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Friday, 27 October 2017

Which CPF Life Plans To Choose? Part 1 of 2


Its amazing isn't it?

One would expect questions on CPF Life Plans to come from financially illiterate people or those not very into DIY investing or trading - not those from our community of financial freedom seekers...

I mean if one can't make an independent decision ourselves, it sort of brings into question our abilities to practice active DIY retail investing and trading, doesn't it?



Half the readers will leave in a huff now.



Good. Now that I've filtered out the freeloaders, lets move on...

I come with foreplay; I'm the man with the slow hands.



Its all our fault

Remember a time when seniors before us can withdraw their CPF savings at age 55 pronto without ifs and buts?

That worked well for the majority of seniors at that time were quite "obedient" in selling salted eggs at around age 65 - more or less exactly as what the actuarial science has predicted.

Then something went horrifying not according to plan...

People started living longer than "forecasted".  

CPF savings that were "enough" suddenly became woefully inadequate... 

Make a wild guess who is the party most concerned with everyone doing an Oliver Twist act and begged, "Sir, can I have more?"

Hence, the start of the "crash got sound" era of constantly moving goal posts.

But that came at a political cost...

Surely we can't move the goal posts indefinitely!?



Solidarity 

I do like our CPF system. 

When I were in Athens, Greece, I had the opportunity to witness how the pension system can be ponzi scheme like - those who collected the pension benefits early are better off than those who collect much later.

The Greek senior who retired 20 years earlier had the consolation he got 20 years of full pension benefits in contrast to that poor soul who just retired when the Greek economy blew up - and found out his "promised" pension is now cut by half...

Similarly, some cities and states in the US are near bankrupt... Would you like to be the young working adult contributing to social services to fund the generous pensions promised to seniors ahead of you? And knowing the kitty is pretty much empty when its your turn to collect? 

How about those rapidly aging countries like Japan, China (due to the one child policy), and Western Europe? I suspect when their pension systems were designed, it has 5 working adults (or more) supporting 1 retiree; not 1 working adult supporting 5 retirees...

No. I like our CPF system much better!

Our monies are clearly compartmentalised. My money is my money; its not mixed with my neighbour's. If my neighbour blew his money on wine, women, and song, that's his business! I'm not subsidising his indulgences!



Spreading the Risk


I ask you. Can you figure it out why CPF Life was introduced?

I stop my foreplay now. You finish off yourself.



Can read, can write, can count

No serious! You do it yourself! 

That's the purpose of our 10 years of primary and secondary education.

If you can't read, can't write, can't count, then you may want to jio me out for coffee. It will cost you though! 

For those who can, here's an excellent website from a professional fee-based financial advisor:




I'll guide you a bit - especially those who tend to miss the forest for the trees...

For those who have read other blogs or websites on the same topic, you may noticed there's a lot of discrepancies in IRR calculation between everyone!? Can you spot where's the frequent mistake made?

I'm not surprised. I've poked enough financial bloggers on their "home-made" versions of XIRR calculation! LOL!

Here's another thing to look out for. 

Beyond the numbers, see if you can spot which CPF Life Plan is murky and grey where your money is mixed with your neighbour's in a dark pool pretty much like those pension schemes.

And which plan is more or less like our current CPF system where my money is my money, and your money is your money? Only the tail end is pension scheme like.



You show me yours; and I show you mine

If you game enough, it would be fun to hear what's your chosen plan, or what you intend to choose when you reach age 65.

Do add in a few short sentences your reasons why.


Those who have already made their choices but have regrets now, it would be most appreciated if you can also share with us why you have changed your mind too.


Of course I'll show my choice and reveal my reasons why in my part 2 post. 




31 comments:

  1. Aiyah SMOL ... you already show hand liao ... no surprise in Part 2 leh kekeke!!

    I wish they have "participating plan" --- I rather invest my CPF money in the company running the CPF annuity! It's just like that law firm handling HDB conveyancing for decades ;) ;) Small margins but guaranteed long-term volume!!

    Big Daddy is smart --- He knows most people will choose Standard ... thereby privatise the costs & socialise the benefits. For many elderly it's a case of money no enough ... for them no point calculating IRR or thinking about maximising total return with bequest for ah boy or ah girl.

    ReplyDelete
    Replies
    1. Spur,

      Ah! You've read my comment at the bleeding heart's blog ;)

      You and I think from the perspective of land owners.

