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BBCWatcher

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I believe you're correct in the scenario you describe, that the whole CPF LIFE payout amount would be U.S. income taxable whereas a lump sum distribution might not be, except for the interest portion annually from the start of U.S. personhood. Non-treaty, foreign tax advantaged foreign pensions/annuities are "weird" that way.

"It's complicated."
 

celtosaxon

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It’s complicated all right... especially during retirement and there is no earned income to be excluded and no foreign tax on investment income to be credited... you’ll be no better off here than living in a tax free state like Florida. And in my case, once the kids are gone, MFS filing status will further complicate and exacerbate the situation. It could end up being a recipe for renunciation.
 

BBCWatcher

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It’s complicated all right... especially during retirement and there is no earned income to be excluded and no foreign tax on investment income to be credited... you’ll be no better off here than living in a tax free state like Florida.
Worse off financially, I’d say, since Singapore’s cost of living is generally higher than Florida’s. Do you prefer mee rebus or Mickey Mouse?
And in my case, once the kids are gone, MFS filing status will further complicate and exacerbate the situation. It could end up being a recipe for renunciation.
That’s unlikely for both logistical and financial reasons, isn’t it? As an opening bid, the Expatriation Tax threshold is not even inflation indexed.
 

BBCWatcher

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Interesting discussion, if the Biden tax plan goes through it will get more interesting? :LOL: Just being kaypoh here.
Only for households with greater than US$400,000 of income per year, assuming joint tax filing. Biden’s plan also includes a tremendous amount of infrastructure spending, broadly defined. Upper income households also generally fare very well with such massive macroeconomic stimulus.
 

celtosaxon

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I’ve got to get the kids through university in the coming years, and retaining U.S. citizenship and acquiring state residency is a must to pay < $15k instead of > $50k tuition. Before the end of year 7 we have to decide on the covered expatriate thing for the wife. At least by that time she will qualify for social security spousal coverage - but she will only see about 3/4 of the benefits as a nonresident alien. And, who knows if she will be able to renew her REP and keep her PR throughout that time... lots of twists and turns ahead.
 

mr_beanz

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BBCW, may I seek your opinion on whether my plan makes sense?

My wife will be giving birth to our second child in a few weeks' time. Both our medisave have been maxed out. Instead of using 100% cash for the hospitalisation and delivery payments (which was what we did for our first child), we can intend to use our medisave. We would then top up my second child's medisave (to earn 5%) with whatever cash (e.g. $15k) we would have used for the hospitalisation and delivery payments. Overall, my whole family would earn an extra 1% interest per annum on that $15k.

Thank you.
 
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BBCWatcher

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BBCW, may I seek your opinion on whether my plan makes sense?

My wife will be giving birth to our second child in a few weeks' time. Both our medisave have been maxed out. Instead of using 100% cash for the hospitalisation and delivery payments (which was what we did for our first child), we can intend to use our medisave. We would then top up my second child's medisave (to earn 5%) with whatever cash (e.g. $15k) we would have used for the hospitalisation and delivery payments. Overall, my whole family would earn an extra 1% interest per annum on that $15k.
This question comes up from time to time: does it make sense to top up a young child's CPF accounts, such as his/her MediSave account?

Obviously if you have gobs of cash lying about, languishing in ~0.5% interest bank accounts, sure, go for it. There are a few such people.

Otherwise, you should keep in mind that making a Voluntary Contribution to your own MediSave Account (and/or your spouse to hers) can qualify for tax relief. These contributions must fit within both the CPF Annual Limit and Basic Healthcare Sum, so not everyone can do it. But if you're in the 7% income tax bracket (for example) and can manage to do this, that's pretty darn attractive. Yes, OK, you get "only" 4% interest versus a child starting at 5% (with bonus interest), but cutting your income tax bill and improving next year's cashflow is great compensation.

