The Merdeka Generation’s Guide to Choosing CPF Life or Retirement Sum Scheme
CPF Life is an essential part of every Singaporean’s plan for retirement. While most of us will be automatically enrolled for CPF Life when we reach the age of 65, there are those in the Merdeka Generation, born before 1958, who have a choice between CPF Life and the Retirement Sum Scheme (RSS). Although they are automatically enrolled for the Retirement Sum Scheme, they also have the option to switch to CPF Life at anytime before the age of 80. How should they choose between these two options, and when should they do it?
CPF Life offers CPF members a guaranteed annuity of between 15 to 25 years, depending on the plan chosen (Standard or Basic), where you either get payouts if you survive, or a bequest if you do not. It also offers a true annuity past the guaranteed period, providing payouts for life, thus hedging you against the risk of outliving your financial resources. We have written quite extensively about CPF Life previously, and conclude that it is the best value-for-money retirement product you can buy, as it is actuarially fair (i.e. you don’t need to pay any fees to the product provider)! Take a look at the following if you need any convincing:
- CPF Life: A Primer on Retirement
- CPF Life: Is it a worthwhile investment?
- How does an annuity work?
- CPF Life: Should I defer the payouts to age 70?
- CPF Life: An Update for 2020
- CPF: Important updates for 2021 you need to know
- CPF LIFE: Some surprising changes for 2022
We have also written on how CPF Life can be combined with other investments for a holistic and flexible retirement plan, to take advantage of the ability of the CPF Life Escalating Plan to provide a further hedge against inflation:
- The Yield Shield, 4 Percent Rule and CPF Life – A Perfect Retirement Combo?
- How to Spend Your Retirement Savings (2): Combining CPF Life with Investments
The Retirement Sum Scheme, on the other hand, is not really an annuity, unlike CPF Life. It simply pays out a constant sum from your CPF Retirement Account (RA) savings over 25 years, until the sum plus interest earned over this period is exhausted. One key advantage of CPF Life over RSS is obviously the payouts are for life. But how likely are you to survive past the age of 90, when the RSS payments run dry? Well, from the SingStats Singapore Life Tables, a man aged 65 has a 27% chance of surviving to age 90 and beyond. A woman aged 65 has a 42% chance of doing the same. Given these odds, my choice would be to opt for payouts for life! Not sure what you can do at age 90 if the money under RSS runs out.
But one “advantage” commonly cited for choosing RSS over CPF Life is that you somehow “lose” the money in CPF Life should you pass away before the age of 90, whereas under RSS, your beneficiaries will get whatever is left in your CPF Retirement Account (RA) should that happen. To test this out, we need to work out:
- The value of the minimum sum put into the CPF RA at age 55 at age 65
- How much you will be able to get from RSS every month from age 65 to age 90
- The decline in the CPF RA amount over time from age 65 to age 90 as the payments are made
How would this affect a Merdeka Generation father?
Let’s take the case of a man who was born in 1958. When he turned 55, he put the minimum sum of $139,000 into the CPF RA. In a few years’ time, when he turns 65, how much will be in the RA, and how much can he get every month under RSS thereafter until age 90? At the same time, let’s compare that to the payouts and bequests under the CPF Life Basic Plan. We assume that the first $30,000 in the RA earns an interest rate of 6% a year, the next $30,000 earns 5%, and the remaining earn 4%.
Monthly payouts from RSS and CPF Life for a man with a minimum sum of $139,000 at age 55
| RSS | CPF Life Basic Plan | |
|---|---|---|
| Monthly Payout | $1,153 | $1,117 |
Here, RSS has the advantage, but only for 25 years, as the payments become zero thereafter. CPF Life, on the other hand, will continue paying out past the age of 90. What about the bequest the beneficiaries can get? We show this in the chart below:
Bequests over time for a man with a minimum sum of $139,000 put in the CPF RA at age 55
Well, the bequest amounts under both RSS and CPF Life Basic Plan are very similar for the first 5 years, but thereafter, CPF Life always gives a higher bequest amount, and lasts longer as well. Overall, in return for getting out $36 less every month, CPF Life will pay out for longer, and will give a higher bequest amount.
So for a man from the Merdeka Generation, at the age of 65, it is better to enroll in CPF Life than in RSS.
What if our Merdeka Generation friend has already started on RSS and wishes to switch to CPF Life instead (after reading the analysis above)? Is it worthwhile to make the switch, say at the age of 70, or at 75, or at 80?