      Even if you had not read my comment, it wouldn't be a surprise what I would choose right?

      Part 2 is not about what we choose. There's no wrong; no right.

      I just want to show the difference between how (good) Arts students make decisions in contrast with how (poor) Science students make theirs.

      Its a long winded 2 part sugar-coated poke!

      LOL!


      And the best way is let you commenters share in a few sentences the reasons why you chose what you chose.

      Readers can compare and benchmark themself.

      Ownself mark ownself!


      Delete
  2. I would choose basic plan. 1-3 hundreds not really much difference in the payout per mth.
    The problem will arise when 90% chooses Basic plan which would force Big daddy to make changes or shift goal pole.
    We should encourage everyone else to get the standard plan!

    ReplyDelete
    Replies
    1. WolfT,

      I wouldn't sweat about it.

      CPF Life is not targetted to people like you and me ;)


      If readers in our "financial freedom" community can make elementary mistakes in math, missed the forest for the tress, say things like "default" must be good, heck, some don't even have any clue what's an annuity plan is!!!


      What do you think the majority of those outside our community who are less financially literate will choose?

      And in the rare event things went horribly wrong as in the majority of people decide on the Basic Plan, well, I wouldn't hold my breath hoping there won't be another "crash got sound" change to CPF - again ;)


      People forget about Financial History. See? Don't study History lah!

      Smart peole came up with 12 CPF Life Plans. Watered it down to 4 when launched. (That's the problem with committees)

      Then "crash got sound" amend to 2 Plans.

      Still "crash got sound" again so add one extra Plan to keep those who understand inflation quiet.

      But as Spur has pointed out elsewhere, those who can count will ignore it as a reversed 4 bananas in the moring and 3 bananas in the evening patronising, "Nah! You happy now?"

      LOL!



      Delete
  3. Well, I have a different type of problem. My CPF is zero due to spending all my adult life working/wondering around overseas. Thus, I have to "earn more" in Singapore to meet minimum retirement sum.

    Men will generally have a lower life expectancy 80.6 years old according to singstats. Thus, I believe basic plan works well if I met the minimum sum requirement. Problem is, we don't know when we will kick the bucket.

    ReplyDelete
    Replies
    1. chewyc,

      Hey! A citizen of the world! That's cool!

      I too have 7 years of "retirement fund" stashed somewhere outside of CPF and Singapore. In case I have to "run road", at least I have something to bank on ;)

      Somehow I don't think you want to "earn more" to meet the CPF minimum sum... What you want is to "earn more" OUTSIDE of CPF!

      Citizen of the world don't like chains on our feet :)


      Yup, that's the acturial science our big daddy is banking on:

      Men - 80
      Women - 85


      Those lucky ones who live 90 and beyond?

      Take the bricks from the East wall and patch up the West wall ;)


      Au contraire! Those who confidently based their decisions on precison math "knew" they will live till 95 and beyond!

      LOL!

      Delete
  4. CPF Life is for basic survival so not much difference between the two plans. Those financial independence seekers who need to crack their head over choice of plan still seeker?

    ReplyDelete
    Replies
    1. CW,

      LOL!

      That's one of my pokes for part 2 ;)

      Shh...

      Delete
    2. i think there is some difference.

      If someone has a lot health problem then ?

      Delete
    3. temperament,

      Stay tuned for part 2.

      CPF Life is about retirement living and death.


      Health problems should be handled by Medishielf Life and Medisave.

      If one is in financial difficulties, there's big daddy's Medifund to draw on just as long we stretch out our hand like Oliver Twist...


      Don't mix the two.

      Wait the fisherman say we intentionally "confuse" the silent readers... LOL!


      Singapore is still a very much a you take your own responsibility kind of society - with trampoline support from big daddy ;)

      Not so harsh like Hong Kong where everyone is for themselves, and I hope we never become socialist like the Scandinavian countries where everything is "free" - just as long we pay 20% GST and 50% income tax :(

      Yucks!

      Delete
  5. Personally, I would just take my money asap and run.

    ReplyDelete
    Replies
    1. ERSG,

      Well, your nick says it all. The only way is to emigrate and give up citizenship - then its really "run road"! LOL!


      You generation "luckier" in a sense.

      The minimum sum is sort of "frozen" for now.

      That's until the next generation of big daddy takes over; then can say with straight face I never promise you anything what?

