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BBCWatcher 01-08-2018 02:45 PM

Quote:

Originally Posted by maple96 (Post 115781208)
Before u follow any suggestions here, pls get a copy of her CPF statement or check it out online.

Yes, and that's my very first reaction. Those numbers look odd.

Yes, it's quite possible that most of her RA has already been transferred into a CPF LIFE premium (for a deferred life annuity), since that's how it worked for the first few years when CPF LIFE was launched. Even so, it's highly likely it'll be BRS-level CPF LIFE or less, which is still too low for her retirement needs since her savings are meagre. It's highly likely she needs to focus on boosting her future CPF LIFE payouts, which can start less than 6 years from now. But her CPF statement will explain that.

Quote:

If payout starts 65, and u start topping up RA now, she cannot touch the monies until 65.
That's already true for her CPF LIFE. Her CPF LIFE payouts cannot start any earlier than age 65 for her cohort. The phased increase from age 62 to age 65 well predated her age cohort.

henrylbh 01-08-2018 02:46 PM

Quote:

5. You should deposit that $500/month straight into her Retirement Account. You may qualify for tax relief.

Quote:

Originally Posted by BBCWatcher (Post 115781046)
There's another "trick" available here. If you qualify for tax relief, try to increase that $500/month ($6,000/year) to $7,000/year, to maximize the tax relief. However, if you cannot afford the extra $1,000, then ask her to give you the $1,000 from her (limited) savings, and then you take that $1,000 and top up her Retirement Account. IRAS is fine with that arrangement.

Without knowing whether she need the $500pm allowance for personal and household expenses?

BBCWatcher 01-08-2018 02:51 PM

Quote:

Originally Posted by EagleToThesSky (Post 115781655)
Just to confirm, the cash top-up to SA/RA does not count towards the Annual CPF contribution cap of 37740SGD for tax relief purpose?

You're mixing two limits there.

SA and RA top-ups are not capped at the CPF Annual Limit. A generous parent or grandparent can deposit the Full Retirement Sum, all at once, in a newborn Singaporean's CPF Special Account, for example.

There is a tax relief limit on SA and RA top-ups of $7,000 per qualified recipient ($14,000 per depositor), with some additional rules that apply.

Quote:

So if that is the case, lets say I draw a monthly salary of 7000 with no bunos. then the max amount I can top-up my MA and enjoy tax relief is
37740 - 37%*6000*12 = 11100 SGD, even if I have cash top-up of 7000 to my SA. Assuming I will not reach the BHS after the top-up.
Your SA top-up is independent of your MA top-up. Yes, MA top-ups must fit within the CPF Annual Limit. Yes, your calculation is correct. If you receive a straight monthly salary of $7,000 for 12 months with zero variable pay, then you have $11,100 of room below your CPF Annual Limit. You can thus top up your MA by up to $11,100, with tax relief if otherwise eligible (not reached the total tax relief limit, still have taxable income, etc.) You can deposit $100K+ in your Special Account if you want -- the only deposit limit there is the Full Retirement Sum. Once your SA reaches the FRS, no more voluntary top-ups are allowed. (Compulsory and "all three" voluntary contributions will still partially stream into your SA.)

BBCWatcher 01-08-2018 02:58 PM

Quote:

Originally Posted by henrylbh (Post 115781685)
Without knowing whether she need the $500pm allowance for personal and household expenses?

Yes. She has $20,000 in the bank (not even counting on demand CPF funds)...and her bank is not paying 4+% interest on that deposit, I'm quite sure. Redirecting $500/month of cashflow into her RA is smart and sensible.

Let's wait to see what her CPF statement says, but clearly she's got a big retirement problem looming. It's extremely likely she'll need to flood her RA with fresh funds to solve this problem. Exactly how big this gap is remains to be seen, but she's in trouble at present course and speed.

And her own behavior indicates she knows she's in trouble, because she pulled the "classic" panic move: CPF Investment Scheme into a (likely expensive) unit trust and stocks, probably at age 57, realizing that time is not on her side. (I'll take a guess on that.) So she gambled on the yield over a short time horizon, in an expensive way, and she's lost. I could be wrong about that, but probably not. It's happened before, and a lot of near retirees make that mistake.

