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Annuities explained: what you trade for an income that lasts

Updated 1 October 2026

If you're a Singapore Citizen or PR born in 1958 or later, you'll most likely receive income from an annuity in retirement, though you may not think of it that way. It's called CPF LIFE.

That's a useful place to start, because it shows what an annuity is for. It won't grow your wealth. It solves one problem: not knowing how long you'll live, and so not knowing how long your money has to last.

This post explains how annuities work, what you give up for one, and what to ask before you put more money into one. It isn't a recommendation to buy anything.

What an annuity is

MoneySense, the national financial education programme, describes an annuity as an insurance policy that pays you set amounts at regular intervals, usually monthly. Those payments run either for a fixed period or for as long as you live.

You pay for it with a premium. That's usually a single lump sum, though some let you pay over an agreed period before the payouts begin.

There are two broad types:

  • A term annuity pays for a set number of years, then stops.
  • A life annuity pays for the rest of your life, however long that is.

Only a life annuity protects you against outliving your savings. A term annuity is closer to a structured way of drawing down a sum you already have.

How a life annuity can keep paying

The mechanism is risk pooling. Many people pay in. Some will live to 75, some to 100. Nobody knows in advance which group they're in.

The money from people who die earlier helps fund the payouts of people who live longer. MoneySense explains CPF LIFE this way: the interest on the premiums is pooled among surviving members, so no member runs out of payouts in old age.

That's the trade at the heart of every life annuity. You give up control of a lump sum. In return, you get an income that doesn't depend on guessing your own lifespan.

CPF LIFE is the annuity most people start with

CPF LIFE is a life annuity run by the CPF Board. MoneySense calls it the only life annuity backed by the Singapore Government.

You're included automatically if you're a Singapore Citizen or PR born in 1958 or later and have at least $60,000 in your retirement savings when your payouts start. If you don't meet those conditions, you can still apply to join at any time from your payout eligibility age to one month before you turn 80.

You choose one of three plans:

  • The Escalating Plan starts lower and rises by 2% a year for life.
  • The Standard Plan pays a level amount.
  • The Basic Plan pays less, and the amount falls once your CPF balances drop below $60,000.

All three pay for life. When you pass away, any premium balance left, plus your other CPF savings, goes to your loved ones.

So before looking at any other annuity, find out what CPF LIFE will pay you. For members turning 55 in 2026 with the Full Retirement Sum of $220,400, CPF estimates about $1,780 a month from 65 on the Standard Plan. That's an estimate based on a 4% interest rate, not a fixed figure. Your own estimate is on the CPF website.

What you give up with any annuity

An annuity can be the right tool. It still has costs that aren't always obvious.

You give up access to the lump sum. Once it's paid in, you can't take it back when an emergency comes. MoneySense also notes you can't take a loan against an annuity policy. That's why a plan usually keeps some savings outside any annuity.

You may give up money if you change your mind. MoneySense warns that surrendering a policy early may result in losses. Buy only what you can afford to leave in place.

Level payouts lose buying power. A flat $1,000 a month buys less every year prices rise. CPF's own example: something that costs $1,000 a month today may cost about $1,500 in 20 years.

Some payouts aren't fixed. Participating annuities pay part of their income from the insurer's participating fund. MoneySense says bonuses projected on these policies can change, so read the projections as possibilities.

Questions to ask about any private annuity

If you're offered a private annuity, these questions help you compare it with what you already have:

  1. Is it a term annuity or a life annuity?
  2. How much of the payout is fixed, and how much depends on the insurer's fund?
  3. What happens if you need to surrender it in year two or year ten?
  4. What happens to unpaid premiums if you die early?
  5. Does the payout rise over time, or stay flat?
  6. How does it fit with what CPF LIFE will already pay you?
  7. How financially sound is the insurer? MoneySense suggests checking.

If you're paying with SRS money, there's a tax point too. IRAS says that for life annuities bought with SRS funds, 50% of each payment is taxed every year for as long as the payments continue. Ask IRAS or a tax adviser how that applies to you.

Where annuities fit

For most people, the order is simple. First, find out what CPF LIFE covers. Then work out what you spend each month. The gap between the two is the part of your income you still need to fund.

An annuity is one way to fund that gap. So are savings you draw down yourself, rental income or part-time work. Each has different trade-offs on access, inflation and risk. The right mix depends on your numbers and on how you feel about each trade-off.

If you'd like to see your CPF LIFE estimate and your other income side by side, a Financial Consultant can go through them with you at a free retirement review.

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