Can You Retire on CPF LIFE Payouts Alone?

This was originally posted on Planner Bee.

Retirement marks a significant milestone in life. It’s a phase where individuals transition from the rigours of employment to a newfound chapter of what one hopes will be relaxation, leisure, and self-discovery.

With life expectancies increasing and the cost of living rising, retirement preparation becomes increasingly important for individuals. This means that should a person’s retirement planning be flawed, it will be difficult for them to have an enjoyable and fulfilling golden years.

In Singapore, the CPF Lifelong Income For the Elderly (LIFE) scheme was introduced to ensure the elderly have enough to get by in their old age. It provides monthly payouts from the age you retire till the end of your life, based on the funds in your Retirement Account.

However, amidst evolving economic situations and changing needs, the adequacy of CPF LIFE payouts as a sole retirement income source warrants careful examination.

What is CPF LIFE?

CPF LIFE is a national insurance scheme you are automatically enrolled in if:

• You’re a Singapore Citizen or Permanent Resident, born in or after 1958
• Have at least S$60,000 in your Retirement Account before you reach 65

Launched in 2009, it replaces the Retirement Sum Scheme (RSS), which applies to those who don’t meet these criteria. CPF LIFE provides payouts till the end of your life, while the RSS only provides payouts till your retirement savings run out.

CPF LIFE payouts start between the ages of 65 and 70 and are divided into three main plans: Basic, Standard, and Escalating.

How much do you get?

When you turn 55, CPF will create a Retirement Account, and your savings from your other CPF accounts will be transferred over.

Your monthly payout depends on the total amount in your Retirement Account — known as your Retirement Sum — together with the CPF LIFE plan you opt for.

Below is an illustration of how much someone turning 55 in 2034, computed as of 2024, will get if they opt for the Standard plan:

Source: CPF

According to CPF, payouts may also be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual.

As the above is an illustration of the Standard plan, should the Basic or Escalating plan be chosen, the payouts would have been lower. In the case of an Escalating plan, it would increase in the later years.

Will it be enough?

It is difficult to predict the future, and you might not know how much you will need 20 years down the road during your golden years.

There’s one way to have a better idea. You can use the CPF Life Estimator tool, which is designed to help members between ages 55 and 79 estimate their CPF LIFE monthly payouts based on their desired retirement lifestyle.

Look into your current investments and assets, and take them into account when you calculate your retirement income. We also suggest that you estimate your retirement expenses at approximately two-thirds of your pre-retirement spending.

While this can all be tedious, a well-informed and proactive retirement planning journey is imperative to safeguarding your financial well-being during your golden years.

Meeting your retirement goals with CPF

After you’ve figured out how much you’ll need when you retire, you’ll need to work towards that corresponding Retirement Sum.

With the closure of the CPF Special Account (SA) from 1 January 2025 for those aged 55 and up, any SA top-ups will be allocated to the member’s Retirement Account (RA) instead, up to the Full Retirement Sum (FRS), to boost retirement payouts. For members who have set aside the FRS in the RA, these contributions will be channelled to the Ordinary Account (OA).

RA balances currently earn a minimum interest rate of 4% a year, while OA earns a minimum of 2.5%. Members aged 55 and above earn an extra interest of 2% per annum on the first S$30,000 of their combined balances (capped at S$20,000 for OA) and 1% per annum on the next S$30,000.

You can also defer your CPF LIFE payouts from age 65 to 70. According to CPF, “For every year that you defer your CPF LIFE payouts, your monthly payout amount increases by up to 7%. This means that if you defer for 5 years, your monthly payout could increase by up to 35%.”

What if I need more than CPF LIFE payouts?

As you can see from the earlier CPF LIFE Standard plan payout illustration, it is highly unlikely that you can rely solely on these funds for a fulfilling retirement. It could still make up the bulk of your retirement income, but you would need to have other sources of passive income to supplement this amount.

These can come from private annuity plans, investments — especially those that can offer dividends — and rental income.

Private annuity plans

Generally, it is hard to find a private plan that is both low risk and comes with guaranteed returns that are as good as what CPF LIFE can provide, which can go up to 6% annually.

However, private annuities can still provide another steady but smaller source of lifelong payouts. Unlike CPF LIFE, these can start before you turn 65.

Investments

For those with a bigger risk appetite, investing when you are young can potentially help to supplement your income to ensure that you have enough during retirement.

A diversified portfolio with investments in dividend stocks and Real Estate Investment Trusts (REITs) can give you an average of 4%-5% yield. For example, an investment in Frasers Centrepoint Trust (SGX:J69U) indicates that the dividends from FY2019 to FY2023 yield an average of 5.48%.

Read more:__ Should you jump into property investing?

Property

Buying properties and renting them out for income used to be very popular among Singaporeans, but the Additional Buyer’s Stamp Duty has made it too expensive for most to buy more than one house.

Even if it seems like others are investing in a second property, don’t jump the gun and do the same if you have to worry about paying off the mortgage during your retirement.

Instead, you could downsize to a smaller home, or rent a spare room out for extra income. If you live in a flat, you could sell the tail-end of your lease to the Housing and Development Board (HDB).

The proceeds can be deposited into your Retirement Account. HDB also issues cash bonuses of up to S$30,000 under this scheme, which you can receive as cash.

Taking stock early

Start planning for your retirement in your 20s and 30s. Tools like Planner Bee’s Retirement Calculator helps you determine if you’re on track.

Using the calculator is easy. Just key in your current age, planned retirement age, and your estimated monthly retirement income. You don’t need to account for inflation as the calculator automatically factors that in. Enter details of your current investments, along with likely retirement income sources such as your CPF LIFE payouts.

The calculator tells you whether you’re on track to meet your retirement goal, and how much more you should invest to meet your target.

Assume you want to retire by age 65 and spend about S$3,000 every month. You currently only have S$10,000 in investments. When you retire, you’ll get S$1,000 in monthly income and you opt for a CPF Life monthly payout of S$1,670.

Based on these figures, it shows that you’ll be short of more than S$1 million. To meet your goal, you need to start investing at least S$2,013 every month.

While the CPF LIFE scheme provides decent monthly payouts, you won’t be able to retire on it alone. Review your financial goals and talk to one of us at Planner Bee to help you live comfortably in your silver years.

Read more: How To Complement Your CPF Life With an Annuity Plan