Using cash to top up CPF SA account

[lordofthering]

Mid 30s married. CPF left 30k in special account. HDB fully paid and have some stocks and time deposit. Is it wise to top up 300k to max couple SA account?

With interest rate of 4%, it should be 1.05^20*60000+1.04^20*106000=$391456 at 55 years old. Setting aside $271,500 for ERS, we can withdraw 240k in total when we hit 55 years old.

From 55-65, we can depend on 240k which is $2000 per month. From 65 onwards, it will be $4000 per month till we pass away.

We are frugal and think even if we lose everything at 55 years old, we still have $2000 per month and then after that $4000 per month.

 

[Thoreldan]

Your calculation seems funny but anyways i just want to point out that ers in 20 yrs time is no longer $271.5k.

 

[Okenba]

Yup. You will need to set aside more for ERS. You can probably make an estimate where ERS rises by 3% year on year.

You also have not considered your mandatory contributions from work for 20 years though, so you may not come out below that figure.

There will always be people who feel they can beat the 4%. If you feel you are unable or unwilling to take that risk, and are willing to wait to 55, then, in my opinion, CPF is a good bet.

For those who get heart attacks watching the market drop, thinking of how much you have in CPF is also one way to manage the heart burn.

 

[dork32]

Your calculation seems funny but anyways i just want to point out that ers in 20 yrs time is no longer $271.5k.

you are right that the calculations is wrong.

you cannot calculate the 5% interest this way. his calculations assumes that the amount earning 5% increases every year. this is not true. in other words the amount he received would be lower.

you are also right that ers would have changed.

one more point is that he did not consider contribution from employment.

 

[Thoreldan]

The fact that he didn't consider employment contribution and having only 30k in sa for both persons' sa at mid 30s suggested that they might be self-employed...

But again i could be wrong

 

[tangent314]

I think we need more information. An SA balance of $30k is pretty low for mid-30s, and there is no mention of MA and OA, so it is pretty likely that you are both self-employed, but we can't be 100% sure.

Your priority first should at least be to bring your SA+MA to $60000.
Being self-employed allows you to make tax deductible Voluntary Contribution, either to your MA or to OA+SA+MA. You can transfer from OA to your SA after that.
RSTU scheme allows you to directly transfer into your SA, of which $7000 per year is tax deductible as long as it does not bring your SA balance above the FRS.

The bonus interest does not compound, so the correct calculation is simply:
$181000 * 1.04^20 + $600 * 20 EDIT: It does compound, but not at the full 5%

But yes, otherwise it is not a bad idea to fill up your SA once your housing is settled.

 

[Okenba]

The calculation error is very slight.
He ends up with 381k instead of 391k for eg.

The bigger issue is that ERS annual increase was not taken into consideration.
Once we consider an annual increase of anything more than 2%, his CPF numbers will not be able to keep up with the increase unless there is more mandatory contributions coming in.

If, however, there are mandatory contributions coming in, and if he can hit the max of 37k a year, then he really should have no problems retiring at 55.

 

[lordofthering]

You right. I am self employed and have a stable income.

Thanks for your advice. Actually I also have a huge portion of my money in ES futures, btc and time deposit. Like holding ES till $0. Knowing I will have 2000sgd at age 55 and 4000sgd at age65 will allow me to take bigger risk elsewhere.

 

[BBCWatcher]

Being self-employed allows you to make tax deductible Voluntary Contribution, either to your MA or to OA+SA+MA.

The latter is smarter since lordofthering, as a self-employed individual, is eligible for tax relief on the whole $37,740, assuming lordofthering has enough still taxable income and otherwise qualifies (doesn't hit the $80,000 annual tax relief maximum).

You can transfer from OA to your SA after that.

Yes, but it'd be better to make the $7,000 cash top up for tax relief first when the SA gets close to the FRS. So that brings the annual total tax reliefs so far to $44,740 per year.

The bonus interest does not compound, so the correct calculation is simply:
$181000 * 1.04^20 + $600 * 20

No, the bonus interest compounds at 4%/year once paid. Think of it like a $181,000 initial deposit plus $600/year additions (at the end of the year) that all earns 4% interest. The end result after 20 years is $414,460 if my calculator is correct, rounded to the nearest whole dollar.

The formula should be something like this:

Balance = 181000*1.04^20 + 600*[(1.04^20-1)/0.04]

So, to recap, here are the steps to slam as much cash as possible into CPF Special Accounts now, with maximum available/achievable tax reliefs:

1. Both self-employed members of the household can make "all three" account contributions for tax relief: $37,740 each (the CPF Annual Limit). Now would be a great time to do that, via PayNow QR.

2. Add another $7,000 per person directly into the Special Accounts via the Retirement Sum Topping Up (RSTU) Scheme, also for tax relief, also via PayNow QR.

