Year 2021 .
CPF LIFE Standard, Basic Or Escalating Plan.
Which CPF LIFE Plans Should You Choose?
It’s all about your life expectancy.
Most developed countries in the world have their own version of a pension scheme. This is to ensure that retirees continue to receive a basic level of income support in their old age when they are no longer working.
While some countries have welfare schemes to provide for this income, Singapore 🇸🇬 uses the CPF Lifelong Income For The Elderly (CPF LIFE).
●CPF LIFE is an annuity plan that provides Singapore Citizens and Permanent Residents (PRs) with a monthly payout from age 65 onwards,
for as long as they live.
Payouts from CPF LIFE are based on how much individuals have in their Retirement Account (RA). The more you have in your RA, the higher you can expect your monthly payout to be.
That said, how much you receive from CPF LIFE is also based on some other factors.
●To increase CPF LIFE monthly payout, CPF members can choose to defer the start of their payout. For each year that they defer after reaching 65, they can increase their monthly payout by about 7%. For example, a monthly payout of $750 to $800 at age 65 will increase to $990 to $1,070 by age 70.
●The other factor that determines how much you receive each month is the CPF LIFE plans that you select. Today, there are three CPF LIFE plans that members can choose from. They are the Standard Plan, Basic Plan & Escalating Plan.
What’s The Difference Between The CPF LIFE Standard Plan & Basic Plan?
A simple way of understanding the three CPF LIFE plans is to look at how CPF illustrates the differences. The infographics below is extracted from the CPF website.
●The CPF LIFE Standard Plan, which is the default plan, provides a higher level of monthly payouts while leaving a lower bequest.
●The CPF Life Basic Plan gives a lower monthly payout but leaves a higher bequest. Do note that the payout under the Basic Plan will get progressively lower when your combined CPF balances eventually fall below $60,000. This is because the extra interest is earned on the first $60,000 of your combined CPF balances are credited to the Retirement Account (RA) and paid as part of your monthly payouts. As balances fall due to payouts, the extra interest earned and subsequent payouts will also decline as well.
●The CPF LIFE Escalating Plan provides payouts that increase by 2% each year so that CPF members can generally maintain their standard of living even as prices rise over the years. Under the Escalating Plan, a monthly payout that starts at $1,000 when a CPF member is 65 would reach approximately $1,500 by the time the person is 85.
Read Also: CPF LIFE Escalating Plan: What You Need To Understand About The Latest CPF LIFE Plan Before Opting For It
One way to choose between the three CPF LIFE plans is to ask yourself whether you ,
1) prefer to have a higher monthly payout,
2) whether you prefer taking less each month, in order to leave a larger legacy for your loved ones or
3) rather accept a lower starting payout with an increment of 2% in payout each year to maintain your purchasing power in the presence of inflation.
However, this method of choosing between the three CPF LIFE plans can be a little simplistic, at least in our opinion. We believe Singaporeans can make a more informed decision if they analyse and understand the three plans better.
The Benefit Illustration
Think of the three CPF LIFE plans as separate annuity products that you are considering.
For the calculation below, we assume that an individual has set aside the Full Retirement Sum of $186,000 (as of 2021) in their Retirement Account at age 55, and starts their CPF LIFE withdrawal at age 65.
CPF LIFE Standard Plan
At age 55, you set aside the Full Retirement Sum of $186,000 (as of 2021) in your Retirement Account. From age 65 onwards, you will receive $1,478 to $1,635 each month. If you pass on at 75, your bequest will be $94,945 to $98,724. If you pass on at 81 or later, there will be no bequest.
Age Member Passes On
Total Monthly Payout Received Bequest Received Total Amount Received
75
$178,838 – $197,835 $92,945 – $98,724
$271,783 – $296,559
85
$356,198 – $394,035 $0
$356,198 – $394,035
95 $533,558 – $590,235 $0
$533,558 – $590,235
The simple logic here is that the longer you live, the more you gain financially from CPF LIFE. This makes sense since there is a commitment to pay CPF members a monthly payout as long as they live.