....So yes, she's got to regroup and nail down her age 65+ trajectory as best she can as reliably as she can. CPF RA will be the answer on the savings side, and income from work will be the answer on the income side. We'll see how much lifting the RA will need to do shortly, I hope. I'll be the first to be delighted if she's got an ERS-level or even FRS-level CPF LIFE in the pipeline!

Defying_Gravity 02-08-2018 11:47 AM

Thanks BBCW for the tailored retirement formula for my mom. I did not know how powerful a retirement tool CPF could be until I chance upon this forum and I have been looking forward to all your posts eversince. It took me a while before I begun looking into my mother's CPF right after she told me she is worried that her brother is closing down his food stall.

[QUOTE=BBCWatcher;115781885][QUOTE=maple96;115781208]

Thanks BBCW and Maple for pointing this out... The numbers are legitimate although I do agree that it's a bit weird. The numbers I originally posted were from the month before. I just did a fresh check with her ytd night. The balance on top of her OA ($5k) and SA accounts were dividend payouts from the CPFIS. You are right that most of her RA was transferred into CPF life deferred annuity. She is 59 this year and about 4 years ago, she (unknowingly) bought into CPF life Std plan giving a payout of approx $621-$677/mth. The current bal in her accounts are:

OA: $5k/-
SA: $0/-
MA: $22514.41/-
RA: $4537.73/-

CPF Life annuity paid to date: $73250.32/-

You are right that she was quite desperate. Very timely, a few years back, a UOB banker approached her to buy unit trust from him and she did. As for the stocks, she purchased them many years ago when she was till working.. They were all penny stocks like freightlink, thaibev, lifebranz, mostly penny stocks and are quite worthless now, sadly...

I believe her FRS is $155k. Henrylbh is quite right that the $500/mth is for her personal expenses, to pay the bills and household expenses... It helps to complement her income of about $300/mth for helping my uncle to run his food stall without CPF contributions since she started in 2005.

Her home is a 5 room unit and not eligible for e lease buy back scheme. It is fully paid but she refuses to sell for sentimental reasons.

Is there a way we can fine tune her retirement plan based on e above? Thanks BBCW for your detailed inputs as always!

tangent314 02-08-2018 12:10 PM

It seems to me her priorities are:

1) Liquidate the stocks and unit trusts as soon as possible
2) Push all the CPF OA money into her RA
3) Ensure she still has sufficient income for the 6 years until age 65 - Perhaps rent a room out of the 5 room flat, or to keep enough cash to last her for those 6 years
4) Top up her RA with whatever cash she can spare

Hopefully this would be able to push her CPF Life monthly payout north of $1k when she reaches 65.

burger87 02-08-2018 02:18 PM

Hi BBCW. I'm a lurker in this forum and have read through many of your posts (specifically in Shiny Things and this thread) and found them to be really detailed and helpful.

However I find the wealth of information rather overwhelming and my head is about to explode :eek:. So I'm writing this post to seek your advice. Apologies if this had been asked before(pretty sure it has).

I'm currently 31 working full-time. I have adopted ST's investment methodologies of DCA into 3-part portfolio: STI, IWDA and A35. Insurance polices are in place. I'm living with my widowed retired father who is currently 73 years old. I have an elder sister who is married, and we are both giving monthly cash allowance to our father.

I hope to make use of the RSTU to provide my father with the monthly allowance instead, to enjoy tax relief and higher interest on the RA. He is currently on CPF LIFE Balanced Plan with a rather low monthly payout(north of $100) due to low CPF balance. how can I top-up his RA so he can get payout comparatively close to the actual cash allowance(~$800) we are giving him every month? Or is there any way that RA savings can actually be withdrawn on demand, like an ATM?

His current CPF Balance as below:
Ordinary Account (OA) $4,773.47
Special Account (SA) $903.87
Medisave Account (MA) $27,363.55
Retirement Account (RA) $10,836.94

Second, how should I go about maximizing my CPF? I'm still single and is intending to get a resale flat at age 35, or BTO if I happen to find a partner. My major concern is the housing cost(down payment, renovations etc.) if I'm still single, then I to bear the full cost myself.

Sorry for the noob questions. Too many terminologies and information to absorb from the interwebs. Hope to hear your thoughts on the above!

tangent314 02-08-2018 03:21 PM

To increase your father's annuity, you will need to move all the money you can into his retirement account, then submit a request to buy additional CPF Life Annuity and emptying out his Retirement Account.