3. Transfer OA dollars into SA, which can be done instantly online. There is no tax relief associated with the transfer.

4. Finally, top up any remaining amount to the Full Retirement Sum. If Step 2 is completed, there's no tax relief here.

There's still time available as I write this to get all this done within January, 2020, in order to start earning interest from February 1, 2020.

Step 2 can be skipped this year since these Special Accounts are nowhere near the Full Retirement Sum -- just use Step 4 as the final step -- but I wrote it out this way just in case somebody else is trying to maximize tax reliefs and does have a Special Account that's "almost full."

 

[AvatarViper]

topup to SA in cash can't be withdrawn at age 55yrs. the topup amt + interest from the topup will be computed to your CPF life mthly payout at 65yrs.

so in conclusion, ts your strategy won't work.

 

[lordofthering]

topup to SA in cash can't be withdrawn at age 55yrs. the topup amt + interest from the topup will be computed to your CPF life payout at 65yrs.

that mean one only aim for 271,500 at 55 is enough?

 

[AvatarViper]

that mean one only aim for 271,500 at 55 is enough?

sorry, i dont quite get you on this.

 

[lordofthering]

sorry, i dont quite get you on this.

You mentioned SA top up in cash cannot be withdrawn in cash at 55.

So my next best strategy is to make sure I have 271,500 at age 55 in SA so I can start enjoying $4000 as a couple at 65

271500/(1.04^20)*2person=$250,000. So it seems $220,00 cash top up is enough since I already have $30,000 in my SA account

The bad thing is I cannot enjoy fixed income at 55-65. I have to strategies for that. Seems like 110,000 should be made in this tax year and 110,000 should be made immediately after the tax year

 

[AvatarViper]

You mentioned SA top up in cash cannot be withdrawn in cash at 55.

So my next best strategy is to make sure I have 271,500 at age 55 in SA so I can start enjoying $4000 as a couple at 65

271500/(1.04^20)*2person=$250,000. So it seems $220,00 cash top up is enough since I already have $30,000 in my SA account

The bad thing is I cannot enjoy fixed income at 55-65. I have to strategies for that. Seems like 110,000 should be made in this tax year and 110,000 should be made immediately after the tax year

yep. u are about right. topup of $110k and compound for 30yrs is around $400k at age 65yrs. which should net you slightly less than $2k per mth. good luck

 

[maple96]

topup to SA in cash can't be withdrawn at age 55yrs. the topup amt + interest from the topup will be computed to your CPF life mthly payout at 65yrs.

so in conclusion, ts your strategy won't work.

This is rubbish!

 

[maple96]

You mentioned SA top up in cash cannot be withdrawn in cash at 55.

Dun believe in rubbish! U can withdraw OA/SA balances above FRS at age 55.

So my next best strategy is to make sure I have 271,500 at age 55 in SA so I can start enjoying $4000 as a couple at 65

271500/(1.04^20)*2person=$250,000. So it seems $220,00 cash top up is enough since I already have $30,000 in my SA account

The bad thing is I cannot enjoy fixed income at 55-65. I have to strategies for that. Seems like 110,000 should be made in this tax year and 110,000 should be made immediately after the tax year

I did not read everything, if I were u and have spare cash, I will topup SA to max FRS limit this year and let it compound, unless u also want to explore tax relief. If u have spare cash u want to save for retirement purpose, continue to VC every year, to the amt u target for retirement. Work your sums yourself.

 

[AvatarViper]

Dun believe in rubbish! U can withdraw OA/SA balances above FRS at age 55.



I did not read everything, if I were u and have spare cash, I will topup SA to max FRS limit this year, unless u also want to explore tax relief.

pls read this. https://www.cpf.gov.sg/members/FAQ/...avings from 55&folderid=12854&ajfaqid=2189257

Any Retirement Account savings (excluding interest earned, any government grants received and top-ups made under the Retirement Sum Topping-up Scheme)

 

[AvatarViper]

This is rubbish!

in addition, i have also clarified personally with a CPF officer at their main branch.

 

[maple96]

pls read this. https://www.cpf.gov.sg/members/FAQ/...avings from 55&folderid=12854&ajfaqid=2189257

U obviously cannot comprehend CPF rules. If u can meet FRS at 55, u can withdraw all excess balances in OA/SA.

If u cannot meet FRS, then it is a different thing. Or if u want to withdraw from RA or down to BRS.

TS is targetting to exceed FRS!

 

[Thoreldan]

pls read this. https://www.cpf.gov.sg/members/FAQ/...avings from 55&folderid=12854&ajfaqid=2189257

He's not going to withdraw from his ra. But anything excess of the prevailing frs.