CPF Accounts Value Thread 2020

[limster]

When I grow up I want to be like uncle Kenny

refunding my CPF housing now to make my OA bigger!

 

[Okenba]

Question. Is there a benefit in moving more money into OA when we retire? SA I understand. Stable 4% is wonderful. OA feels a bit iffy to me? 2.5% is nice, but probably can do better investing in cash?

 

[polyglob]

Question. Is there a benefit in moving more money into OA when we retire? SA I understand. Stable 4% is wonderful. OA feels a bit iffy to me? 2.5% is nice, but probably can do better investing in cash?

For rebalancing from equities to bonds, treating CPF as the bond component? Note I have not read thru all the tips and tricks about optimizing CPF so dunno how money gets distributed across the various accounts when RA is in place.

Anyways SKenny's 1mil+ in OA does earn a good chunk of interest annually as shown in other posts.

 

[Okenba]

For rebalancing from equities to bonds, treating CPF as the bond component? Note I have not read thru all the tips and tricks about optimizing CPF so dunno how money gets distributed across the various accounts when RA is in place.

Anyways SKenny's 1mil+ in OA does earn a good chunk of interest annually as shown in other posts.

Not knocking on Kenny at all. I wish I had that amount in my OA.
And everyone will have their own AA for retirement. If someone feels that 2.5% is enough returns for them, then its fine.

I think I would rather have my OA in cash so I can make it work harder? And more liquidity too if I need to draw on it. But to be honest, I also don't know much about CPFIS, so maybe that is an option even while keeping it in OA.

As for withdrawal from CPF, my understanding is that SA will be withdrawn before OA. In that sense, OA still remains not very liquid unless you are willing to give up on the 4% SA.

If I have a large amount in cash to help my liquidity, I guess that is fine. But I would prefer not to need to draw from CPF as I retire as that would mean drawing from SA first.

So in summary, OA is not that liquid. If we treat it as a bond component for drawdown in bear markets (so that we won't need to touch equities), we actually need to draw from SA first, losing the potential 4%.

 

[henrylbh]

If using OA for investing,there is a little leeway to take out OA before SA. Close CPFIS. Repeat process.

 

[BBCWatcher]

If using OA for investing,there is a little leeway to take out OA before SA. Close CPFIS. Repeat process.

Do you mean using the CPF Investment Scheme (SA), i.e. "SA shielding"? The first $40,000 of SA funds you cannot shield, but it can work if you're trying to withdraw more than $40,000 and have more than $40,000 in your SA.

 

[henrylbh]

As for withdrawal from CPF, my understanding is that SA will be withdrawn before OA. In that sense, OA still remains not very liquid unless you are willing to give up on the 4% SA.

If I have a large amount in cash to help my liquidity, I guess that is fine. But I would prefer not to need to draw from CPF as I retire as that would mean drawing from SA first.

So in summary, OA is not that liquid. If we treat it as a bond component for drawdown in bear markets (so that we won't need to touch equities), we actually need to draw from SA first, losing the potential 4%.

Do you mean using the CPF Investment Scheme (SA), i.e. "SA shielding"? The first $40,000 of SA funds you cannot shield, but it can work if you're trying to withdraw more than $40,000 and have more than $40,000 in your SA.

Sorry I didn't make it clear when making the statement in response to okenba's understanding as above.

 

[Patapon2]

RSTU 7K vs RSTU to FRS?

Between RSTU to SA 7K per year for tax rebate vs RSTU up to FRS immediately and forsake the opportunities to do 7K every year.. Which is a better option to do?

 

[malthead]

Between RSTU to SA 7K per year for tax rebate vs RSTU up to FRS immediately and forsake the opportunities to do 7K every year.. Which is a better option to do?

If your tax rate (or future tax rate) isn't high (eg>15%), then perhaps its better to top up early to enjoy the years of compounding and give up tax savings. Of course, in all likelihood your tax rate will increase hopefully with age (due to higher salary) but one can't really predict accurate if that will actually happen.

 

[doody_]

Between RSTU to SA 7K per year for tax rebate vs RSTU up to FRS immediately and forsake the opportunities to do 7K every year.. Which is a better option to do?

You can do a simple calculation in Excel. For me, a lump sum top up only generates a few hundred extra in interest, so I continued with the yearly 7k top up instead.

 

[Okenba]

Between RSTU to SA 7K per year for tax rebate vs RSTU up to FRS immediately and forsake the opportunities to do 7K every year.. Which is a better option to do?

You also lose a sizable amount of liquidity when you lump sum. You won't see that when you do the sums, but available liquidity and cash flow can be quite important.

 

[highsulphur]

You also lose a sizable amount of liquidity when you lump sum. You won't see that when you do the sums, but available liquidity and cash flow can be quite important.

