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MCKawe 29-07-2018 11:15 AM

Quote:

Originally Posted by BBCWatcher (Post 115727260)
The maximum ERS is 150% of the FRS, and this figure increases every year. I believe you’ve got the correct figure for 2018.

Apparently, from age 55, you can add a small top-up to your RA every January 1 when the BRS/FRS/ERS increase, even if you’ve hit the ERS previously. And you can do that for about 10 or 15 years. So ERS on your 55th birthday plus January top-ups to the new ERS would be the absolute maximum CPF LIFE participation level.


I’m not following you. If you zoom to ERS level, that determines your payouts. All you’d do is choose your payout plan just before your 70th birthday in this example — I’d pick the Escalating Plan — and that’s that.

I agree with you and disagree with Henrylbh about bequests. You cannot use CPF LIFE to guarantee a bequest, not directly. None of the CPF LIFE payout plans guarantee a bequest — not even close. (All stand a high chance of yielding zero bequest.) However, you can better assure that your other assets will turn into a bequest if you maximize the longevity insurance characteristics of CPF LIFE. That means three things: (a) funding RA to a level that provides at least a sufficient CPF LIFE income stream for your purposes; (b) deferring CPF LIFE payouts to age 70; (c) choosing the Escalating Plan, to combat possible inflation. That’s the safe and the smart play, even if you are trying to assure a particular (or higher) bequest. Anything else means you’re playing the “bequest lottery,” which is not safe if you’re trying to assure a bequest.

There is another part of CPF that can act as a nearly 100% guaranteed bequest. That’s your Medisave Account. It earns 4% interest, which is very attractive. And it’s restricted to medical spending (and some medical insurance). So what you can do with a bequest aim is to keep topping up your Medisave Account within any/every month that there’s a Medisave deduction. You can top up to the Basic Healthcare Sum (BHS) in your Medisave Account. The BHS for you is the BHS figure at your age 65. (Once you hit your 65th birthday the BHS is not increased for you.)

Medisave is not quite a 100% guaranteed bequest when used this way, because there’s the possibility that you’ll need to spend some Medisave funds for late-in-life qualified medical expenses. But it’s a much better assured bequest bet than any of the CPF LIFE payout plans, and you do want to keep it full (if you can) because of the attractive interest. Upon your demise your Medisave balance is paid to your nominated CPF heir, in cash I’d suggest. (The Enhanced Nomination Scheme is occasionally useful, but cash is better if your nominee is at least somewhat responsible.)

But doesn't the bequest be approximately following the [compounded interest rate + principal sum - payouts]? What would cause the bequest to deviate significantly from that?

Also, there's another option i would like you to advise on. Assuming i have a property pledge(property bought partially using CPF), i can opt for a BRS($88,500 as of 2018). Since i can top-up my SA to FRS($171,000), if 55 this year, $88,500 will be moved to RA while the remaining left in SA would still compound annually at 4% & the BRS would hit the 4-6% interest rate in the RA. The amount in SA, OA and MA would be a guaranteed bequest. If cash is needed, same day withdrawals can be made too. So, wouldn't it be better to just CPF LIFE using BRS with the Basic Plan? In the event of my death, my children(nominee and next owner of house) do not have to refund CPF for the sale of the house right?

The freed up cash from supposedly topping up to ERS from FRS can be used to purchase SSBs. The interest earned(10 years from now till 65) + cash on hand & emergency fund + withdrawal from OA first as and when needed then SA + dividends/sale from the 30% stocks can last me till payout from 65 or 70. I would lose the extra 1.5% interest(4% compared to the 2.5%ish in SSB till maturity) in the RA but would be more liquid for the impending recession. If it happens within the next 10 years, capital gain can last me till death and holdings would pass on to my children. Thoughts?

BBCWatcher 29-07-2018 11:47 AM

Quote:

Originally Posted by MCKawe (Post 115728605)
But doesn't the bequest be approximately following the [compounded interest rate + principal sum - payouts]? What would cause the bequest to deviate significantly from that?

All CPF LIFE payout plans are assured for life. To provide that assurance, they must all fall to zero residual at some point. With all of them the residual falls, and with all of them there is a significant chance of zero bequest. The only difference between plans in terms of residual is how quickly and when they fall to zero, but they all do that. None of them assure a bequest; none of them even come close to assuring a bequest. They are all “bequest lotteries.”

CPF LIFE itself is not well designed to assure a particular (or any) bequest, if that’s what you want to do. And you shouldn’t try to use a hammer to turn a screw — it’s the wrong tool for the wrong job. CPF LIFE is best designed to assure a lifetime income, so that’s what you should use it for — the hammer to drive a nail. With assured lifetime income (preferably from age 70, preferably real income, i.e. 2%/year escalating) you’re then much better able to assure a particular bequest using/conserving other assets, if that’s what you wish to do. For example, those other assets can be prudently invested somewhat more aggressively in asset classes that are more suited to your heirs and their greater time horizons, then bequeathed in-kind. As another example, you’re better able to provide lifetime gifts to your heirs, and to enjoy some of that lifetime giving with your heirs while you’re living. Greater financial security buys a lot, including better assured bequests and gifts.

