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Monday, 30 October 2017

Which CPF Life Plan To Choose - Part 2 of 2


Its easier to score distinctions in Science and Math subjects as the answers are more binary - you are either right, or wrong. Precision. It's either black or white. Simple! 

But for Arts subjects like Literature, there's no such thing as right or wrong answers - you are marked according to how well you've argued out your case. Its grey, murky, and fuzzy, but we can see all 7 colours of the rainbow!

(History can score distinction that's because you have memorised the version that's told by the victor; if you ask the subjugated, they'll have another version - hence the many revisionist attempts. Its grey.)

If you tell me you are confused when faced with different, alternative, and opposing viewpoints, as a people reader, I can bet you're not from the Arts stream!

Its very comforting to know big daddy is moving away from the 10 year series rote learning style of education. The earlier children start to think for themselves, the better!

What's the point of financial literacy if we can't think for ourselves? (Don't encourage your child to drop Literature?)

A financially literate parrot is still a parrot...



You OK; I OK

When someone chooses a CPF Life Plan different from us, that does not mean you right, they wrong.

Ask how and why they have made the choice they made. Maybe you're the one having second thoughts now!

If a person tells you he based his decison making on precision math and logic, and you discovered its based on bad math and poor logic, walk away...  What's the point right?

There's such a thing called the Distribution Curve.

I'm frequently turned on by intellectually brilliant and elegant debates, even though we have totally opposite viewpoints. Its definitely not the purpose of this 2 part post to change anyone's mind. I'm not a bleeding heart, remember? You die your problem!



You are not aligned

In Zen and coaching, we like to use these questioning techniques to help others figure things out for themselves without telling them the solutions or what to do. 


Let's have some fun now!


1.  CPF Life is an annuity plan. Tell me what you know about the Good, the Bad, and Ugly aspects about annuity plans in general? 


Eh? You've made a decision without knowing what's an annuity? 



2.  You like to parrot, "Buy Term and invest the rest".  Now, is an annuity plan closer to Term, Wholelife, or Endowment policy in reverse?  



3.  The initial introduction of CPF Life Plans only include up to max the Full Retirement Sum (FRS) contribution - which means around $1,400 per month for life from age 65 onwards.

Is your paycheck at age 55 or 65 around $1,400 per month? 

Whatever happened to the rule of thumb to retire at 70% of our last drawn paycheck?

Do you think you were the target group for CPF Life?



4.  OK, crash got sound. Thanks to overwhelming "demand", now we can contribute more to CPF Life through Enhanced Retirement Scheme (ERS) - increase the monthly payouts to around $2,000 per month for life, if we so wishes.

Now tell me. Is this the reason you studied hard (to get to the right schools), and worked hard (to outrun the other hamsters) - so that at age 65 and beyond, you get $2,000 per month for life?



5.  You always try to frighten and shock your love ones they must invest for their retirement early or else! Money shrinks through inflation and rots in the bank! Cannot rely on savings alone! Must invest!

How do you square the circle now that you are OK with receiving the same $2,000 per month for the next 30 years?

I remember 30 years ago, new graduates earn around $1,000 per month. Can you accept no pay raises for the past 30 years?

By the way, what are you investing for again?



6.  Is $100K mickey mouse money to you?

I mean if you 100% sure you'll live up to 90 and beyond, there's really not much different between the different CPF Life plans. OK, if you insist to split hairs, the new Escalating Plan will win out.

But if you compare the bequest differences between Basic and Standard Plans on ERS  when you visit the la la land between age 80 and 85 (acturial science betting BIG on you here), that's a cool $100K plus!



Even if you chose to contribute less to CPF Life under FRS or BRS, its still tens of thousands you are leaving on the table...



All this for that measly $100 to $300 more per month? 

Do you hate your children or siblings that much?

Are you a rock?

Are you an island?

You hate math, do you?





I am not you; you not me

Its not a secret. I've shared elsewhere that I'll go for the Basic Plan even though I'm single and childless.

