CPF Life: Maximise Your Payouts

One of the toughest challenges of retirement is ensuring that you don’t run out of money for the decades where you’re not working anymore. At the same time, you want to maintain the standard of living that you’d imagined for yourself.

That’s where CPF LIFE comes in.

What’s CPF LIFE? 

CPF LIFE, short for Lifelong Income For The Elderly, is a national annuity scheme that provides a monthly payout no matter how long you live.

These monthly payouts start when you hit 65. If you choose to wait until you’re 70 before the payouts start, you’ll receive a larger monthly sum.

The payout is also dependent on how much of your CPF money you channel into CPF LIFE, which brings us to the CPF retirement sum.

What’s the CPF retirement sum?

When you turn 55, the Retirement Account, or RA, is created. Money from your CPF accounts will be transferred to your RA until you hit the Full Retirement Sum, or FRS.  Your RA will first receive money from your Special Account (SA), followed by your Ordinary Account (OA).

The FRS is adjusted upwards every year to account for inflation, and for those turning 55 in 2021, it’s $186,000 SGD.

Once you’ve set aside your FRS in your RA, you’re free to withdraw the rest of your CPF money. This is the “collect CPF” moment!

If you don’t have enough money in CPF to hit the FRS, you don’t have to top up your RA using cash. Instead, your monthly CPF LIFE payouts will simply be adjusted, or lowered in this case, according to how much retirement sum you manage to set aside.

Similarly, you can choose to top up your RA to hit the Enhanced Retirement Sum, or ERS, of $279,000 SGD (1.5 times the FRS) and receive a higher payout.

There’s also an option to cut your RA funds down to just the Basic Retirement Sum, or BRS, which at $93,000 SGD is half of the FRS. If you own a property that has a lease that can last until you turn 95, you can withdraw your RA savings above the BRS. However, your monthly CPF LIFE payout will drop as a result, and it’s why we don’t recommend making this choice.

Whatever retirement sum you choose, the money will earn 6% interest on the first $30,000 SGD, 5% per cent on the next $30,000 SGD, and 4% on the rest. When you reach the age of 65 and join CPF LIFE, the RA funds will be used to pay for the CPF LIFE premium, kickstarting your monthly payouts.

CPF LIFE premiums continue to earn interest, and that interest, along with the principal, is pooled with the contributions of other members. This setup enables you to continue receiving payouts for the rest of your life even after you've exhausted the initial CPF LIFE premium that you paid.

Check out the table below for a comprehensive look at the different retirement sums and payouts you'll receive. (You can also get personalised insights based on your own CPF accounts with our free financial planning tool in the StashAway app!)

Basic Retirement Sum (BRS)

• Retirement sum amount at age 55 in 2021: $93,000
• Monthly payouts from age 65: $770 - $830

Full Retirement Sum (FRS)

• Retirement sum amount at age 55 in 2021: $186,000
• Monthly payouts from age 65: $1,430 - $1,530

Enhanced Retirement Sum (ERS)

• Retirement sum amount at age 55 in 2021: $279,000
• Monthly payouts from age 65: $2,080 - $2,230

*All amounts are in SGD. Payout figures are estimates based on the CPF LIFE Standard Plan and calculated as of 2020. They may be adjusted to account for long-term changes in interest rates or life expectancy. However, any adjustments are expected to be small and gradual. See the full table.

Which CPF LIFE plans should I choose? 

CPF LIFE Standard Plan

The default CPF LIFE plan is the Standard Plan, which pays out a fixed monthly amount for your entire life. All your RA funds will be deducted as CPF LIFE premiums when you join CPF LIFE.

CPF LIFE Escalating Plan

Rising costs and inflation could erode the value of your cash savings during your golden years. The Escalating Plan is one way you can protect your finances from inflation’s effects. Payouts start at a lower amount than that of the Standard Plan but increase by 2% each year.

As with the Standard Plan, all your RA funds will be deducted as CPF LIFE premiums when you join CPF LIFE under the Escalating Plan.

CPF LIFE Basic Plan

There is also the Basic Plan, where the payout amounts start lower and become progressively lower when your RA funds fall below $60,000 SGD.

This is because the Basic Plan deducts just 10% to 20% of your RA savings as CPF LIFE premiums. That leaves substantial funds in your RA to attract interest: the first $60,000 in your RA attracts extra interest on top of the standard 4% per annum.

Hence, monthly payouts also come from your RA, which is estimated to last until age 90. After that age, payouts will come from your CPF LIFE premium.

Our recommendation: CPF LIFE Escalating Plan

The Basic Plan is considered a legacy plan, and CPF recommends that members choose either the Standard or Escalating plans. Our recommendation is to consider the Escalating Plan to protect yourself against inflation’s effects.

Why? It starts with securing adequate funds for a comfortable retirement. The point of CPF LIFE is to ensure that you have enough to cover your basic needs such as utilities, food, and transport during your retirement years. This amount should, at a minimum, cover inflation’s effects. To put it in perspective, it doesn’t make sense to have an annuity payment that decreases when the cost of living inevitably increases due to inflation.

It’s also why we recommend hitting at least the FRS so that you don’t put more pressure on your other assets to provide your living expenses.

How can I reach the FRS or ERS sooner? 

The quick answer is to make your CPF money work harder. Here are a few ways you can do so:

If you haven’t reached the prevailing year’s FRS:

• Transfer your OA to your SA to earn a higher interest rate. Note that this move is irreversible.
• Use cash to top up your SA and earn some tax relief along the way. The maximum relief per year is $14,000 SGD (at a maximum of $7,000 SGD for self top up and $7,000 SGD for topping up family members).

I’m 55. Are there still ways to boost my CPF LIFE payouts? 

Yes, there are 2 ways:

Top up your RA

• You can top up your RA using either cash or CPF funds until your RA hits the ERS. More funds in your RA means higher payouts. You can also top up the RA of your family members such as your parents, grandparents, spouse, and siblings.
• Cash top-ups to your own or your family member's RA also give you income tax relief, just as you do when you top up your own SA.
• You can still top up your RA even after you start receiving CPF LIFE payouts, so long as you have not hit the ERS.

Start your payouts at a later age, up to age 70

For every year that you defer your payouts, your CPF LIFE payouts will increase by up to 7%. So the longer you defer your payouts, the more time your money will have to compound and grow. By the age of 70, your payouts will have increased in value by up to 35%.

What happens when I kick the bucket? 

We all pass on one day, and some may even wonder – what if I die shortly after starting to receive CPF LIFE payouts? Won't I have "wasted" my CPF LIFE premium?

Your monthly payouts are first funded by the CPF LIFE premium you paid. Now, let's say you still have a premium balance upon your death. In that case, the CPF Board will pay this out to your beneficiaries, just like the rest of your CPF savings.

The only thing to keep in mind is that the balance your beneficiaries receive is your premium balance. It doesn't include any earned interest, as the CPF board uses that interest to maintain the integrity of the national annuity scheme.

You may also be interested in:

• 4 Ways to Make the Most of Your SRS Account
• Want to Withdraw Your CPF? Read This First.
• How to Include Your Home in Your Retirement Plan