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BBCWatcher 26-03-2019 05:31 PM

Quote:

Originally Posted by lingalong (Post 119905160)
Assuming that I am going to take on a HDB loan at 2.6%, for a tenure of say 20 years.

OK.

Quote:

Would it make sense to:
1) Use my OA balance to pay off as much as possible first (Essentially wiping out my OA)
CPF/HDB will do this for you, mostly. Part of the deal when you take out a HDB loan is that CPF "sweeps" all but $20,000 of your OA into the HDB unit you're buying. (It used to be a total sweep of every OA dollar until recently, but the rules changed to allow you to keep $20,000.)

If you don't like that, then the simplest way to avoid the "sweep" is to transfer OA dollars above the $20,000 limit to your Special Account, assuming you haven't reached your 55th birthday and haven't hit the Full Retirement Sum yet. And I think there's a lot of wisdom in that maneuver. But you have to do it strictly before you pick up the keys if you're going to do it.

Quote:

2) Subsequently use monthly CPF contribution into OA + Cash to repay the fixed monthly installment

Since the mortgage rate is 0.1% more than what I could earn in my CPF OA, I am technically not facing any opportunity cost correct?
This part is trickier.

Ordinary Account dollars don't have to stay as traditional Ordinary Account dollars. Also, it depends on what your other savings dollars are doing, or not doing. OA dollars can be transferred to SA (as just mentioned), up to the Full Retirement Sum. In SA they earn at least 4% interest, and that beats 2.6%. Also, there's the CPF Investment Scheme (OA), whereupon those dollars could be invested in (for example) the lowest cost Straits Times Index stock fund you can find (ES3 usually). If your time horizon is long enough, then you'll probably do a percentage point better than 2.6% that way, maybe more.

To pick another easy example, if you have a relatively huge (or huger) sum of cash rotting in a bank account earning 0.1% interest, and that's the best you can do (or want to do), obviously it'd be better to draw from those dollars to service your mortgage rather than to draw down OA dollars that are earning 2.5%. Yes, the OA dollars are restricted in certain ways, but 2.5% beats 0.1% so much that the cash would be the better source.

This question comes up a lot, and there have been lots of previous discussions about it. In my view you ought to give due, periodic consideration to OA to SA transfers in some amount since that 4% interest (never mind bonus interest) is darn attractive. And 4% certainly does beat 2.6%, which is a well anchored 2.6%. Once you've exhausted your OA to SA transfer opportunities (consistent with what you feel comfortable maintaining in OA as housing reserve if/when you need those dollars for some months to pay your HDB loan -- if you're out of work, for example), then you could take a look at whether the CPF Investment Scheme (OA) or accelerating repayment of your 2.6% loan makes sense. I'd lean toward the former if you still have a long time horizon ahead of you, but that's a closer call.

lingalong 26-03-2019 06:17 PM

Thank you BBC, it was quite an in depth read that took me awhile to process lol.

I sort of get where you're coming from, but let me try break it down into bite size for clarification and for someone else to digest it for their own use.

Scenario: Taking HDB Loan of 2.6%, and before picking up the keys to unit

1) Take full advantage of the 4% that SA is offering, by transferring balance after subtracting $20,000 to SA, thereby drawing 4% which is >2.5% from OA and >2.6% mortgage loan so net net I am 'gaining' the difference in interest.

2) Another alternative instead of 1) is to use CPFIS OA to purchase a low cost index fund that ideally (and hopefully) would return an annualise gain of >2.5% from leaving it in OA, as well as >2.6% mortgage loan.

Both of the above would thereby leave loan servicing of 2.6% to be largely or entirely made up of hard cash so as to not rid the opportunity cost of earning what 1) and 2) could be offering.

Up till now, am I on the right track? :o:o

Nuthing03 30-03-2019 12:36 PM

Hi BBC,

Wishes to enquire on the insurance.

i understood that medical and disability income insurance are crucial for for a working adult who has started on the workforce (Age 20+).
Other than that, there is critical illness ('CI') and term insurance in the market. Is CI in placed at a higher priority than term at this age given that if anything relating to CI happens, continuous medical exp need to be incurred for it?

