50% of the MS?

      Withdrawal from CPF = Cash balances in OA+SA+MS in excess of prevailing CPF MS and Medisave MS + up to 50% of the CPF MS with a property pledge?

      Of course, with a reduced cash balance in RA, there will be less available to withdraw under CPF Life.

      Regards
      NV

      Delete
    3. Hi NV,

      Yes I am fortunate to have sufficient amount in SA and MS to meet the Minimum Sum and MMS.

      I don't think you can pledge your property if you have enough cash in your SA + OA to meet the MS. Anyway, I did not have the intention to withdraw from my OA for any purpose and just left the money in there to earn the 2.5% interest. So did not look into the option to pledge my property except to scrutinise the two CPF LIFE plans.

      Like what SGYI said, it only benefits those who live longer but I guess most do not know that they have to live long than 100 years old to truly benefit from the plans.

      Larry Lai

      Delete
    4. Larry, Thank you for sharing your experience with CPF Life. I am now more convinced that I should go along with the Minimum Sum Scheme. Like you, I was the last batch to choose between MS Scheme or CPF Life plans. I too have met my Min Sum of $139,000 + Medisave requirement. In addition to your advice to those born in Year 1957 to stick to Min Sum Scheme, I would like to add that if you can afford to defer your drawdown at age 65, every year of accumulated interest in your RA can provide you with a decent monthly income even beyond age 85.

      WS

      Delete
  17. Hi SG Young Investment,

    Received a reply from CPF today.

    Don't mean to sound preachy and windy here. But before going into the details of the reply from CPF, I would suggest readers get themselves updated from time to time as the rules may change and they will not want to be caught off guard at the worst time. If possible, look upon your CPF savings as an additional reserve to draw upon when you retire. Work hard, save, spend below means and get a second income. Understandably, it should be tougher for lower wage workers who will have proportionately more of their savings locked up in CPF and housing.

    From the reply from CPF, and as SG young investment has rightly pointed out in his article, you can apply to pledge your property bought with CPF funds in lieu of the CPF MS (with a limitl) and then apply to withdrawal for the pledged amount. Making this withdrawal will immediately reduce your RA balance and you will have less do draw on for CPF Life. Do think carefully if you really need to take out this amount of cash or leave it in RA to earn the 4% or 5% pa.

    Below are the three case examples from CPF's email to me (in brackets are my personal notes). I have also just requested the CPF officer to let me know where I can find the relevant rules on CPF's website and also the CPF Act. If you are interested, it is probably in section 15 of the CPF Act which I have no time to look in detail.

    In all the cases, assumed Medisave MS is met and the prevailing CPF MS is $155k. Also assumed that the amount available as property pledge is $100k, so way above 50% of the MS.


    Case 1

    Before 55,
    OA+SA = $100,000
     
    At 55,
    OA+SA = $5,000
    RA = $95,000
     
    Mr A can withdraw $5,000 from his Ordinary Account. Separately, he may also pledge his property to withdraw another $17,500 from his RA. (Property pledge $155k/2 or $77.5k minus MS shortfall topup $60k = $17.5k)
     



    Case 2
     
    Before 55,
    OA+SA = $200,000
     
    At 55,
    OA+SA = $45,000
    RA = $155,000
     
    Mr B can withdraw $45,000 from his Ordinary/Special Account. Separately, he may also pledge his property to withdraw another $77,500 from his RA. (no MS shortfall, so can apply for property pledge and withdraw up to $77.5k)


     
    Case 3
     
    Before 55,
    OA+SA = $60,000
     
    At 55,
    OA+SA = $5,000
    RA = $55,000
     
    Mr C can withdraw $5,000 from his Ordinary Account only. (Maximum auto property pledge of $77.5k + RA balance $55k = $132.5k. A MS Shortfall of $22.5k. But can withdraw max $5k under current rules)

    ReplyDelete
    Replies
    1. Hi NV,

      You have good financial management concepts. Work hard, save, spend below your means is what I propose in my articles too. Its better to live a simple life and be happy. If you want, I'd welcome you to guest post on my blog. Just email me and we can share more :)

      The reply from CPF is clear now. It goes to show we can't believe every article that is written out there. The whole CPF saga has generated much confusion. Some ask for higher interest rates but they may not know the implications of higher interest rates. Also, we can have the freedom to transfer money from our OA to SA earlier so we can enjoy the 4% interest instead of just 2.5%. The 1.5% interest will make a big difference over the years. Isn't this getting higher interest by using the system in our favour?

