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Internal rate of return of CPF Life....why many will make wrong choice... - Printable Version

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Internal rate of return of CPF Life....why many will make wrong choice... - sgbuffett - 18-10-2021

Is CPF Life a good scheme or bad scheme ....how does one evaluate the scheme....to say it is good or bad.

The answer is internal rate of return. Some one worked out already if you collect CPF Life the die at age 85 or age 90 collect monthly until that age plus the residual sum given to your children ...what is the return?

The internal rate of return is 3.5%-4%  unadjusted to inflation. 

[Image: zM2TgKq.jpg]

So the real real return if you include 1-2% inflation is 1-2%.


This return isn't guaranteed.  But likely mechanism is to loan to GIC which pays the return underwritten by sizable reserves. So for all intent and purposes you can say it is more or less guaranteed.


So you get higher return  if you can just leave it in CPF SA.


Unless you are one of those who live to 120....for most people it's return is lower than Special account.

So knowing this one is better off to apportion between CPF SA and CPF life in RA properly

RE: Internal rate of return of CPF Life - sgbuffett - 19-10-2021

Why is understanding the jnternal rate of return useful.

Suppose you have $249K at 55. You leave it in SA at 4%. At age 65 you will have $370K.

Now you take out $1659 per month. The money will last until you are 98 yo. If you lived to average age of 90yo ...you will have ard $150K for your children.

The above is much better that CPF life which has only $24K left after 25yrs.(see previous post on top)

[Image: Jorf0MR.jpg]

RE: Internal rate of return of CPF Life - sgbuffett - 19-10-2021

What this means is if you have above 250k in SA.

1. One should opt for basic cpf life to minimise participation.

2. Rest of the money just keep in CPF SA for higher returns.

RE: Internal rate of return of CPF Life..how you should plan using this - Alice Alicia - 19-10-2021

That's why I stick to minimum sum and refuse to choose cpf life.  Big Grin

RE: Internal rate of return of CPF Life..how you should plan using this - klat - 19-10-2021

If one dies younger (85 yo) one gets higher returns than one who dies older (90yo). Strange. I though one dies older means you get more monthly income than those who dies younger.


Strange

RE: Internal rate of return of CPF Life..how you should plan using this - sgbuffett - 19-10-2021

(19-10-2021, 08:55 AM)klat Wrote:  If one dies younger (85 yo) one gets higher returns than one who dies older (90yo). Strange. I though one dies older means you get more monthly income than those who dies younger.


Strange

The main benefit is you go beyond certain age like 98 or more when the CPF life keep paying which an SA account you draw on goes to zero.

But there is some non consistency around some of the ages...this could be accurial  optimisation ..if you benefited by having longer life ...they decay the bequest faster to 0...so overall return lower.

RE: Internal rate of return of CPF Life..how you should plan using this - sgbuffett - 19-10-2021

(19-10-2021, 08:50 AM)Alice Alicia Wrote:  That's why I stick to minimum sum and refuse to choose cpf life.  Big Grin

Minimum sum is no longer available for people our age.

RE: Internal rate of return of CPF Life - Instinct - 19-10-2021

(19-10-2021, 08:36 AM)sgbuffett Wrote:  Why is understanding the jnternal rate of return useful.

Suppose you have $249K at 55. You leave it in SA at 4%. At age 65 you will have $370K.

Now you take out $1659 per month. The money will last until you are 98 yo. If you lived to average age of 90yo ...you will have ard $150K for your children.

The above is much better that CPF life which has only $24K left after 25yrs.(see previous post on top)

[Image: Jorf0MR.jpg]
Would have been better if the money can be left in SA at 4% compounding. The catch is if it's good for us, then they would twig it until it confuse people. 🤯

RE: Internal rate of return of CPF Life - sgbuffett - 19-10-2021

(19-10-2021, 09:51 AM)Instinct Wrote:  Would have been better if the money can be left in SA at 4% compounding. The catch is if it's good for us, then they would twig it until it confuse people. 🤯

I really think a much simpler scheme is best for people ...an annuity scheme has to be Conservative so they need to keep reserves, buffers and contingencies. ...they end up using your money to do this.

For a person with upwards of 250K at 55....it grows to above 385k by age 65 in CPF SA. This can give a decent steady payout until around 100 yo. If you go early the bequest is superior because you don't need to contribute to common pool.