CPF LIFE Basic Plan
At age 55, you set aside the Full Retirement Sum of $186,000 (as of 2021) in your Retirement Account. From age 65 onwards, you will receive $1,345 to $1,491 each month. If you pass on at 75, your bequest will be $201,311 to $213,184. If you pass on at 92 or later, there will be no bequest.
Age Member Passes On
Total Monthly Payout Received Bequest Received
Total Amount Received
75
$162,745 – $180,411 $201,311 – $213,184 $364,056 – $393,595
85
$324,145 – $359,331 $95,685 – $100,815
$419,830 – $460,126
95 $484,534 – $537,282 $0
$484,534 – $537,282
Once again, the longer you live, the better off you will be.
If you compare strictly using the total payout amount received and do not take into consideration the time value of money (i.e. a dollar today is worth more than a dollar tomorrow), the Basic Plan provides a higher total payout as compared to the Standard Plan for someone who passes on at age 75 and 85 because of the much higher bequest received.
However, if you are fortunate to live till 95 or later, the Standard Plan becomes superior compared to the Basic Plan since you enjoy a higher payout monthly amount each month, while there is no bequest left for either CPF LIFE plan at that age.
CPF LIFE Escalating Plan
At age 55, you set aside the Full Retirement Sum of $186,000 (as of 2021) in your Retirement Account. From age 65 onwards, you will receive $1,162 to $1,297 each month. This makes the starting payout lower compared to both the Standard Plan and the Basic Plan. If you pass on at 75, your bequest will be $118,697 – $123,406. If you pass on at 82 or later, there will be no bequest.
Age Member Passes On
Total Monthly Payout Received Bequest Received Total Amount Received
75
$154,141 – $172,042 $118,697 – $123,406 $272,838 – $295,448
85 $340,656 – $380,192 $0
$340,656 – $380,192
95 $568,038 – $633,958 $0
$568,038 – $633,958
Assuming you live till age 95 and beyond, the CPF LIFE Escalating Plan gives you the highest payout because the annual 2% increment in payout becomes valuable. However, assuming an individual passes on at age 75, the total amount received is lower compared to the other two plans because while their monthly payout is still lower at that age, the bequest they receive is not as high as compared to the CPF Basic Plan.
Read Also: Why The New CPF Lifetime Retirement Investment Scheme Could Be A Retirement Gamechanger
Life Expectancy Matters On Which CPF LIFE Plans Is Ideal For Us
Given that our tables above show that individuals who live a longer life (i.e. 95 and above) should opt for the Standard plan while those who are not as confident of living till their 90s should opt for the Basic plan, the question now turns to which plan should Singaporeans choose from.
The life expectancy rate in Singapore is 82.6. However, that’s a life expectancy rate at birth, which while useful, isn’t the most accurate to be based on for our situation.
CPF members who are choosing their CPF LIFE plan will be 65 years old. At that age, the average life expectancy for adults is 20.8 years. This also means about 1 in 2 adults who reach age 65 will also reach age 85. You can check this out on the Singstat website.
Our Analysis On Which CPF LIFE Plans To Choose From
Since about 50% of CPF members who are 65 will reach age 85, the total amount received at age 85 becomes a key number for us to consider. If a member were to pass on at exactly age 85, he and his loved ones will receive more under the CPF Basic plan.
Here’s a look once again at the numbers based on meeting the Full Retirement Sum of $186,000 (as of 2021) at age 55.
Total Payout Received At Age 85
Standard Plan
$356,198 – $394,035
Basic Plan
$419,830 – $460,126
Escalating Plan
$340,656 – $380,192
Based on this approach of assuming a person passes on at age 85, the CPF Basic plan appears to be the superior plan as it pays out more in total.
Of course, we cannot say for certain that the CPF Basic plan is better.
As shown above , if a person were to know that he will live till age 95 or beyond, then the CPF Life Escalating plan or Standard plan will be better, since passing on at age 95 means having no bequest, regardless of which plan they choose from. Thus it would be a better strategy to get as much as possible each month once your CPF LIFE payout commences.