      Spare a thought for the seniors ahead of us. What they were promised in their 20s and what they finally got at age 55 were two totally different CPF animals...

      You'll find out in 20 years' time ;)





      Delete
  6. Hi SMOL,

    Want to understand how things work? Ask the source first lor. Annuity only kicks in at 90 years old if we choose CPF Life Basic. I like the idea of ownself fund ownself. ;)

    I wrote to CPF in 2014 to understand how CPF Life Basic Plan works and here's their response:

    When you join CPF LIFE, all your RA savings (except for new money that is paid into your Retirement Account after your drawdown age) will be used for your CPF LIFE plan.

    We would like to share that for the CPF LIFE Basic plan, we will take the annuity premium from your Retirement Account (RA) in two instalments.

    When you are 55 years old, we will deduct a small portion (about 10%) of your RA savings as the first instalment of your annuity premium. The rest of your RA savings will stay in your RA.

    One to two months before your drawdown age (DDA), we will deduct a small portion (about 10%) of any new money that has built up in your RA between your 55th birthday and your DDA as the second instalment of your annuity premium.

    When you reach your DDA, you will receive monthly payouts (paid from your RA) starting up until one month before you reach 90 years old. Once you reach 90 years old, you will continue to receive monthly payouts (paid from the annuity fund) for as long as you live.

    Singapore citizens and permanent residents who are born in or after 1958 will be placed on CPF LIFE if they have at least $40,000 in their Retirement Account (RA) when they reach 55 or at least $60,000 when they are reaching their Draw Down Age (DDA). We will write to them one month after their 55th birthday on their participation in CPF LIFE.

    ReplyDelete
    Replies
    1. Endrene!

      Love you! (Don't tell your husband)

      Every self-professed DIY investor/trader should always refer back to the source and do our own homework!!!

      Reading an analyst stock recommendation report is not Fundamental analysis...

      Trading using the charts and indicators provided by your friendly subsciption service is not Technical analysis...


      In the old days under retirement sum scheme, it was enough until we lived longer than "planned"...

      It can get real awkward when retirees in their 90s run out of CPF money. I don't think big daddy wants to see them at Hong Lim Park...

      The problem is solved for now using the new East wall paste West wall socialist solution.

      I hope I'll be in happy land when due to medical advances:

      Men - 90
      Women - 95

      All bets are off!



      Delete
  7. 2 things to note:
    ***********************************************************
    1) Select your plan within 6 months before payout age (for most of us this will be 65) ... don't forget else CPF will put you in Standard plan (& may start your payouts only when you are 70 ... according to some financial bloggers).

    Officially:-
    "If you are a Singapore Citizen or Permanent Resident born in 1958 or after and have to join CPF LIFE, we will write to you six months before you reach your payout eligibility age to explain the options you have and the choices you have to make."

    "You will be given time to decide on your plan choice. You can choose your CPF LIFE plan when you wish to start receiving your CPF LIFE payouts. However, if you do not choose a plan before age 70, we will automatically place you on the CPF LIFE Standard Plan."

    "Payouts under your CPF LIFE Basic Plan will be reduced when the combined balances in your CPF accounts, including the amount committed to CPF LIFE, falls below $60,000.This is due to the reduction in any extra interest earned and paid to you."
    ***********************************************************

    2) If you die-die don't want to participate in CPF Life, and want every cent of your CPF funds to be utilised on segregated basis i.e. ownself fund ownself, then there is a way out:

    Officially:-
    "If you are receiving lifelong monthly pension or payouts from your life annuity bought using cash, you may be fully exempted from setting aside the Full Retirement Sum in your Retirement Account and need not join CPF LIFE."

    "You may be exempted from setting aside a retirement sum in your Retirement Account if you have an existing annuity policy bought using cash or under the CPF Investment Scheme (CPFIS), subject to the conditions set by the Board."

    "You may be fully or partially exempted from setting aside a retirement sum in your Retirement Account, based on the monthly payout amount from your annuity."
    ***********************************************************

    ReplyDelete
    Replies
    1. Spur,

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

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



      The escape you mentioned is got say like no say...

      Annuities are the reversed of life insurance policies.

      CPF Life cannot be worse off than private annuities - not when there's no profit element and no distribution costs (no commissions to snake-oils and their uplines).