The idea of me subsidising anonymous people I don't know does not appeal to me.

I rather leave my money to my siblings. (Keep it all in the family, I cheena or what?)

One is richer than me; the other likes to spend a lot. 

If they don't need my money, they can jolly donate it to their favourite charity or church. That's their decision!

I know. I throw my problem to them. What are siblings for? LOL!

If you ask me today, and since I can't opt out of CPF Life, I would choose the Basic Retire Sum since that's the least demage for I never wanted an annuity plan in the first place.  

Hello! I'm a full time trader and investor remember? 

It makes as much sense otherwise as someone who quits work to invest full time using a low cost passive indexing strategy... Wait. What!?


Having said that, from now till my age 65 is still a good 15 years away...

If I blew up my trading account and my investment account has been decimated by a prolonged bear market that lasted 10 years or more... 

I can't be certain I won't capitulate....

If I did, I'll probably choose ERS and swore off investing and trading for good... Chop fingers!

Then I'll claw back to my cage like a domesticated animal that has been let loose to freedom in the wild, but found freedom on my own too daunting...

I'll stop pretending to be a cat.

Woof, woof!

I'll be a good obedient dog.

Look! I'll even wag my tail for you!

Woof, woof!









29 comments:

  1. Wow, one post poke so many people.

    I have tried to resist talking about CPF much as I am an ex-employee.

    Actions speak louder than words and I advised both of my in-laws to opt for the basic plan and I believe there's no reason they should gravitate towards this new escalating option.

    But I have to admit that if you, a single, does not like the Standard Plan, I wonder how others are advocating for the Standard Plan. Bleeding heart is generally not a good reason.

    ReplyDelete
    Replies
    1. 15HWW,

      Former "insider" like you talk the loudest with your WALK ;)


      People say the Emperor's clothes very fashionable... All I see is a naked man (I would prefer a naked woman though).

      We see what we want to see.


      Maybe we are all "wrong" like blind men trying to describe the elephant from our limited perspective?


      Its amazing isn't it?

      I mean CPF Life is not rocket science.

      If one cannot grasp the essence (抓重点) quickly, I wonder how anyone would want to jump into the arena of DIY investing and trading?

      Some of the comments in Facebook are quite eye-brow raising...

      I quicky "un-follow".

      I mean if you've said your decision was based on Literature, that's one thing... But if you said it was based on Math???

      Please don't come near my children.

      LOL!

      Delete
  2. Actually quite simple, no need to think so much :)

    If I money no enough, than bo pian ... standard plan. Most people in this situation will also go for BRS as they try to extract as much immediate cash as possible from CPF ... need $$$ now!

    If have substantial non-CPF assets for retirement, then boils down to whether believe in annuity or not? Those don't believe or just don't like annuities will go for basic plan.

    CPF Life may be cheaper than other commercial annuities, but it ain't free or even simply cost-recovery. CPF Board is not running it but it manages & oversees it --- it appoints commercial insurer(s) to operate it, hence fees need to be paid. That's why bequest amounts for Standard plan is so bad compared to Basic plan --- interests & gains from your premiums to CPF Life doesn't go to your beneficiaries .... they remain in the CPF Life Fund & part of it goes to the insurer(s) pockets as well as covering the admin costs of CPF Board.

    CPF Life has much larger non-guaranteed payouts compared to commercial annuities, at least in the first 10 years or so. Just remember that for CPF Life there is no guaranteed payouts as stated in CPF Act & stated clearly by ministers in Parliament. Of course if Singapore has to slash CPF Life payouts substantially, I think we will all have much bigger things to worry about other than retirement allowances! LOL!!

    As for choosing between BRS or FRS or ERS for those with sufficient non-CPF retirement assets ... it boils down to a mixture of trust in govt and trust in own ability to manage funds. Many people like the 4% interest and the extra 2% interest ... they don't think they can generate these yields at the same risks & rightfully so.

