How Long Should I Live to Fully Enjoy CPF LIFE
In recent years, the CPF retirement plan in Singapore had been changed to CPF LIFE. Under CPF LIFE, the retirement income payout is for lifetime. Since the CPF account balance is always transparent to the account holders, we can calculate how long a person should live to fully enjoy the real benefit of CPF LIFE.
At first, we need to understand the mechanism of CPF LIFE. To make it simple, we use the most common case as an example. When a Singapore Citizen or PR reaches age 55, CPF will create the fourth account, which is the Retirement Account. At that time, the balance in Ordinary Account and Special Account will combine to meet the Full Retirement Sum and transfer to the Retirement Account. After the transfer, the account holder has an option to withdraw the remaining balance in Ordinary Account and Special Account. That is to say, from age 55, the Full Retirement Sum in Retirement Account is the initial contribution fund for CPF LIFE. The money in Retirement Account will accumulate under the interest rate set by CPF Board. From age 65, the account holder can receive monthly retirement payout from CPF LIFE, till lifetime.
The Full Retirement Sum is adjusted up every year. According to the criteria in 2019, the Full Retirement Sum is $176,000 for Singapore Citizen or PR who turns age 55 in 2019. Based on this Full Retirement Sum and the default payout plan set by CPF Board, the monthly retirement payout starting from age 65 is about $1,400, which is $16,800 per year. The interest rate for CPF Retirement Account is now 4%. Based on all these numbers, we can subtract the yearly retirement payout from the Retirement Account balance, and then let the Retirement Account balance grow by 4% per year. Using the table below to illustrate, we can see by which age the Retirement Account balance will fall below zero.
From the table above, we understand that the Retirement Account balance falls below zero from age 89. That is to say, a person shall live till at least age 88 to fully enjoy the real benefit of CPF LIFE. According to the demographics in Singapore, the life expectancy is 80.7 for male, and 85.2 for female, in the year 2017. So if you want to fully enjoy the benefit of CPF LIFE, you have to keep a healthy lifestyle. Nothing is more important than your health. You may also ask, what will be done with the unutilised money in CPF LIFE if someone passes away early? No worries. According to the rules set by CPF LIFE, the remaining benefit will be paid as a lump sum to the beneficiaries nominated by the CPF account holder.