      I will put up your comments here as another blog post to let readers know more about the property pledge. I hope you're ok with it? Thank you once again for your contributions. I'm glad we had an interesting and meaningful discussion here. :)

      Delete
    2. Hi NV,

      No problem. Do feel free to quote my comments.

      This option to withdraw cash with a property pledge in lieu of CPF MS appears not to be mentioned in detail on the CPF website (only a passing mention in a little FAQ as indicated in your reply on May 19, 2014 at 4:07 PM). Probably CPF is deliberately vague so that they can inform certain real needy members that such a rule exists. Most people like to feel to be in charge of their money but i not sure if their real actions will also be prudent .

      By the way regarding the amount of property pledge, it seems to me the computation is different from that mentioned in your blog. To be frank, I hv not looked at it in detail but the following is copy paste from CPF website:

      Q: Can I pledge my property upon reaching 55? If so, how does CPF Board compute the amount I can pledge?
      A:
      If you turn 55 between 1 July 2013 and 30 June 2014, you can pledge your property for up to half of the Minimum Sum (MS). However, you must obtain consent from all co-owners of the property before you can pledge your property in lieu of your MS. The amount that you can pledge for your property depends on:
      • HDB’s quarterly average median resale prices for HDB flats or valuation price for private properties;
      • Outstanding housing loan amount (including non-housing loan for private properties);
      • Co-owner's CPF usage (for joint-ownership cases) and;
      • Your share of the property.

      http://mycpf.cpf.gov.sg/CPF/Templates/SubPage_Template.aspx?NRMODE=Published&NRORIGINALURL=%2fMembers%2fGen-Info%2fFAQ%2fMinimumSum%2ehtm&NRNODEGUID=%7b478CB45C-3BBD-4E0C-8C90-76EA8E8B78BB%7d&NRCACHEHINT=Guest#MssPropertyPledge


      Actully, I have made transfers from OA to SA when i was in my 30s such that now my SA hv exceeded the CPF MS. The compounding effect is amazing. But to be honest, it was not an easy decision to make the transfers then as i had to balance between retirement needs and also making sure i still hv enough OA to pay for my HDB flat. How to see so far? Well,I did up a 5 year detailed monthly projection and a 20 year annual projection of inflows and outflows with conservative estimates. Looking back now, it looks worthwhile then spending days doing it up and updating it from time to time.

      By the way, the below from CPF website is something new to me. Be prepared for future changes in the drawdown age!!

      Q: When will the drawdown age (DDA) be increased to 67?
      A:
      We will first take steps to raise the DDA up to 65 as announced, and decide on the next steps in the next review.

      Q: Why must the drawdown age (DDA) be linked to the re-employment age?
      A:
      With increasing longevity, the DDA has to be increased in order to help members’ CPF savings last longer. To help members better cope with the increased DDA, we need to help them work longer. Therefore raising the DDA is linked with the re-employment age.

      Delete
    3. Hi NV,

      I've posted your comments as a blog post just only. Hope you liked it.

      I only know 2 basic rules of the property pledge. One, you can pledge up to 50% of the MS. Two, you can only pledge up to the amount of CPF you used for paying the house. There are other rules which you have mentioned but i did not include it in my post. There are a few examples on CPF website whic will give a clearer view on the rules involved.

      I should consider to make transfers to my SA too. That's if i don't need my OA to pay for housing loan. Shall see if i do buy a property in the future.

      On the DDA, i feel it doesn't make sense to keep increasing it. Those who get $5000 only at age 55 and they have to wait till 65 to receive money will suffer. Most likely they will have not enough money and will have to continue to work. Anyway, this is part of the govt's plan to increase labour force participation rate to cater for the needs of a tight labour market in Singapore.

      Delete
  18. Hi, thank you for the explanation. I was confused about the minimum sum and your article lightens me up!

    ReplyDelete
    Replies
    1. Hi Lee Witz,

      You're welcomed. I'm glad it did. I was confused about it initially too so i went to researched on it. Just sharing my findings here to help other people understand too.

      Delete
  19. Hi

    Thank you for your very helpful post.