Read the last question "As a CPF Life Member, how do I apply for additional CPF Life annuities from topped up amount"
https://www.cpf.gov.sg/members/schem...ement/cpf-life

Then read this page carefully: https://www.cpf.gov.sg/Members/Schem...ping-up-scheme

So the steps you would want to take is
1. Help your father transfer all of his OA and SA into his RA
2. Top up his RA using cash, e.g. $7000 for the tax relif
3. Apply to buy additional CPF Life Annuity

Unfortunately it won't increase his monthly payout by a lot - I'm estimating about an additional $250-$300 with the ~$22.5k for age 73.

BBCWatcher 02-08-2018 03:23 PM

Quote:

Originally Posted by tangent314 (Post 115795253)
It seems to me her priorities are:

1) Liquidate the stocks and unit trusts as soon as possible
2) Push all the CPF OA money into her RA
3) Ensure she still has sufficient income for the 6 years until age 65 - Perhaps rent a room out of the 5 room flat, or to keep enough cash to last her for those 6 years
4) Top up her RA with whatever cash she can spare

Hopefully this would be able to push her CPF Life monthly payout north of $1k when she reaches 65.

I agree: "Crush the RA," and bridge to age 65. Note that she has the option to choose the CPF LIFE Escalating Plan, at least this year (2018). Check with CPF to see if that decision must be made this year (if made) or can be deferred until just before payout start date. (If she's in good health, and if she's able to boost her RA, then the Escalating Plan might make sense since it'll defend against inflation.)

I like Tangent314's idea of renting out part of the flat to generate income. Trading down would be a really good idea to liberate capital, something she badly needs (the sooner the better). If she's reluctant to change neighborhoods or even blocks, OK, but that doesn't mean it's impossible to switch to, say, a 3 room in the same block.

At least she's got a near BRS-level CPF LIFE income stream in the pipeline. It could have been worse, but it's also possible to make it better.

EagleToThesSky 02-08-2018 05:32 PM

Hi BBCW,

I could not understand why people would want to go for SGS. A good deposit account, like DBS multiplier or UOB one, can give interest higher than 1.8% and that is flexible, meaning you can get the money out the minute you want to do it. And if people have more cash than the limit offered by the bank account, shouldnt they be investing in staff with higher returns, such as stock, as the limit is more than enough for emergency fund?

Am I missing something here? or I am just plain stupid ;)

Thank you

Quote:

Originally Posted by BBCWatcher (Post 115638122)
If market interest rates don't change, it should be 1.7X% yield. Maybe, just maybe, 1.8%.


If you're using cash currently held in an ordinary bank account at one of the "big three" banks, and assuming you already have a CDP account (too late for this auction if you don't), then just log onto your bank's online banking Web site and place an order. At DBS/POSB, for example, look for the "Invest" menu option and choose "Singapore Government Securities." Then proceed through the prompts from there.

The t-bill order deadline for this issue is July 25, 2018, at 9:00 p.m. (bank deadline). You should practice this order ahead of time, but don't actually place the order until the morning of the deadline. The reason is that there's no advantage to ordering early, and you lose a little bit of bank interest if you order any earlier. So just order before the deadline, that's all. The morning of deadline day is perfect.


EagleToThesSky 02-08-2018 05:49 PM

Hi BBCW,

reading this post, I had a strange thought ...How about I contribute say 37K to my CPF at the beginning of the year. That is possible since at the beginning of the year, there is no compulsory contribution yet. However, with subsequent compulsory contribution from employer and employees, the annual limit will surely be exceeded. What happens in this case?

Thank you.

Quote:

Originally Posted by BBCWatcher (Post 115656844)
You can still voluntarily top up your Special Account since there's no CPF Annual Limit on that. If your SA has not yet reached the Full Retirement Sum.