Let’s look at the case for switching at the age of 70 first. For someone who met the minimum sum of $139,000 at the age of 55, there should still be around $184,500 in his RA at the age of 70. However, switching to CPF Life Basic Plan at this age means a reduction in the monthly payouts:
Monthly payouts from age 70 for a man from switching to CPF Life from RSS
| RSS | CPF Life Basic Plan | |
|---|---|---|
| Monthly Payout | $1,153 | $1,065 |
What about the bequests? Will he be better or worse off under CPF Life?
Bequests from age 70 for a man from switching to CPF Life from RSS
While the monthly payouts will take a hit from switching to CPF Life from RSS at age 70, the bequest amounts actually improve under CPF Life. In fact, the bequest amounts under CPF Life are very similar whether he starts off at age 65 or at age 70.
Let’s now look at the case where he decides to switch to CPF Life from RSS at the age of 75 instead. At this age, assuming that having a bequest should he pass on before the age of 90 is important, he now has a choice to switching to the Basic Plan or the Standard Plan, because even the Standard Plan, with its higher monthly payouts, can still afford a bequest amount well into his late 80’s. Let’s first look at the monthly payouts, and then the bequest:
Monthly payouts from age 75 for a man from switching to CPF Life from RSS
| RSS | CPF Life Standard Plan | CPF Life Basic Plan | |
|---|---|---|---|
| Monthly Payout | $1,153 | $1,096 | $990 |
Bequests from age 75 for a man from switching to CPF Life from RSS
Again, the trade-offs for switching from RSS to CPF Life at age 75 for the Merdeka Generation are clear. Under the Basic Plan, monthly payouts will be reduced sharply, while bequests go up. Under the Standard Plan, monthly payouts will dip, but not by so much. Instead, bequests will be lesser. But in both cases, the biggest upside is that the monthly payouts will continue for life. And this is more important now, because at the age of 75, a man has a 33% chance of living past 90!
For completeness, let’s also look at switching to CPF Life from RSS at the age of 80 (the last possible age), with a value of $111,000 in the CPF RA. As expected, the trade-off in terms of monthly payouts gets worse compared to switching to CPF Life earlier, but the upside is that the bequests are better than switching earlier. However, the chance of the beneficiaries getting those bequests are of course lesser, since the chance of surviving past the age of 90 for a 80 year old man is 40%!
Monthly payouts from age 80 for from switching to CPF Life from RSS
| RSS | CPF Life Standard Plan | CPF Life Basic Plan | |
|---|---|---|---|
| Monthly Payout | $1,153 | $937 | $857 |
Bequests from age 80 for a man from switching to CPF Life from RSS
So, what can we learn from this? For a man of the Merdeka Generation, the choice between CPF Life and RSS can be boiled down quite simply:
If you care more for the payout amounts, choose CPF Life instead of RSS as early as possible, the best case being at the age of 65.
.
If you care more about the bequest you leave behind, switch to CPF Life from RSS as late as possible, before the age of 80.
Do these findings apply for a Merdeka Generation mother?
Now, let’s see if the same result hold for the women of the Merdeka Generation. There will be differences of course, since women have longer life expectancy than men, and so the CPF Life payouts at any age will be less than those for the men. We summarize the monthly payouts depending on whether the RSS is chosen, or if CPF Life is chosen, and at different ages:
Monthly payouts from RSS and from switching to CPF Life at different ages for women
| RSS | CPF Life Standard Plan | CPF Life Basic Plan | |
|---|---|---|---|
| Age 65 | $1,153 | $1,081 | |
| Age 70 | $1,153 | $1,022 | |
| Age 75 | $1,153 | $1,003 | $938 |
| Age 80 | $1,153 | $849 | $799 |
The women are relatively worse off under CPF Life as compared to the men, with a lower monthly payout compared to RSS. But this is simply a result of women living longer to claim those monthly payouts, as we show below:
Chance for a woman to survive past the age of 90
| Current age of woman | Chance of surviving to age 90 |
|---|---|
| 65 | 42% |
| 70 | 44% |
| 75 | 47% |
| 80 | 52% |
What about the bequests if they choose to switch to CPF Life?
Bequests over time for a woman with a minimum sum of $139,000 put in the CPF RA at age 55
Amount of bequests from age 70 for a woman from switching to CPF Life from RSS
Bequests from age 75 for a woman from switching to CPF Life from RSS
Bequests from age 80 for a woman from switching to CPF Life from RSS
Hence, it is quite clear from the illustrations of the monthly payouts and bequests that the same findings apply to both men and women of the Merdeka Generation with regards to their choice between RSS and CPF Life:
If you care more for the payout amounts, choose CPF Life instead of RSS as early as possible, the best case being at the age of 65.
