Retirement planning can be daunting, but understanding your options is key to a secure future.
Having navigated the complexities of financial planning myself, I know how confusing it can be.
That’s why I’m here to help you understand CPF Life and the Retirement Sum Scheme (RSS) – 2 essential tools for ensuring financial stability during your golden years.
In this post, you’ll learn:
- What CPF Life is and how it works
- The ins and outs of the Retirement Sum Scheme (RSS)
- Key differences between CPF Life and RSS
- What happens to your savings in each scheme when you pass on
Did you know that many retirees outlive their savings due to inadequate planning?
Let’s make sure that doesn’t happen to you.
Ready to take control of your retirement planning?
Keep reading to find out which scheme best suits your needs!
What is CPF Life?
CPF Life is a national annuity scheme designed to provide Singaporeans with a lifelong monthly payout during their retirement years, starting at age 65.
It was introduced to help retirees secure a steady income stream, ensuring financial stability and peace of mind.
Unlike traditional retirement plans that may run out, CPF Life guarantees payouts for as long as you live.
This means you won’t have to worry about depleting your savings, no matter how long your retirement lasts.
The scheme is particularly beneficial in an era where life expectancy is increasing, and the risk of outliving your savings is real.
Under CPF Life, you have the flexibility to choose from 3 different plans: the Standard Plan, the Basic Plan, and the Escalating Plan.
Each plan offers varying levels of payouts and protection to suit different needs and preferences.
The Standard Plan provides higher monthly payouts but lower bequest amounts, while the Basic Plan offers lower payouts but higher bequests.
The Escalating Plan, on the other hand, starts with lower payouts that increase by 2% each year to help keep up with inflation.
To join CPF Life, you need to set aside a portion of your CPF savings in your Retirement Account when you turn 55.
The exact amount required depends on the prevailing Basic Retirement Sum, which adjusts yearly to account for inflation and changes in the cost of living.
One of the standout features of CPF Life is its focus on providing a steady and reliable income.
This makes it an excellent choice for those who prioritise financial security and prefer a predictable source of funds during retirement.
For more detailed information on the benefits and specifics of CPF Life, you can refer to the official CPF Board website or read our post on CPF Life here.
What is the Retirement Sum Scheme?
The Retirement Sum Scheme (RSS) is a programme designed to provide Central Provident Fund (CPF) members in Singapore with monthly payouts during their retirement years.
The aim is to support a basic standard of living, ensuring that retirees have sufficient funds to cover their essential needs.
RSS primarily caters to those who fall into specific categories.
It applies to individuals born before 1958, those born in 1958 or later who have less than $60,000 in their Retirement Account (RA) at the age of 65, and non-Singaporean citizens or non-permanent residents.
This scheme ensures that even those who do not qualify for CPF Life still receive some form of financial support during their retirement.
For individuals under the RSS, the monthly payouts begin once they reach the drawdown age, which is currently set at 65.
These payouts are designed to last until the savings in the Retirement Account are depleted or until you’re 90.
The exact duration and amount of the payouts depend on the sum accumulated in your RA.
Unlike CPF Life, which provides lifelong payouts, RSS payouts may cease once the funds are exhausted, making it crucial for retirees to manage their finances carefully.
The RSS was the primary retirement scheme before the introduction of CPF Life and remains relevant for certain groups of CPF members.
It helps bridge the gap for those who might not have accumulated enough savings to qualify for CPF Life or prefer not to join the annuity scheme.
Understanding the nuances of the Retirement Sum Scheme is vital for anyone planning their retirement, especially those who fall into the specified categories.
The scheme provides a safety net, ensuring that retirees can maintain a basic standard of living even if their retirement savings are modest.
The difference between CPF Life and RSS
CPF Life | Retirement Sum Scheme | |
How long will you receive payouts? | CPF Life provides lifelong payouts, ensuring that you continue to receive a monthly income for as long as you live.
This eliminates the risk of outliving your retirement savings, offering peace of mind and financial security. |
Under the RSS, payouts are made until the savings in your Retirement Account are depleted or until you’re 90.
This means that the duration of payouts is limited to the amount you have saved, and there is a risk of running out of funds if you live longer than expected. |
Amount of monthly payouts | The monthly payout amounts under CPF Life depend on the plan you choose (Standard, Basic, or Escalating Plan) and the amount you have in your Retirement Account.
Generally, CPF Life offers higher payouts compared to RSS, making it a preferred choice for those who need a stable and substantial monthly income. |
The monthly payouts under RSS are generally lower than those provided by CPF Life.
The exact amount depends on your savings and the withdrawal plan you select. Since RSS does not provide lifelong payouts, it is crucial to manage the funds carefully to ensure they last through your retirement. |
Payout Eligibility Age | The payout eligibility age for CPF Life is 65. | Similar to CPF Life, the payout eligibility age for RSS is 65. |
Interest Rate Returns | CPF Life benefits from the interest rates provided by CPF.
The savings in your Retirement Account earn a base interest rate of up to 4% per annum, with additional interest for those aged 55 and above, potentially boosting the payouts you receive. |
The Retirement Account under RSS also benefits from the same interest rates as CPF Life, with a base interest rate of up to 4% per annum and additional interest for those aged 55 and above.
However, the interest accrual stops once the funds are fully withdrawn. |
What happens to my CPF Life and RSS when I pass on?
Understanding what happens to your CPF Life and Retirement Sum Scheme (RSS) savings when you pass on is crucial for comprehensive estate planning.
For the RSS, your beneficiaries will inherit the remaining savings in your Retirement Account (RA), along with any interest that has accrued.
This ensures that the funds you have carefully set aside for your retirement can still benefit your loved ones after your passing.
Essentially, the balance left in your RA is transferred to your nominated beneficiaries, providing them with financial support.
On the other hand, CPF Life operates a bit differently.
When you pass away, the balance of your CPF Life premium, if any, along with any remaining CPF savings, will be distributed to your loved ones.
However, it’s important to note that the interest earned on the CPF Life premium does not go to your beneficiaries.
Instead, this interest is pooled back into the CPF Life annuity fund.
This pooling mechanism is designed to ensure that all CPF Life members continue to receive their monthly payouts for as long as they live, thus maintaining the sustainability and reliability of the scheme.
Conclusion
We’ve covered a lot about CPF Life and the Retirement Sum Scheme (RSS) in this post.
We’ve looked at what CPF Life is, an annuity scheme providing lifelong monthly payouts starting at age 65, and how it secures a steady income stream during retirement.
We also explored the RSS, which offers monthly payouts from your Retirement Account savings until they’re depleted, and its applicability to different groups of CPF members.
We’ve compared CPF Life and RSS in terms of payout duration, monthly amounts, eligibility, and interest rates, highlighting the benefits and limitations of each.
Additionally, we’ve discussed what happens to your remaining funds in both schemes when you pass on.
Retirement planning can be complex, and it’s important to choose the right scheme based on your needs and circumstances.
It might also be wise to have a private annuity plan to supplement your retirement funds.
If you’re feeling overwhelmed or unsure about which option is best for you, why not talk to one of our trusted financial advisor partners?
They can provide personalised advice and help you make the best decision for your future — all for free.
Reach out today and take the first step towards securing your retirement!