Also, while you can reasonably forecast you'll hit the CPF Annual Limit, it hasn't happened yet. If you're fired or must quit your job before the end of the year, and if you have a gap in your employment income, then you probably won't hit the Annual Limit.


maple96 02-08-2018 06:12 PM

Quote:

Originally Posted by Defying_Gravity (Post 115794929)

Thanks BBCW and Maple for pointing this out... The numbers are legitimate although I do agree that it's a bit weird. The numbers I originally posted were from the month before. I just did a fresh check with her ytd night. The balance on top of her OA ($5k) and SA accounts were dividend payouts from the CPFIS. You are right that most of her RA was transferred into CPF life deferred annuity. She is 59 this year and about 4 years ago, she (unknowingly) bought into CPF life Std plan giving a payout of approx $621-$677/mth. The current bal in her accounts are:

OA: $5k/-
SA: $0/-
MA: $22514.41/-
RA: $4537.73/-

CPF Life annuity paid to date: $73250.32/-

You are right that she was quite desperate. Very timely, a few years back, a UOB banker approached her to buy unit trust from him and she did. As for the stocks, she purchased them many years ago when she was till working.. They were all penny stocks like freightlink, thaibev, lifebranz, mostly penny stocks and are quite worthless now, sadly...

I believe her FRS is $155k. Henrylbh is quite right that the $500/mth is for her personal expenses, to pay the bills and household expenses... It helps to complement her income of about $300/mth for helping my uncle to run his food stall without CPF contributions since she started in 2005.

Her home is a 5 room unit and not eligible for e lease buy back scheme. It is fully paid but she refuses to sell for sentimental reasons.

Is there a way we can fine tune her retirement plan based on e above? Thanks BBCW for your detailed inputs as always!

Before u take any action to adopt whatever the others are suggesting that u squeeze her dry of her "emergency and survival" funds, pls answer the following questions and do the following:

1. How much are u prepared to support ($) her other than the $500 mthly allowance?
2. She only has the basic medishield life, are u going to help her pay for medicals which cannot use medisave?
3. Are u going to topup her RA with your own funds?
4. U should arrange a meeting with CPF to discuss and confirm her CPF LIfe scheme since no one here understands/knows the old scheme, I have some info, if u google u should be able to find it, but better to find out from CPFB, Below is how it works based on old info I have:
5. She is under the old CPF Standard Plan where at 55 only 50% of "FRS" is transferred to CPF life pool, the other 50% will be transferred when she start her payout at 65.
6. Why she only has 5k in OA - my guess is CPFB left it there for her since everyone is entitled to withdraw the first 5k.
7. Check her CPF account online, retrieve the statements from the year she join CPF Life at 55, u should see that 73k+ transferred to RA. Why 73K which is less than 75K (50%)? U shld know by now roughly cos 5k is kept in OA.
8. Check her CPF statements for the past years how her RA increased to the current balance?
9. She has 10k in CPFIS - check her statements how much she withdrew from OA, is that 10k after net loss? If she liquidates, this money is likely reserved for transfer to RA/CPF Life
10.. If CPF requires her to transfer the remaining 50% from OA/SA/RA, are u prepared to topup for her?
11. If she is not required to makeup the remaining 50% for CPF life, what would u do?


That's all for now.

ps if u had been more active earlier in 2015/2016, u would be able to help her salvage her funds so she can join the current CPF life schemes and not "lose" 4% on her RA of 73K

EagleToThesSky 02-08-2018 06:31 PM

Hi BBCW,

fully agree with your rationale. However, I am struggling to balance below 2 factors:

1. Get SA as high as possible as fast as possible to max out the impact of the 4% + bonus interest
2. Obtain the highest possible tax relief.

You can consider that I do not need OA for housing ever, lets say ;)'

I tried to do up a simple/rough model and it seems that top-up 7K each year will put me at the FRS around the time I want to retire. Transferring to SA from OA will kind of make me lose the tax relief in the last few years of my career. And if my salary increases, the number of years will increase as well.

What is your thoughts on that? Thank you.


Quote:

Originally Posted by BBCWatcher (Post 115692181)
I'm not sure why people don't understand this one. It's pretty basic, or so I thought.

Let's start with this basic fact: for a saver/investor, 4% compounded interest is better than 2.5% compounded interest. Your money will double in approximately 18 years at 4% and in approximately 29 years at 2.5%. (And that's not counting bonus interest, which is skewed toward MA/SA.)