      People who can "afford" annuities in Singapore are not the target group for CPF Life in the first place. Where got well off people buy annuities to get $2K per month for life??? They would have bought $5K or $10K for life! No?

      And people who can count will not buy private annuities to avoid CPF Life; not unless one wants to cut one's nose to spite the face...



      Spur,

      May I suggest you start a blog (only if you like to)?

      Your 功力不在我之下,有过之而无不及。

      ;)



      Delete
  8. Did the numbers for my Dad 2 years ago. Came to the same conclusion in 15min. Still left him the decision, it's his to make anyway. He went with Standard and i am okay with that.

    The difference is really nothing, and doesn't affect my responsibility towards him in his golden years.

    The goal post will confirm shift again, its a freaking wall to understand all of CPF and all these changes again and again is not helping.

    Reminds me of - KISS.

    ReplyDelete
    Replies
    1. Leopard,

      The difference is small if your dad lives beyond 90 and beyond.

      However, depending whether your dad opt in using BRS, FRS or ERS, the differences can range from tens of thousands to a hundred thousand plus if your dad leaves before 90...

      But all is for moot now. What's done is done. Since the decision cannot be reversed, let's move on.


      They don't have a good track record. Once they heard the crash got sound, they will react.

      But I must speak up for big daddy - its all our fault!

      Everything will be fine if we all die according to their long term plannng!


      Delete
  9. Hi SMOL,

    What do U think of this?:-

    "From CPF

    Jamie says:
    If you are on the Retirement Sum Scheme (RSS), no action is required if you do not wish to start your monthly payouts at payout eligibility age. It benefits you as you will receive payouts over a longer period of time.

    You can always apply to start your monthly payouts anytime after your payout eligibility age.

    From 2018, payouts will automatically commence for members on the RSS at age 70 without requiring them to make an application to CPF Board to receive these payouts. This automatic payout start age of 70 is similar to that for CPF LIFE and it simplifies the activation process for RSS members to receive payouts. With this automatic commencement, elderly members can enjoy a retirement income from their CPF savings with greater ease.

    More information will be released by the 4th quarter of 2017.

    Unquote:-

    i think there are going to be many more years FD rate will be quite low.

    ReplyDelete
    Replies
    1. temperament,

      I'll opt for delayed payout at age 70 since I don't really need the monthly CPF Life payouts.

      Why would I need an annuity plan when I've been living off my investments since I took sabbatical from full time work at age 44?


      As for you? That you have to figure out for yourself?

      Do you need the CPF monthly withdrawals at age 65?

      If you desperate for money then there's no "choice" to speak of.

      If you not "urgent" or "desperate", the next question is whether you think you'll be lucky until age 70?

      I mean if you don't think you'll survive till age 70, then "mai tu liao"!


      Delete
  10. No i mean Big Brothers don't want our money liu when you reach 70.

    If on the hand FD rate is 5 to 6% then what?

    ReplyDelete
    Replies
    1. Golden Rabbit (aka temperament),

      Remember old days retire 55 and die at 65?

      At age 70, men got another 10 years and women another 15 more years to go... Similar math mah ;)

      Difference is the old days give everything out in one lump sum (I trust you); now in drips and drabs (I don't trust you to be responsible)...

      Same like how rich men write their wills. If they thought their children cannot be trusted with their inheritance, will create a trust and only give out annual allowances instead of everything out in one go!



      Eh, you should be sharing with me since you have eaten more salt than me. Have you ever experienced FD rate higher than CPF rate?

      How about during the high inflation, high bank interest rates of the late 70s? I still in primary school then...

      Under today's regime, CPF rates are pegged to FD and 10 year SGS bond rates:

      https://www.areyouready.sg/YourInfoHub/Pages/FactCheck---Ensuring-Safe-and-Fair-CPF-Returns.aspx


      So the scenario you mentioned is unlikely...

      If not, all those who voluntarily contributed to CPF would be feeling so sheepish and pissed off :(


      But then, I would never say never. Flip-flops have happened...

      Once upon a time encourage Mandarin speaking and banned dialects on TV and radio. Now!? LOL!



      If one is an investor (not saver), one would not say if FD rate is 5 to 6% then what?

      It would be: if dividend stocks and bonds 7 to 8% then what?

      Wink.


      Delete
  11. i think it was during the high FD rates so much higher than CPF could give, CPFIS was created.