By the same token, if a person were to pass on earlier, say at age 75 or before, then the CPF LIFE Basic plan is superior.
Of course, there is no way of knowing all these things in advance. As a CPF member who is turning 65, we can consider our existing health circumstances and make the best possible choice on which CPF LIFE plans would be most ideal for us.
What are your thoughts on choosing the CPF LIFE Standard Plan or the Basic plan?
Year 2024
BasicRS,
FullRS,
EnhancedRS:
Why There Are 3 CPF Retirement Sums & Why They Increase Every Year
In 2024,
●the Basic Retirement Sum (BRS)is $102,900,
●the Full Retirement Sum (FRS) is $205,800, and the
●Enhanced Retirement Sum (ERS) is $308,700.
CPF BRS, FRS, ERS: Why There Are 3 CPF Retirement Sums & Why They Increase Every Year
In 2024, the Basic Retirement Sum (BRS)is $102,900, the Full Retirement Sum (FRS) is $205,800, and the Enhanced Retirement Sum (ERS) is $308,700.
(February 17, 2024)
For Singaporeans turning 55 years old every year, this is an exciting milestone because it marks the first time we can withdraw from our CPF in cash (not just use it for our housing repayments). The CPF Retirement Sum is an important number we need to keep track of as it determines how much we can withdraw from our CPF accounts.
For Singaporeans turning 55 years old in 2024, this is $102,900 for the Basic Retirement Sum (BRS), $205,800 for the Full Retirement Sum (FRS) and $308,700 for the Enhanced Retirement Sum (ERS).
So, why are there 3 Retirement Sums and why do they increase every year?
CPF Retirement Sum Only Kicks In At Age 55
●When members turn 55 years old, a new CPF Retirement Account (RA) is created for them.
●The monies from our Special Account (SA) and Ordinary Account (OA) will be used to fund our RA, capped at the Full Retirement Sum (FRS).
●The amount in our RA will continue to earn interest until it is put into the CPF Life Scheme when we turn 65 years old. ●Our RA savings is used to determine our CPF Life monthly payment.
To ensure that Singaporeans are saving adequately for retirement, CPF has set 3 different amounts that we should meet to be prepared for retirement: Basic Retirement Sum, Full Retirement Sum and Enhanced Retirement Sum.
Thus, the Retirement Sums are threshold targets and they do not determine our actual CPF Life payouts nor the savings in our Retirement Account.
What Is The Basic Retirement Sum (BRS)?
For most Singaporeans, the most valuable asset we own is our property (and it is also the asset that we spent most of our CPF monies on). CPF recognises this, and we can opt to pledge a property that we own and set aside only the Basic Retirement Sum (BRS) instead of the Full Retirement Sum. The BRS is half of the FRS.
Year that Members Reach Age 55
2022; 2023; 2024; 2025; 2026; 2027
Estimated Monthly Payouts Provided By Retirement Sums at Age 65*
BRS $850; $870; $900; $930; $950; $980;
FRS $1,570; $1,620; $1,670; $1,730; $1,780; $1,840
ERS $2,300; $2,370; $2,450; $3,330; $3,440; $3,550
Retirement Sums at Age 55
BRS $96,000; $99,400; $102,900; $106,500; $110,200; $114,100
FRS $192,000; $198,800; $205,800; $213,000; $220,400; $228,200
ERS $288,000; $298,200; $308,700; $426,000; $440,800; $456,400
*Assumes male member under CPF LIFE Standard Plan, starting payouts at age 65.
Those who turn 55 and meet the BRS ($102,900) in 2024 will enjoy an estimated lifelong monthly payout of $900 in their retirement.
By pledging our property, we can potentially withdraw more from our CPF accounts. We can withdraw any amount that is above the BRS that comes from our mandatory contributions. Our Retirement Sum Topping Up Scheme (RSTU) contributions are excluded and do not count towards our BRS. For examples of how this is calculated, you can read our article on how much you can withdraw at age 55.
The downside of the BRS is that being half the amount of the FRS, our eventual CPF Life monthly payouts are also almost halved (BRS: $900 vs FRS: $1,670). Assuming that we choose not to sell or downsize our property, we may have to adapt to a less comfortable retirement lifestyle.