.
If you care more about the bequest you leave behind, switch to CPF Life from RSS as late as possible, before the age of 80.
Concluding Thoughts
This post was inspired by a comment from a reader on one of our earlier posts on CPF Life, asking precisely the same question: Does it make sense to switch from RSS to CPF Life? For someone coming to age 65, and facing this choice, CPF Life is better than RSS in almost every aspect, except that the monthly payout is slightly lower than under RSS.
Even after age 65, it would still make sense for someone who is more concerned about the bequest they can leave behind rather than the level of monthly payouts to switch to CPF Life.
Finally, don’t forget to make sure your Medisave is topped up. If you have done so, and rely on Medishield Life, your Medisave will likely last you through your entire retirement.
Do u think the merdeka generation can live until 90 most of my friend and other are dead by the age of 70+
Hi Nathan!
Thanks for reading! It is almost certain that the Merdeka Generation, who are only now starting to enter their 70’s, will live longer than the Pioneer Generation on average. Already, there are many instances of the Pioneer Generation living till their 90’s, so in all likelihood, there will be even more such cases for the Merdeka Generation.
Thank you for the very comprehensive and analytical article. Now, people born before 1958 can make their own calculated and educated decisions on whether to convert to CPF Life (Basic) Plan and if so, when.
Thanks for asking me the question in the first place!
There’s mention of fathers and mothers. What’s the best solution for singles with no beneficiaries? Are unmarried people especially myself who is a woman, and born before 1958, convert to CPF Life? This question has not been touched on.
Hi SH!
Thanks for reading my blog!
For people who care less for the bequest under CPF Life or RSS, you can opt for the other CPF Life Plans (Standard or Escalating) for a payout which will be higher than RSS and pays out for a longer period as well. The key consideration for making this choice is:
1) If CPF Life is going to be the main or only source of retirement income, choosing the CPF Life Standard Plan will give you a higher payout, but do remember to put asides some savings for inflation, especially for healthcare costs as you get older.
2) If CPF Life will provide for half or less of your retirement income (with income also coming from rental properties, or shares, or bonds etc), hen you can consider choosing the CPF Life Escalating Plan, which will give you better protection against inflation, especially as you get older.
Hmm… interesting! So if we want to maximise immediate monthly payout instead of bequest, we should opt for CPF Life Standard Plan at 65? If we want to cater for inflation, then we should opt for CPF Life Escalating Plan instead. Question is, how much more will the monthly payout for Standard Plan be, using the same example here? I believe that if we opt for Escalating Plan, the initial monthly payout would be the least of the 4 options? Could you kindly estimate the respective initial monthly payout figures for Standard Plan and Escalating Plan if we convert to them at 65 and also, at what ages do the these 2 plans have the bequests become 0? This information is crucial for us to make an informed decision. Thanking you in advance.
Hi Victor!
I ran the numbers on the CPF Board’s CPF Life Estimator (https://www.cpf.gov.sg/eSvc/Web/Schemes/LifeEstimator) to try to make them comparable to the ones I had in the post, and they work out as follows at age 65:
RSS: $1,153
CPF Life Basic: $1,117
CPF Life Standard: $1,225
CPF Life Escalating: $975
While the Escalating Plan starts off the lowest, it will surpass the Basic Plan payouts after 7 years (age 72), the RSS payouts after 9 years (age 74), and the Standard Plan payouts after 12 years (age 77).
Also, the bequests for the Standard Plan run out after age 80, while that for the Escalating Plan run out after age 81.
As everyone will have different aounts in the CPF Retirement Account, and different birthdates, it is best to work out the payouts for yourself at https://www.cpf.gov.sg/eSvc/Web/Schemes/LifeEstimator
Please note an important update on RSS and CPF Life which I found out by chance today.
I just checked my account using CPF web services and tools. (There are separate estimator/calculator on CPF website, not mobile site, to check on your estimated monthly payout, bequest, etc based on your drawdown age, plan chosen, sex, etc.) I found that if I choose to stay on RSS and start my drawdown at 65, my monthly payout is about 10% MORE than if I choose the plan with the next highest monthly payout, which is CPF Life Standard Plan. However, my RSS amount will last only 21 years (until I am 86) before it runs out. These 2 details are different from what you haAve described in this article, i.e. Standard Plan has the highest monthly payout amongst the 4 plans and RSS amount will run out at age 90 if drawdown starts at 65. (I believe the differences were brought about by the changes made to the RSS w.e.f. Jan 2020 which were announced by Josephine Teo last year, i.e. RSS amount lasting until age 95 was too long, hence the age would be brought down to about 90 and this would increase the monthly payout amount. You are advised to use the estimator/calculator before choosing the most appropriate plan to suit your circumstances.