Also, newborns generally have the longest investment time horizons among the living. Thus if I'm going to save for a child (yes, definitely) I prefer simple dollar cost averaging into a low cost stock index fund. That approach is likely to do better than 5% on a long-term basis, or likely enough anyway, but without any of MediSave's liquidity constraints. But that's my preference, not necessarily a hard and fast rule.

I definitely would grab every dollar of the government's 100% matching Child Development Account deal assuming your newborn qualifies (Singaporean citizen newborn). It's hard to beat an immediate 100% match. Then I'd spend the funds on whatever you would already plan to spend them on since the yield is low.

I think it makes sense to enroll your (healthy, we certainly hope) 15 day old newborn (the minimum entry age) into an Integrated Shield plan. Personally I'd pick a public hospital A ward plan with lowest cost rider, and with a carrier that offers a nice "as charged" public hospital B1 ward plan for future possible downgrade, since Singapore's public medical system is particularly excellent for pediatric care. But that's only a tiny fraction of the ~$15,000. I cannot think of any other insurance products offered in Singapore that are relevant and important enough to buy.
 

mr_beanz

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"This question comes up from time to time: does it make sense to top up a young child's CPF accounts, such as his/her MediSave account?

Obviously if you have gobs of cash lying about, languishing in ~0.5% interest bank accounts, sure, go for it. There are a few such people.

Otherwise, you should keep in mind that making a Voluntary Contribution to your own MediSave Account (and/or your spouse to hers) can qualify for tax relief. These contributions must fit within both the CPF Annual Limit and Basic Healthcare Sum, so not everyone can do it. But if you're in the 7% income tax bracket (for example) and can manage to do this, that's pretty darn attractive. Yes, OK, you get "only" 4% interest versus a child starting at 5% (with bonus interest), but cutting your income tax bill and improving next year's cashflow is great compensation."

Thank you. I would not qualify for income tax relief fur medisave top-ups. Nonethess. I do take note of your pointers on investing in a broad-based ETF like VWRA and IWDA, as well as the contribution to
Thank you, BBCW. I would not qualify for income tax relief for medisave top-ups anymore. Nonetheless, I do take note of your pointers on investing in a broad-based ETF, contributing to child's CDA and his insurance. Appreciate them.
 
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darknezx

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Hi BBCWatcher, thought to get your advice on my situation if it's not a bother. I just checked and realised I am reaching the limit for SA top up soon. I'm in my mid 30s so there's a long way to go before retirement. Right now my accounts are:

OA - $60k
SA - $143k
Medisave acc - $62k

What would you do with the CPF OA funds? I am reaching the tax deduction limit for contributing to SA. I am wondering if I should just transfer most of my OA money into my SA account to get more interest? But if I do so I'd not be able to enjoy the tax deduction from contributing to SA.

I've an HDB loan but I decided not to use my OA funds to pay it off early.

An alternative I thought of is to invest the OA money in a robo investor I can find, although the risk is much higher than the 2.5% CPF offers.

I currently earn about $170k pa so my tax bracket is in the 15% range - pretty hefty but at least the tax is going to helping other Singaporeans.

Appreciate your thoughts on this - what would you do with the OA funds if you were in this situation?
 

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Do you have a spouse or other qualified family member who could receive dollars from your OA into their SA or RA? That’s usually the next best option, if available.
 

darknezx

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Do you have a spouse or other qualified family member who could receive dollars from your OA into their SA or RA? That’s usually the next best option, if available.
Thanks for the reply! Yup I have a wife and her SA is only about $50k. But wouldn't it be better to invest the OA amount rather than doing top-ups across accounts, since there's no matching of transfers by the govt?
 

BBCWatcher

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Thanks for the reply! Yup I have a wife and her SA is only about $50k. But wouldn't it be better to invest the OA amount rather than doing top-ups across accounts, since there's no matching of transfers by the govt?
What government match are you referring to? Do you mean potential tax relief? At least if her tax bracket is low or zero then 4.0% interest (upgraded from 2.5%) seems like a good deal to me.
 

chillinbythebeach

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Hi BBCW,

In your previous posts, you mentioned that it's reasonable to also consider CPF as bond allocation. And in my case, since I started investing only recently, my CPF sum is quite significant that it dictates that I do not buy into MBH at all for a while.
Currently, if I take into account CPF as bonds, they are at about 50% of my portfolio and I already plan to reduce this to 20% with my monthly sum invested solely into VWRA (with a drop of ES3 buy at every quarter). I also do not have any lump sum cash on hand.

