Investing your CPF and cash savings

I have often been asked, "Is it better to leave the minimum sum with the Central Provident Fund to earn 4% per annum, or to buy a life annuity"?

My reply, "Both options are suitable". The return from a participating life annuity from NTUC Income is more than 4% per annum (if the current rate of bonus is included). The life annuity also play a useful role of spreading the longevity risk.

The return of 4% paid by CPF is very attractive, and it does not carry any risk. For most people, keeping the money in CPF is a good choice.

For your cash savings (ie not the CPF minimum sum), it make sense to invest in a life annuity (as the alternative investment options, which have low risk, offer less than 3% per annum).

My suggestion:

1. Keep your minimum sum in CPF to earn 4%
2. Invest $100,000 of your cash savings to buy a life annuity
3. Invest the balance of your cash savings in a large, well diversified fund

Read this FAQ.