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What is the real return of our CPF Life? It’s not 4%

There are many blogs and YouTube videos commenting on CPF Life, but so far I have not see anyone calculating the actual return of CPF Life. So let me try to do it here. And the number might surprise you.

Many people think that the return is guaranteed at 4%, because that is the return of our RA (Retirement Account).

But this is not true.

For a person who is 55 years old this year, the FRS is $205,800, and the projected (not guaranteed) payout from age 65 is $1650 (source: CPF Life Estimator).

Lets calculate the RA balance when the person reaches 65 years old, just before the payout start. PV=$205,800, n=10, i=4%,

FV = $304,634.27 (RA balance at age 65)

Projected payout is $19,800/year ($1650*12).
So we can now calculate the rate of return of CPF Life, assuming the person lives for another 20 years, to age 85, which is the life expectancy.

PV = 304,634.27, PMT = 19,800, FV = $0 (bequest at 85 is zero)
I = 2.95% , not 4%, and it’s not even guaranteed, since CPF Life payout is not guaranteed.

Are you surprised with this number?

If you live to 100, the rate of return will be 5.99%, a very attractive return, but I cannot bet I will live so long. Age 85 sounds like a more realistic estimation.

If you live to age 81, the return is only 0.53% !! So CPF Life is really good if you can live a very long life, not otherwise.

Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

Published By:

Tan Siak Lim

More than 20 years in the financial advisory business, focus on mainly help people achieve a comfortable retirement through portfolio management, with diversification to reduce the votaility and still achieving the required rate of return. 

Also helps wealthy family (>$3m estate, including property, investment and insurance proceeds) pass on their wealth to future generations, minimizing the 3C, confusion, cost, and conflict. Estate planning is probably best done by a qualified experienced financial adviser rather than a lawyer. The lawyer is able to draft a will, but because he is not a financial adviser, he is usually unable to put comprehensive financial consideration into the design of the will. Will drafting is a mechanical process that software can easily generate, there is little value. It is the architecting of a wealth distribution strategy with creative financial products and ideas that is the real value.

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In compliance with the Personal Data Protection Act, Financial Alliance Pte Ltd (“FAPL”) seek your consent to collect and use your personal data (e.g. name, NRIC, contact numbers, mailing addresses, email addresses and photograph) for the purposes of and in accordance with FAPL’s Data Protection Policy, which can be found on FAPL’s website at https://fa.com.sg/data-protection-policy/.

根据《个人数据保护法》，鑫盟理财私人有限公司征求您的同意向您收集并使用您的个人信息。鑫盟理财将根据公司的个人数据保护政策所阐述的用途使用您的个人资料（例如姓名，证件号码，联系电话，邮寄地址，电邮地址和照片）。 该政策可在本公司网站上查寻，网址为 https://fa.com.sg/data-protection-policy/.

By submitting this form, you are deemed to have read and understood FAPL’s Personal Data Policy.

提交此表格，即表示您已阅读并理解鑫盟理财私人有限公司的个人数据政策