Comparing FRS in RA plus BRS in SA vs ERS in RA, Part 2

This Opinion post first appeared in my blog here: https://pwlcm.wordpress.com/2023/01/27/comparing-frs-in-ra-plus-brs-in-sa-vs-ers-in-ra-with-cpf-life-basic-plan/

This blog post is part of a 4-part series:

1. https://pwlcm.wordpress.com/2023/01/27/comparing-frs-in-ra-plus-brs-in-sa-vs-ers-in-ra-with-standard-plan/
2. https://pwlcm.wordpress.com/2023/01/27/comparing-frs-in-ra-plus-brs-in-sa-vs-ers-in-ra-with-cpf-life-basic-plan/
3. https://pwlcm.wordpress.com/2023/01/28/comparing-frs-in-ra-plus-brs-in-sa-vs-ers-in-ra-with-cpf-life-escalating-plan/
4. https://pwlcm.wordpress.com/2023/01/30/comparing-frs-in-ra-plus-brs-in-sa-vs-ers-in-ra-part-4/

Refer to the list of acronyms on CPF in the following blog posts: https://pwlcm.wordpress.com/2022/01/06/acronym-cpf/

I am a CPF Volunteer. If you find this blog post providing useful information about CPF matters and it leads you to using CPF online services, you may fill in my full name “Tan Choong Hwee” in the “Referrer Name” field in some selected CPF online services.

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In Part 1, I look at 2 scenarios with CPF LIFE Standard Plan. Now I want to compare the 2 scenarios with CPF LIFE Basic Plan. To recap, the 2 scenarios are:

• Scenario 1: FRS ($198,800 for 2023) in RA plus BRS ($99,400 for 2023) in SA
• Scenario 2: ERS ($298,200 for 2023) in RA

Again with the CPF LIFE Estimator set to a male born in 1968 (i.e. age 55 in 2023), I get the monthly payout amounts for Basic Plan to be $1,460 and $2,150 initially, then drop to $1,390 and $2,080 at later age for FRS and ERS respectively:

In CPF LIFE Basic Plan, only 10~20% of RA is deducted at age 65 as premium for CPF LIFE, and the initial monthly payout is paid from the remaining balance in RA. The drop in monthly payout is affected by the drop in extra interest due to RA balance falling below $60,000.

The difference in monthly payout for the 2 scenarios is $690, or $8,280 in a year. This shortfall is matched up from SA drawdown. Here is the Excel spreadsheet to simulate the 2 scenarios:

I don't know how the CPF LIFE premium for Basic Plan is determined, so I just pick 15% (the mid value of the range 10~20%) for the Excel simulation.

I also assume a linear interpolation of monthly payout amount from the time RA hit $60,000 till it is depleted. After RA is depleted, CPF LIFE takes over payout and I assume it remains at the last payout amount for life.

With Basic Plan, it seems like the initial payout amount can be maintained till age 86, then gradually drop to last payout amount at age 90. For scenario 1, SA is depleted at age 96, later than the case for Standard Plan.

Similar observation for bequest with Basic Plan as Standard Plan, i.e. scenario 1 have more bequest amount than scenario 2, and it takes later age to deplete the bequest in scenario 1 than scenario 2.

Same summary as in Standard Plan, i.e. scenario 1 has higher bequest amount, but suffer lower payout after SA depleted; whereas scenario 2 can maintain higher lifetime payout.