Unfortunately CPF Life is compulsory. ..so to optimise your finance. Opt for basic to minimise participation. Rest of it leave in CPF SA.

The govt wants CPF Life to have a scheme to stretch the money to beyond 98yo so they don't have to budget and have another financial assistance scheme in place for those who go above that.

But the reality is not so simple due to inflation. $1600 ...25yrs from now will feel more like $800...one cup or Kopi will be $220..mee rubus will be $6.

Those with $1.5M will keep part in stocks, some in SA ...some in 2nd property to try to hedge against all situations.

Depending on how much you have...your retirement  finances are always at risk if you don't have enough to hedge away the risk.

RE: Internal rate of return of CPF Life..how you should plan using this - RiseofAsia - 19-10-2021

Cannot retire happily.
How can it be a good scheme? Thinking

RE: Internal rate of return of CPF Life..how you should plan using this - RiseofAsia - 19-10-2021

[Image: Screenshot-20200117-065343-Google.jpg]

RE: Internal rate of return of CPF Life..how you should plan using this - sgbuffett - 19-10-2021

(19-10-2021, 10:04 AM)RiseofAsia Wrote:  [Image: Screenshot-20200117-065343-Google.jpg]

I think each person has to plan for himself well...forget all the govt schemes...if you don't have enough it won't be enough.

The best thing for a person starting work is and always has been to invest in index funds regularly....simple and powerful way to get a good return. .by the time you retire the amount will be more than enough even on a modest income.

RE: Internal rate of return of CPF Life..how you should plan using this - RiseofAsia - 19-10-2021

(19-10-2021, 10:17 AM)sgbuffett Wrote:  I think each person has to plan for himself well...forget all the govt schemes...if you don't have enough it won't be enough.

The best thing for a person starting work is and always has been to invest in index funds regularly....simple and powerful way to get a good return.  .by the time you retire the amount will be more than enough even on a modest income.

This garment has made a big mess in our CPF $$$ for not letting majority of us retire happily?

Some of them still have to do carton box exercise in order to meet end need.

I still remember I need to help my old parents top up their medisave account just to pay the medishield premium. Sometimes got to folk out $1k ++ yearly, 2 parents will be $2K++

RE: Internal rate of return of CPF Life..how you should plan using this - sgbuffett - 19-10-2021

(19-10-2021, 10:58 AM)RiseofAsia Wrote:  This garment has made a big mess in our CPF $$$ for not letting majority of us retire happily?

Main problem in CPF has never been solved...it is inadequacy which it is very poor compared with other pension schemes.

This problem will just get worse and worse as Singapore has growing number of working poor ...People trapped in low wage work  because of low income they will have very low CPF savings.

The missing feature  in our pension scheme is the govt refuses to tax (the wealthy) to provide complementary funding. This is almost certain never to happen because the whole Singapore system is build on low taxation of the wealthy. Our starting point from independence is in total contrast with more equitable societies like Norway, Sweden, Finland, Germany etc. ..even Japan & Taiwan does better.

This "every man take care of himself" system is good if income gap is low. But with high income gap we will have rising poverty...retirement inadequacy and a multitude of problems.

Over time the PAP govt will lose its support as fewer and fewer people do well I  their system...

https://www.businesstimes.com.sg/government-economy/singapore-budget-2015/cpf-rethink-needs-to-address-structural-retirement/

RE: Internal rate of return of CPF Life..how you should plan using this - sgbuffett - 24-10-2021

Why from a financial standpoint CPF Life Basix is better that CPF standard...if you die at age 80 the total amount you get together with bequest is $100K more if you opt for basic vs standard.


https://www.ifa.sg/cpf-life-standard-is-the-worst/

RE: Internal rate of return of CPF Life..how you should plan using this - sgbuffett - 24-10-2021

Many years from now when I hit age 55 I will structure my CPF savings it this way:

1. Opt for CPF Life Basic and BRS.
2. Remaining sum keep in CPFSA to earn 4% to maximise returns and flexibility.

RE: Internal rate of return of CPF Life....why many will make wrong choice... - Instinct - 24-10-2021

Is it better to start payout at 70 instead of 65?

