Planit:CPF Payout and Annuities Case Study

From Planipedia

This case study is specific to financial planning in Singapore, so has fixed values rather than indices by country. For a similar case study applicable to other case studies, please see Planit:Entering Other Revenues Case Study.

Example Problem One:

Ming An used his CPF Minimum Sum to purchase an annuity. Like all CPF annuities or monthly payouts, the revenue commenced at age 62. It pays $750 each month, non-indexed. Elsie decided to leave her CPF Minimum Sum with the CPF Board, so receives a $910 monthly benefit, which they say should last her twenty (20) years. They would like these revenues included in all their future planning.

Solution Using Detailed Pension Information:

To add Ming’s Annuity Income:

1. Click on the Add button above the current revenue entries

1. Enter an appropriate Description, such as CPF Annuity
2. The drop-down menu beside Owner can be left at the default.
3. The Amount per Year will be $9,000 ($750/month x 12 months = $9,000)
4. The From Year can be set to the current year since Ming is already beyond his age 62.
5. The To Year can be set to the year of his age 80 – at his assumed mortality.
6. The Index Rate can be set to 0%, since the monthly payment will not increase with inflation.
7. The Percent Taxable should be set to 100%, since the annuity is subject to income tax.
8. The Amount on Death can be set to 100%, since the annuity goes to the estate as a lump sum.
9. The Amount on Disability would be 100%.
10. The drop-down menu beside Model As should be set to Fixed Period since this revenue is independent of retirement.
11. Click Save to return back to the summary Pensions screen

To add Elsie’s CPF Payout:

1. Click on the Add button above the current revenue entries
2. Enter an appropriate Description, such as CPF Minimum Sum Payout
3. Set the drop-down menu beside Owner to Spouse.

1. The Amount per Year will be $10,920 ($910/month x 12 months = $10,920)
2. The From Year can be set to the current year since Elsie is already beyond her age 62.
3. The To Year can be set to the year of her age 80. Even though the monthly revenue could payout for 20 years, by then Elsie would be 82 – beyond her mortality assumption.
4. The Index Rate can be set to 0%, since the monthly payment will not increase with inflation.
5. The Percent Taxable should be set to 0%, since CPF amounts aren’t taxable.
6. The Amount on Death can be set to 100%, since the Minimum Sum would go to her estate.
7. The Amount on Disability would be 100%.
8. The drop-down menu beside Model As should be set to Fixed Period since this would continue even if she went back to work.
9. Click Save to return back to the summary Pensions screen