    I would like to ask if you have any idea how the CPF LIFE calculator works? How does CPF get the estimated $1200 from $155,000?

    It seems like the MS/CPF LIFE system penalises men (who live shorter lives) and less healthy people (who have the double burden of higher medical bills and supporting the healthy folk).

    ReplyDelete
    Replies
    1. Hi,

      I have no idea how the CPF life calculator works. You're right on how the system works. Now with everyone automatically put into the CPF life, its even more obvious that its for those who die younger to support those who live longer.

      Delete
  20. Thanks for the simplified explanation! Appreciate it loads :D

    ReplyDelete
  21. Why is there a need for CPF basic of CPF standard pays til you died.
    Is the definition of "pay til died" meant to be til 85 year old.

    ReplyDelete
    Replies
    1. Hi,

      CPF basic and CPF standard both provide members with monthly payouts till death. The difference is CPF standard provides higher payouts but lower bequest while CPF basic provides lower payouts but higher bequest. You can use the CPF life calculator to get the estimated amount and compare between the 2 plans. Pay till death literally means for the rest of your life. If you die at 100 years old, then CPF life will pay you till 100 years old.

      Delete
  22. This is better than cpf website!

    ReplyDelete
  23. Great, and thank you for the explanation.

    ReplyDelete
  24. hi will all my RA monies be transferred to CPF life scheme once i hit the 155k in OA and SA combined? for the cpf life scheme, meaning if i have 100k in my RA, they will carry on paying for as long as i live, even if that total amount exceeds 100k? is the amount same for everyone?

    ReplyDelete
    Replies
    1. Hi,

      The RA monies will be transferred to CPF life at age 55 and your DDA(assuming age 65). If you're on the standard plan, half will be transferred automatically at age 55 and the other half will be transferred at age 65 as long as you have at least $40,000 in your OA and SA combined.

      Yes, CPF life will continue to pay you for as long as you live even if total amount exceeds what you have. Its the same for everyone.

      Delete
    2. whats the difference between the standard plan and CPF life? you mentioned "RA monies will be transferred to CPF life at age 55 and your DDA". Correct me if i'm wrong, i thought the draw down age is the age where you will start receiving monthly payments from the CPF life scheme which is transferred from your RA. Meaning if by death i have drawn out 100k but my cpf life scheme has 200k, the leftover 100k will be given to my beneficiaries?

      Delete
    3. hi and also you mentioned the payment for cpf life is the same, so it does not matter how much money i have in my RA which will be eventually transferred to cpf life scheme? to give an illustration, john has 100k in his cpf life scheme and i have 200k. however, we both receive the same payouts till death. the only difference is that the leftover amount inside this scheme together with the additional interest will be given to my kin?

      Delete
    4. Hi,

      CPF life has 2 plans. One is the standard plan and the other is the basic plan.CPF basic and CPF standard both provide members with monthly payouts till death. The difference is CPF standard provides higher payouts but lower bequest while CPF basic provides lower payouts but higher bequest. You can use the CPF life calculator to get the estimated amount and compare between the 2 plans.

      Yes the DDA is the age where you will be receiving your payouts but the cpf life works where it will deduct from your RA in 2 installments as mentioned.

      CPF will refund all your unused annuity premiums in your cpf life and any leftover savings in your RA to your beneficiaries. You can use the cpf life payout estimator to estimate the amount that your beneficiaries will get. https://www.cpf.gov.sg/cpf_trans/ssl/financial_model/lifecal/Life_Estimator.asp

      Delete
    5. Hi,

      The amount that is transferred to your RA will be the max of the minimum sum which is $155,000 from july this year. If you have more than the MS in your OA and SA, still only $155,000 will be transferred to your RA. Those who have the full MS will get the same pay out. However if you have lesser than the MS, then your payout will be different. Sorry for the confusion.

      Delete
  25. besides keeping in CPF, what are some other ways to invest the money?

    ReplyDelete
    Replies
    1. Hi,

      The cpf interest rates are risk free. Currently we won't be able to find other products which offers such risk free returns. Of course we can invest in stocks or index funds but they all carry a risk with it. You can refer to the right side bar of my blog to read more on investing.

      Delete
  26. Really straightforward explanation, thank you!

