CPF Life - Buying Annuities

CPF Life was recently introduced to Singaporeans and will be launched in September this year. Basically, it is an annuity with a component for you to bequest certain amounts to your beneficiaries. From a myriad of 12 types of annuities offered by CPF board down to 4 annuities. It is to make the choice of soon to be retired Singaporeans easier.

CPF members turning age 55 from 2013, with at least $40,000 savings in their Retirement Account, will be automatically enrolled into the scheme. Members who have less than $40,000 can opt-in from 55, if they wish to do so.

As this is a new scheme being introduced not the full four plans would be offered. It will greatly depend on your age when you join the scheme.

When buying annuities, one have to take note that because it is a fixed amount per month, your purchasing power would greatly depend on the inflation rate. If inflation rate is high, your purchasing power would be greatly reduced. This is exacerbated by the fact that Singapore inflation is usually imported inflation as Singapore is a price taker in the world. As such, you need to calculate how much you need per month for a comfortable lifestyle and add an additional buffer for inflation. There is no general guideline on how much the buffer should be, from what I know. It would greatly depend on your comfort level.

For more information on CPF Life, please click here.

For more information on buying annuities, please click here.

Related Books

Beating Inflation

The top headlines in most newspapers these days are high inflation rates. Most countries are experiencing historically high inflation rates. Causes of inflation rates are because of commodities prices like rice, flour and most importantly oil.

Usually if inflation is caused by commodities, the poor and middle level income would be greatly affected. In Singapore, inflation rates are predicted to be between 5-6%. Such rates would greatly erode the purchasing power of your deposits, even if it is left in a fixed deposit which is earning between 1-2%.

Commodities like all other investment tools are subject to business cycles, thus it is important to take that in your consideration when planning your personal finances. To beat inflation and ensure that your retirement nest egg, it is important that you keep your money invested in the relevant investment tools. Which tool is relevant depends on your investment horizon.

For the immediate reality, it is very important to plan your budget carefully. Have records of your household expenditure for the month. Such records would inform you which are experience the highest inflation.

At the end of the month, when planning your budget, have a look at which area of expenditure would have increased greatly, in this case, would be your food expenditure. Have a closer look at this area and see what changes you can make to bring the expenditure down.

In the long run, try to build another source of income, preferably passive source or increase your financial literacy level and start investing.

For more information on Planning your Budget, please click here.
For more information on Investment tool, please click here.