Friday, August 10, 2018

Delaying Monthly CPF LIFE Payouts? (Revision 02)

Revision 02 (last paragraph): updated on November 6, 2019

There is an article talking about delaying monthly CPF LIFE payouts, see below:

FRS will be increased by S$5,000 every year. By the time I reach age 55, the required FRS will be S$256,000. This figure is very close to the CPF illustration of retirement sum of S$256,500.

This is a very good table to show you the monthly payout at age 65, 68 and 70. Let's take the example of retirement sum of S$256,500 at age 55.
Also, take the upper band of the monthly payout at age 65 (S$2,060) , age 68 (S$2,440) and age 70 (S$2,740) for comparison studies.

Comparison table
Delaying Monthly CPF LIFE payouts ?
From the comparison table above, the verdict is clear: stick to monthly payout at age 65.
I do not see the benefits of delaying. You only start to realize you get more total quantum when you live beyond age 85. S$497,760 compared to S$494,400. And you get S$3,360 more ONLY! Of course if you can live until age 95, the differences will be more. You can get S$48,960 more (if you start the payout at age 68) or S$80,400 more (if you start the payout at age 70). But, we are talking about age 95 ! : (

Hence, my choice is clear. Things that work, don't change.

I am happy to receive S$2,060 per month while it is my turn. Thanks CPF !

Revision 02 (updated on November 6, 2019)

At what age, you will become a burden for CPF board to keep giving you the monthly CPF LIFE payouts?

Age 87 !

Take my case as an example.

By my age of 55, the required RA balance would be S$256,500. It is the perfect match of the illustration above. With Retirement Sum of S$256,500, the monthly payout (at the upper band) would be S$2,060. One year withdrawal from your RA account would be S$2,060 x 12 months = S$24,720.

At the same time, your RA balance continue to attract 4% compound interest.

Hence, the calculation would be:

(1) The RA balance of S$256,500 at age 55 would continue to receive 4% compound interest for 10 years all the way until age 64.

(2) Starting from age 65, we must minus away the yearly withdrawal of S$24,720.

(3) The remaining balance in RA continue to attract 4% compound interest.

With this formula, you will see the RA balance will dry out by the age of 87.

So, age 87 and above will be a burden for CPF Board to continue to issue the monthly CPF LIFE payouts.

If you die early, say age 70, you will have balance of S$297,975 to be distributed to your loved one.


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