Quote:

Also, there's another option i would like you to advise on. Assuming i have a property pledge(property bought partially using CPF), i can opt for a BRS($88,500 as of 2018). Since i can top-up my SA to FRS($171,000), if 55 this year, $88,500 will be moved to RA while the remaining left in SA would still compound annually at 4% & the BRS would hit the 4-6% interest rate in the RA. The amount in SA, OA and MA would be a guaranteed bequest. Wouldn't it be better to just CPF LIFE using BRS with the Basic Plan?
You’ve got the mechanics a little off, I think, but let’s leave that aside. No, it’s not better to “skimp” on CPF LIFE. Ideally you want CPF LIFE to provide enough to live on, because that defends your bequest (and your lifestyle while living, more importantly). Or at least you want to aim closer to that.

CPF LIFE is a great vehicle for bequest defense, but it’s not a bequest vehicle. If that’s what you want to do (assure a particular bequest).

Quote:

In the event of my death, my children(nominee and next owner of house) do not have to refund CPF for the sale of the house right?
Correct.

henrylbh 29-07-2018 01:40 PM

Quote:

Originally Posted by MCKawe (Post 115728605)
But doesn't the bequest be approximately following the [compounded interest rate + principal sum - payouts]? What would cause the bequest to deviate significantly from that?

Also, there's another option i would like you to advise on. Assuming i have a property pledge(property bought partially using CPF), i can opt for a BRS($88,500 as of 2018). Since i can top-up my SA to FRS($171,000), if 55 this year, $88,500 will be moved to RA while the remaining left in SA would still compound annually at 4% & the BRS would hit the 4-6% interest rate in the RA. The amount in SA, OA and MA would be a guaranteed bequest. If cash is needed, same day withdrawals can be made too. So, wouldn't it be better to just CPF LIFE using BRS with the Basic Plan? In the event of my death, my children(nominee and next owner of house) do not have to refund CPF for the sale of the house right?

The freed up cash from supposedly topping up to ERS from FRS can be used to purchase SSBs. The interest earned(10 years from now till 65) + cash on hand & emergency fund + withdrawal from OA first as and when needed then SA + dividends/sale from the 30% stocks can last me till payout from 65 or 70. I would lose the extra 1.5% interest(4% compared to the 2.5%ish in SSB till maturity) in the RA but would be more liquid for the impending recession. If it happens within the next 10 years, capital gain can last me till death and holdings would pass on to my children. Thoughts?

For CPF Life, look again at the table I provided, if you are concerned with bequest as part of your plan. Defer the payout to 70 and all savings in RA will keep growing till payout starts (highest bequest at 70?). The box in the table shows that All plans will have zero bequest at a certain age - 81, 82 and 92 respectively.

All your SA of 171k will move to RA, even if you chose BRS. In other words, you can't hope that 88.5 move to RA and 88.5 remains in SA. However, you can choose to withdraw 88.5 in any amount at any time from RA with sufficient property pledge. Also note, if you opt for ERS, you forfeit your rights to choose BRS subsequently.

BBCWatcher 29-07-2018 02:47 PM

Quote:

Originally Posted by henrylbh (Post 115730821)
Defer the payout to 70 and all savings in RA will keep growing till payout starts (highest bequest at 70?). The box in the table shows that All plans will have zero bequest at a certain age - 81, 82 and 92 respectively.

Correct, agreed.

None of the CPF LIFE payout plans assure a bequest ó thatís not one of the choices. If you want an assured bequest, then the best way to use CPF LIFE toward that goal is for CPF LIFE to defend your bequest (your other assets) as vigorously as it possibly can. The combination of deferral to age 70, more than BRS-level participation, and the Escalating Plan is the maximum assured bequest defense you can get out of CPF LIFE.

If you want to gamble more on your bequest, then pick some other recipe.

Quote:

All your SA of 171k will move to RA, even if you chose BRS. In other words, you can't hope that 88.5 move to RA and 88.5 remains in SA. However, you can choose to withdraw 88.5 in any amount at any time from RA with sufficient property pledge. Also note, if you opt for ERS, you forfeit your rights to choose BRS subsequently.
Yes, agreed.

So youíve really got one key decision if youíre going to raise your CPF LIFE shield to defend most vigorously your bequest (from other assets). Shortly before you reach age 55, try to decide whether FRS-level CPF LIFE will be sufficient (from age 70, Escalating Plan) to support your minimum acceptable lifestyle ó a lifestyle you would feel comfortable living in order to preserve and protect your other assets for bequest purposes. If you donít think that will be enough, then top up your Retirement Account.

