Calculations from the CPF Life Payout estimator show that a male Singaporean who turns 55 from next month and has the CPF Minimum Sum of $155,000 will get a monthly payout ranging between $1,200 and $1,350 if he opts for the Standard plan. For a woman, the monthly payout will roughly vary from $1,100 to $1,250 as she is expected to live longer.
At 1100, the original thinking is that (1100×12)/155000 > 8.5%. That’s bloody splendid. You wouldn’t be able to find a more secured institution giving you such a high returns. In US, this will be known as some scam. The 4% out of the 8.5% comes from bonds, and the rest will depend on how many of the pool of annuity payers stay alive.
Take a Singaporean who reaches 55. As a CPF member, he must set aside a Minimum Sum in his Retirement account from money in his CPF Ordinary and Special accounts. From next month, the Minimum Sum will be $155,000. Currently, about half of them meet this requirement.
Once he reaches 65, he will get a fixed monthly payout for about 20 years from the savings set aside in his CPF Retirement account. Between 55 and 65, the money in his Retirement account will enjoy an interest rate of up to 5 per cent per annum – which is far higher than what the banks are offering for fixed deposits.
The 10 years from 55 to 65, when the pay out actually started, a full $100k would be gotten at a risk free rate provided by the government.
The first year yield will now be (1100×12)/252000 > 5.2%
That’s much more realistic, coming from majority 3% yielding bonds and the rest from the annuity pool.