    But they also need to understand that the risks also include the possibility of future govt/parliament legislating away these interest rates, and mandating when & how much of their BRS / FRS / ERS starts getting back to them.

    For many of us, be prepared to start collecting your CPF Life payouts closer to 70 than to 65. Kekeke!!!

    ReplyDelete
    Replies
    1. Spur,

      That's a nice summary to put it in a nutshell!


      If someone says he is interested in the most cost effective annuity plan in Singapore, then I'm with him! CPF Life is indeed good, better, best! That's clarity in thinking ;)


      Yup, that's why I only mentioned profit element and distributions costs ;)

      That's the beauty of 2 way interations. Thanks to your add-ons on admin costs, its now clearer to readers that even though CPF Life is "lower cost", it's not totally free!


      I tried to hint the non-guaranteed part with my previous Greek example. You had to come say it out loud...

      Wait they ask you to "lim kopi" then you know!


      The nation-building mouthpiece is preparing the ground with articles like retiring at 70 is the new 60.

      What do you think?

      The boil frog slowly technique at work?


      P.S. Last Friday I had lunch with another blogger. We both acknowledged you got "substance" (not the heroin type). Yah, we both talking behind your back ;)

      If you start a blog, I promise I will come poke you until you like Swiss cheese.

      Well, at least you won't feel as if blogging to a stone wall...

      LOL!

      No pressure.

      Own time; own target.

      Delete
  3. Just choice of two options can be so complicated and confusing. Better don't play play with stocks with ten, hundreds and thousands of choices. Many thousands more of opinions of choosing them.

    ReplyDelete
    Replies
    1. CW,

      Parrots, lemmings, and dung beetles.

      Dung beetles love elephant shit ;)

      The bigger the poop the better!


      We buy shoes by putting our feet in to see if it fits.

      Where got people buy shoes by asking what shoe size others wear and buy accordingly?

      LOL!


      Delete
  4. KISS is the best.

    So that Ah Kow or Ah Beng can also know how to choose.

    They only have to ask themself, money enough now?

    Not enough but how is my health?

    Only 5 more years to live?

    i think most Ah Kow or Ah Beng has enough grey matters to understand these question.

    ReplyDelete
    Replies
    1. temperament,

      Yes, "default" and "payouts will automatically commence' - these are good, better, best KISS measures ;)

      From whose perspective? That's another story...



      Ignorance, inertia, procrastination, obedience, blind trust, and herding instincts.

      That's all factored in during the "design" phase ;)


      Delete
  5. Actually, i don't like Annuity too.

    U know my generation is on RSS.

    We have the privilege not to join CPF LIFE.

    But after delaying my RSS payout for 2 years, suddenly i found CPF LIFE's payout is better.

    i think it's about 20 to 30 $ more.

    And it's for life man.

    Then at 69 birthday, CPF LIFE pays me about 10 Dollars more.

    Not bad?

    Maybe some more adjustment payments as one aged.

    ReplyDelete
    Replies
    1. Golden Rabbit,

      Under RSS, your CPF may already be long depleted when you live beyond 90...

      But with CPF Life, you'll continue to have an income for as long as you live - who's afraid of living till 100 and beyond?


      That money you received beyond and above your CPF contributions has to come from somewhere.

      Yup, its from those who went to la la land earlier than you and have selected the "default" plan.

      They are the ones subsidising your long life ;)


      Life is fair.

      The reverse is true if you had selected the "default" plan and leave exactly as they have "expected" around age 80 ;)



      Me? It heads I win, and tails my siblings win.

      肥水不流外人田。

      I'm not a socialist ;)

      Delete
  6. i think Annuity is best for people who can not earn a living by any other means.

    ReplyDelete
    Replies
    1. Golden Rabbit (isn't it obvious you telling everyone you born in the year of Golden Rabbit?)

      There's a reason annuities are not popular in Singapore.