My question is how should I rebalance my portfolio on a market crash/dip (since I can't "sell" my cpf to buy more VWRA)? And is there anything additional that I can do to reduce my bond allocation over the next months?
 
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JetStorm

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Hi BBCW,

In your previous posts, you mentioned that it's reasonable to also consider CPF as bond allocation. And in my case, since I started investing only recently, my CPF sum is quite significant that it dictates that I do not buy into MBH at all for a while.
Currently, if I take into account CPF as bonds, they are at about 50% of my portfolio and I already plan to reduce this to 20% with my monthly sum invested solely into VWRA (with a drop of ES3 buy at every quarter). I also do not have any lump sum cash on hand.

My question is how should I rebalance my portfolio on a market crash/dip (since I can't "sell" my cpf to buy more VWRA)? And is there anything additional that I can do to reduce my bond allocation over the next months?
I am like you where i use cpf as the bond portion. Right now I am playing catchup. its gonna take awhile since I'm only investing 800 every month into my equities portfolio.

I hope to at least hit my equity/bond ratio within the next 5 to 10 years. Once that is done the rebalancing can then start. If during balancing your equities are over, u can start buying mbh or whatever bonds counter you want.
 

mickey2021

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Hi BBCW,

Been a long time reader of this thread, and would like to seek some enlightenment on my current situation:

1. I am currently a 25 yo PR, and recently received a windfall of roughly S$2.5mil, of which S$0.5mil are in Unit Trusts and the rest are in cash.
2. I have been transferring cash into SGD via Transferwise instead of via bank, however the FX rate between my home currency and SGD has not been in favour recently. But understand that this is just part of FX risk that I have to bear.
3. I have not done any investing prior to this, but have decided to go with the following allocation:

  • 3% equities in my home country
  • 10% equities in Singapore (ES3/G3B)
  • 60% equities in US/World (VWRA/ISAC/other low cost global stock index funds)
  • 10% bond (CPF/MBH)
  • 12% property
  • 1% crypto
  • 4% cash (this 4% is purely because of the FD that the cash is currently parked in, expiring 2022, still in home currency)
4. In terms of brokers, I will be splitting between IBKR and Stan Chart, maybe IBKR for global stock and Stan Chart for local stock. Reason for doing this is just to spread the eggs around.
5. With S&P reaching all time high currently, I presume it would be better to DCA monthly rather than trying to time the market for the market to dip.
6. With regards to using CPF as bond portion, my understanding is that I can do a lump sum top up of SA to the Full Retirement Sum 2021 of S$186,000 to enjoy the 4% interest. I currently have the following amount in my CPF, of which I have been transferring my OA to SA since the start of this year every month, I have also done a MA top up of S$7k earlier this year. I presume there is no harm to empty my OA to be at 0 dollars? But just feel abit “strange” to see OA at 0 dollars.
OA: 10k
SA: 26k
MA: 15k
7. In terms of allocating 12% to property, the thinking behind this is that I am currently still single and not sure if I will be getting married. So figured this property could serve as an investment property for now, and maybe for my own usage next time if I am not getting married. However, not sure if this is a wise move, given Singapore’s property market seem to be very heated right now and also the upfront 5% stamp buyer duty that PR has to pay.
8. With respect to the UTs, I am not sure if I should redeem them out and slowly reinvest the money into the global stock index funds, given that 2 of the UTs are doing well with more than 40% returns currently.
9. In terms of insurance, I currently have Prudential PruShield Plus plan with rider covering Class A public hospital A ward. I also know you are a strong advocate of disability insurance, so I figured I should get that sorted out.