BBCWatcher 30-03-2019 04:37 PM

Quote:

Originally Posted by lingalong (Post 119906273)
Scenario: Taking HDB Loan of 2.6%, and before picking up the keys to unit

1) Take full advantage of the 4% that SA is offering, by transferring balance after subtracting $20,000 to SA, thereby drawing 4% which is >2.5% from OA and >2.6% mortgage loan so net net I am 'gaining' the difference in interest.

2) Another alternative instead of 1) is to use CPFIS OA to purchase a low cost index fund that ideally (and hopefully) would return an annualise gain of >2.5% from leaving it in OA, as well as >2.6% mortgage loan.

Both of the above would thereby leave loan servicing of 2.6% to be largely or entirely made up of hard cash so as to not rid the opportunity cost of earning what 1) and 2) could be offering.

Up till now, am I on the right track? :o:o

Mostly. Option #1 is only available while you’re both below age 55 and below the Full Retirement Sum. Option #2 is only realistically available when your time horizon is sufficiently long enough to have excellent odds of beating 2.6%.

Also, cash can be used in a lower cost way than Option #2, for long-term investing. (And for SA top ups with tax relief for that matter.) So you really need to separate the “before picking up the keys” part (the “sweep”) from the “how do I service my HDB loan?” part.

Usually you’d execute Option #1 before picking up the keys (the 4% is attractive!), service your mortgage with OA dollars (since they’re restricted dollars), and diligently save and prudently invest cash in low cost, age appropriate ways, including SA top ups with tax relief if available and via a SRS account, especially mid to late career when you’re likely to be in the highest tax bracket. However, if you’re just not a good, reliable saver — if your only savings is what the government forces you to save (CPF compulsory contributions) — then you’d be better off servicing the mortgage with cash.

See how that all fits together?

Quote:

Originally Posted by Nuthing03 (Post 119974578)
i understood that medical and disability income insurance are crucial for for a working adult who has started on the workforce (Age 20+).

I’d flip the priority since we have compulsory MediShield Life in Singapore, especially if you’re a citizen and qualify for the maximum government subsidies for care. Yes, disability income insurance is extremely important, then a modest upgrade of MediShield Life to a public hospital Integrated Shield plan.

Quote:

Other than that, there is critical illness ('CI') and term insurance in the market. Is CI in placed at a higher priority than term at this age given that if anything relating to CI happens, continuous medical exp need to be incurred for it?
You don’t need life insurance of any kind unless you have at least one dependent. Early career individuals generally don’t have any dependents, although obviously there are exceptions.

I think the idea behind “CI” is (or was) to provide less robust, partial DII-like coverage and to plug some gaps in medical insurance. If your DII and medical insurance are solid, then you shouldn’t need CI, PA, or TPD. But in the world they might not be solid enough, particularly medical insurance in Singapore which is really hospitalization insurance. I can envision some scenarios when you might have a chronic, long-term condition requiring some ongoing, expensive medication (in particular) that’d be tough to handle. CI isn’t exactly perfect in that role either, but it might help plug that particular hole. (Or maybe there’s a prescription drug insurance plan I’m not aware of that could plug that possible hole more directly?) I’m also assuming you have enough DII that you could allocate a portion to “bridge” to CPF LIFE, i.e. you could still maintain some savings during an extended loss of income. That’s a big assumption.

Anyway, it’s just a question of prioritization. Disability is just not fun in Singapore; it’s a high cost of living country, and the income loss (millions of dollars of income from work) is devastating. “Game over,” basically — you’re onto ComCare and charities, and that’s really, really tough. And it isn’t going to get better enough soon enough. CareShield Life will have a very narrow definition of disability (inability to perform at least 3 out of 6 Activities of Daily Living). So DII is at the front of the insurance parade, very important stuff.

Nuthing03 30-03-2019 11:34 PM

Quote:

Originally Posted by BBCWatcher (Post 119978551)


I’d flip the priority since we have compulsory MediShield Life in Singapore, especially if you’re a citizen and qualify for the maximum government subsidies for care. Yes, disability income insurance is extremely important, then a modest upgrade of MediShield Life to a public hospital Integrated Shield plan.