Please note that I donít necessarily endorse trying to assure a particular (or higher) bequest. Iím just describing the optimum ways to use CPF LIFE as a powerful tool to assure a particular (or higher) bequest, if thatís your goal, but I donít necessarily agree that should be your goal.

henrylbh 29-07-2018 03:53 PM

Quote:

Originally Posted by BBCWatcher (Post 115719993)
Yes. Itís the only CPF LIFE payout plan that offers some protection against inflation, which makes it the best longevity insurance, which makes it the winner by default.

Who cares? At what age are you guaranteed to die?

CPF LIFE is not a casino, MCKawe.

Quote:

Originally Posted by BBCWatcher (Post 115727260)
I agree with you and disagree with Henrylbh about bequests.

What is there to disagree with me when I did not suggest any plan, unless you disagree when I said it is a bet that all are forced into.

You seems to suggest ERS as though all would be winners by default. That a big fallacy. Half must lose for the other half to gain, theoretically, though in reality it is reasonable to suspect that more than half would lose for the system to be continue.

I provided the table with numbers for forumers to decide for themselves which plan to bet on (CPF Life is a casino :s13:) without suggesting which is better whereas you keep harping ERS with no regards that half, if not more, would lose.

Some more, what is there to disagree with me on the bequest? What did I say about it? I merely pointing out the bequest for SP, BP and EP and nothing more (in the box at the top of the table). I could have hinted that those who choose SP and EP would lose big time with no bequest if they up lorry at 82 or thereabout. But that's for them to decide, I don't.

BBCWatcher 29-07-2018 04:18 PM

No, you’ve got it exactly backwards. Longevity (length of life) is the casino, the lottery. CPF LIFE is a powerful tool to get at least one foot out of the casino.

IF you want to assure a particular minimum bequest, there’s only one way to play this game best: make sure that you could live on your CPF LIFE payouts alone. That’s the maximum defense of your other assets that CPF LIFE can provide.

As one scenario, if you can hang onto $200K of wealth until age 70, if you’ve topped up your Retirement Account to FRS+25%, and if you can live/actually live on FRS+25%-level CPF LIFE (Escalating Plan) for the rest of your life, well done, you’ve assured your $200K bequest. Simply park that bequest in something safe, like a combination of Medisave, SSBs, and SGSes (as an example), and you’re done. Mission accomplished, securely and safely.

To repeat, I don’t think you necessarily should have an assured bequest goal, but if that’s your goal, that’s how to use CPF LIFE to protect that particular outcome best.

The greater your (age 70, Escalating Plan) CPF LIFE payout amount, the better assured bequest protection you get. Bequests are, by definition, the residuals paid to your heirs upon your demise. You defend those residuals best when you never have to dip into them. And you never have to dip into that pool of wealth you’re trying to protect and defend if your CPF LIFE payouts are enough (or more than enough) to sustain you, no matter how long your body sustains you. Pretty simple!

The other choice IF you want to assure a particular bequest is to buy simple whole life insurance. Then you’re buying the bequest in advance.

MCKawe 29-07-2018 05:55 PM

Quote:

Originally Posted by BBCWatcher (Post 115733043)
The other choice IF you want to assure a particular bequest is to buy simple whole life insurance. Then youíre buying the bequest in advance.

Talking about whole life insurance. I have one i got one in 1988 and will terminate at 2065. Idk why they got it up till 2065 but...it supposedly have a rate of 6% now. Assuming i don't need this money, should i just transfer ownership to my heir asap to prevent the "in the event of death of the owner" clause that will distribute the sum inside?

BBCWatcher 29-07-2018 06:12 PM

Quote:

Originally Posted by MCKawe (Post 115734254)
Talking about whole life insurance. I have one i got one in 1988 and will terminate at 2065. Idk why they got it up till 2065 but...it supposedly have a rate of 6% now. Assuming i don't need this money, should i just transfer ownership to my heir asap to prevent the "in the event of death of the owner" clause that will distribute the sum inside?

