‘Should my sis convert to the CPF Life Annuity?’

July 7, 2011

JUST ASK: ‘Should my sis convert to the CPF Life Annuity?’
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Written by The NextInsight Team
Sunday, 05 December 2010 00:56
In this ocassional series titled JUST ASK, we invite readers to send in questions on stock investing, and personal finance. We will ask an expert (or experts) to provide answers. Below is a question on CPF matters and a question on stock investing, and they are answered by, respectively, Leong Sze Hian, the former President of the Society of Financial Service Professionals, and Ernest Lim, a remisier.

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Reader says: My sister, age 58, not working, has about $30k in her CPF Minimum Sum (MSS) account. Recently she received a letter from CPF board asking her to convert to the CPF Life Annuity.

My sister does not have much savings. Please advise if she should take up the offer or not?

I have received conflicting advice from insurance advisers and friends. Some told me it is better to leave the MSS alone and let it draw down till zero. Kindly advice.Thank you.

200leongszehian

Leong Sze Hian

Leong Sze Hian says: Dear reader, let me answer your question step by step:-

1) Click on this CPF link to check whether, and how much L-bonus, you qualify (depends on your income and type of home), and the estimated monthly life annuity payout of the four CPF Life plans

2) Contact CPF Board to ask what is the bequest to beneficiaries for each of the four plans.

She may also like to ask CPF – if the monthly payout (which I obtained from the CPF Minimum Sum Payout calculator using her age and amount) is $271, what is the higher amount (if any) that she can request to withdraw monthly, because for people with small CPF balances, they can’t survive on the very small payout according to the CPF calculator?

3) Click here to calculate your monthly payout under your existing CPF Minimum Sum, which is the estimated monthly payout for about 20 to 23 years (because the CPF Minimum Sum calculator uses 4 per cent in the calculator, whereas CPF Life uses an estimated 4.75 to 5.25 per cent on the first $60,000, and 3.75 to 4.25 per cent on the amount above $60,000  (the CPF Minimum Sum will also pay the estimated 5 per cent on the first $60,000 and 4 per cent on the excess)

4) Decide based on the dollar amounts obtained going through the above steps.

5)The deadline for you to decide to opt-in to CPF Life in order to get your L-bonus (if any) is 31 December 2010.

Recent story: JUST ASK: ‘Should my retiree parents invest in STI ETF?’

Leong Sze Hian has been a Wharton Fellow and alumnus of Harvard University, authored 4 books, quoted over 1,000 times in the media, and invited to speak more than 100 times in about 20 countries on 5 continents.

He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, the UNESCO Leadership Chair Council and founding Advisor to the Financial Planning Association of Brunei and Indonesia.

He has 3 Masters degrees in Financial Planning & Financial Services, 2 Bachelor degrees in Economics & Insurance, and 13 professional qualifications

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About the Author

Leong
Leong Sze Hian has served as the president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), Hotel Mumbai (associate producer), invited to speak more than 200 times in about 40 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of 2 countries. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.