You don’t need life insurance of any kind unless you have at least one dependent. Early career individuals generally don’t have any dependents, although obviously there are exceptions.

Appreciated it. My dependents are my parents whom are still working but is near retire age so i suppose i still need term life in any case.

BBCWatcher 31-03-2019 07:53 AM

Quote:

Originally Posted by Nuthing03 (Post 119984691)
My dependents are my parents whom are still working but is near retire age so i suppose i still need term life in any case.

That depends on their financial means. What lifestyle can they assure themselves for the rest of their lives? Note that longevity insurance could factor significantly here, and there may be some tax relief available to buy it (CPF LIFE).

BBCWatcher 31-03-2019 11:05 AM

Reminder: Protect Your Security (Even if Your Bank Won’t)
 
I’d like to remind everyone that if anybody calls you and claims to be calling from your bank (or any other institution you ordinarily trust), please do this:

1. Politely but firmly inform the caller that you will be calling “my bank” (don’t name the bank) at the published telephone number on the back of your card.

2. Ask the caller if there is any reference code you should provide when you call.

3. That’s it. Provide no information, not even your name. If the caller argues with you, hang up.

Several banks in Singapore are behaving badly, putting their customers’ security at significant risk. Their employees are calling, asking “verification questions” (which involve sensitive answers, such as NRICs, birth dates, full names, addresses, mother’s maiden names, etc.) And these behaviors are terrible, completely insecure. You have absolutely no way of knowing that the individual calling you is a bank employee acting in an official capacity over a bank monitored channel.

And it just happened to me, again. I’m sick of it. This nonsense has got to stop, and you can help. Push back; protect your security. And report such incidents here if you’d like.

Yes, your bank obviously needs to verify that it is speaking with its customer, you. However, you have at least as important a security requirement to know that you are speaking to a bank employee who is acting in an official capacity over a bank monitored channel. Even if you recognize your banker’s voice, you cannot verify all that. Even if you recognize the Caller Number Identification (CNI) that pops up on your mobile phone’s screen, CNIs can be easily faked. (That just happened to me only a week ago. The CNI indicated a call from my employer’s phone number range, but it was a scammer making a phishing attempt. I provided no information, and I reported the incident to our corporate security.)

Why are so many banks in Singapore putting their customers’ security at risk, training them well — including elderly Singaporeans — to trust whomever calls? There are a few likely reasons:

1. MAS (the banking regulator) and the Cyber Security Agency haven’t acted yet. They should; they’re late.

2. In some countries (the U.S. for example) banks that pull these stunts would pay serious court damages, because their victims have strong, effective tort remedies (class action lawsuits). In Singapore the tort system favors the banks.

3. Banks evidently don’t want to incur the minor costs involved in having a more secure “handshake” to communicate with customers, such as providing temporary reference codes. (“Please call your bank at the number published on the back of your card, and reference code XYZ123.”)

4. Banks are trying to peddle their products, to engage in marketing. They don’t like the idea of any restrictions on calling their customers out of the blue.

None of these factors are your problems to solve. You need to take charge and protect yourself, every time, consistently.

Also, as a reminder, NEVER provide your PIN or password. Even these reckless banks in Singapore are never supposed to ask for these pieces of information. And that’s part of the counterargument they make, that your account is “secure” because they’re not asking for your PIN or password. But why should anybody who you cannot verify is acting in an official, monitored capacity have any information about you? They shouldn’t; it’s none of their business, unless you can verify they have a legitimate, monitored reason to know. And it’s only a small step, especially for a confused elderly person (your future self perhaps), to be phished/scammed into revealing your PIN or password. Example: “Now, let’s set up a new PIN for you. Please enter a new PIN on your keypad....” Which is your old PIN of course, which is game over.

It’s time to fight back! Be careful out there, and let’s help banks in Singapore adopt even these basic security precautions. Thanks for your help.

Extech 31-03-2019 04:47 PM

Hi BBCwatcher, was playing around with the CPF Life Estimator calculator https://www.cpf.gov.sg/eSvc/Web/Sche.../LifeEstimator and I found something quite puzzling.

According to the diagram, CPF Life's monthly payout for escalating plan is lower than that of the basic plan until it "catches up" at 72.