I doubt youíre allowed to do that since the insurance company based its returns on a particular mortality forecast. But in the unlikely event you are allowed a transfer without penalty (e.g. without repricing), and if a reputable, quality insurance company is guaranteeing a 6%/year compounded nominal Singapore dollar yield through 2065, you might consider a partial (if allowed) or full transfer, sure. (Partial transfers would be nice, if allowed, since you could distribute the mortality risk.) Just make sure the recipient is highly likely to outlast you. ;)

From the perspective of 2018, 6%/year nominal in Singapore dollars through 2065 is looking pretty darn sweet. Youíre one of the few people who may have obtained a nice investment from an insurance company. ;)

MCKawe 29-07-2018 06:21 PM

Quote:

Originally Posted by BBCWatcher (Post 115734439)
Just make sure the recipient is highly likely to outlast you. ;)

Ha, of course but the insurance will outlast my recipient's retirement. Bequesting for my grandchildren now :s13::s13:

henrylbh 29-07-2018 09:40 PM

Quote:

Originally Posted by MCKawe (Post 115734550)
Ha, of course but the insurance will outlast my recipient's retirement. Bequesting for my grandchildren now :s13::s13:

Ha Ha. Pray that the insurer outlives you and your beneficiaries. If you had seen the financial statements of some insurers during the GFC, you will be shocked. Luckily the crisis was short.

MCKawe 30-07-2018 09:12 PM

Does the CPFIS-SA require a CDP account?

When contacting the product provider, can i go to any branches if they are a bank?

Muneyzmart 30-07-2018 11:32 PM

Hi BBCW, I have the intention of not allowing HDB to wipe off my entire CPF-OA account upon selecting a HDB flat. Through this thread that is dedicated to you, I find the lowest and and most efficient way of doing it is to purchase T-bills. This is so as to prevent any chance of defaulting on my mortgage loan.

- You mention going to 3 banks to compare quotes. How to go about it? I.e can we apply via an ATM machine or Internet Banking?
- What is the estimated timeline taken to deduct those funds from CPF?
- Tenure of T bills are of one year. Does it mean I can redeem those funds exactly one year later?

BBCWatcher 31-07-2018 07:36 AM

Quote:

Originally Posted by MCKawe
Does the CPFIS-SA require a CDP account?

Possibly for certain products, such as t-bills, but just go get one. A CDP account is free, and you need one for other purposes such as Singapore Savings Bonds.

Quote:

When contacting the product provider, can i go to any branches if they are a bank?
Thatís entirely up to the product provider and how they go to market.

Quote:

Originally Posted by Muneyzmart (Post 115756132)
Hi BBCW, I have the intention of not allowing HDB to wipe off my entire CPF-OA account upon selecting a HDB flat. Through this thread that is dedicated to you, I find the lowest and and most efficient way of doing it is to purchase T-bills.

Well no, itís not. OA to SA transfers are.

The t-bill ďshieldĒ method is not my favorite, but I point it out because itís the only one that is principal guaranteed by the government. My favorite ďshieldĒ is to use a low volatility unit trust (Iíve listed candidates previously) purchased via a zero sales charge platform such as POEMS, Fundsupermart, or DollarDex. If you schedule your key pickup for the middle of a calendar month (or slightly after, e.g. 18th) then you should have enough time to reduce CPF OA interest loss to only one month using a unit trust-based shield. Since the unit trust has low volatility, even if you experience a slight loss of principal, you still come out ahead versus the t-bill shield. The t-bill shield will require a couple months of interest loss.

Please note that OA shields, whether t-bills or unit trusts, incur fees because they go through the mandatory CPF Investment Account. UOB offers the lowest cost CPF Investment Account right now. You can do that now, well ahead of the time you need to raise the shield.

MCKawe 31-07-2018 08:21 AM

BBCW,

Curious, assuming one reaches 55 and continues working, the CPF contributions will go into the OA, SA & MA based on the allocation rates right? Since one can withdraw any amount from OA and/or SA after 55 if FRS is hit, is it possible to just transfer from OA to SA monthly after paycheck to earn that extra 1.5% interest?

BBCWatcher 31-07-2018 08:48 AM

Quote:

Originally Posted by MCKawe (Post 115758614)
Curious, assuming one reaches 55 and continues working, the CPF contributions will go into the OA, SA & MA based on the allocation rates right?

Correct. Compulsory contributions continue to stream in according to the normal allocation rules associated with your particular age bracket. Compulsory contribution rates and allocations do change with age, please note.

“All three” voluntary top-ups (CPF Form VC/1 or online equivalent) follow the same allocation rules, and they must fit within the CPF Annual Limit. For many individuals approaching and beyond age 55, CPF turns into a weird “piggy bank” because you can make voluntary “all three” top-ups and then have fully government guaranteed funds earning a high rate of interest (>2.5% blended rate) that are available for withdrawal any time you wish. The “CPF 55+ Piggy Bank” works best if you’ve hit the Basic Healthcare Sum and keep your Medisave Account pegged there.

Quote:

Since one can withdraw any amount from OA and/or SA after 55 if FRS is hit, is it possible to just transfer from OA to SA monthly after paycheck to earn that extra 1.5% interest?
OA to SA transfers are only allowed before your 55th birthday, and only up to the Full Retirement Sum.

If you don’t need OA for housing or education, or if you only need a portion of OA for housing or education, you REALLY should transfer at least some OA funds to SA. The earlier, the better.


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