OK, now let's suppose your (or your family's) net worth is $100 million, you're working and have compulsory CPF contributions at least, and you're going to buy a HDB BTO about 5 years from now. Got all that? So, what should you do? Well, duh! You transfer every penny of OA to SA, every month. You zoom up SA as fast as you can; you go for the yield. Making a down payment on a HDB BTO is like buying a kaya toast breakfast for you and your family, so it's absolutely absurd to deny yourself the higher interest for even one month. Wealth has its privileges, and this is one of them.

....So some people are in this fortunate position, namely that they don't need and never could plausibly need OA as OA, for housing. OA is fundamentally a middle class construction. That's not to say it's bad; not at all. It helps so many Singaporeans save for housing. But some people don't need it, and for them, it's OA to SA transfers every month, in full.

Now, what's the cut-off? How much personal and/or family wealth do you need to adopt this CPF optimization strategy? "It depends." If you're not interested in buying housing in Singapore -- for example, you're working overseas for a Singaporean company and contributing to CPF, but you are pretty sure you're going to stay overseas -- then no matter what your wealth you'd rationally, prudently slam OA funds into SA every month. Those dollars have to stay in CPF -- that isn't a choice -- so they might as well work as hard as possible for you.

Why is this CPF optimization concept so difficult to grasp? It makes perfect sense, and I think it's pretty basic.


BBCWatcher 02-08-2018 09:10 PM

Quote:

Originally Posted by EagleToThesSky (Post 115800644)
I could not understand why people would want to go for SGS. A good deposit account, like DBS multiplier or UOB one, can give interest higher than 1.8% and that is flexible, meaning you can get the money out the minute you want to do it.

Here are some reasons:

1. The rules can change at any time for interest promotion accounts, including tomorrow. Government bonds offer a government guaranteed nominal outcome, for years.

2. Deposit insurance is limited to $50,000 per depositor ($75,000 from April 1, 2019). SGSes are fully government guaranteed, without limit.

3. Bonds can be sold on the secondary market. If market interest rates fall, the price that bond fetches on the secondary market goes up.

4. You can use Supplementary Retirement Scheme (SRS) funds to buy SGSes. You cannot get promotion/bonus interest from a bank with your SRS funds.

There are other reasons, but those are some.

Quote:

reading this post, I had a strange thought ...How about I contribute say 37K to my CPF at the beginning of the year. That is possible since at the beginning of the year, there is no compulsory contribution yet. However, with subsequent compulsory contribution from employer and employees, the annual limit will surely be exceeded. What happens in this case?
The excess is returned to you about a year later, and without interest.

Quote:

I tried to do up a simple/rough model and it seems that top-up 7K each year will put me at the FRS around the time I want to retire. Transferring to SA from OA will kind of make me lose the tax relief in the last few years of my career. And if my salary increases, the number of years will increase as well.
Yes, but the 4+% interest compounded is quite valuable. Tax relief is nice, and it's worth grabbing, but it comes after the higher yield in importance. And other tax relief opportunities may be both available and worthwhile after you've exhausted CPF tax reliefs, notably the Supplementary Retirement Scheme (SRS).

BBCWatcher 02-08-2018 09:19 PM

Quote:

Originally Posted by maple96 (Post 115801009)
Before u take any action to adopt whatever the others are suggesting that u squeeze her dry of her "emergency and survival" funds....

Could we start with agreeing that a 59 year old should not be holding a high cost stock unit trust and other stocks while in this situation -- that those funds should be plowed into the RA?

Nobody is talking about a "squeeze her dry" approach. Please go back and re-read what the suggestions were; they are not that.

Quote:

1. How much are u prepared to support ($) her other than the $500 mthly allowance?
Interesting question, but the answer doesn't matter much in terms of her getting some safe altitude.

Quote:

2. She only has the basic medishield life, are u going to help her pay for medicals which cannot use medisave?
Also an interesting question, but she's got bigger problems right now than upgrading from public hospital C ward plus >$22K in her Medisave. That's actually not too bad. I sketched out the one possible semi-realistic upgrade from there, but it's not the priority.

Quote:

3. Are u going to topup her RA with your own funds?
That would be advisable for tax relief, even if she hands him the funds to do it. As I've already mentioned.

Quote:

9. She has 10k in CPFIS - check her statements how much she withdrew from OA, is that 10k after net loss? If she liquidates, this money is likely reserved for transfer to RA/CPF Life
And that would be terrific. That part of her asset base is very inappropriately positioned for her age and level of wealth.


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