Getting the maximum payout with CPF Life plans and private annuities

In my last article about CPF Life policy changes, I’ve analysed how the policy changes will affect my retirement plans and how I would aim to achieve the target of my projected Full Retirement Sum at the age of 55. Ever since changes to CPF Life plans were announced this year, I’ve been been thinking of different ways of maximising my payouts while keeping the option of a bequest available for my family when I pass away.

Let’s do a quick recap on CPF Life policies.

Retirement Sums, what are they?

Doing away with the name, CPF Minimum Sum, CPF has introduced 3 types of Retirement Sums – Basic Retirement Sum (BRS), Full Retirement Sum (FRS), Enhanced Retirement Sum (ERS). For simple calculations, FRS is double the BRS amount and ERS is triple the BRS amount.

If you were to opt for BRS, you will need to pledge your property or property charge to make up for the difference between the FRS and BRS in order to gain access to cash.

What are the CPF Life plans available today?

After numerous attempts to make CPF Life plans easier to understand for regular Singaporeans like you and me, there are now only two types of CPF Life plans – Basic plan and Standard plan.

The Basic plan caters to Singaporeans who are willing to receive a lower monthly payout in exchange for a higher bequest amount (the money your family will receive when you pass away) and the Standard plan is the exact opposite whereby it provides a higher monthly payout in exchange for a lower bequest amount.

The general consensus from people who made the effort to try to digest the pros and cons of both Basic and Standard plans are that while the Standard plan is the default plan that CPF would select for all Singaporeans, the Basic plan is actually much better because while the Standard plan provides a slightly higher monthly payout, it wipes out the your CPF Life premiums at a much faster pace.

So what’s my goal here?

The purpose of this article is to try to tackle a few variables that impact my retirement planning and increase flexibility in my retirement strategies.

1. CPF Retirement Policies: The retirement age and retirement sums are constant moving targets and while I am able to forecast that my CPF Full Retirement Sum will be slightly above $300,000, the retirement age remains unpredictable.
2. CPF Life plans: Both Standard and Basic plans are similar to private annuity policies offered by insurers. However, I could only choose one of the two.
3. Private annuity policies: Could I use private annuity policies to increase my monthly payouts?

As my goal is to retire by 50 (or earlier), I will need to keep most of my post-tax money outside of CPF so that they can cover my expenses from age 50 onwards.

Here are the constraints that I am working with in this article.

1. I will only be focusing on using the money I have in my CPF accounts to maximise monthly payouts.
2. CPF Life payout calculations are based on the figures provided in this news article by Straits Times and will not increase over time.
3. We won’t know if annuity policies will still exist in the future, but I will use current annuity policies as a reference for my calculations.

The CPF Life plan to beat

As my goal is to get a higher payout using my CPF money, I’m looking at trying to beat the CPF Life Standard plan with a Full Retirement Sum. Here’s how the monthly payout from CPF Life Standard plan for a Singaporean retiree who has the Full Retirement Sum injected in the CPF Life Standard plan. The target for me is to achieve a higher monthly payout of $1,397 or a yearly payout of $16,764. The disadvantage of this plan is that 20 years that after you start receiving monthly payouts from CPF Life, your Full Retirement Sum will be fully wiped out and there will be nothing left for your family when you pass away.

My big idea

The government wants all Singaporeans to pool their money together to build an annuity program that all Singaporean citizens can tap on upon retirement. Assuming that I am able to accumulate the Full Retirement Sum (projected to be around $300,000) in my CPF account, I want to see if I can get a better return if I only opt for the Basic Retirement Sum (and pledge my property charge) and use the remaining 50% of my CPF account to buy a private annuity.

Enrolling in the CPF Life Standard plan with Basic Retirement Sum

Putting a Basic Retirement Sum into the CPF Life Standard plan, I would receive a monthly payout of $767 or a yearly payout of $9,204. That means I will have to find a private annuity plan that provides a monthly payout of at least $630 ($7,560 per year) and higher to make this work.

