Should I TOP up special account

arctician

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What has compounded interest to do with whether you are staying in your property or renting it out ?

As long as you have used OA to pay for your property, regardless whether staying or not, the accrued interest will be liable to refund back to your CPF OA upon selling the property.

If you are age 55 and have met the FRS, then its a different story.

My pov is as long as you are buying a investment ppty, accrued interest cant be avoided as one needs to take profit sooner or later, whereas a unit for self occupation gives you an option to avoid accrued interest as long as one stay indefinitely for long term. So i prefer to use cash to fund investment ppty and CPF OA to fund one for self occupation.

Though i top up cpf SA for tax purpose, i am not sure if i can unlock 100% of e CPF funds in its entirety, so if possible i will use the OA in smartest way possible.
 

crimsontactics

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My pov is as long as you are buying a investment ppty, accrued interest cant be avoided as one needs to take profit sooner or later, whereas a unit for self occupation gives you an option to avoid accrued interest as long as one stay indefinitely for long term. So i prefer to use cash to fund investment ppty and CPF OA to fund one for self occupation.

Though i top up cpf SA for tax purpose, i am not sure if i can unlock 100% of e CPF funds in its entirety, so if possible i will use the OA in smartest way possible.
What's your yield for your property?

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elnewbie

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At your age, i would have done a VC instead of a RSTU.

RSTU funds are locked up whereas VC funds aren't.

So the hack here is to do VC as Step 1 then do OA to SA transfer as Step 2. In this way, you avoid having the funds locked up in SA when you turn 55.

I top up using the Retirement Sum Top Up Scheme.

This year's limit is $166k.

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BBCWatcher

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At your age, i would have done a VC instead of a RSTU.
And not enjoy immediate tax relief? That doesn't make sense.

In this way, you avoid having the funds locked up in SA when you turn 55.
Yes, because as everyone knows, everybody dies at age 55 and 1 month, and everybody spends tens of thousands of dollars on the famous "Age 55 Parties" in Singapore, the expensive alcohol-fueled festivals of debauchery....

....I don't get this! You get assured lifetime income for your CPF Special Account efforts (nice!), and then only up to the Full Retirement Sum (somewhat more if you wish). Besides, you're going to have funds "locked up" anyway -- that doesn't change. RSTU dollars are the first to be "locked up," but some are going to be "locked up," and the Full Retirement Sum is not a lot of money, actually.

What on earth is going on? I don't get it. Singapore is at the very top of the world rankings in terms of life expectancies, among the top countries. Singaporeans live longer than almost everybody else on the planet. And yet there's so much "End of the World at Age 55" thinking here. WTF? It's not wrong to have at least a little -- and the Full Retirement Sum is not a tremendous amount of money -- lifetime income after age 55, and to get well rewarded for doing so with tax reliefs and higher interest. That's terrific! Bravo! (For perspective, compare the Full Retirement Sum to the market valuation of one small condo in Singapore. Which is a bigger number?)
 
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BBCWatcher

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Let's illustrate how this works with an example. The Full Retirement Sum is $166,000 (2017). Let's ignore interest on the contribution side (for now). You decide to top up your Special Account at $7,000 per year, and your mandatory contributions to SA (let's suppose) total $4,000 per year. (That's roughly correct as a "typical" experience.) So you've got $11,000/year streaming into CPF SA, all enjoying tax relief. You can only do that for 15 years, and (since interest is accumulating faster than the FRS is increasing), it's more like 14 or 13. And then you're done. You've zoomed the Special Account as high as you can make it go voluntarily, and you're enjoying lovely interest. Do this from your mid 20s through your late 30s if you can, when you're in a reasonable tax bracket (to enjoy the tax relief) and also have a long, lovely run of great interest, and you're really rocking the house.

When you get to age 55 your Retirement Account is created, at the Full Retirement Sum. That's set aside for your CPF LIFE, so you're guaranteed lifetime income from age 65. (Or from age 70, or anywhere in between, since you can decide when to start collecting.) Every other SA dollar stays in the Special Account, it can be withdrawn on demand (fully or partially), and it continues earning gorgeous interest -- so you wouldn't/shouldn't actually tap your 4+ percent savings account until you've exhausted lower yielding funds. Lovely, lovely, lovely. Great deal, enjoy!

Do OA to SA conversions, and you zoom the SA up even faster. And it doesn't take long. Then you've got some more interesting options.
 
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elnewbie

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How much tax does a typical 25 year old pay ? No offence to our friend here...

At that young age, the tax relief is not as good as the benefit of the flexibility offered outside the RSTU scheme.

