A common question that is raised when talking about CPF LIFE is: Why should you care about monthly payouts? It comes down to risk management and knowing your own spending habits.
As mentioned previously, CPF LIFE savings are guaranteed by the Singapore Government, which means its interest rates, with a floor of 4% and up to 2% extra interest per annum, come with no risk. For comparison, making a lump sum withdrawal and letting it sit there instead of growing it with compound interest means you end up with less savings in the long run. Similarly, making large amount of withdrawals only to spend it all without planning ahead will also hurt your retirement lifestyle in the long run.
Similarly, using your savings for investments brings with it inherent risks, while CPF LIFE is a more reliable option that ensures your savings are not only safe, but can also grow at a steady pace.
Interests earned on your CPF LIFE savings are factored into your payouts, enabling you to receive higher payouts right from the start. CPF Board does not keep any of the interest earned. Instead, it is pooled and used to form the monthly payouts of the remaining CPF LIFE members. Like other annuities, this risk-pooling feature ensures that all CPF LIFE members are assured of monthly payouts for as long as they live. This does not mean that your interest earned will be used to pay for other members’ payouts while you are alive! Like all annuity schemes, only the unpaid interest upon a member’s passing will go to the surviving members, with any unused premiums refunded to the deceased member’s beneficiaries.
To help better illustrate the benefits of CPF LIFE, here’s a video on why it can benefit you more:
