Can You Afford To Lose $117,000?

Comparison of Central Pension Fund vs. 401(k)

How do the benefits of the Central Pension Fund (CPF) stack up against those that can be expected from a 401(k) retirement savings plan? In order to compare apples to apples, we have made certain assumptions as follows:

An employer contribution to CPF at a rate of 4% (based on a $40,000 salary), with an annual salary increase of 2%.
The long-term rate of return for a 401(k) plan at an estimate of 7.75% per year, compounded monthly, and the participant will contribute 4% per month to the 401(k) plan--the same amount that the employer would contribute to CPF (note: there is no guarantee of earnings in a 401(k) plan).
At the end of 20 years of participation in CPF or a 401(k) plan, the participant will be age 65.

When you calculate the amount of 401(k) money available at the end of 20 years based on a 4% monthly contribution, with interest compounded monthly at 7.75%, you end up with a total balance, including principal and interest, of $82,474. During the same 20 year period of time, the contributions to the Central Pension Fund would have amounted to $38,875.

At the end of the 20 years, the benefit payable by the Central Pension Fund will be $1,166 per month under the lifetime benefit option. The estimate is based on the current benefit level of 3%. Assuming you live 20 years in retirement, you will collect $279,840, and continue to collect for the remainder of you life.

At the end of 20 years, the benefit payable by the 401(k) plan will be $677 per month, payable for 20 years. The estimate assumes a 7.75% annual rate of return compounded quarterly. After 20 years of retirement, you will have collected $162,480 and exhausted your 401(k) account.