Retirement Planning Part 4: Where does your CPF money go to when you die?

Christopher Tan


Do you know where your CPF money goes to upon death?

In this fourth segment our 7- parts series on Retirement planning, we answer this question as we go deeper into how CPF works.

You can find the link to the other parts here:

This event was conducted on 5th of May 2016 by Christopher Tan, CEO of Providend.

I know the question then, of course, is what if I die earlier? What if I die too soon?

Now, if I die too soon, what happens to my money and all this? So, let’s use the Basic Plan as an example. Now, let’s say you choose the Basic Plan.

Now, so at age 55, your money is in the RA. you put $80,000 inside your RA. But at this stage, at 55, you haven’t chosen any plan yet because you only need to choose at age 65. But don’t use you, use me.

So, let’s say at about 57, 58 years old, death occurs here. Death occurs here. God calls me to go home. So no choice, I go home. Now, what happens to the money in the RA?

Who does it go to? Everything, your RA plus the interest, will all go to your nominated beneficiaries according to your CPF nomination form. But let’s say at age 57 years old, God calls me home but I negotiated, I say “No no no, can I don’t go back home so early? Can I go back later because I want to see my children get married?”

So, for whatever reason, I succeeded. I didn’t die at this age. I carry on living. So, I live, live, live until, say, sometime around, say, about 70, 75 years old thereabout. Let’s say. And then now this time, God calls me again. No choice, second time already, I better go right?

So, let’s say I go here at about age 75 years old. Death occurs. Take note. Your balance RA, because I started withdrawing from RA already, but still got money. Because the RA will only finish about 90 years old right? The balance RA plus interest will be paid to your beneficiary.

However, there is the AP portion, the 10% that has gone here. Yes? Yes or no? Yes right? Your AP, only the principal sum, the capital, will be paid to your nominated beneficiary. The AP interest is not paid.

This AP has interest. This fund has interest. The interest of this fund is also 4%, same. But the interest is not paid to your beneficiaries. And I’ll explain why in a short while. Now, let’s say at age 75 I didn’t die, I negotiated again, I say, “Can don’t go so early?” And so, for whatever reason, I carry on living. And somewhere around 91 years old, this time around, God never call me. I call him already. Because why? All my friends upstairs already. So, I want to go. So now because I requested, I go at age 91 years old. Death occurs.

By then, my RA completely depleted. No more money right? Finished already. So no more RA. But my AP just started paying. So, there could be some balance. There could be. If there is a balance in the AP. If there is, the balance AP, without the interest will be paid to the beneficiaries. Are we okay so far?

In a nutshell, regardless of when you go, everything unused is paid back to your beneficiary except the interest on the AP. The interest on the AP is never paid back.

Where does the interest go? Where does the interest go?

It remains in the pool. It stays here. Why? Because this whole concept of CPF LIFE is based on risk-sharing. The idea is this: Let’s assume that today we all belong to the 55 year old cohort. We are all 55 years old here today. In 30 years time, when I call for a gathering, only 50% of this room will be filled. The remaining 50% of us in this room would have gone upstairs.

Yes, that’s average life expectancy. One go, one stay, one go, one stay, one go, one stay, one go, one stay. Who goes? Who stays? I don’t know. But before the event, we have actually tagged your chairs. Those with the sticker will stay. Without, you go. So, you can go and check whether you have a sticker or not.

So, for the 50% of us who goes upstairs, our AP interest will be mixed together with the remaining 50% of us who are still around. Our AP plus our interest, the 50% who is still around, and they have calculated that this amount would be sufficient to last the remaining 50% of us in this room until one by one drop dead. And if the calculation is neck shot accurate, by the time the last one in this room drops dead, the last dollar in this pool also finish. Am I clear?

