Guide to the CPF LIFE Scheme
Singapore's Central Provident Fund (CPF) is a ubiquitous aspect of Singaporean life. Responsible for helping you pay for both your retirement living expenses and healthcare costs, the CPF is a forced savings account that lets you accumulate savings throughout your life. However, navigating what it can and can't do can be confusing due to its many subsections and categories and continual changes. In this guide we look at CPF LIFE (Lifelong Income For The Elderly), an annuity scheme that uses your CPF savings to provide monthly income for life during your retirement.
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What Is CPF LIFE?
CPF LIFE is an insurance scheme that provides you a monthly payout for as long as you live throughout your retirement years. After you pass away, the payments will stop and the premium balance and remaining CPF savings will go to your beneficiaries. Your monthly payouts will be paid first from your CPF LIFE premium and then from the cumulative interest that you and other CPF LIFE members have accumulated. There are 3 plans within CPF LIFE: Standard, Basic and Escalating Plans:
- The CPF LIFE Standard Plan will take all of the savings in your Retirement Account (RA) as the CPF LIFE premium. The premium will earn a 4% base interest and an extra interest of up to 2% on the first S$60,000 of your combined CPF balances. The Standard plan provides the highest initial payouts.
- The CPF LIFE Basic Plan provides lower payouts than the Standard plan and the payouts will get progressively lower when your combined CPF balances fall below S$60,000. Furthermore, unlike the Standard Plan—which takes your entire Retirement Account savings as your premium—the Basic Plan will take about 10-20% of your RA savings. Your monthly payouts are estimated to last until you turn age 90. Afterwards, your monthly payouts will be paid from your CPF LIFE premium. The Basic Plan has the smallest payouts.
- The CPF LIFE Escalating Plan is most similar to the Standard Plan (100% of your RA account will be the premium and you will earn a 4% base interest and 2% extra interest), except it increases your monthly payouts by 2% every year. However, be prepared to receive smaller monthly payouts than you would with the Standard Plan.
You will be able to choose which plan you want to enroll in when you are between 65-70 years old. If you fail to choose a plan by age 70, you will automatically be enrolled in the CPF LIFE Standard Plan.
Who Is Eligible for CPF LIFE?
Singaporean citizens and permanent residents who contribute to their CPF are eligible for CPF LIFE. Depending on your year of birth, you may have to join CPF LIFE, otherwise you are automatically enrolled:
- If you were born before January 1, 1958: you can stay on the Retirement Sum Scheme or you can switch to CPF LIFE before you turn 80.
- If you were born between January 1, 1958 and April 30, 1961: You have to join CPF LIFE and have at least S$40,000 in your RA or S$60,000 in your RA before you reach your payout. If you do not have those sums, you will stay on the Retirement Sum Scheme.
- If you were born on May 1, 1961 and after: You will have to join CPF LIFE and have at least 60,000 in your RA 6 months before your payout eligibility age.
What You Need To Know About CPF LIFE Payouts
Your CPF LIFE payments will come from the money in your Retirement Account (RA). Your retirement account is created when you turn 55 years old and is the culmination of the funds in your Ordinary Account and your Special Account. The amount deposited to the RA is based on 3 amounts: the Basic Retirement Sum (BRS), the Full Retirement Sum (FRS) and the Enhanced Retirement Sum (ERS). You can choose to start receiving monthly CPF LIFE payments between the ages of 65 and 70. The more money you have in your Retirement Account, the higher your CPF LIFE payments will be, but there is no minimum or maximum sum that you need to have to get the payouts. Your CPF LIFE payments will be deposited into your bank account (via Inter-Bank GIRO) by the 4th working day of each month or to your CPF Ordinary Account.
Monthly Estimated CPF LIFE Payouts Based on RA Retirement Sums
|Expected Retirement Savings^||Standard||Basic||Escalating|
|S$96,000 (Basic Retirement Sum)||S$779-S$852||S$615-S$677||S$712-S$780|
|S$192,000 (Full Retirement Sum)||S$1,439-S$1,581||S$1,132-S$1,255||S$1,312-S$1,444|
|S$288,000 (Enhanced Retirement Sum)||S$2,097-S$2,308||S$1,649-S$1,832||S$1,912-S$2,109|
Depending on how much money you have in your RA, your CPF LIFE payouts may not be enough to cover your monthly living expenses. However, there are a few ways you can increase your monthly payout. First, for every year you defer payouts between ages 65 and 70, your monthly payout will increase by up to 7%. That being said, you may not defer payments after you turn 71. Another way to increase your monthly payout is to make cash or CPF top-ups into your RA if you have not reached your topping up limit. Lastly, family members can also top up your Retirement Account. If you are concerned about how much money you will get from CPF LIFE, you can use the CPF LIFE Estimator to calculate your monthly payments and how much retirement savings you'll need.
How are CPF LIFE Premiums Invested?
Your CPF LIFE premiums are invested in government securities called the Special Singapore Government Securities (SSGS). The interest earned is pegged to the 10-year Singapore government Securities yield plus the higher of 1% or the current floor rate.
Leaving the CPF LIFE Scheme
There are a few cases where you may exempt yourself from CPF LIFE or choose to stop receiving payouts. First, if you are receiving a lifelong monthly pension or payout from a private annuity plan that you paid for in cash, you may be exempted from setting aside the full FRS and will not need to join CPF LIFE. You may also leave CPF LIFE if you are diagnosed as physically or mentally incapacitated from continuing employment, have a severed life expectancy or are terminally ill. Lastly, you may leave the CPF LIFE scheme if you are leaving Singapore and West Malaysia permanently or if you are a Malaysian citizen and are going to move to West Malaysia permanently.
If you choose to leave the scheme, you will be eligible for a refund. The refund will be the savings in your CPF LIFE scheme minus any payouts you received before leaving and any interest accumulated.
How To Top-Up Your Retirement Savings
The CPF is an easy way to save for your retirement. Savings are automatically deducted from your paycheck and accounts are automatically created for your. However, despite its accessibility, the CPF shouldn't be the only thing you rely on for your retirement. If you are concerned about having enough funds to sustain a particular lifestyle, you should consider alternative methods of saving for your retirement as well.
First, you can consider investing some of your savings. The type of investment typically depends on your risk tolerance. For instance, younger professionals may get away with riskier investments like stocks since retirement is farther away on the time horizon, while older adults closer to retirement may prefer lower-risk, dependable investments like government bonds. You can also invest in real estate if you have the extra funds. Lastly, you can also get an endowment insurance plan that has a retirement focus. These types of insurance plans will provide additional monthly income during your chosen retirement years and can be a good way to add additional monthly income.
Regardless of your preferred saving method, it is prudent to start your retirement planning early so you will have enough to enjoy your retirement years.