Saturday, November 10, 2018

CPF Life Necromancy

Image result for diablo necromancer

We don't really know how long we will live although the projection is currently around 85 years. Of our remaining years, we're not even sure if these years are spent living healthy lives. Quite a decent number of years may be spent in a hospital in a zombie-like state.

So building on the previous articles on 1M65 idea, a question arises as to whether we are confident that we can actually get back that $500,000 that we have so painstakingly saved in our CPF program. 

In my opinion, if you want to get to experience your CPF savings, you need to figure out how CPF Life works.

The best analogy for CPF Life for the fantasy gamer is that it is Necromancy, a Black Art involving channeling the energies of dead people. Annuities channel derive wealth not just from the the underlying bond-like instruments it invests in for the annuity holder but also grants mortality credits from dead annuity holders. The wealth of dead annuity holders are channelled towards the those who are still alive. 

This is why these payouts often exceed that of what you normally get from a bond portfolio. 

a) If you are a confident investor or expect a short life, choose the Basic Plan and keep only the Basic Retirement Sum in your CPF Retirement account.

Even a very naive strategy of buying and holding the STI ETF has yielded annual returns of 6.55% since inception. Bank preference shares and bonds can return north of 4% for retail investors. If you can handle volatility in the markets, it may be better to manage the money yourself.

Another reason is if you expect to live a short life. If you have two or more of the high blood pressure, high cholesterol or diabetes, you are not likely going to enjoy a long life. One way of figuring out whether you will have a long life is to just look at your parents or grandparents. Even being left-handed will give you a lifespan 9 years shorter than a right-handed person. As a diabetic myself, I expect a 15 year reduction compared to most of you readers.

If you belong to this category, then by all means keep the least amount of money in the CPF scheme. The Basic Plan plan reduces the amount of annuities you will buy giving you a lower payout but can maximise the amount of money left for your spouse or kids after you pass on. You should also keep the bare minimum BRS sum in your account which is around $90,500 for those reaching 55 in 2020. The worst case scenario is that your kids migrate and you find a way to follow suit and take out your CPF money.

Of course, if you take this path, you have to look after yourself using your own investments.

[ Note : If you adopt this belief about your lifespan, you should also make sure you buy plenty of term life insurance so your family can "strike lottery" when you pass on. ]

b) If you expect live very long, choose the Escalating Plan and maintain the Full Retirement Sum in CPF.

Some Singaporeans will die before their average life expectancy, but others can outlive the average. If you believe that you will lead a long life, earning mortality credits from the annuity plan is the way to go because you will be sustained by your dead fellow citizens. 

In such a case, keeping the Full Retirement Sum (FRS) and following the Escalating plan is your best bet because payments start smaller but grow over time. If you are not very confident about investing, you can push beyond the FRS so that your monthly payouts would be even larger.

Again, if you are the kind of person who has no health issues even in your early 50s and have parents who lived till a very ripe old age, you might stand a chance to benefit more from your portfolio of life annuities. You will be paid so long as you remain alive. Even if you are in a state of living death like a Lich or a Zombie.

Sadly, we don't really have an idea when we will die. Some of us will luck out, but others may get into an accident and pass on very early in life. 

This is ultimately the biggest problem with CPF Life : It provides options that can only be truly optimised only if we have no illusions of the state of our health, something that most Singaporeans, even those with advanced degrees, are unable to firmly grasp.

It is actually quite cruel to leave this decision making to citizens.
  • Can Metformin lengthen a healthy person's lifespan as postulated by Tim Ferriss? 
  • Does intermittent fasting help a person live longer? 
  • What about early retirement as it reduces exposure to a stressful workplace? 
  • How much of health and wellness information is real and not a result of corporate sponsorship or balderdash from MLM companies? 

I suppose health the the domain of an entirely different group of bloggers. 

When the mobile version of Diablo comes out, I expect to play a Necromancer. 

The question is whether it is best to play a Necromancer when you play the game of CPF Life.


  1. Hi Chris,

    Barring all possibilities, it will be more worthwhile to choose the Basic Plan. Use the withdrawn fund in share investment for dividend. One does not need to bother so much on how long he/she live for the rest of the life. The generated dividends will sustain the individual for as long as he/she lives. Furthermore, the invested principal is protected through spreading the eggs amongst many baskets of shares.


  2. Just be aware that dividends can be cut but CPF Life is ... for Life.