CPF Life: Should I defer Payout Past 65?

Believe it or not, this is an important question for all Singaporeans reaching 65 years-old that can have long term implications to your financial health as you age. Contrary to conventional wisdom – which is to take money out as fast as you can out of the clutches of the government, there is actually a good case why you shoul do just the opposite. Here’s why.

CPF Life is an annuity plan that guarantees that you would not outlive the monthly payout – at least a basic amount – for as long as you live. Think of this as an insurance in case you live longer than expected! You can defer CPF Life annuity payout until you are 70 and you should take advantage of this or at least delay as many years as possible.

  • Every year you delay, your monthly payout will go up by about 7%. That means if you delay receiving you payout until 70, you will receive an increment of more than 1/3 of the monthly payout compared to if you started at 65. Assuming you have others sources of income and you do not need CPF Life to kick in at 65, this incremental payout will be an additional protection against inflation in the future.
  • The other reason is that you are likely to live longer with better healthcare or at least that is what the demographic statistics tells us. So even if you start your CPF Payout at 70 instead of 65, you would likely receive this benefit for more than a decade into the future or longer. Good news is that even if you live to 100(which is likely), you will benefit from the higher payout for an indefinite future.

But there is an exception to this logic. If you need the money at 65 or your financial circumstances does not allow you to defer the payout, then it is not an option. The other reason to take the payout at 65 and not defer is related to your health. If you are unwell or if you believe that longevity is not in your genes, then you should not defer. But it is not an easy decision to make based on your health status because it is likely not a black or white decision.

The Rule of Thumb for retirees is to opt to defer the payout as long as you can up to 70 yo increase your payout by up to 35%. You will need it.

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