cpf Special account shielding

[SBC]

You have only a few ways to get money out of your OA:

1. Use OA dollars for qualified housing, education, and/or insurance such as the Home Protection Scheme.

2. Starting from age 55 you can withdraw OA dollars, but you can only do that behind your SA dollars (SA withdrawals come first) and if your RA is at least decently funded (Full Retirement Sum, or Basic Retirement Sum with property pledge/charge).

3. You can transfer OA dollars to a qualified family member’s SA (receipient under age 55) or RA (receipient age 55 or older) provided the recipient hasn’t reached the applicable limit (FRS for SA, ERS for RA) and provided you have reached a high enough minimum combined balance (you’re not digging too deeply into your own total CPF savings).

4. Hardship withdrawals — a terminal illness, for example. The order of withdrawal rules in #2 above then apply.

Great thanks

 

[martin]

Purchase/redemption of CPFIS affects the withdrawal order in the month of withdrawal. This information on the withdrawal order used to be on the CPF website but I don't know why it was removed. If you are going to do this, best to get written confirmation from CPF.

So things might have changed. But in what way does it affect previously?

How about withdrawing both OA and SA interest every month and VC back immediately to start earning interest?

 

[BBCWatcher]

So things might have changed. But in what way does it affect previously?

How about withdrawing both OA and SA interest every month and VC back immediately to start earning interest?

You could do that within the CPF Annual Limit, but it could very easily be a guaranteed money losing maneuver. The percentage of your Voluntary Contribution that lands in your SA is quite low at age 55+. If your MediSave Account is below the Basic Healthcare Sum that’ll help (in interest rate terms). You will also lose one month of interest on these dollars.

This maneuver only could work if your SA is relatively low or zero, so (for example) 90% of your withdrawal consists of 2.5% interest earning dollars and after redeposit 80% earns 2.5%, i.e. you’re actually raising the percentage that earns 4.0%...and you’re raising it nontrivially because you lose a month of interest on all these dollars to make the shift. Also, you ought to figure out whether there are any better options, inside and outside CPF. Cash, if you have some lying about, is most probably a better source of funds for a Voluntary Contribution. Topping up your RA or MA, if you have those options, will do better in interest rate terms. Transferring OA to a qualified family member’s (such as a spouse’s) RA (or SA if under 55) is a better deal, too, if available. It’s even possible the CPF Investment Scheme (OA) is a better deal.

 

[zoneguard]

How about withdrawing both OA and SA interest every month and VC back immediately to start earning interest?

CPF computes interest based on lowest monthly balance and with the SA allocation ratio at 13.46%/19.64% in 2021/2022, in all likelihood, this maneuver is pointless.

 

[henrylbh]

How about withdrawing both OA and SA interest every month and VC back immediately to start earning interest?

From what I understand, you can withdraw SA follow by OA interest every month, without touching the principal sums, based on interest accrued in the previous month, except may be for withdrawal in Jan as Dec interest has been capitalised on 31 Dec or 1 Jan. The interest accrued every month, if not withdrawn, earn no interest until end of year when it is capitalised. Whether to withdraw the accrued interest depends

Immediately VC back, you lose interest on VC for that month. If SA is low and OA is high, the VC may have advantage as little part of it goes to SA and MA, if it is less than BHS.

 

[martin]

Thanks, guys. Looks like no really useful way to mitigate this.

Another thing. Suppose i transfer an amount from OA to RA. First this amount lose interest for the month in OA. Then interest will only begin accumulating next month in SA?

 

[BBCWatcher]

Another thing. Suppose i transfer an amount from OA to RA.

You cannot transfer dollars from your OA into your RA without drawing from SA dollars first. I'm going to assume you're talking about your OA dollars into a qualified family member's SA or RA, which is allowed without drawing from your SA first. The donor needs to meet certain minimum balance requirements, and the recipient's SA needs to have room below the Full Retirement Sum (recipient under age 55) or RA below the Enhanced Retirement Sum (recipient age 55+).

First this amount lose interest for the month in OA. Then interest will only begin accumulating next month in SA?

I'm not 100% sure, but I believe you will lose interest for the month when this transfer occurs. It won't take long to recover the month of lost 2.5% interest thanks to the higher interest in SA/RA.

