CPF LIFE: CPF Annuities Scheme for 50s and Below

Singa­pore Nation­al Annu­it­ies Scheme, termed CPF Life, is out! It will be com­puls­ory for those below 50 years old when CPF Life starts in 2013 in 5 years time.

CPF Life pays roughly about the same monthly amount as the old scheme if you choose the stand­ard option, Refund 80. Hence, it is def­in­itely a good deal com­pared to the old scheme, since the new scheme pays for life where­as the cur­rent scheme pays for only 20 years.

The only draw­back about this Nation­al Annu­it­ies Scheme is that it can­not hedge against infla­tion rate. A bowl of noodle that cost $3 now will cost $5.40 in 20 years times, assum­ing 3% infla­tion rate. Hence, the same $600 pay­out per month now in fact only worth $332 in 20 years time.

CPF Life helps some cit­izens to get at least some basic income for life. How­ever, to have a more com­fort­able retire­ment, you may want to con­sider buy­ing those private annu­it­ies that hedge against infla­tion. The guar­an­teed interest rate may be lower at 2.5% (CPF Life offer min 3.5%), but it also offers addi­tioanal non-guar­an­teed bonus rate of 1–3 per­cent. This type of private annu­it­ies scheme in fact will give a more total pay­out after about 12 years. But many people shun because it is human nature to want to see imme­di­ate mon­et­ary bene­fits. We lose out in the long run, in this case, 12 years time.

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