CPF Life vs Retirement Sum Scheme: Which should you go for?
PHOTO: Unsplash
PUBLISHED ONDecember 03, 2023 12:55 PMByPRISCILLA LEE
For most Singaporeans, CPF funds account for a large portion of our retirement sum. This naturally points to the importance of truly understanding how the funds work if you are serious about retirement planning in Singapore.
In this article, we will discuss two essential elements — the CPF Life and Retirement Sum Scheme (RSS). We will take a closer look at the differences between these schemes and how they can impact your CPF monthly payouts in Singapore when you turn 65 years old.
Differences between CPF Life and Retirement Sum Scheme (RSS)
First and foremost, CPF Life replaced the old RSS as the default CPF payout scheme for Singaporeans in retirement. However, since this scheme is still affecting a portion of the population, we will still address how it works here.
At a glance, this is what CPF Life and RSS is about:
| CPF Life | Retirement Sum Scheme (RSS) | |
| Payout format | Receive monthly payouts for life | Receive monthly payouts until you turn 90 or until your savings runs out |
| Amount of monthly payout | Depends on which plan you opted for. You can choose from the CPF Life Standard Plan, Basic Plan or Escalating Plan | Depends on how much you set aside in your Retirement Account (RA) |
| Eligible profile | Singaporean citizens and permanent residents born in or after 1958 who contribute regularly to their CPF and have at least $60,000 in their CPF Retirement Account (RA) | Singaporean citizens and permanent residents born before 1958 and not included in CPF Life* Or non-Singapore citizens or non-permanent residents |
| Age to start payout | 65 years old Can opt for later payout but no later than age 70 |
65 years old Can opt for later payout but no later than age 70 |
| Interest rate | Up to six per cent per annum paid to the amount allocated to CPF Life scheme | Up to six per cent per annum paid to RA balances |
| *Those on RSS can opt to join CPF Life before turning age 80 | ||
CPF Life
CPF Life is akin to an insurance scheme that provides you monthly payouts in Singapore during your entire retirement period starting from 65 years old.
What is important to note about the scheme is that only Singaporean citizens and permanent residents who contribute to their CPF are eligible for it. This means, those who do not have regular CPF contributions, for example, homemakers or self-employed individuals, will not qualify.
The monthly payouts from your CPF Life will be taken from your RA which comprises funds pooled from your CPF Ordinary Account and CPF Special Account when you turn 55. The amount of funds deposited in the RA is based on the Retirement Sum of that year.
The sum is adjusted annually by the CPF Board. How much you can receive each month at retirement is largely dependent on how much retirement sum you have at age 55 and which CPF Life plans (Basic Plan, Standard Plan or Escalating Plan) you opt for.
Not sure how much you will need? You can use the CPF Life Estimator to help you with your retirement planning in Singapore. The amount of CPF Life premium needed will also be reflected to help you decide if you have enough to achieve your desired monthly payout under your selected CPF Life plan.
Retirement Sum Scheme (RSS)
This is one of two retirement schemes under the CPF Board. It is only applicable for Singaporean citizens and permanent residents born before 1958 and not included in CPF Life.
If you are born in 1958 or after and fail to meet the CPF Life auto-inclusion criteria, which means having less than $60,000 in your RA when your monthly payouts start, you will also qualify for this scheme.
Like CPF Life, RSS also provides monthly CPF payouts at retirement at age 65. You may request to start receiving monthly payouts later but not beyond 70 years of age.
However, unlike CPF Life, those on RSS are not eligible to receive lifelong payouts. This is because the total sum in the CPF Retirement Account (RA) is only spread up to 90 years old.
As CPF Life is deemed as the new and improved retirement scheme, those who are on RSS are often encouraged to join the latest scheme to receive lifelong monthly payouts. You can do so by opting into the scheme before turning 80.
CPF Life monthly payouts vs RSS monthly payouts
Here’s a quick comparison between the payouts of various schemes in 2022:
| 2022 Expected Retirement Savings at 55 | CPF Life — Basic Plan Monthly Payout at 65 | CPF Life — Standard Plan Monthly Payout at 65 | CPF Life — Escalating Plan Monthly Payout at 65 | Estimated RSS Monthly Payout at 65 |
|---|---|---|---|---|
| Basic Retirement Sum — $96,000 | $615 to $677 | $779 to $852 | $712 to $780 | $750 to $810 |
| Full Retirement Sum — $192,000 | $1,132 to $1,255 | $1,439 to $1,581 | $1,312 to $1,444 | $1,390 to $1,490 |
| Enhanced Retirement Sum — $288,000 | $1,649 to $1,832 | $2,097 to $2,308 | $1,912 to $2,109 | $2,030 to $2,180 |
| Source: ValueChampion, Dollars and Sense | ||||
When doing your retirement planning in Singapore, it is good to keep in mind that it is impossible to predict your life expectancy hence, the RSS payout scheme which stops at 90 years old can be rather limiting. Comparatively, CPF Life may seem like a better payout option since it stretches till the end of one’s lifespan.
That said, both payout CPF schemes are merely enough to cover basic living. It is crucial to evaluate your lifestyle and make a realistic calculation on how much additional retirement funds you need to set aside to retire comfortably.
Say, if you want a few vacations a year or want to explore passion projects or hobbies more extensively, relying on these payouts alone may not be enough.
Conclusion
With the rising cost of living, there is no certainty that the amount that you deem as a nest egg sufficient for retirement can truly be enough by the time you hit 65 years old.
Stashing aside savings in high-interest savings accounts that let you earn generous interest is likely to be the most low-risk method to grow your money for retirement. You will be surprised that some savings accounts in Singapore even let you earn up to 3.5 per cent per annum.
ALSO READ: How to help your parents if they don't have a retirement plan
This article was first published in ValueChampion.