      Just ask an insurance agent how much lump sum we need to get $5K or $10K for life?

      Be prepared for the price-tag shock!

      Annuity is definitely not Term Life in reversed ;)


      Annuities are useful if you not interested in or no time for investing; or have got badly burnt by past market crashes before... Chop fingers liao! Never again you say!

      Big daddy must support the private banks and insurance companies.

      Hence CPF Life payouts are max around $2K per month. Those who need more have to buy their own private annuities ;)



      Delete
    2. No lah, i am not born in the year of the rabbit.

      U have mistaken.

      Delete
    3. temperament,

      Oh! Thanks!

      Now I know you are NOT born in the lunar Golden Rabbit years ;)

      Delete
  7. I still don't understand why younger ppl spend so much effort to anticipate a policy that is likely to change when it is their time. This topic should be for those are already near drawdown age or doing cash top up.

    No matter what plan you choose, your premium breakeven is ard 85-90 yrs old.

    It is still a loss to me as i doubt i can outlive that or even much.

    As long as you started drawdown and die before 85-90 yrs old, you lose.

    The breakeven age was roughly calculated by my humble math year ago, so i am speaking fr memory. Don't quote me. Lol

    ReplyDelete
    Replies
    1. Frugal Daddy,

      We were young once too.

      We now know better not because we are smarter than youth, its because we have more cuts and bruises through "crash got sound" ;)

      But then again, we also have seniors making newbie mistakes...

      Probably its because they have 1 year life's experience times 40 since they left school at 25?

      They so very conservative and careful all their lives they never once fell or banged into walls! Amazing!


      Don't worry. You're talking to a "agar agar oredi can" person in me :)

      I'm not precision with 2 decimal places guy... LOL!


      Most people assume they will live till 95 and beyond.

      Just like most buy and hold investors have faith they will never lose money if they held on long enough...

      Or dividend yield hogs believing dividends will not be reduced or cut entirely...


      Assumption, faith, and belief - that's religion :)


      Delete
  8. That's why simple common sense tell U not to buy any annuity if u have enough or more than enough.

    i agree with this article:-

    Never Buy An Income Annuity – Here’s Why
    by Neal Frankle, CFP ®

    {You might be very tempted to buy an income annuity right now, but if you do, you’ll regret it. Income annuity is just another name for an immediate annuity.
    First, what is an income or immediate annuity?
    You make a “deposit” with an insurance company and they immediately start sending you a monthly check. That’s what’s known as the annuity payout. Depending on what type of immediate annuity you set up, you can get monthly payments for five years, 10 years or whatever…even for the rest of your life or the life of you and your spouse.
    The monthly payment you receive will be based on two things:
    a. How old you are now.
    b. What prevailing interest rates are.
    Generally speaking, the older you are the more you’ll get. Why? Because the insurance company knows that as soon as you die, they can stop sending the check. The older you are, the less time you have to collect. That’s why life insurance for seniors might be better for you if you are focused on your beneficiaries.
    Mean and calculating SOBs, those insurance companies. Lower interest rates impact the payments because if the company earns less, they get to pay you less.
    For most immediate annuities, the payments you get never change and you don’t have access to your lump sum payment either. That means if you suddenly need $10,000 for an emergency trip to Paris or quadruple bypass, you’ll just have to find the money elsewhere. Your investment is irreversible.
    I told you they are mean and calculating SOBs.
    Still, the financial services industry is touting immediate annuities right and left as the answer to low bank interest rates and volatile stock market returns. Don’t fall for it. Think about your long-term needs – and the needs of your life insurance beneficiary. Don’t just think about what might feel good over a long series of short-term periods strewn together.
    Let’s look at an example.
    Let’s say you could invest $100,000 in an immediate annuity and receive $8,000 a year for life. Let’s further assume that you decide to make this investment at the age of 65 and you live another 15 years. Here’s why the investment stinks.
    You invested $100,000 and you receive $8,000 a year, but your return isn’t 8%. If you live for 15 years you’ll receive a total of $120,000 in payments (15 years at $8,000 each year). If y0u calculate the total return (on a simple basis), it’s about 1.67% per year. That’s because the $8,000 the nice big insurance company sends you is mostly your own money.
    Now how hard is it going to be to beat 1.67% (average) over 15 years? Nobody can predict the future, but my opinion is that it shouldn’t be that tough.
    The people who market these products appeal to your natural inclination to only think about the short term. They play to your fears of short-term volatility, and if you fall for it, it will cost you big time over the long run.
    Immediate annuities stink – especially now. There might be some cases where the investor doesn’t care about total return and only cares about cash flow…and in that case, they might be OK. But with interest rates as low as they are, I stand by my recommendation.
    Have you had a different experience with immediate annuities?
    You might also be interested in reading the pros and cons of immediate annuities for a different perspective.}

