Comparing FRS in RA plus BRS in SA vs ERS in RA, Part 3

This Opinion post first appeared in my blog here: https://pwlcm.wordpress.com/2023/01/28/comparing-frs-in-ra-plus-brs-in-sa-vs-ers-in-ra-with-cpf-life-escalating-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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After comparing 2 scenarios in Part 1 and Part 2, naturally the next step is to compare with CPF LIFE Escalating Plan. As a 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

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 Escalating Plan to be $1,270 and $1,860 at age 65, and the payout would increase at 2% rate per year, with $1,880 and $2,760 at age 85, $2,300 and $3,370 at age 95, for FRS and ERS respectively:

The different in monthly payout for the 2 scenarios is $590 at age 65, and would increase as the payouts increase, meaning that the drawdown from SA to match up the shortfall would also increase until depleted. Here is the Excel spreadsheet to compare the 2 scenarios side-by-side:

With Escalating Plan, scenario 1 monthly income couldn't catch up with that of scenario 2 at age 92, the same time when its bequest is dropped to zero. This happens later than that of Standard Plan, but earlier than that of Basic Plan.

Let's put the income (payout plus drawdown) and bequest of the 2 scenarios for the 3 CPF LIFE Plans side-by-side for comparison:

As we can see clearly from the summary table, here are a few observations:

• Scenario 1 is able to keep up with scenario 2 income until its SA is depleted.
• Once SA depleted, scenario 1 income would only come from CPF LIFE payout, definitely less than that for scenario 2.
• The age when scenario 1 income drops below that of scenario 2 are different for the 3 CPF LIFE Plans, the earliest is age 91 for Standard Plan, the latest is age 96 for Basic Plan, and Escalating Plan is in-between at age 92.
• Scenario 1 is able to keep the bequest much longer than that of scenario 2.
• The age when bequest drops to zero for scenario 1 are at age 91, 96 and 92 Standard Plan, Basic Plan and Escalating Plan respectively.
• The age when bequest drops to zero for scenario 2 are at age 80, 91 and 82 for Standard Plan, Basic Plan and Escalating Plan respectively.

Now, let us get back to the original question people asked: “Should I top up my RA to ERS from my SA at 55?”

I would say, there is no straightforward answer to this question. It really depends on individual situation and preference. Some questions to ponder:

• Which do you deem as more important: Income or Bequest?
• What is your baseline income amount?
• How much do you budget for your retirement expenses?
• Do you have other sources of income to supplement CPF LIFE?
• How is your health?

Pros for Scenario 1:

• It seems to be able to maintain the same income as scenario 2 until at least age 90.
• It has higher bequest amount than scenario 2 until fully depleted.
• It does have the flexibility in terms of the drawdown amount from SA, meaning we can drawdown varying amount on needs basis, not necessarily must match up to scenario 2 payout.

Cons for Scenario 1:

• Its income will drop below that of scenario 2 after SA is depleted.