Thank you for reading through the long post and appreciate your advice please, thank you!
 

BBCWatcher

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1. I am currently a 25 yo PR, and recently received a windfall of roughly S$2.5mil, of which S$0.5mil are in Unit Trusts and the rest are in cash.
Congratulations. Where do you plan to retire?
4. In terms of brokers, I will be splitting between IBKR and Stan Chart, maybe IBKR for global stock and Stan Chart for local stock. Reason for doing this is just to spread the eggs around.
FSMOne is probably better for ES3/G3B, or at least it was last I checked.
5. With S&P reaching all time high currently, I presume it would be better to DCA monthly rather than trying to time the market for the market to dip.
To a degree. I have no criticism if you want to reposition this lump sum over the next 10 months, for example.
6. With regards to using CPF as bond portion, my understanding is that I can do a lump sum top up of SA to the Full Retirement Sum 2021 of S$186,000 to enjoy the 4% interest. I currently have the following amount in my CPF, of which I have been transferring my OA to SA since the start of this year every month, I have also done a MA top up of S$7k earlier this year. I presume there is no harm to empty my OA to be at 0 dollars? But just feel abit “strange” to see OA at 0 dollars.
OA: 10k
SA: 26k
MA: 15k
Actually with these balances you're still in bonus interest territory, meaning 5% interest on SA/MA. There are really only two material differences between OA and SA:
(a) OA earns 2.5% interest while SA earns 4.0% interest. (Not counting bonus interest.)
(b) OA can be used for purchased housing, some higher education, and a very little bit of insurance in Singapore while SA cannot (until age 55+ when any SA surplus becomes liquid).

Obviously point (a) favors SA. Point (b) only really matters when your non-CPF liquid assets are fairly modest or lower. You don't seem to be in that situation, and therefore OA to SA transfers seem to make a lot of sense for you. If you do make a gigantic SA top up as high as that level (Full Retirement Sum) then you cannot make any more OA to SA transfers. Thus OA starts accumulating dollars as compulsory contributions stream in. You don't seem to need OA to make part of a down payment on a home even if/when you want to do that, and you could start servicing a mortgage with OA right away, so really you'd in the best possible position to transfer OA to SA if you wish.
7. In terms of allocating 12% to property, the thinking behind this is that I am currently still single and not sure if I will be getting married. So figured this property could serve as an investment property for now, and maybe for my own usage next time if I am not getting married. However, not sure if this is a wise move, given Singapore’s property market seem to be very heated right now and also the upfront 5% stamp buyer duty that PR has to pay.
I wouldn't view it as a particularly good investment, and private sector housing in Singapore is something of a luxury in consumer terms. Note that ABSD drops to zero on a first home for Singaporean citizens, but of course there's no guarantee of citizenship even if you seek it. Or if you marry a Singaporean citizen (or qualified Free Trade Agreement individual) then ABSD drops to zero if/when you buy as a couple. That's a terrible reason to get married, though.

I'm not sure where you can buy a S$300K home in Singapore, which is what 12% of S$2.5M implies. Maybe a leasehold that's long in the tooth? Or do you mean that'd be a 25% down payment, so a ~S$1.2M home, plus BSD, ABSD, and other costs?
8. With respect to the UTs, I am not sure if I should redeem them out and slowly reinvest the money into the global stock index funds, given that 2 of the UTs are doing well with more than 40% returns currently.
You should. I assume they're high cost, and any monkey was capable of doing well in recent months.
9. In terms of insurance, I currently have Prudential PruShield Plus plan with rider covering Class A public hospital A ward. I also know you are a strong advocate of disability insurance, so I figured I should get that sorted out.
I am, and it happens to be cheap protection at your age.
 

Prof. Utonium

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Hi BBCW,

In your previous posts, you mentioned that it's reasonable to also consider CPF as bond allocation. And in my case, since I started investing only recently, my CPF sum is quite significant that it dictates that I do not buy into MBH at all for a while.
Currently, if I take into account CPF as bonds, they are at about 50% of my portfolio and I already plan to reduce this to 20% with my monthly sum invested solely into VWRA (with a drop of ES3 buy at every quarter). I also do not have any lump sum cash on hand.

