Money and Me: Is CPF LIFE enough for retirement in Singapore?

SPEAKER_1 (0:01)

Best of Live Well, featuring Lance Alexander.

It's not just about money, it's about you, money and me, where wealth meets self-awareness. Only on MONEY FM 89.3.

Lance Alexander (0:20)

Well, if you're as old as I am, this will be important to know.

CPF Life gives you a monthly payout for as long as you live. It has a flexible start age with payouts starting from 65 to 70

Each year of deferral increases payouts by up to 7%.

Our guest today argues that CPF Life should be the foundation of a retirement income plan. But it may not be the whole plan. What if you want to retire before payouts begin? Maybe you need money for an unexpected expense, or you worry about how your spouse would manage on one payout if you die. Christopher Tan, CEO of Providend, a fee-only wealth advisory firm, joins us. Good morning, Chris.

Christopher Tan (1:09)

Hi, good morning, Lance.

Lance Alexander (1:10)

Nice talking to you once again. So you've long said CPF is the best annuity in Singapore, and you said it recently in a Business Times article. Why do you rate it so highly?

Christopher Tan (1:23)

Yeah, I mean, it is really the best CPF, rather the best annuity in terms of payout for per dollar of premium that you pay. So it really comes down to what we call payout efficiency, because CPF Live pulls longevity risk across a huge number of Singaporeans. I don't think any insurer has that many so-called clients in their pool. So it allows a guarantee income for life at a payout rate.

And I did an article for CPF board actually in 2024, and I compared CPF Live against three private annuities from other insurers and found that for CPF Live, it paid about 10 cents a year for every dollar of premium you put in. And for the rest of the annuity from the private insurer, it's about 7 cents. So, I mean, in terms of purely bank of your buck, it is the best annuity available to us in Singapore. And I don't think that's likely to change anytime soon.

Lance Alexander (2:16)

Okay. So if CPF Live is the best annuity in Singapore, why are you also telling retirees to not rely on it alone, to build a flexible, reliable retirement income plan?

Christopher Tan (2:28)

Yeah, I mean, it is the best annuity in terms of payout per dollar. I kept emphasizing on payout per dollar as the best annuity. And, you know, in life is like that, there is always a trade-off, right, Lance? I mean, if you want the highest return, you're going to take some risk. And if you want the highest payout per dollar premium from annuity, the trade-off would be firstly, no flexibility. You know, you cannot say you want to terminate CPF life halfway in your retirement, unless, of course, you are terminally ill, and that leads to a shortened life expectancy. So in retirement, for whatever reason, you want to terminate for whatever reason, right? Maybe, you know, you need to get some money out to help a friend, help a family member. You just don't have that flexibility to do it. So that's one trade-off. Of course, if you cannot terminate, you don't have the liquidity that you may need. I think the third one is pretty important. The third trade-off is CPF life is a personal plan, right? So my wife has a plan.

I have a plan. In the event that I passed on, then my plan ends. And what that means is that my wife is going to live with half an income. And, you know, married couples, let's say together in retirement, I need $5,000.

It doesn't always mean that when I die, my wife only needs $2,005, right? Maybe she needs about $3,000, $3,005 to $4,000. It's not exactly half. But with CPF Live, well, when I'm gone, the payout stops and my wife just gets half, right? So if you depend everything on CPF Live, then, well, the trade-off is that you've got to expect the income to drop if one spouse passed away. And, well, if you can accept that, that's fine. But otherwise, that's a limitation.

Lance Alexander (4:11)

Okay. Now, you also flagged that CPF Live starts at 65

For someone who wants to retire earlier, they must have a, would you recommend a diversified income structure in place like, obviously, have cash reserves, and if they've got investments, great as well.

Christopher Tan (4:29)

Yeah. So if you are a person that you are very savvy in investing, you like investing, you have knowledge to invest, and you have got extra resources to invest, that's not a problem at all, right? Because if you have other resources, you can retire anytime you want. You don't have to wait for CPF life to pay out, right? You can retire at 55 years old anytime. But the problem comes when for a person who may not have that much resources to invest, or I've met in the course of my work, when I go out there and I do financial literacy talks and all that, actually, there are many Singaporeans out there, they do not want to take market risk. They don't like to invest, they don't have the knowledge to, right? And they prefer their income to come in a more predictable manner. And so, then maybe investment is out of the picture. And so, if you want to retire earlier, you really got to depend on cash.