    ReplyDelete
  27. A well written and rational summary of cpf which all should read especially all those demanding for release of their cpf at age 55 years

    ReplyDelete
  28. SGYI,
    Are you by chance a financial planner? Just curious. Thanks

    ReplyDelete
    Replies
    1. Hi,

      Nope i'm not a financial planner and do not have any links with any financial institutions.

      Delete
  29. Hi thanks for this! I'm wondering if you can share if there any cons to pledging your flat? My dad wants to pledge our flat which he has paid for in full last year so that he can withdraw a lump sum; but I have my worries.

    Much thanks!

    ReplyDelete
    Replies
    1. Hi Fingularity,

      If we pledge our flat, we'll be able to withdraw up to half of the minimum sum. The con is if we withdraw a lump sum now, then the payout we get at age 65 will be lower as well. The pledging of flat is actually quite confusing thus the govt has actually renamed it to basic retirement sum. It does not mean that if we pledge our flat, then the flat is no longer ours. It has nothing to do with the flat at all. But do take note no matter what, when we sell our flat, the amount of CPF used to pay for the flat plus interest will have to be returned back to the CPF accounts.

      Delete
    2. Thanks for putting my worries to rest, SGYI! You've been much more helpful compared to the CPF website :)

      Re: But do take note no matter what, when we sell our flat, the amount of CPF used to pay for the flat plus interest will have to be returned back to the CPF accounts.

      Does this apply if the flat has already been paid for in full prior to signing up for this basic retirement fund scheme?

      Delete
    3. Yes it does apply even if its paid in full at any time. The money will go back into the CPF account. Whether your dad can take it out after age 55 that i'm not so sure. But if he meets the full retirement sum before selling the house, then it can definitely be taken out after age 55.

      Delete
  30. Hi SGYI,

    Many thanks for your well-written article and all these valuable comments.

    Just want to share with everyone that I have used my SA (before 55 years old) to help me in my monthly mortgage, once I exhausted all my fund in my OA. The use of the SA is subject to a cap though,

    ReplyDelete
    Replies
    1. Hi,

      Thank you for your kind words.

      Thanks for sharing your experience of using SA for your monthly mortgage. I didn't know that we could do that.

      Delete
  31. Just want to be convinced after visiting CPF Board that if sell property what comes back is regardless of withdrawal fr special acct or interest earned, just fulfill min medisave n RA acct.

    ReplyDelete
    Replies
    1. Hi Elizabeth,

      I believe if you're above 55 and have already met the retirement sum required, the rest of the money you'll be able to take out even when you sell your property.

      Delete
  32. At the end of the day, do not depend totally on your CPF to feed you lar. Just take CPF as like a monthly bonus which you earn after donkey years of savings from your blood, sweat and tears. The best is not to over spend while working now. Control your spending when you are near the age of retirement. If you think about it, is it worth spending money for some gadgets or expensive holidays? It's not the end of the world if you did not buy it or go for that holiday.

    I have already started my own personal savings (on top of what I am throwing in to my CPF account) and I know how much I need to have when I retire.

    Just really need to spend wisely but don't over do it by not spending any as you will fell miserable. Do not depend on your children thinking they will take care of you as they their own selves have their own pressure too. Lessen their burden by taking care of yourself. Stay exceptionally healthy as if you don't, the hospital bills will kill you faster than a bolt of lightning.

    ReplyDelete
    Replies
    1. Hi Danny,

      Yes totally agree with you. CPF is actually not really enough for retirement. It's a safety net which we can fall for and like the phrase which CPF use which is basic retirement sum, it is actually just the basics.

      I always believe life is all about a balance. Save and spend sparingly. Also, ultimately, its all about pursuing the happiness of life and be grateful for the things which we have.

      Delete
  33. Hi sgyi

    I don't quite get the unpaid premiums. Can you quote example ? I cannot see the premium that I need to pay for cpf life. Thanks

    ReplyDelete
    Replies
    1. Hi Kiki,

      CPF life is actually an annuity insurance plan where premiums are paid on behalf of us. This is why they can cover us for life.

      Delete
  34. Hi sgyi

    Then what does it mean by the premium will not be returned if I passed away before then ?

    ReplyDelete
    Replies
    1. Hi kiki,

      The premiums will be returned to your beneficiaries as follow:

      "If you die after receiving your monthly payouts say age 75, then the total amount in your RA + interest + unused annuity premiums paid - annuity payouts, will be paid to your beneficiary."

      Delete