My question is how should I rebalance my portfolio on a market crash/dip (since I can't "sell" my cpf to buy more VWRA)? And is there anything additional that I can do to reduce my bond allocation over the next months?

I am like you where i use cpf as the bond portion. Right now I am playing catchup. its gonna take awhile since I'm only investing 800 every month into my equities portfolio.

I hope to at least hit my equity/bond ratio within the next 5 to 10 years. Once that is done the rebalancing can then start. If during balancing your equities are over, u can start buying mbh or whatever bonds counter you want.

Do you calculate only SA or both OA+SA?

Interestingly, I am at the same predicament hence I am more aggressive when it comes to placing spare cash or a certain percentage of overall equities to stock picking instead of ETF to meet my desired level at a faster pace.

Personally I only capture SA as one of the component into my "bond" portion (another reason is, I have been wiping my OA to SA), and have no intention of capturing OA into calculation in near future either as my intention for OA is to build up and clear off for future property. So in my spreadsheet it is under "asset" but not the investment sheet.

If really need to balance, perhaps can use some of your OA to invest too though I am happy throwing it into SA. YMMV!
 

mickey2021

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Hi BBCW,

Thank you for the prompt reply!

Congratulations. Where do you plan to retire?
To be honest, I haven't really decided where I am planning to retire. Used to lean towards my home country (which is just across the border), but now I am indifferent towards retiring in Singapore either. Will that have any material impact on my proposed portfolio allocation?

FSMOne is probably better for ES3/G3B, or at least it was last I checked.
Okay, will check FSMOne out. Actually does it make sense to split between different stock brokers based on local/global stock legs or should that allocation be based on amount instead?
To a degree. I have no criticism if you want to reposition this lump sum over the next 10 months, for example.
Noted.

Actually with these balances you're still in bonus interest territory, meaning 5% interest on SA/MA.
I may be dense but does that mean that it is actually better for me to do the SA lump sum FRS top up after my compulsory contributions have resulted in total balances exceeding 60k just so that I can earn the bonus interest on the first 60k?
If you do make a gigantic SA top up as high as that level (Full Retirement Sum) then you cannot make any more OA to SA transfers. Thus OA starts accumulating dollars as compulsory contributions stream in.
Noted, Am curious what about MA - since my MA have yet to reach the Basic Healthcare Sum, I presume I should continue to do top ups annually to qualify for tax relief?
I wouldn't view it as a particularly good investment, and private sector housing in Singapore is something of a luxury in consumer terms. Note that ABSD drops to zero on a first home for Singaporean citizens, but of course there's no guarantee of citizenship even if you seek it. Or if you marry a Singaporean citizen (or qualified Free Trade Agreement individual) then ABSD drops to zero if/when you buy as a couple. That's a terrible reason to get married, though.
Haha "terrible reason to get married", indeed so. I am privy to the reason why you do not view it as a particularly good investment, is it because the property market is pretty heated right now and demand might not be able to keep up in the future and hence the concern on the future capital appreciation.
I'm not sure where you can buy a S$300K home in Singapore, which is what 12% of S$2.5M implies. Maybe a leasehold that's long in the tooth? Or do you mean that'd be a 25% down payment, so a ~S$1.2M home, plus BSD, ABSD, and other costs?
Yes I meant it to be 25% down payment. Actually I am not too sure if that's the correct way to define the 12%, or is it the case that a S$1.2m home (for example) would constitute to a ~50% of my portfolio. And yes you are right about all that extra costs esp the ABSD, which is making me having second thoughts on this.
You should. I assume they're high cost, and any monkey was capable of doing well in recent months.
Yes they are high cost, can't recall offhand but should be around 4-5% from what I remember.
I am, and it happens to be cheap protection at your age.
Noted, I will do more research into this.
 
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