    Too much political capital was at stake because too much COW FATHER, COW MOTHER from the ground at that time.

    Of course there might be other reasons too.

    My main contention is why BIG Brother don't want to keep your money anymore when you reach 70?

    Some people may want to keep their money there as a legacy for their children even if they live far beyond 70.

    And notice this comes into effect only from 2018:-

    "From 2018, payouts will automatically commence for members on the RSS at age 70 without requiring them to make an application to CPF Board to receive these payouts. This automatic payout start age of 70 is similar to that for CPF LIFE ....."

    So BB realised keeping your money beyond 70 years old is no good for them(BB)?

    The goal post will be shifted so as not to benefit people who want to keep their CPF LIFE or my cohort's RSS for legacy to their children.

    The compound interests from 70 to 80, 90 or 100 - 10, 20 to 30 years is no joke if too many of the people live that long.

    That's what i think , BB think.

    ReplyDelete
    Replies
    1. temperament,

      There you go! I wanted you to say it ;)

      Outside interest rate or yield better than CPF, members will want to "save/invest" outside of CPF. Backfired for the majority who used CPIS isn't it?

      Outside interest rate or yield lower than CPF, members now voluntarily put more money into CPF. Whether it will backfire we shall see in the future ;)


      I finally get it now! You are a conspiracy theorist! Or you very cheapo! You want to make CPF as a "free" personal trust fund for your son!

      And I thought coconut was the weird one... If I didn't know you already, I would be keeping my distance from you now... LOL!


      From big daddy perspective, I think your idea is simply brilliant! I don't think they saw it coming judging from the heat they were getting from the frequent moving of goal posts.

      I'll suggest you write to CPF that you would like to have an exemption made for you.

      Don't distrubte your CPF money back to you at 70 as you are fine with your CPF money being locked up forever to earn the juicy interest rates. (OK, maybe leave out the juicy interest rate bit least they think you're yield hog)

      When you've move on to sell salted eggs, only then CPF should release your CPF funds to whoever you have nominated.

      Walah! Done! Can even save on lawyer fees since CPF nomination is free too! This is too good to be true!

      I personally don't see any reasons why CPF would say NO to you.

      Hey! CPF may even like your idea so much they would steal with pride and introduce this option for others who may think like you! (You never know...)

      Especially for those who can't afford or unwilling to pay for a trust fund with the banks.

      You could be their next poster boy!

      You're genius!




      OK. Sugar-coating over. I'm going to POKE you deep deep now. Get ready. Don't say I didn't give warning...

      Hello! If big daddy worried about what you say, WHY on Earth would they be accepting voluntary CPF contributions from CPF members?

      Chew on it for a while ;)


      Delete
  12. If not mistaken, voluntary CPF contributions from CPF members has a limit per annum.

    Perhaps too many people after DDA still left their RSS or CPF LIFE untouched, i suppose.

    And you will be one of them in future as you have declared earlier.

    Maybe U will also like to leave it to your "God son" or "God daughter" if you have one.
    As i guess, no i know U can afford to.

    And hello compounding interest from 55 to 65 for RA, RSS or CPF Life is a great difference from 70 to 90 or 100.

    Again think, why BB only says now from 2018 on wards, all must start to draw down their CPF LIFE or RSS and not much earlier?

    That's why all banks have a provisional clause on FD on auto renewal that states that it is auto renewal only for 3 to 7 years if no claimant. Or something to this effect.

    ReplyDelete
    Replies
    1. temperament,

      Weather today very nice. Very chill!

      You sleep well tonight :)


      Delete
  13. And besides i think many people now (retirees and coming retirees ) think CPF funds can be used as "perpetual-self annuity" if they don't need the fund.

    Go ask Brother CW.

    ReplyDelete
    Replies
    1. LOL.

      U sleep well too.

      U always sleep well, i know.

      Delete
    2. temperament,

      Thanks! I will :)


      Psst. I don't think CW will be pleased you anyhow talk...

      He cracked his head to come up with something "original" as in his "perpetual self annuity" idea, and you now "think" MANY PEOPLE also thought the same?

      Hello!

      Give chance lah!

      LOL!



      Delete
  14. Who actually has the initial idea is smart.

    Copy cats are not stupid either.

    That's why people blogs to learn more ma.

    ReplyDelete
    Replies
    1. temperament,

      Copy cats and those who steal with pride are not the same ;)


      Delete

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