    YMMV.


    ReplyDelete
    Replies
    1. temperament,

      Yet who is the one who bought an "annuity" for $20 to $30 more?

      LOL!

      See lah! Chose an irreversible CPF Life Plan first, then do research later...

      Genius!


      Now you have to pray for long life!

      Long life will mitigate the damage done ;)

      If you live beyond 95, it will be for the win financially speaking!!!


      Delete
    2. U are mistaken here too.

      As i was on RSS i refuse to joint CPF LIFE when it was first introduced.

      U know people like me never believe there is free lunch just like that (without conditions or terms)
      That's why i am a investor ma.

      And because of CPF LIFE Annuity option, i read like mad all about Annuity - It's pros and cons.

      Don't believe?

      i can produce more articles on Annuity if U want me too.

      i also realised due to very low FD rates, it was better to leave my RSS alone as long as i can afford even i had reached DDA.

      As for my wife now,

      U know i want to delay my wife's RSS as long as she lives but from 2018, BB says all must start drawing at 70 years old.

      So be it on RSS- NO JOINING CPF LIFE FOR HER unless no more 4+1% interest rate P/A. on balance of RSS.

      That's why now CPF LIFE is opened to RSS till U are 80 years old.

      RSS goal post will be further shifted soon, i guess. except their BFS.

      Delete
    3. temperament,

      Ha ha!

      I could have just asked, but its a lot more fun to "tease" out the info from you ;)

      So after all the huffing and puffing, you are not on CPF Life at all ;)

      You are on the old RSS and you are "sore" you are now being "forced" to withdraw RSS at age 70...

      Long life works against RSS as your CPF funds may run out before you died.

      Your "game plan" was to DELAY the CPF withdrawals as long as possible to let the money compound your RSS to a bigger sum to mitigate against longevity ;)


      Youth got excuse. You got no excuse as you KNOW and HAVE EXPERIENCED more than one moving of goal posts.

      You smart; big daddy not stupid.


      Trying to get "sympathy" from people like me who are forced to join CPF Life no matter what?

      You go fly kite!

      LOL!


      P.S. Go in person and "beg" for exemption lah. If you too proud to do it, then live with it!

      I don't need annuity; you don't need your CPF money back.

      You're way better off financially than me!!!

      Still dare to whine?



      Delete
    4. In relative terms, i think you are richer than me leh.

      Remember, U FF @ 44, i only not long tia nia.

      That is my wife got retrenched in 2011.

      i was already 64.

      Wow 20 years different.

      U say who is better and richer?

      U of course lah.

      Delete
    5. Golden Rabbit,

      OK, life has been kind to us.

      Not bad considering you ITE and I O'levels ;)

      Let's give grace and not forget that even though we are behind brethren who have gone on to build successful businesses for themselves, there are quite a lot of our peers who are at the mercy of land owners and shepherds...

      Can't meet the numbers?

      OK, you and you and you over there... Got to let you all go...


      That's why I never want to be "taken care of" ever again!


