My mom is currently 69, and she has the following amounts in her CPF -
Ordinary 102,042.95
Special 10,670.19
Medisave 49,232.14
Retirement 180,816.74
She also has a few sums of fixed deposits expiring. As the interest rates are really low now and she is wary of investing in stock market, I would like to know whether she can do some voluntary contribution into her various CPF accounts to earn more than 1% fixed deposit interest.
She is not enrolled into the CPF Life scheme and this is where things get confusing for me when I read the rules. She should technically be able to draw money out from CPF. The thing is she doesn't want to... she wants the money to stay in CPF for as long as possible, and to add more to CPF if possible, to earn the interest.
OK. I’m going to assume then that she has not started any classic Retirement Sum Scheme payouts either. However, from her 70th birthday she’ll be required to start payouts, either via the classic RSS or a CPF LIFE plan, her choice. If she starts with classic RSS she can later switch to CPF LIFE using the residual if she wishes, but any switch needs to be made no later than a couple months before her 80th birthday.
I'm not BBCW but I like to test my CPF knowledge:
1. Please check that she has made a CPF nomination.
2. 2020's ERS is 271,500 so she can top-up RA to that amount.
That’s correct. The $271,500 limit (2020) is based on principal only, not accrued interest, so there’s probably at least $100,000 that could be added to her RA now, then more every time the ERS is raised. Also, since her RA is just below $181,000 there’s a very little bit of tax relief opportunity available. For example, a child in a high income tax bracket could deposit $183.26 into her RA and get tax relief on that amount.
A Retirement Account top up earns 4% interest for all whole months it’s in the RA, then it streams out as retirement income. RA is not particularly liquid for lump sum withdrawals, especially after CPF LIFE payouts start.
3. 2020's BHS is 60,000 so she can top-up MA to BHS. EDIT: BHS seems to be frozen when she reached 65. So this may not be possible.
Assuming she turned 65 in 2016, her Basic Healthcare Sum was fixed at $49,800. So she may have a few hundred dollars she can put into her MediSave Account. She is eligible for tax relief when she does that, although that’s assuming she has enough taxable income (from work, rental income, etc.) for tax relief to matter. This top up must also fit within the CPF Annual Limit. It earns 4%, and when her MA is at her BHS the interest will likely spill over into her OA. MA can be used for qualified medical spending in Singapore, including base Integrated Shield plan premiums, up to withdrawal limits.
4. If she has used CPF funds to purchase property previously, she can top-up her OA to the principal + accrued interest amount.
Yes, but she shouldn’t do this until after reaching the “all three account” Voluntary Contribution limit. An all 3 VC must fit within the CPF Annual Limit. If she keeps her MA pegged at her BHS — not hard to do since she’s so close to it — then a small piece of her VC lands in her SA and the rest in her OA. That’s better than a pure OA repayment since SA earns 4.0% interest.
5. If she is not on CPF Life, she will be on RSS. She can request for higher monthly payout if she wants or do nothing after the top-up.
Another option that effectively pushes withdrawals as far forward in time as possible is the...CPF LIFE Escalating Plan.
6. She has presumably met her age's FRS. The balance above FRS in SA and OA can be withdrawn anytime.
It’s hard to tell. Her RA balance is below the current FRS, and the FRS has been increasing at a slower rate than RA (plus interest) from her 65th birthday. However, she may have already withdrawn a bit, with or without a property pledge/charge. But she’s really, really close to the current FRS and can add funds to her RA if she wishes.
For mortgage liability, can choose to get mortgage insurance rather than dearth insurance right ?
Yes, but do you want to? I’m not a big fan of mortgage reducing insurance in part because a survivor should have the flexibility to decide how a death benefit will be deployed. Paying off a 1.8% mortgage (and locking up a ton of equity) might be a perfectly terrible idea in the circumstances. In certain circumstances you’re required to have Home Protection Scheme coverage, whereupon you’d count HPS coverage in calculating whether and how much life insurance you need. Otherwise, I’d avoid mortgage reducing insurance. Certain banks and mortgage brokers have been known to apply high pressure sales tactics, insisting you must buy this type of insurance. No, not true. Ordinary term life insurance works fine for these and other purposes.