In fact, if you take a look at cummalative payouts, the escalating plan only "catches up" to that of basic at age 74.

However, why is it that the bequest amount on escalating plan is lesser than that on basic plan right from the start?

Extech 06-04-2019 05:49 PM

Quote:

Originally Posted by Extech (Post 119995481)
Hi BBCwatcher, was playing around with the CPF Life Estimator calculator https://www.cpf.gov.sg/eSvc/Web/Sche.../LifeEstimator and I found something quite puzzling.

According to the diagram, CPF Life's monthly payout for escalating plan is lower than that of the basic plan until it "catches up" at 72.

In fact, if you take a look at cummalative payouts, the escalating plan only "catches up" to that of basic at age 74.

However, why is it that the bequest amount on escalating plan is lesser than that on basic plan right from the start?

Dug around slightly and found the answer. Its not anywhere on the CPF website nor the areyouready portal. Instead, it was from an insurance website: https://www.aviva.com.sg/en/money-ba...cpf-life-plan/

CPF Life is an annuity plan based on premiums that you contribute into the Lifelong Income Fund.

For the basic plan, 10% of your RA is deducted at age 55. The rest – about 90 per cent – of the Retirement Account savings is untouched and can continue to grow and compound with interest. Near 65, two months before your birthday, there will be a second deduction. This time, it will be approximately 10 per cent of the new money that has built up between your 55th and 65th birthday. The rest of your Retirement Account savings will stay put until your payout eligibility age.

In comparison, for the standard and escalating plan, for those who join this plan at age 55, there will be two installments deducted as annuity premiums just at 55 and near 65, just like the basic Plan – but the percentage of deductions differs.

Members who join this plan at age 55 will have the Retirement Account deducted for their CPF Life annuity premiums in two installments – at age 55 and near 65. The first deduction is up to the current Basic Retirement Sum of $80,500. The premium goes into the Lifelong Income Fund.

Two months before you reach 65, the balance Retirement Account savings will be deducted as the second installment of your annuity premium and channeled into the Lifelong Income Fund. This will include any new money, including interest earned or refunds from sale of property or investments that you have built up between your 55th birthday and 65.

For members who join the Standard or Escalating Plan on their payout eligibility age or after, there will be only one annuity premium deduction, which is all the sum in their Retirement Account, made at the time of joining.


TL;DR- Interest earned from annuity premium will NOT be credited as bequest. Since basic plan only deduct a partial amount of your RA as premium, you stand to earn interest on the remainder amount on your RA amount. On the other hand, escalating plan will deduct your entire RA amount so there is no interest earned whatsoever. Hence, bequest for Escalating < Basic:s12:

Extech 06-04-2019 05:54 PM

Mum wants dad to retire. How can they optimise their savings?
 
Dad is an engineer who draws 7k/month and had his 55th Birthday last year. Did not read about CPF shielding then. Now he has:
-175k in RA(Has option for property pledge)
-75k in OA
-42k in SA

Mum is a homemaker aged 54. 55th Birthday this year October. She has:
-51k in SA(Due to regular 7k top up)
-4k in OA
-housing amount withdrawn 47k

CPF has informed her that she is not eligible for property pledge

Currently have some spare cash on hand, about 100-120k

Dad is drawing 7k/month
Rental giving 2k/month



Mum wants dad to retire and is looking at drawing 180k(90k from savings, 90k from his CPF) and putting it as a single premium into a NTUC ILP policy which yields about $100/month for every 30k - they will be looking at $600/month. The sum can also act as a bequest as upon death as it would be returned at 105% of premium paid.

Expenses:
10% for church offering
600/month on groceries
300/month Utilities and telco(TV, Mobile, Broadband)
300/month transport
400/month Condo maintenance fee

How can they better optimise their finances for retirement?

BBCWatcher 06-04-2019 07:02 PM

Quote:

Originally Posted by Extech (Post 120111842)
Dad is an engineer who draws 7k/month and had his 55th Birthday last year. Did not read about CPF shielding then. Now he has:
-175k in RA(Has option for property pledge)

An option he shouldn’t take if he’s even considering doing what’s described below.