RE: Internal rate of return of CPF Life....why many will make wrong choice... - talky - 24-10-2021

(24-10-2021, 01:14 PM)Instinct Wrote:  Is it better to start payout at 70 instead of 65?

as early as possible why 70 ? why lock yrself up?
u can use the money to buy dbs n other reits pay at least 4%.
full flexibility.if dbs goes down means yr cpf also gone simple as that

RE: Internal rate of return of CPF Life....why many will make wrong choice... - Rubitin - 24-10-2021

can buy property with your name.
https://youtu.be/4I7YtUur2d

RE: Internal rate of return of CPF Life....why many will make wrong choice... - p1acebo - 18-07-2022

(24-10-2021, 01:14 PM)Instinct Wrote:  Is it better to start payout at 70 instead of 65?

Definitely not.  See below extracted from a website

Well, we will need to look at the numbers to decide. Assuming you are now 55 and have the FRS of $186k in your CPF, the payout at 65 will be $1,500/month (Standard Plan). The payout at age 70 will be $2,000, quite a bit more! Now let's do some simple analysis. For $500 more a month, it is worthwhile to defer the payout for another 5 years? That's the total loss of $1,500*12months*5years = $90,000 immediately to start. With an additional $500, it will take 15 years to break even, meaning, you will need to live to age 85 just to breakeven. You decide if this is worth it.

RE: Internal rate of return of CPF Life....why many will make wrong choice... - p1acebo - 18-07-2022

This may be a useful read....

https://www.drwealth.com/cpf-life/

RE: Internal rate of return of CPF Life....why many will make wrong choice... - sgbuffett - 18-07-2022

The most important chart is this.

If you choose basic scheme for cpf life you get a bit less each month but your bequest is much larger.

If you die at around 80 the standard and enhance have zero bequest and the basic has 100k to give to your children...

[Image: uHFWTz8.jpg]

By taking just 100$ a month less than standard, the basic gives 100k more in bequest at age 80.

The difference is so large it make no sense to go for standard scheme which is the default.

Many will make this mistake of choosing standard because they  did not bother to check......and took things for granted.

[Image: 02491oo.jpg]l

So those above 55 now....which did you choose?

RE: Internal rate of return of CPF Life..how you should plan using this - Napoleon Porlumpar - 18-07-2022

(19-10-2021, 08:50 AM)Alice Alicia Wrote:  That's why I stick to minimum sum and refuse to choose cpf life.  Big Grin


can choose meh ?

i thought CPF Life is mandatory ?

i will be for sure...............with CPF Life, they no need pay any more interests at age 65yo.................

anyway, if people are in their 20-30s today................no need worry................CPF will collapse before they retire.............paying compound interests on an ever-growing sum is an impossible situation...............especially when GIC and Temasek had been losing god knows how many billions all these years

RE: Internal rate of return of CPF Life..how you should plan using this - sgbuffett - 18-07-2022

(18-07-2022, 09:54 AM)Napoleon Porlumpar Wrote:  can choose meh ?

i thought CPF Life is mandatory ?

i will be for sure...............with CPF Life, they no need pay any more interests at age 65yo.................

anyway, if people are in their 20-30s today................no need worry................CPF will collapse before they retire.............paying compound interests on an ever-growing sum is an impossible situation...............especially when GIC and Temasek had been losing god knows how many billions all these years

What you said is not true for a simple reason.

The scheme pays in Singapore dollars which the govt can always print more if needs.

It does not adjust for inflation....and this can wipe you out jn terms of buying power but scheme will not collapse ...you suffer instead.

Instead of reducing risk the scheme merely pass the risk from govt to the people....exposing them to inflation.

$1300 q month to live on ....until you die? ...inflation can just wipe off buying power quickly.

RE: Internal rate of return of CPF Life..how you should plan using this - sgbuffett - 18-07-2022

(18-07-2022, 09:54 AM)Napoleon Porlumpar Wrote:  can choose meh ?

i thought CPF Life is mandatory ?

i will be for sure...............with CPF Life, they no need pay any more interests at age 65yo.................

anyway, if people are in their 20-30s today................no need worry................CPF will collapse before they retire.............paying compound interests on an ever-growing sum is an impossible situation...............especially when GIC and Temasek had been losing god knows how many billions all these years

CPF life is mandatory but you can choose
1. Basic or standard
2. FRS or BRS.