Thanks for the update!
It is actually quite puzzling, since the current policy is that RSS will last until age 90. Perhaps the calculator has not been updated for the recent changes? It would probably be best for you to call/visit CPF to figure this out.
Hi lifefinance,
Thanks for your great articles. You are an absolute star (wanted to say stud but I don’t know your gender and we live in 2020 so…). I initially got linked to your website as the blog had the best information about CPF Life/RSS while going thru stuff for my dad, but see that you have a ton of good articles. Will slowly go through them. Have pretty much read all the CPF ones at this point. A few questions/points I have regarding the numbers you have provided in this article.
I understand that you might not be thinking about posting the Excel spreadsheets you have used in the calculation of these numbers, but I would like to clarify a few points and maybe you could update your article so that your readers would be less (albeit maybe even more) confused.
1) Since you are looking at RSS and CPF for a person born in 1958, my guess is the number you are using in his RA at age 65 would be 216,559 in 2023? It seems to be the case from the chart “Bequests over time for a man with a minimum sum of $139,000 put in the CPF RA at age 55”. Would it be possible for you to list this amount that you are using?
2) How do you know what the payouts for the RSS scheme are? Since my parents have not started receiving payouts yet I’m not sure how much they will receive, and I haven’t been able to find this information anywhere. I plan to make a trip down to CPF to enquire, but wondering where you got this information.
3) In addition to the point above, could you explain/confirm (with an update on the blog) why you compare RSS with the CPF Life Basic plan, is it because it is pretty much the same?
4) Also, based on the CPF Life estimator, the amount of bequests left in the CPF (which I assume is the amount that can be paid out, seems to be 200k under the CPF Life Basic plan at age 70? This is against what you have which is a number of 184,000. The numbers at age 75 and 80 are closer to the numbers from the CPF Life estimator, so not much of an issue there.
5) Lastly, at an age older than 70, are you using your own excel spreadsheet to try to calculate the payout? Particularly for both CPF Life Standard and Basic plans, because it doesn’t seem like I can get that from the CPF Life estimator. Your information is amazing but I just want to make sure all the numbers are correct because I’m very much dependent on your conclusions you have laid out.
The plan for my dad turning 65 in next year is to ask for payouts asap, because you only break even at 85, use the RSS until he’s 80, then switch to the CPF Life Standard plan. Magic! Thanks again!
Hi Jonathan,
Thanks for your interest in my blog posts and the kind words. Let me try to answer your questions as best as I can – although it has only been 2 months since I posted the article, I struggle sometimes to recall the finer details of how exactly I computed some of those figures. Maybe it is an indicator of the early onset of my dementia or Alzheimer’s!
1) Yes, the starting amount of the RA at age 65 is assumed to be $216,559 and as you assumed correctly, it was projected using the 4% interest rate on the RA, plus the extra 1% for the first $60K and additional 1% for the first $30k of the RA balance.
2) The RSS payouts are estimated through a trial and error process – i.e. it is the monthly payout which will fully exhaust the balance in the RA at the age of 90, assuming that the balances will earn interest as per the model used in 1) above. It is a bit unfortunate that the CPF Board will only disclose this RSS payout amount to the person upon submission of his/her personal details, unlike CPF Life, whereby any one can access the CPF Life estimator to work out the payouts.
3) Yes, the comparison is made between RSS and the CPF Life Basic Plan because the assumption is that the person cares about the bequest up to the age of 90, so this makes it a like-for-like comparison.. The comparison of RSS with the CPF Life Standard Plan is only made for a person switching at the age of 75 or 80, as the bequest would last until the age or 88 in the first instance, and 91 in the second instance, making it more comparable with the RSS.
4) Not sure where you got the $200k figure for CPF Life Basic Plan at age 70 from, when I churned out the numbers from the CPF Life Estimator, it gave me $184,792.
5) For ages older than 70, the CPF Life Estimator is able to give you the answers. Just change the birthdate on the first page of the Estimator – for example, if you put in a birthdate as 1 Oct 1945, you will see that the CPF Life payouts will start from age 75. While this is a way of “tricking” the CPF Life Estimator, and hence there are no guarantees as to its accuracy, the figures it produces do look quite legit.
Hope this gives some illumination! All the best!