 

[martin]

You cannot transfer dollars from your OA into your RA without drawing from SA dollars first. I'm going to assume you're talking about your OA dollars into a qualified family member's SA or RA, which is allowed without drawing from your SA first. The donor needs to meet certain minimum balance requirements, and the recipient's SA needs to have room below the Full Retirement Sum (recipient under age 55) or RA below the Enhanced Retirement Sum (recipient age 55+).

I'm not 100% sure, but I believe you will lose interest for the month when this transfer occurs. It won't take long to recover the month of lost 2.5% interest thanks to the higher interest in SA/RA.

Oh, ****. I didn’t know. As part of my shielding, i have placed a sell order this morning to liquidate my SA-bought Nikko shorterm bond fund. Means myproceeds will be going back to SA soon. Is it still possible to transfer from OA to RA to hit ERS? How long does it take from OA to RA?

 

[BBCWatcher]

Oh, ****. I didn’t know. As part of my shielding, i have placed a sell order this morning to liquidate my SA-bought Nikko shorterm bond fund. Means myproceeds will be going back to SA soon. Is it still possible to transfer from OA to RA to hit ERS? How long does it take from OA to RA?

Yes, fortunately you can perform that transfer online, and I believe it's instant. Go to this page:

https://www.cpf.gov.sg/members/services/forms-and-e-app

then expand the Retirement section, then the Retirement Sum Topping-Up Scheme section. Look for the entry "Top Up Retirement Sum Using CPF (For Members age 55 and above) - CPF transfer to my RA," and click on that entry's "Apply Online" link.

Try doing this with $10 now and, if you see the $10 appear in your RA when you run an online statement report, do it again for the full amount you want to transfer. As long as your SA is still zero (your proceeds from the CPF Investment Scheme-SA haven't been deposited yet), and as long as the transfer is instant, you should be OK.

Bear in mind that 2.5% interest earning dollars are still very good dollars. If you have gobs of cash lying about and doing nothing or almost nothing, you'll probably want to use cash to make RA top ups.

 

[martin]

Yes, fortunately you can perform that transfer online, and I believe it's instant. Go to this page:

https://www.cpf.gov.sg/members/services/forms-and-e-app

then expand the Retirement section, then the Retirement Sum Topping-Up Scheme section. Look for the entry "Top Up Retirement Sum Using CPF (For Members age 55 and above) - CPF transfer to my RA," and click on that entry's "Apply Online" link.

Try doing this with $10 now and, if you see the $10 appear in your RA when you run an online statement report, do it again for the full amount you want to transfer. As long as your SA is still zero (your proceeds from the CPF Investment Scheme-SA haven't been deposited yet), and as long as the transfer is instant, you should be OK.

Bear in mind that 2.5% interest earning dollars are still very good dollars. If you have gobs of cash lying about and doing nothing or almost nothing, you'll probably want to use cash to make RA top ups.

Haha, i try to imagine what is gobs of cash and reckon I don’t have that and that’s why i still need OA if i want ERS. Anyway, it does make more sense to top with cash and will work towards doing more cash top up. Tried a small amount of OA to RA transfer and, yes, almost instant.

 

[qhong61]

Possible to top up OA without money going to RA and medisave after 55yo?

 

[BBCWatcher]

Possible to top up OA without money going to RA and medisave after 55yo?

Sort of, maybe. You can repay OA dollars used for housing and education, plus accrued interest, at any age. You can make an “all three account” Voluntary Contribution at any age if you have room below the CPF Annual Limit. If your MA is at the Basic Healthcare Sum then none of your VC will land in MA. Some will land in your SA, but that’s a good thing since SA earns higher interest. If you’re age 55+ you can withdraw from your SA then OA, in that order, if your RA is at least “decently” funded.

 

[Ace King]

Hi BBC and folks, need your advice urgently.

I intend and have planned since a long while ago to do cpf sa shielding for my wife who is going to be 55 yo this coming 25 May. I had planned to buy $220K of the Nikko AM Shenton Short Term Bond SGD last week but have not done it because of recent regional stock market weakness and COVID-19 resurgence. Though I understand unit trust is very well diversified and low risk, I notice the unit trust mentioned above experienced a significant dip between March to April 2020. Could this dip be due to the last Circuit Breaker in Singapore? If yes, is it still worthwhile to take the risk of doing the cpf sa shielding now particularly when we could be heading to another ** soon? Time is running out and I have to make a decision by tmr. Thanks in advance.

