Before we deep dive into this topic, let us first find out what is the difference between Retirement Sum scheme and the CPF LIFE scheme and what does it do for you and me? The Retirement Sum Scheme provides CPF members a monthly income to support a basic standard of living during retirement.
The CPF Lifelong Income For The Elderly (CPF LIFE) Scheme is a national longevity insurance annuity scheme that insures you against running out of your retirement savings, by providing you with a monthly pay-out no matter how long you live. Introduced in 2009, CPF LIFE provides a monthly income for as long as you live. You will automatically be incepted for CPF LIFE if you are a Singapore Citizen or Permanent Resident born in 1958 or after, and have at least $60,000 in your Retirement Account six months before you reach your pay-out eligibility age.
So, how much do I receive every month with CPF LIFE?
Based on the Full Retirement Sum (FRS), the monthly pay-outs you will be receiving ranges from $1,430 - $1,530.
So, is this sufficient? Let’s look at some studies and research reports done.
The Minimum Income Standard (MIS) is a consensus-based research methodology used to determine the household income required to achieve a basic standard of living that matches a household’s location and economy. It defines what a person or family needs on a monthly basis, taking into consideration individual family members’ needs as well as to align themselves with society as a whole.
In lieu of Singapore’s ageing and decreasing household sizes, researchers at the Lee Kuan Yew School of Public Policy (LKYSPP) conducted a study** to determine the minimum amount a single elderly person needs for his or her basic monthly expenses in Singapore. The number they found was $1,379 per month for an elderly person and $2,351 for elderly couples.
So again, what does this mean? If I do not spend too much every month, is it sufficient for me? Let’s look at the bottom 20% monthly household income in 2020 which is $4,295 monthly***. The monthly pay-out from FRS is even lower than this. Would you be able to survive on an income which is lower than even the bottom 20% of Singapore’s population? The average income based on the same statistical report is $9,764 monthly***. That’s a huge difference between the average income and also the monthly amount that you receive from CPF LIFE.
So, how can I plan for my retirement then?
The importance here is determining the amount that you need at retirement rather than just depending on what is available from CPF LIFE. One general rule of thumb would suggest that you need 50% to 70% of last drawn annual income to maintain your current standard of living during retirement****. Not forgetting that you would need to provide for inflation costs, higher care needs and even more expensive health insurance as we age.
Here at Abundant Life Planners, we hope this series that we embark on will help you retire in style!
References
* RetirementPayouts.pdf (cpf.gov.sg), https://www.cpf.gov.sg/Assets/members/Documents/RetirementPayouts.pdf, 2020.
**Elderly people need $1,379 a month for basic living (yahoo.com), https://sg.news.yahoo.com/elderly-people-in-singapore-need-1379-a-month-for-basic-living-study-024013202.html, 23 May 2019.
***(DOS) | SingStat Table Builder – Average Monthly Household Income from Work (Including Employer CPF Contributions) Among Resident Employed Households By Deciles 1/, https://tablebuilder.singstat.gov.sg/table/CT/17262, 8 Feb 2021
****Retirement (lia.org.sg), https://www.lia.org.sg/consumers/getting-started/retirement/, 2021