Read Also: Here’s What You Need To Know About Pledging Your Property To Meet The CPF Full Retirement Sum (FRS)
What Is The Full Retirement Sum (FRS)?
The Full Retirement Sum (FRS) is meant to safeguard our retirement adequacy and is the maximum amount that will be transferred into our RA at age 55 and the maximum we can top up our SA before the age of 55.
Those who meet the FRS ($205,800) in 2024 will be able to enjoy an estimated lifelong monthly payout of $1,670 in their retirement.
Once we have met the FRS, we can withdraw more than the minimum $5,000 from our CPF at 55. We can withdraw any amount that is above the FRS.
For example, if we have accumulated $250,000 in our CPF (across our CPF OA and SA) at age 55 and the FRS for our cohort is $205,800, we can withdraw up to $44,200 ($250,000 – $205,800).
What Is The Enhanced Retirement Sum (ERS)?
The Enhanced Retirement (ERS) is a little different from the BRS and FRS as it represents the upper limit of what we can top up our Retirement Account (RA) and the upper limit of our CPF Life payouts. We can only top-up our RA to the ERS after we turn 55.
The ERS for 2024 is set at 3 times the BRS and the CPF Life payouts are correspondingly much larger. For those of us who have excess funds that we intend for our retirement, putting the monies into our RA to meet the ERS has its merits. Those who meet the ERS ($308,700) in 2024 will be able to enjoy an estimated lifelong monthly payout of $2,450 in their retirement.
As announced in Budget 2024, the ERS from 1 January 2025 will be raised to 4 times the BRS. This allows us to place more of our accumulated savings into our RA to receive higher CPF payouts. Those who meet the new ERS ($426,000) in 2025 will receive a higher estimated monthly payout of $3,330 instead of $2,530 based on the current ERS (3xBRS).
Read Also: How CPF LIFE Can Give You A Passive Monthly Income Worth The Median Salary – $3,000 – When You Retire In Singapore
The Retirement Sums Increase Every Year
Unlike the Basic Healthcare Sum which is announced every year, CPF has a schedule of Retirement Sums for Singaporeans turning 55 years old every year. This is to help us better plan for our retirement. For those turning 55 from 2017 to 2022, the BRS increased by about 3% every year. This is to account for long-term inflation and improvements in the standard of living. Correspondingly, the FRS is set at two times the BRS, while the ERS, presently set at three times the BRS, will be raised to four times the BRS from 2025.
55th birthday in the year of;- Basic Retirement Sum (BRS); Full Retirement Sum (FRS); Enhanced Retirement Sum (ERS)
2023- $99,400; $198,800; $298,200
2024- $102,900; $205,800; $308,700
2025- $106,500; $213,000; $426,000
2026- $110,200; $220,400; $440,800
2027- $114,100; $228,200; $456,400
The increase of about 3% was determined at the recommendation of the CPF Advisory Panel in 2016. The panel examined the historical long-term rates of several indices, including the All Items (or headline) inflation and Core Inflation. According to the report, lower-middle retiree household expenditure grew at an average of about 5% annually over the past ten years.
Announced during Budget 2022, the BRS increments will be raised for cohorts turning 55 from 2023 to 2027. This increase is about 3.5% a year, compared to the previous rate of increase of around 3%.
The increase in BRS is expected to result in higher CPF payouts for members in their retirement years. The FRS and ERS will also increase in tandem, at 2 x BRS and 3 x BRS (and eventually to 4 x BRS from 2025), respectively.
While the Retirement Sums may seem restrictive, they actually represent certain retirement milestones. With the FRS, we can expect a monthly income through CPF Life payouts to provide for an adequate (if not luxurious) retirement lifestyle. With the BRS, we may have to consider downsizing our property to fund our retirement. With the ERS, we most likely can live off our CPF Life payouts during our retirement.
Regardless, the monies in our CPF account can be any amount and we should adjust our retirement expectations accordingly if we fall short of the Retirement Sums.
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