 

[iMac]

Hi BBC and folks, need your advice urgently.

I intend and have planned since a long while ago to do cpf sa shielding for my wife who is going to be 55 yo this coming 25 May. I had planned to buy $220K of the Nikko AM Shenton Short Term Bond SGD last week but have not done it because of recent regional stock market weakness and COVID-19 resurgence. Though I understand unit trust is very well diversified and low risk, I notice the unit trust mentioned above experienced a significant dip between March to April 2020. Could this dip be due to the last Circuit Breaker in Singapore? If yes, is it still worthwhile to take the risk of doing the cpf sa shielding now particularly when we could be heading to another ** soon? Time is running out and I have to make a decision by tmr. Thanks in advance.

Errr...I thought dip is good? You buy LOW now, later can sell HIGH.

 

[Ace King]

Errr...I thought dip is good? You buy LOW now, later can sell HIGH.

Well, it took a long long time to come back up again, my intention is shielding and will keep it there for as short as possible. I feel safer to keep money with cpf.

 

[reddevil0728]

Well, it took a long long time to come back up again, my intention is shielding and will keep it there for as short as possible. I feel safer to keep money with cpf.

It’s a bet on whether at the point of your entry, it already bottomed out or still will go down further.

you can calculate yourself the opportunity cost of doing it and not doing it. This is mathematical.

of course you need to give a value judgment on how much you value the objective of shielding. Because this is a personal thing.

yes you may do a shield now, end up the bond fund drop, and end up you lose money. But then you still get to shield and there is value to this.

but if you don’t even buy the bond fund to shield at all, you lose the value of shielding.

so if they value of shielding is greater than the loses in getting the bond fund, then it is still worth it?

nobody got crystal ball

 

[BBCWatcher]

Your wife doesn't need this fund to increase during the few days she will hold it. She just needs relative stability, that's all. But even if the fund falls in value ~1.48% which is a heck of a lot of movement for a fund of this type, she'll make all that back in a year with the higher CPF interest rate on her Special Account. That's the whole point of "shielding."

If this fund has fallen in value before she has purchased it, that's fantastic! That means she's getting it at a cheaper price, meaning (other things being equal) it's that much more likely to stay flat or even slightly increase. But she doesn't actually need flat or an increase. Even a little decline would be perfectly fine, as mentioned.

 

[Ace King]

It’s a bet on whether at the point of your entry, it already bottomed out or still will go down further.

you can calculate yourself the opportunity cost of doing it and not doing it. This is mathematical.

of course you need to give a value judgment on how much you value the objective of shielding. Because this is a personal thing.

yes you may do a shield now, end up the bond fund drop, and end up you lose money. But then you still get to shield and there is value to this.

but if you don’t even buy the bond fund to shield at all, you lose the value of shielding.

so if they value of shielding is greater than the loses in getting the bond fund, then it is still worth it?

nobody got crystal ball

Thanks for your pov. You are right, nobody can tell what’s gonna happen. Guess I will just bite the bullet and keep my fingers crossed.

 

[Ace King]

Your wife doesn't need this fund to increase during the few days she will hold it. She just needs relative stability, that's all. But even if the fund falls in value ~1.48% which is a heck of a lot of movement for a fund of this type, she'll make all that back in a year with the higher CPF interest rate on her Special Account. That's the whole point of "shielding."

If this fund has fallen in value before she has purchased it, that's fantastic! That means she's getting it at a cheaper price, meaning (other things being equal) it's that much more likely to stay flat or even slightly increase. But she doesn't actually need flat or an increase. Even a little decline would be perfectly fine, as mentioned.

Thanks BBC. Feel more assured after reading your post. The magic number -1.48% is helpful too, appreciate your microscopic insight and the maths involving this shielding.

 

[oceanicmanta]

say a 55yo did not preform SA shielding, RA has been formed, n still left with SA 100k & OA 150k

he has decided to go for ERS by CPF transfer (by $90k+)

I suppose he can still perform the SA shield before RA top up by CPF transfer ? (albeit the amount shielded is only half of FRS)