This blogpost is for me to record my thoughts on CPF so that I have some notes to refer to when I start approaching 55.
I have had not the opportunity to think about reaching CPF withdrawal age at 55 as I have some time left to go. However Budget 2024 with the 2 major CPF changes, and the financial blogosphere posting their analysis about CPF, I took this opportunity to have a think about this.
Removal of CPF-SA
Sad but sort of expected.
ERS changes from 3x to 4x BRS
Before budget 2024, I only had a vague idea of what all these terms meant, and also, how they related to CPF Life. Now I have a slightly better picture but not sure if my knowledge is 100% yet.
CPF Life is sort of some type of longevity insurance (website says it is insurance not investment) and everyone can signup. Those that are healthier and have longer life expectancy will be expected to get more benefit from CPF Life, while those that die early are donating their CPF monies to fund the payments to members with above average lifespans.
CPF Life on first glance seems attractive to me since I do try to live a healthy lifestyle. I go for regular blood tests and just manage to keep my total cholesterol below 200 and BMI between 24.0-25.0. Triglycerides are optimal for me. Thanks to circuit-breaker and WFH, I have also developed a regular gym-swim routine during WFH days. Genetically, no family history of heart disease or cancer (so far).
According to the CPF website, setting aside ERS, choosing the Standard plan, and deferring payments for 10 years will net you $3,330 per month. Internet chatter seems to think that this is a good deal. The lure of regular passive income is just so attractive. There are also comments to the effect that if you get dementia and get cheated of your money, at least you still have CPF Life payments to support you.
If I live past 80 (I think there's a reasonable chance), the risk of dementia is there, but this means I am setting aside a lump sum at age 55 in order to make arrangements for a possibility that could happen 25 years later, thats a lifetime (to someone who is 24 years old)! Based on parents and grandparents experience, I will likely be pretty mentally alert between 65-75, and shouldn't I be asking if I can generate more return if instead of setting aside ERS, I just set aside FRS and invest the rest?
Nevertheless, the idea of a 'protected' income stream is indeed appealing. I am leaning towards setting aside FRS though I am also thinking about ERS if I manage to keep myself in good health at age 55. (Cholesterol under 200, 5km run in 30min - i.e. still able to average 10km/h at age 55), since good health puts me in a good position to benefit more from CPF Life.
Another consideration is how much more my passive income grows. For example, if I reach 30k passive income, I might view ERS as the better choice to insure against catastrophic loss of my passive income versus using the difference between FRS and ERS to reinvest to get a few percentage points more return.
99% of CPF members have less than 4xBRS (i.e. the new ERS) in their CPF-SA when they turn 55
This seems accurate. I am an above average income earner and I should be close to 1m in CPF by age 55 (including CPFIS investments) but my CPF-SA is still under 4xBRS. I did do some CPF-OA to CPF-SA transfers when I was younger - not huge transfers but I did transfer small amounts regularly to CPF-SA but I'm not sure when I hit the limit and could not top-up anymore.
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