Quote:

-75k in OA
-42k in SA

Mum is a homemaker aged 54. 55th Birthday this year October. She has:
-51k in SA(Due to regular 7k top up)
-4k in OA
-housing amount withdrawn 47k
It’d be wonderful if she could repay that OA amount ($47K) then transfer all OA into SA.

Quote:

CPF has informed her that she is not eligible for property pledge
With her current balances, that’s correct.

Quote:

Currently have some spare cash on hand, about 100-120k
Dad is drawing 7k/month
Rental giving 2k/month

Mum wants dad to retire and is looking at drawing 180k(90k from savings, 90k from his CPF) and putting it as a single premium into a NTUC ILP policy which yields about $100/month for every 30k - they will be looking at $600/month. The sum can also act as a bequest as upon death as it would be returned at 105% of premium paid.
No way — bad idea. They should drive their CPF LIFE annuities up to their maximums (Enhanced Retirement Sum) first, before even thinking about insurance company products (and probably not even then). Nobody beats CPF LIFE in this corner of the life income business.

Also, what’s the deal with bequests? They have a rental income property and a home, right — or at least one of those two things? That’s already a lovely bequest. Income security is their current problem if they have a problem, not bequests.

With CPF LIFE doubled up, all they’ve got to do then is to bridge to age 65. And that’s at least easy to calculate.

Quote:

Expenses:
10% for church offering
600/month on groceries
300/month Utilities and telco(TV, Mobile, Broadband)
300/month transport
400/month Condo maintenance fee
That’s all less than the $2,000 of current rental income, so there’s the bridge to age 65.

Not to put too fine a point on it, but ILPs blow monkey chunks.

Extech 07-04-2019 09:48 AM

Quote:

Originally Posted by BBCWatcher (Post 120112870)
An option he shouldn’t take if he’s even considering doing what’s described below.


It’d be wonderful if she could repay that OA amount ($47K) then transfer all OA into SA.


With her current balances, that’s correct.


No way — bad idea. They should drive their CPF LIFE annuities up to their maximums (Enhanced Retirement Sum) first, before even thinking about insurance company products (and probably not even then). Nobody beats CPF LIFE in this corner of the life income business.

Also, what’s the deal with bequests? They have a rental income property and a home, right — or at least one of those two things? That’s already a lovely bequest. Income security is their current problem if they have a problem, not bequests.

With CPF LIFE doubled up, all they’ve got to do then is to bridge to age 65. And that’s at least easy to calculate.


That’s all less than the $2,000 of current rental income, so there’s the bridge to age 65.

Not to put too fine a point on it, but ILPs blow monkey chunks.

Thanks for the insight BBCWatcher! Hmmm I think I forgot to mention is that they want to retire in the near future- think 6 months to a year😅 Mum has a terminal illness and she hopes that he can spend more meaningful time with her

justwakeup 07-04-2019 11:14 AM

Quote:

Originally Posted by BBCWatcher (Post 119978551)
Mostly. Option #1 is only available while you’re both below age 55 and below the Full Retirement Sum. Option #2 is only realistically available when your time horizon is sufficiently long enough to have excellent odds of beating 2.6%.

Hi BBC, is 25-year a long enough time horizon?

Millimeter 07-04-2019 11:16 AM

Would like to get your advice please after realising that I need to be wiser about my financial planning. I’m 33, and will be getting my BTO in about 2 years’ time. Likely to take the HDB loan, because it’s generally less complicated and it’s my wife’s preference. I currently have these insurances:
  • A term life
  • A whole life insurance
  • DII
  • Critical illness coverage
  • Upgraded shield plan


So in terms of protection I think I’m generally okay.

But I feel that my current cash assets are not being maximised, because most of my cash is just sitting in my UOB account and I’ve actually gone beyond the $75k limit for the bonus interest. So I’m trying to be smarter with my money. I top-up $7k to my CPF SA, as well as the max $15k to my SRS as well. In terms of investments, I currently hold some ES3 and a little bit of the SG Savings Bond but that’s all. I have some questions:

  1. I’m thinking of doing DCA, likely on a monthly basis into a broader basket of ETFs. Ideally a mix that would expand my portfolio beyond the SG market. Would Interactive Brokers be the right platform to use?
  2. Assuming that I already have enough cash for emergencies, how many % of my monthly income (after CPF deductions, SA/SRS top-ups) should I invest?
  3. Is there a recommended ratio of foreign ETFs vs local ETFs vs bonds that I should have?
  4. Is there a simple spreadsheet somewhere for me to track my DCA and the portfolio ratios?