Diversifying risks and maximising payouts with Tokio Marine annuity plans

I was fortunate enough to have a friend who works as an insurance agent with Tokio Marine who was kind enough to help me generate some figures based on Tokio Marine’s Retirement GIO and Retirement PaycheckLife for the calculations in this article. These two annuity plans fit my bill as they are similar to CPF Life plans where I would receive monthly/yearly payouts for the rest of my life. There are probably other similar private annuity plans in the market but I did not do a thorough check.

I had my friend help me generate both Retirement GIO and Retirement PaycheckLife plans simulating a scenario whereby I would withdraw the remainder of my CPF money ($150,000) out of my CPF account at age 55 after opting for the Basic Retirement Sum and put that money into premiums for either a Retirement GIO or a Retirement PaycheckLife plan. The plan is to let the money sit in a private annuity plan until the age of 65 where the monthly payout would start in conjunction with monthly payouts from CPF Life.

When you look at the payouts and bequest amounts below, you will notice that the Retirement GIO plan pays a lower monthly payout than the Retirement PaycheckLife plan but you would be able to recover the full amount of your premiums upon death or surrender of your annuity plan. The Retirement PaycheckLife plan not all that bad though because it would still return a fraction of your premiums upon death or surrender of your annuity plan unlike CPF Life Standard Plan where all your premiums would be entirely wiped out.

Annuity Plans	Tokio Marine Retirement GIO	Tokio Marine Retirement PaycheckLife
Monthly payout from age 65	$676.67($443.33 non-guaranteed)	$900($450 non-guaranteed)
Bequest/death benefit
Age 65	$161,555($11,375 non-guaranteed)	$163,501($13,377 non-guaranteed)
Age 75	$161,555($11,375 non-guaranteed)	$108,961($13,377 non-guaranteed)
Age 85	$161,555($11,375 non-guaranteed)	$54,421($13,377 non-guaranteed)
Age 95	$161,555($11,375 non-guaranteed)	$40,647($13,377 non-guaranteed)
Surrender value
Age 65	$156,723($8,029 non-guaranteed)	$162,015($13,377 non-guaranteed)
Age 75	$156,723($8,029 non-guaranteed)	$108,015($13,377 non-guaranteed)
Age 85	$156,723($8,029 non-guaranteed)	$54,015($13,377 non-guaranteed)
Age 95	$156,723($8,029 non-guaranteed)	$40,377($13,377 non-guaranteed)

As we can see in the table above, both the Retirement GIO and Retirement PaycheckLife pays out more than $630 each month. That means I am able to get a better return by combining a CPF Life Basic plan (Basic Retirement Sum) and a private annuity plan together, instead of just sticking to a CPF Life Standard plan (Full Retirement Sum).

Conclusion

Let me summarise this really long article for readers who just want the short story. We have determined that by combining a CPF Life Basic plan (with Basic Retirement Sum) and a private annuity (in this example, either Tokio Marine Retirement GIO or Retirement PaycheckLife will do) bought at the age of 55, we can achieve a higher monthly payout than just a CPF Life Standard plan (with Full Retirement Sum).

Personally, I’m more inclined to take up Tokio Marine’s Retirement GIO annuity plan because there’s an additional safety net of being able to get all my premiums back if I choose to surrender my plan at say, the age of 80 if I need the extra money. This is also very useful if CPF Life plans actually provide a better value than the existing Retirement GIO plan. I can always surrender the policy and buy another CPF Life plan (yes you can buy more than one CPF Life plans if you want to).

I know we can’t predict what the future holds for us (30 years in the future, in my case), but I hope this article opens up new ideas for readers who are planning their retirement.

I would love to hear your thoughts about this article and what you are planning for your retirement. Please share them in the comments below.

Short advertisement: This article wouldn’t have been possible without the help from my friend who works in Tokio Marine as an insurance agent. If you found this article useful and are interested to find out more about Tokio Marine’s annuity plans, please let contact me with your details so that I can forward it to my friend who can provide more details about their annuity plans.