This thread is saying most people choose wrongly.

The best is Basic + BRS. The rest keep in SA....this is superior to standard + FRS.

RE: Internal rate of return of CPF Life - RichDad - 18-07-2022

(19-10-2021, 10:01 AM)sgbuffett Wrote:  I really think a much simpler scheme is best for people ...an annuity scheme has to be Conservative so they need to keep reserves, buffers and contingencies. ...they end up using your money to do this.

For a person with upwards of 250K at 55....it grows to above 385k by age 65 in CPF SA. This can give a decent steady payout until around 100 yo. If you go early the bequest is superior because you don't need to contribute to common pool.

Unfortunately CPF Life is compulsory. ..so to optimise your finance. Opt for basic to minimise participation. Rest of it leave in CPF SA.

The govt wants CPF Life to have a scheme to stretch the money to beyond 98yo so they don't have to budget and have another financial assistance scheme in place for those who go above that.

But the reality is not so simple due to inflation. $1600 ...25yrs from now will feel more like $800...one cup or Kopi will be $220..mee rubus will be $6.

Those with $1.5M will keep part in stocks, some in SA ...some in 2nd property to try to hedge against all situations.

Depending on how much you have...your retirement  finances are always at risk if you don't have enough to hedge away the risk.

No SA anymore. All merged into RA

RE: Internal rate of return of CPF Life - sgbuffett - 18-07-2022

(18-07-2022, 10:19 AM)RichDad Wrote:  No SA anymore. All merged into RA

You are mistaken at age 55 RA is formed you have 3 accounts RA SA and OA.

You can choose BRS or FRS.
If BRS , less go to RA and you can keep rest in SA.

RE: Internal rate of return of CPF Life....why many will make wrong choice... - lylcnn - 18-07-2022

(18-07-2022, 09:26 AM)sgbuffett Wrote:  The most important chart is this.

If you choose basic scheme for cpf life you get a bit less each month but your bequest is much larger.

If you die at around 80 the standard and enhance have zero bequest and the basic has 100k to give to your children...

[Image: uHFWTz8.jpg]

By taking just 100$ a month less than standard, the basic gives 100k more in bequest at age 80.

The difference is so large it make no sense to go for standard scheme which is the default.

Many will make this mistake of choosing standard because they  did not bother to check......and took things for granted.

[Image: 02491oo.jpg]l

So those above 55 now....which did you choose?

Thanks for sharing. 
Your earlier post indicated the Internal return for Basic and Standard are close...But as I know we just need to put in 50% for Basic compared to Standard, and you are showing above that can get back monthly payout for Basic at about only $100 less than Standard ( and additionally bequeath is higher! ) , which don't seem to jive. 
It would seem the Basic IRR would be much higher, since the input is half, and output is much higher.........

RE: Internal rate of return of CPF Life - sgxin - 18-07-2022

(18-07-2022, 10:19 AM)RichDad Wrote:  No SA anymore. All merged into RA

TS talks so much... Laughing 

https://www.cpf.gov.sg/member/faq/growing-your-savings/retirement-sum-topping-up-scheme/i-am-55--can-i-transfer-my-ordinary-account-savings-to-my-specia

RE: Internal rate of return of CPF Life....why many will make wrong choice... - sgbuffett - 18-07-2022

(18-07-2022, 10:31 AM)lylcnn Wrote:  Thanks for sharing. 
Your earlier post indicated the Internal return for Basic and Standard are close...But as I know we just need to put in 50% for Basic compared to Standard, and you are showing above that can get back monthly payout for Basic at about only $100 less than Standard ( and additionally bequeath is higher! ) , which don't seem to jive. 
It would seem the Basic IRR would be much higher, since the input is half, and output is much higher.........

That is why CPF is confusing.

There are 2 dimensions.
1. The amount you want to participate in CPF Life....BRS vs FRS. BRS is half of FRS. BRS = basic retirement sum.

2. After you choose the amount,  you select between basic cpf life vs standard cpf life.

You can choose BRS + Basic; FRS+Basic...etc 4 combination.

In the above example it illustrate FRS+basic vs FRS + standard...meaning the participation sum is same.

To understand alone is complicated never mind making the right decision. Most people don't bother.

Hope I answered the correct question.