Not sure if I’m making any sense at all, but I’d really appreciate your help.

justwakeup 07-04-2019 11:40 AM

Quote:

Originally Posted by BBCWatcher (Post 119989690)
I’d like to remind everyone that if anybody calls you and claims to be calling from your bank (or any other institution you ordinarily trust), please do this:

1. Politely but firmly inform the caller that you will be calling “my bank” (don’t name the bank) at the published telephone number on the back of your card.

2. Ask the caller if there is any reference code you should provide when you call.

3. That’s it. Provide no information, not even your name. If the caller argues with you, hang up.

Several banks in Singapore are behaving badly, putting their customers’ security at significant risk. Their employees are calling, asking “verification questions” (which involve sensitive answers, such as NRICs, birth dates, full names, addresses, mother’s maiden names, etc.) And these behaviors are terrible, completely insecure. You have absolutely no way of knowing that the individual calling you is a bank employee acting in an official capacity over a bank monitored channel.

And it just happened to me, again. I’m sick of it. This nonsense has got to stop, and you can help. Push back; protect your security. And report such incidents here if you’d like.

Yes, your bank obviously needs to verify that it is speaking with its customer, you. However, you have at least as important a security requirement to know that you are speaking to a bank employee who is acting in an official capacity over a bank monitored channel. Even if you recognize your banker’s voice, you cannot verify all that. Even if you recognize the Caller Number Identification (CNI) that pops up on your mobile phone’s screen, CNIs can be easily faked. (That just happened to me only a week ago. The CNI indicated a call from my employer’s phone number range, but it was a scammer making a phishing attempt. I provided no information, and I reported the incident to our corporate security.)

Why are so many banks in Singapore putting their customers’ security at risk, training them well — including elderly Singaporeans — to trust whomever calls? There are a few likely reasons:

1. MAS (the banking regulator) and the Cyber Security Agency haven’t acted yet. They should; they’re late.

2. In some countries (the U.S. for example) banks that pull these stunts would pay serious court damages, because their victims have strong, effective tort remedies (class action lawsuits). In Singapore the tort system favors the banks.

3. Banks evidently don’t want to incur the minor costs involved in having a more secure “handshake” to communicate with customers, such as providing temporary reference codes. (“Please call your bank at the number published on the back of your card, and reference code XYZ123.”)

4. Banks are trying to peddle their products, to engage in marketing. They don’t like the idea of any restrictions on calling their customers out of the blue.

None of these factors are your problems to solve. You need to take charge and protect yourself, every time, consistently.

Also, as a reminder, NEVER provide your PIN or password. Even these reckless banks in Singapore are never supposed to ask for these pieces of information. And that’s part of the counterargument they make, that your account is “secure” because they’re not asking for your PIN or password. But why should anybody who you cannot verify is acting in an official, monitored capacity have any information about you? They shouldn’t; it’s none of their business, unless you can verify they have a legitimate, monitored reason to know. And it’s only a small step, especially for a confused elderly person (your future self perhaps), to be phished/scammed into revealing your PIN or password. Example: “Now, let’s set up a new PIN for you. Please enter a new PIN on your keypad....” Which is your old PIN of course, which is game over.

It’s time to fight back! Be careful out there, and let’s help banks in Singapore adopt even these basic security precautions. Thanks for your help.

I have similar experience last week when the bank called me, but I have to answer a few of these "security questions" such as name, last 5 digit of NRIC, DOB. Although I have slight hesitation initially, I still answered him because I did send secured email to the bank for some stuff and he did refer to that email when explaining the purpose of the call. But I know I should NEVER EVER give them any PIN or password.

Agree with you that banks should do more to protect customers. Given the options, I would usually choose email option rather than voice call option for reply or follow up action.


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