But can there be a calculation error? Yes or no? No. Our government never makes mistakes. Of course can make mistake. It’s possible. Calculation error. One of us is still around. Inside no money already. It’s possible. But we don’t have to worry. Why? Because unknown to you, at 37 Duxton Hill, which is just beside us, there is another class that my colleague is hosting. And he is hosting the 54-year-old cohort. If we have one more person here alive, inside no money, we borrow their money first. They are by then 84 years old. And maybe they have over calculated. But unknown to you again, 36 Duxton Hill, there is another class that belongs to the 53-year-old cohort. They undercalculate also. But never mind, at 35 Duxton Hill, there is a 52-year-old cohort. So, one over, one under, one over, one under 1. It’s a lot of large numbers. Because the pool is big enough to average out the errors. Are we ok?

But we all know there’s a problem. And what’s the problem?

Singapore, we have an ageing population problem, right? The pool is getting smaller. As you go down Duxton Hill, you will see the class getting smaller and smaller and smaller and smaller and smaller. Because we are not giving birth to enough babies. There will come a time when the number is no longer big enough to average out.

But by the time it happens, where are all of us now? Upstairs already. Who cares? You can’t care so far, right? And by then, maybe new government, new party, new CPF LIFE version 3.2 or whatever. We do not know. By then, there’ll be a new scheme.

For us here and in the next few generations, it should be fine. I mean I gave birth to two so I replace myself already. Not I gave birth. My wife gave birth to two. We gave birth to two. We have two children so we replaced ourselves. So we should be fine for the, you know, the next few generations. You should be fine. But as it goes down, it’s going to be difficult. Right? But by then, there would be a new scheme.

But that’s really how CPF LIFE works. It is risk pooling. Now, if you look at CPF LIFE, whatever I’m done with CPF LIFE really. We took about like 40 minutes and this is probably the fastest I’ve ever covered CPF LIFE. I hope you are a bit clearer, but I’m quite sure that by the time you leave this place, you would have forgotten 90%.

And those of you very excited, you want to go back and explain to your spouse who may not be here. By the time you reach home, you would’ve forgotten everything. And then you like want to discuss but “Wah, forgot already!”

So, why do I spend time and effort trying to go into the details for all of us? Why do I spend time in a retirement talk like this to go into the details? Because like I say, CPF LIFE is a scheme that is compulsory. Might as well make use of it. And it is my personal conviction that actually it is a good scheme. And you should make use of it FIRST before you even consider thinking about investing, buying insurance or buying an investment. No need. You consider this first because this is a good scheme.

But if you cannot remember a lot of things, just remember this. If you cannot remember all the details, just know that CPF LIFE at age 65 years old, you will get a monthly payout until you die. That’s it.

Regardless of whether you choose the Basic or Standard Plan, you will get a monthly amount. If you set aside $80,500, you only get about $600 plus $700. No big deal. But if you don’t pledge your house and you put the full $161,000 and if you don’t have $161,000, you have some savings and cash, top it up to $161,000. You will get double. About a $1,300 per month.

In the near two decades that we have worked with retirees, we understand one thing: Reliability of income is more important than return on investment at this phase of your life. As such, we have developed a proprietary methodology called RetireWell®, that can help you draw down strategically from your retirement nest egg.

Our Retirewell® methodology was featured in The Business Times every month for almost a year in 2017 and has 11 parts to it, namely:

• Part 1: Drawing Down Retirement Money
 Part 2: Offering Retirees Security and Peace of Mind
• Part 3: Low Cost, Consistent Results
• Part 4: Counting on low-cost Index Funds
• Part 5: Investment Philosophy for a Retiree Client
• Part 6: Ensuring a ‘Safe Retirement Income Floor’
• Part 7: Remain Invested Over the Long Haul
• Part 8: Purpose-Driven Retirement Planning
• Part 9: A Tale of Two Retirees And Their Fortunes
• Part 10: Stock Markets Always Rise Over The Long Term
• Part 11: Retirement – It’s About The Kind Of Life You Want To Lead

With Retirewell®, we will design a plan that will give you a safe and reliable stream of income for the rest of your life, with provisions for legacy in the event of demise, so that you can live up your retirement with peace of mind.

We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current investment portfolio, financial and/or retirement plan, make an appointment with us today.

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