It has always been my belief that annuities should have a place in every retiree’s spending plan. This is because an annuity is one of the very few, perhaps the only financial instrument that can mitigate both longevity risk and investment volatility risk at the same time.
This is especially important for two categories of people.
The first is the investment-savvy retiree. He understands markets, he understands compounding, and he knows that the worst time to draw down from his investment portfolio to fund retirement expenses is precisely when markets are down because doing so locks in losses and causes his money to run out faster than it should. Yet, he still needs income to minimally fund his essential expenses during those down periods, market conditions notwithstanding.
The second is the retiree who simply does not want to be exposed to financial market risk at all. He isn’t looking to outsmart the market or time his withdrawals. He wants a stable, predictable income to fund his retirement lifestyle.
For both groups, annuities offer something markets cannot: a lifelong income stream regardless of what happens in the world.
It has been my long-held belief that the best annuity in Singapore is CPF LIFE, in terms of payout per dollar of premium paid. In an article I wrote for CPFB in 2024, titled “How to Use CPF LIFE as the Cornerstone of Your Retirement Planning“, I showed that CPF LIFE paid an annual payout of $0.10 per dollar of premium, higher than the three private annuities I compared it against. On a pure payout basis, CPF LIFE wins.
But for retirees who choose to be fully reliant on CPF LIFE, there are some considerations you need to be aware of.
Interest rates are not fixed. Currently, the interest rate for Special, Medisave, and Retirement Accounts, including the CPF LIFE annuity premium common pool, is computed based on the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, subject to a floor rate of 4% per annum. That floor is reviewed regularly. It has held for some time, but it is not a permanent feature of the scheme. If it is ever removed or lowered, the underlying interest rate and, by extension, CPF LIFE payouts could fall below what today’s retirees have come to expect.
Concentration risk. Because CPF LIFE is a government scheme, retirees who depend on it are exposed to policy risk. To be clear, I believe the risk of disruptive policy change is low as CPF has a long track record of stability. But “low risk” is not “no risk,” and from a retirement portfolio standpoint, relying on a single source of income to fund your essential expenses, or all your expenses, is a concentration risk by definition, regardless of how reliable that single source has been historically.
Lack of flexibility. Except on medical grounds where you suffer from a severely reduced life expectancy or terminal illness, you cannot terminate your CPF LIFE plan once you’re in it. And if you rely on CPF LIFE alone for retirement income, you may not be able to retire earlier than 65, since CPF LIFE payouts can only begin from that age.
Adjustment of lifestyle when one spouse passes. CPF LIFE is an individually owned plan. When a spouse passes away, that spouse’s annuity plan ends, and the surviving spouse is left to adjust to a reduced household income often at a point in life when they are least equipped to manage that adjustment, whether financially or emotionally.
Limited to ERS payout. CPF LIFE payouts are capped by the prevailing Enhanced Retirement Sum you’ve set aside. There’s a ceiling to how much income the scheme alone can generate for you, no matter how much more you may need.
During my recent work with Havend, our sister company, to develop their retirement solution, we discovered a better way to structure a retirement portfolio for those who don’t want to be entirely reliant on CPF LIFE yet also don’t want to take on investment risk. The answer is an optimised mix of cash and cash equivalents, CPF LIFE, and private annuities. Editorial space doesn’t allow me to go into the optimisation rules Havend uses but suffice it to say the process balances a person’s need for liquidity, flexibility, income needs, and, importantly, protecting the surviving spouse’s lifestyle.
Insurance annuities work by pooling longevity risk across many policyholders, which is what allows an insurer to commit to paying an income for a fixed term or for life. Many plans also distribute non-guaranteed bonuses on top of the guaranteed portion, smoothed across good and bad years, so the payout tends to hold steadier than markets do.
Broadly, private annuities come in two shapes.
A fixed-term payout draws down both your capital and any declared bonuses over a set period. It produces the higher income of the two, which makes it useful for bridging a specific gap for the years between early retirement and when CPF LIFE begins. The trade-off is that once the term ends, the money is spent. This structure doesn’t give you the flexibility to terminate early, nor does it allow your spouse to continue receiving payouts once you’re gone.
A lifetime payout pays a smaller amount, but it never stops. Because these plans are generally structured so that the underlying policy value isn’t systematically drawn down to fund the payout, they typically retain a surrender value over time. Some lifetime plans let you surrender after an initial accumulation period for a value near total premiums paid, having already collected payouts along the way. As with any insurance policy, guaranteed and projected surrender values differ, and surrendering early can return materially less than what you put in. But this surrender feature gives you the flexibility to terminate the plan if your circumstances change, and to nominate your spouse to continue receiving payouts after you’ve passed, preserving their lifestyle much as it was when you were both around.
I still believe CPF LIFE is the best annuity in Singapore in terms of payout per dollar of premium, and because the risk of constant policy change is low, Havend and I concluded that one should, at minimum, set aside the Full Retirement Sum (FRS) as “premium” to “buy” their CPF LIFE plan. But beyond FRS, diversifying your retirement portfolio with cash and cash equivalents and especially private annuities will mitigate concentration risk. This gives you the flexibility to retire earlier than 65, allows you to terminate your annuity plan should you need to, and helps maintain your spouse’s lifestyle just as it was, even after you’re gone.
The writer, Christopher Tan, is Chief Executive Officer of Providend Ltd, Southeast Asia’s first fee-only comprehensive wealth advisory firm and author of the book “Money Wisdom: Simple Truths for Financial Wellness”. He is also a Certified Ikigai Tribe Coach.
The edited version of this article was published in The Business Times on 18 September 2026.
For more related resources, check out:
1. How To Make The Most Of CPF LIFE For Your Retirement
2. Should You Really Invest Your CPF Through LRIS?
3. Frequently Asked Questions About CPF
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