23 Aug 2024
SOURCE: CPF Board
Ensuring you have steady payouts for life is important not only for your retirement years, but also helps give you piece of mind in the present. CPF LIFE is one such annuity scheme that provides you with just that – read on to be more informed about the mechanics behind this!
What is an annuity scheme?
An annuity scheme is a contract between you and an insurance company, where the insurer is required to make steady payments to you in the future over a period of time. Annuities can be paid out to you in a lump sum or over a period of time, but in the case of CPF LIFE, it is the latter. Which brings us to the next question:
What is CPF LIFE?
CPF Lifelong Income For the Elderly (CPF LIFE) is a national longevity insurance annuity scheme that provides you with monthly payouts no matter how long you live. It can do so with three different plans, each offering varying levels of payouts to suit your needs. These plans are:
- Escalating Plan
The Escalating Plan offers monthly payouts that start lower initially but grow by 2% a year for life, which can help deal with inflation while not having to adjust your spending habits too much.
- Standard Plan
The Standard Plan offers steady monthly payouts, but as they do not increase over time, it does not protect you from inflation, which means you should be prepared to adjust your spending over time.
- Basic Plan
Payouts under the Basic Plan fall when your CPF balances fall below $60,000. If you are able to lower your spending over time, then this payout works best for you.
What are CPF LIFE premiums?
Similar to paying a premium for an insurance policy, the CPF LIFE premium is the amount you pay for the CPF LIFE policy in exchange for regular monthly payouts for as long as you live. The amount of CPF LIFE premium varies depending on the CPF LIFE plan you choose.
If you join the CPF LIFE Escalating or Standard Plan, the savings in your Retirement Account (RA) will be deducted as the annuity premium when you start your payouts. You will then receive the monthly payouts from your payout start age for as long as you live.
Your monthly payouts will first be paid from your CPF LIFE premiums. When your CPF LIFE premium is depleted, you will continue to receive the monthly payouts from the pooled interest that has been accumulated, no matter how long you live.
If you join the CPF LIFE Basic Plan, about 10 to 20% of your savings in your RA will be deducted as the annuity premium when you start your payouts. Subsequently, you will receive monthly payouts from the remaining 80% to 90% of your savings in the RA from your chosen payout start age until one month before you reach 90 years old. After reaching 90 years old, you will receive the monthly payout from your CPF LIFE premiums. As less is used for your CPF LIFE premium, the monthly payout will be lower compared to the Standard Plan. Similar to Escalating and Standard Plan, once the CPF LIFE premium is depleted, you will continue to receive monthly payouts from the accumulated pooled interest, regardless of your lifespan.
What CPF LIFE can do for you
CPF LIFE is an annuity designed to provide lifelong monthly income for your retirement needs, offering peace of mind during retirement. This can help to defray recurring costs like healthcare insurance premiums, as well as utility and grocery bills, and support you in leading the lifestyle you envision.
If you wish to learn more, the CPF LIFE page has some helpful information to assist you in understanding what CPF LIFE is about.
Planning your payouts in retirement
Now that you know how CPF LIFE works, the first step is to think about the kind of retirement lifestyle you would like to lead, and how much you’d need to sustain this. Try out the CPF planner – retirement income which can help you visualise how much income you need in retirement, project your future CPF payouts, and explore options to close any gaps in your path towards your goals.
The information provided in this article is accurate as of the date of publication.
