When I turn 65 and start to draw monthly payouts from CPF LIFE, does my remaining monies in my CPF Retirement Account still generate interest?
First of all, we need to understand what happens to our monies when we enroll into the CPF LIFE scheme at the age of 65 (assuming we don’t voluntarily defer our payouts).
If you choose the CPF LIFE Standard or Escalating plan, all of the monies in your CPF Retirement Account (RA) is withdrawn and paid as premiums to purchase your CPF LIFE annuity plan. Your RA would now be empty.
It is important to note that even after your CPF LIFE policy has commenced, you are still eligible to earn interest on all your CPF accounts, namely, the Ordinary Account, Special Account, MediSave Account and Retirement Account.
However, the lump sum that you paid to purchase your CPF LIFE annuity plan is now pooled together with other Singaporeans in the CPF Lifelong Income Fund, and any interest on those monies is used for making sustainable payouts for years to come.
Have a question?
I have set aside the FRS amount of $171,000 for CPF LIFE at age 55. What happens to the rest of my monies and interest rate if i pass on one year after receiving my CPF LIFE payouts?
Firstly, we have to note that there are three plans for CPF LIFE. They are the Full Retirement Sum (FRS), Basic Retirement Sum (BRS) and Enhanced Retirement Sum (ERS). The FRS refers to the amount that Singaporeans and Singapore Permanent Residents are required to aside aside at 55. This will go into our Retirement Account (RA), and eventually into CPF LIFE, our life annuity scheme that provides monthly payouts for as long as we live, when we turn 65.
The FRS is not a static sum either. Those turning 55 in 2018 will have to set aside an FRS of $171,000. This amount will increase 3% in the each of the next two years, to keep up with inflation. There isn’t a figure for how much it will increase beyond 2020, but we should assume it will continue increasing in line with inflation figures.
Example of the scenario in the question:
If we are 55 today, $171,000 will be put into our RA to set aside for our CPF LIFE payouts. We can opt to put in half this amount ($85,500) by pledging a property that we own to go on the Basic Retirement Scheme (BRS), or double this amount ($256,500) if we choose to opt for the Enhanced Retirement Scheme (ERS).
Once on the FRS, our monies will continue to compound. According to the CPF website, here’s the interest rates we will receive.
|Balances in Special, MediSave and Retirement Accounts||Interest rate (p.a.)|
|Amounts above $60,000||4%|
This means we may have close to $266,000 in our RA when we turn 65. Once we enter CPF LIFE, we can choose whether we would like to go on one of three plans:
# 1 Standard Plan
# 2 Basic Plan
# 3 Escalating Plan
Assuming we are turn 65 today, have $266,000 in our RA and opt for the Standard Plan, we will receive a monthly payout of close to $1,350.
What happens if we pass away 12 months later? Will all our CPF LIFE monies be gone? The short answer is NO. Here’s what will happen.
After 12 months, we would have withdrawn close to $16,200. If we were to pass on, our beneficiaries will receive no less than the amount we initially put into the plan. This means $266,000 – $16,200 = 249,800. This means the family members of anyone who passes on early in life does not get shortchanged by CPF LIFE.
If the person lives to a ripe old age of 85, he or she will continue drawing $1,350 every month, and ultimately have received $324,000. This is more than what he or she would have put in.