      Delete
  9. 3)
    RE: ANNUTIES-How can we use them?
    What’s the best annuity right now?

    Gasp! Yes, I said it, annuities aren't for everyone and shouldn't be promoted as such.

    In my world, annuities primarily solve four specific goals and I have created an acronym that you can easily remember to determine if an annuity strategy should even be considered. That word is P.I.L.L.

    P = Principal protection

    I = Income for life

    L = Legacy

    L = Long-term care

    If you don't need to contractually solve for these transfer of risk solutions, then you probably don't need an annuity. Yes, I said it again! Even if there is part of P.I.L.L. that applies to you, it is important that the annuity solution compliments your overall portfolio and is allocated at an amount that reflects your age, your goals, and your risk tolerance.

    The P.I.L.L. strategy goes against the grain of most annuity sales today, which are primarily deferred variable and fixed-indexed annuities. Those strategies would presumably fall under the letter "G" for growth, which I think is the wrong reason to buy an annuity, and why I never include growth as the primary justification for an annuity purchase.

    NB:-
    i have decided my wife's CPF MS can be used as 4% inflation offset bond "until we need to touch the money". This is of course, CPF Board (GOV) board keeps their side of the bargain. There is no where you can put your money with out some risk except converted to food in your stomach. Ha! Ha!
    Reflecting on P.I.L.L. , What i am doing for my wife's MS actually satisfy all the conditions. In fact i think it is even better after a certain years. Just like some older liquor or wine will taste better.
    Hope we don't need to touch the money as long as possible. That actually it becomes an "Emergency Fund" that we shall never need to draw on. And CPF Board is intact, whoever is the Gov.
    Anyway, all of us has "no choice" but to leave the MS with CPF Board, whoever is the GOV.
    Shalom.
    Amen.
    ________________________________________
    WB:-

    1) Rule # 1, do not lose money.
    2) Rule # 2, refer to # 1.
    3) Not until you can manage your emotions, you can manage your money.

    Truism of Investments.
    A) Buying a security is buying RISK not Return
    B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

    NB:-
    My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.

    ReplyDelete
    Replies
    1. Hello!

      You don't need to convince me annuity is a bad choice for most people.

      Its not Term Life in reverse remember?

      You should put this comment of yours at the other watering-hole ;)

      LOL!


      Delete
  10. This time, i think U right.

    i think i had put this in ValueBuddies and i got people who believe in
    ANNUITY, mad at me.

    LOL.

    ReplyDelete
    Replies
    1. Golden Rabbit,

      We are like the 2 dots of the Ying/Yang symbol ;)

      We are not afraid to argue against the STOP sign!


      Remember I introduced you to ValueBuddies?

      So when you buying me coffee huh?

      Glad you are very active there ;)




      Delete
    2. Correction for confusing U about my RSS & my wife's RSS.

      Actually it was called MS.

      Then goal post shifted then called RSS now.

      Read my earlier post how i changed my mind from RSS to CPF LIFE.

      Remember U said i was baited by 20 to 30 dollars more to switch to CPF LIFE.

      So U see my wife RSS will not change to CPF LIFE unless the goal post is shifted so drastically.

      Sorry for the confusion less U say one day i am bluffing U.

      Delete
    3. Golden Rabbit,

      I see. I not so active at that watering hole now too.


      That's why I say you got no excuse. Your generation got so many goal posts moved against you, yet you still want to put your money INSIDE CPF as long as possible?

      This is where we differ. I want to get as much of my CPF OUT as possible.

      I'm not jumping through hoops for credit cards and savings account for that extra 1-2%, neither will I bite for that extra 1-2% of CPF interests ;)

      Meow.


      No worries. Just shooting the breeze mah!

      Alternative and differing viewpoints are always welcomed here :)

      This is not a "wah kali kong" watering hole.

      We are jazz players; we are not in an orchestra where we need to take our cues from a conductor ;)

      There are no Indian Chiefs here!








      Delete

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