I was shown a table published on Straitstimes telling people now has an option of enhancing their CPF Life by contributing money beyond the minimum sum. The table shows some details in the monthly payout and bequest of different options. When looking into the numbers and doing the sum, I made the shocking discovery.
Take the case of the Full Retirement Sum. Notice that at age 85,which is about our current life expectancy, there will be no more bequest for Standard Plan, whereas there is still 77~81K bequest when you choose Basic Plan. Now look at the money payout, between Standard and Basic Plan, the difference in monthy payout is $114~124. For the 20 years (65-85), the person who choose Standard Plan will receive $27,360 - $29,760 more than the one on Basic Plan.
The big question is, while you enjoy about 30K more on payout, how does this translate into $80K difference in bequest for the family? Does the compound interest effect of $124 justify the 80K in 20 years? I did a quick calculation. $124 per month, compounded over 20 years @4% comes to $44.3K which is far below the 80K difference.
For the other two options, the reader can do the sum yourself to verify that the result is similar.
Of course we can write to CPF and demand for an explanation. The point I want to make is, purely from the mathematics, Basic Plan is the better choice. And if you are one that does not really depend on the extra $124 to live in retirement, then it makes better sense to choose Basic Plan, as more money will be left to your family member.
Sanye called CPF and was told that once the choice is made, it can not be changed. So I made a bad choice because I didn't look into the details. I hope you will not make the same mistake.
6 comments:
Thank you brother Sanye!
Since I don't think I'll have any dependents by 85 (unless I do a Jim Rogers), naturally I'm partial to the Standard Plan.
Hmm...
Maybe I should consider the Basic Plan so I can leave something behind to a charitable or religious organization so they'll have an "incentive" to the recycling of my body? Cremate and scatter to the wind?
SMOL,
Never say never. The Miss Right may appear one day and the world losses a golden bachelor. Remember to invite me when that day comes. :)
Hi Temperament,
I was a bit disappointed with CPF Board because they did not make the difference of the choices clear to its members. Most people will not bother to use the calculator provided by them to check the details, and hence will not make the informed choice for themselves.
Hi,
Thanks for sharing this observation.
Do you have any thoughts/views on whether one should go the the Basic, Full or Enhanced Retirement Sum?
Thanks.
HI K,
Thanks for visiting my blog.
I think its up to individual to decide if he should go for Basic, Full or Enhanced Retirement sum. The choice should be made based on individual's financial situation, and if he can better manage his cash if it is not put into the retirement sum. I myself will not go for the enhanced sum, as I think I can invest the cash for better return.
Cheers!
Post a Comment