And not enjoy immediate tax relief? That doesn't make sense.


Yes, because as everyone knows, everybody dies at age 55 and 1 month, and everybody spends tens of thousands of dollars on the famous "Age 55 Parties" in Singapore, the expensive alcohol-fueled festivals of debauchery....

....I don't get this! You get assured lifetime income for your CPF Special Account efforts (nice!), and then only up to the Full Retirement Sum (somewhat more if you wish). Besides, you're going to have funds "locked up" anyway -- that doesn't change. RSTU dollars are the first to be "locked up," but some are going to be "locked up," and the Full Retirement Sum is not a lot of money, actually.

What on earth is going on? I don't get it. Singapore is at the very top of the world rankings in terms of life expectancies, among the top countries. Singaporeans live longer than almost everybody else on the planet. And yet there's so much "End of the World at Age 55" thinking here. WTF? It's not wrong to have at least a little -- and the Full Retirement Sum is not a tremendous amount of money -- lifetime income after age 55, and to get well rewarded for doing so with tax reliefs and higher interest. That's terrific! Bravo! (For perspective, compare the Full Retirement Sum to the market valuation of one small condo in Singapore. Which is a bigger number?)
 

final1

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I am not too sure if Crimson fully understands what is the implication of what he has done and what impact it might have on decisions he might want to make in 5 to 10 to 15 years. (eg. buy a house).
Having transferred most of his OA to SA, the affordability of his house (if he ever intends to buy one), will be impacted. He is going to have fund the downpayment with cash when he could have done so with OA.

I can honestly say that most people prefer to use OA (if they have it) to pay for their first house than their cash. University education for his kids? He could have used OA but may now instead have to use cash.

But, since its already done, it can't be undone. Hope for the best. He can start to accumulate CPF OA going forward if he wants to. Just my 2 cents.

That said, the bright side is that he is quite assured of CPF LIFE income in his future retirement a long way down the road or a nice cash withdrawal at age 55. Good luck.
 
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BBCWatcher

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How much tax does a typical 25 year old pay ? No offence to our friend here...
It's rather common for 25 year olds to be at least in the 7% tax bracket (chargeable income over $40,000). A $7,000 top-up yields a near-immediate tax savings of $490 in that tax bracket. Not bad! That $490 can be saved, spent, or some combination, right away. Or you can think of it as a $6,510 Special Account top-up, with $7,000 then credited (immediate $490 bonus credit).

final1 said:
I am not too sure if Crimson fully understands what is the implication of what he has done and what impact it might have on decisions he might want to make in 5 to 10 to 15 years. (eg. buy a house).
No, it doesn't work that way.

If you are working and earning a reasonable or better salary, top up your Special Account at $7,000/year, and convert OA to SA every month, then it will take very few years to zoom your Special Account up to the Full Retirement Sum.

Let's suppose you're under age 35, you're earning $60,000/year, and you're making $7,000/year Special Account top-ups. In this example your (and your employer's) compulsory contributions to your Special Account will be about $3,600/year. Compulsory Ordinary Account contributions will be $13,800 between you and your employer. So in this scenario you've got $24,400/year flowing into your Special Account. The Full Retirement Sum will probably increase about 3%/year, but the interest you earn is greater than 4%. Add that all together, and in this scenario your Special Account reaches the (future) Full Retirement Sum in less than 7 years -- in about 6, actually. Not 10, not 15. SIX. If you're age 24 when you start, by age 30 you're done.

And you've pocketed $490/year in tax savings (7% bracket) -- about $3,000 in 6 years, excluding interest/investment gains -- which is unrestricted cash, not restricted Ordinary Account funds. You've got a pile of higher yielding money that can be withdrawn as early as age 55 and another pile that'll give you the full FRS-level CPF LIFE payout as early as age 65. And that means you've got that much less retirement savings to worry about. And you can still buy a home if you want -- the right home, preferably HDB, when you've taken a bit of time to find the right spouse/partner who can also help with the (modest, actually) 10% down payment.

....And, on top of that, now isn't a great time to buy a home, if you're rational anyway. Yields are terrible, rents are low compared to valuations, and valuations are falling. It's probably a very smart move, in a persistently low yielding world, to grab tax reliefs and 4+ percent CPF interest. Wait a very few years, see how the market develops (or not), and then decide.

....And there are plenty of people who have absolutely no need for OA funds for a down payment on a home. They've got other sources of funds for that, and without difficulty. Those sources could be personal, familial, or some combination. If you're one of those many people, then it seems truly silly to deprive yourself of at least 1.5 percentage points of higher compounded interest and of significant tax relief. That's not smart.

Anyway, don't dismiss this idea. It's not crazy, far from it. It can be an extremely smart approach to optimizing CPF. Of course it depends on your situation, but there are many, many people that can (and do) benefit from this "Zoom the Special Account" approach. ("Zoom Medisave" too, perhaps.)
 
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final1

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Everyone has their own viewpoints and perspectives.
I have my reasons. You have your reasons.

That said, the basic point is that people need to be aware of and fully consider the implications of any financial decision that they make before making it.

It can't be undone. We have to live with our decisions once made.
 

BBCWatcher

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That said, the basic point is that people need to be aware of and fully consider the implications of any financial decision that they make before making it.
Well sure, but why do you assume Crimsontactics hasn't considered the implications at least as much as you have?

It's rather common, in (modern, wealthy) Singapore, for even younger workers to have no fear and no particular problem raising funds for a down payment on a home, if that's even what they want to do (buy a home). To oversimplify only slightly, you only need Ordinary Account savings if you're "poor." :D For everyone who isn't poor, it's quite rational and logical to grab as much tax relief and as much higher compounded interest, sooner, as possible. So such individuals -- and there are many -- should rationally, heavily bias toward MA and SA at the beginning of their CPF journeys. That's the smart play, and congratulations to Crimsontactics if he's not poor. :)
 
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crimsontactics

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At your age, i would have done a VC instead of a RSTU.

RSTU funds are locked up whereas VC funds aren't.

So the hack here is to do VC as Step 1 then do OA to SA transfer as Step 2. In this way, you avoid having the funds locked up in SA when you turn 55.
But VC have to contribute to MA, which technically can't be withdrawn till death.

That's why I want to fill my SA first.

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crimsontactics

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I am not too sure if Crimson fully understands what is the implication of what he has done and what impact it might have on decisions he might want to make in 5 to 10 to 15 years. (eg. buy a house).
Having transferred most of his OA to SA, the affordability of his house (if he ever intends to buy one), will be impacted. He is going to have fund the downpayment with cash when he could have done so with OA.

I can honestly say that most people prefer to use OA (if they have it) to pay for their first house than their cash. University education for his kids? He could have used OA but may now instead have to use cash.

But, since its already done, it can't be undone. Hope for the best. He can start to accumulate CPF OA going forward if he wants to. Just my 2 cents.

That said, the bright side is that he is quite assured of CPF LIFE income in his future retirement a long way down the road or a nice cash withdrawal at age 55. Good luck.
Yeah, possibly have trouble paying for the home.

My possible solution is either to increase my income or to get a smaller house.

Kids education wise, my policy is to let them pay for themselves tru loan. My view point is that I don't want to be financially tightened by my children's education since technically it's their responsibility.

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crimsontactics

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And not enjoy immediate tax relief? That doesn't make sense.


Yes, because as everyone knows, everybody dies at age 55 and 1 month, and everybody spends tens of thousands of dollars on the famous "Age 55 Parties" in Singapore, the expensive alcohol-fueled festivals of debauchery....

....I don't get this! You get assured lifetime income for your CPF Special Account efforts (nice!), and then only up to the Full Retirement Sum (somewhat more if you wish). Besides, you're going to have funds "locked up" anyway -- that doesn't change. RSTU dollars are the first to be "locked up," but some are going to be "locked up," and the Full Retirement Sum is not a lot of money, actually.

What on earth is going on? I don't get it. Singapore is at the very top of the world rankings in terms of life expectancies, among the top countries. Singaporeans live longer than almost everybody else on the planet. And yet there's so much "End of the World at Age 55" thinking here. WTF? It's not wrong to have at least a little -- and the Full Retirement Sum is not a tremendous amount of money -- lifetime income after age 55, and to get well rewarded for doing so with tax reliefs and higher interest. That's terrific! Bravo! (For perspective, compare the Full Retirement Sum to the market valuation of one small condo in Singapore. Which is a bigger number?)
Thanks for the detailed explanation! :)

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henrylbh

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It's rather common for 25 year olds to be at least in the 7% tax bracket (chargeable income over $40,000). A $7,000 top-up yields a near-immediate tax savings of $490 in that tax bracket. Not bad! That $490 can be saved, spent, or some combination, right away. Or you can think of it as a $6,510 Special Account top-up, with $7,000 then credited (immediate $490 bonus credit).

Be realistic. It's not common. After 20% CPF deduction and normal reliefs plus first 20k not taxable, how many 25 yo will have chargeable income of above 40k.
 
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