I agree with the part on liquidity. Perhaps settle your initial home purchase first (if you intend to buy) before committing to a large sum contribution

 

[BBCWatcher]

I agree with the part on liquidity. Perhaps settle your initial home purchase first (if you intend to buy) before committing to a large sum contribution

Both acts have broadly similar liquidity characteristics. If you have liquidity concerns about a Special Account top up, you should also have liquidity concerns about converting cash into home equity at quicker than standard pace, particularly HDB leasehold equity. The key differences, however, are that Special Account top ups become fully liquid in any granular amount (even $1) at age 55 (in terms of any dollars that get pushed above at least the Full Retirement Sum), earn at least 4% interest, and are tappable in a dire qualified emergency (a withdrawal on medical grounds for example); while accelerating repayment on a ~2% mortgage earns only ~2% and doesn’t buy any granular liquidity ever, particularly with HDB leaseholds. (HDB leaseholds cannot be used as loan collateral, and the equity cannot ever be tapped except via outright resale or, in narrow circumstances, the HDB Lease Buyback Scheme. Private homes are a little more flexible, but there’s no guarantee you can tap the equity and get a loan approval at any particular point in time, the loan is not free and cannot be for only $1, and you cannot really sell off only $1 of equity — it’s an all or nothing sale in practical terms.)

Maintaining adequate liquidity is important, but if we’re talking about responsible people trying to decide whether to deploy excess cash to a Special Account top up or to mortgage repayment acceleration, I think the preferred choice is pretty clear. Both choices raise potential liquidity concerns, but one choice rewards you much more for the effort.

 

[dork32]

Maintaining adequate liquidity is important, but if we’re talking about responsible people trying to decide whether to deploy excess cash to a Special Account top up or to mortgage repayment acceleration, I think the preferred choice is pretty clear. Both choices raise potential liquidity concerns, but one choice rewards you much more for the effort.

if you are comparing interest rate, sa is a no brainer.

if you are looking at liquidity, home loan is a winner. you want an example? go ask that guy on the other thread that has lots of sa but no money to pay his home loan.

if you are looking at liquid assets, of course both are the same. but by doing a mortgage payment, you actually owe less. you can request to reduce your monthly installment. this is extra liquidity.

 

[BBCWatcher]

if you are comparing interest rate, sa is a no brainer.

Plus tax relief on the first $7,000. MediSave is also an interesting top up play.

if you are looking at liquidity, home loan is a winner. you want an example? go ask that guy on the other thread that has lots of sa but no money to pay his home loan.

That individual is facing a personal liquidity crisis. As it turns out, he has no household liquidity crisis at all -- not right now. His spouse already has 20 mortgage-months worth of Ordinary Account dollars banked.

Ceteris paribus, had that individual accelerated repayment on his low cost mortgage, his personal liquidity crisis would be worse, not better. He'd be losing his private condo sooner, not later or never.

Accelerating repayment on a low cost mortgage decreases liquidity too, and that's the point. It seems like a paradox, but it's really not: if you dive into buying out your home's equity too quickly, then you run a bigger risk of losing your home. Yes, this seems difficult for many people to grasp, but it's really true.

Anyway, let's turn back to this particular comparison....

if you are looking at liquid assets, of course both are the same.

Yes. IF you're going to experience a cash crunch (liquidity/cashflow crisis), there's no difference here.

but by doing a mortgage payment, you actually owe less. you can request to reduce your monthly installment.

Sure, you can make that request, but let's suppose you are comparing a $7,000 top up into your Special Account versus $7,000 of acceleration on a mortgage with $500,000 of outstanding principal, 2% interest, and 20 years of remaining term (on an original 25 year term). How much would you reduce your monthly payment? The answer: only $35 per month.

You can also request an increase in your low cost mortgage's term. Let's suppose you request an increase from 20 years remaining to 21 years remaining. How much would that reduce your monthly payment? It'd reduce it by $98 per month in this example, not only $35.

In other words, you already generally have the option to reduce your mortgage's monthly payment if you wish/need to do so.

Fee considerations may apply here; this is a simplified example.

this is extra liquidity.

No, either way you have less liquidity -- $7,000 less. Both ways you only reduce your future monthly bills, which doesn't matter if there's a liquidity crisis that is immediate and acute. (That's part of the definition of a crisis, actually.) Here's what these two possible deployments of $7,000 represent:

1. A $7,000 acceleration on a $500K outstanding/2% interest/20 years remaining mortgage reduces your monthly mortgage payment by $35 if you reprice. You increase home equity on your household's balance sheet, but you lose all $7,000 of granular liquidity for as long as you hold the property. Your effective yield on that $7,000 acceleration is ~2%, which is quite low -- akin to a ~20 year government bond currently.

Please note that in Singapore, if you work for an employer, you're effectively forced to increase your savings every month in a vehicle (your Ordinary Account) that is only liquid for housing in Singapore before age 55. (And for education to some extent.) While you can transfer OA dollars into SA to some degree, there is a limit to that. You should certainly count your OA dollars as valid housing reserve, and you're already forced to increase that reserve. If -- as you are, dork32 -- you're flush with OA dollars versus your outstanding mortgage, your mortgage servicing needs simply will not trigger a liquidity crisis. (Something else could, potentially.)

[There's an awful lot of fear -- paranoia, really -- about not being able to make a mortgage payment, but if you're sober about this I think you'll find that fear is overblown, at least if you're a responsible individual who has not purchased a too big/too expensive home. In that other thread it started with, "Oh my GOD! I'm going to lose my house!!!" and eventually we discover his wife has already banked 20 months of mortgage servicing in her Ordinary Account, and that's if she doesn't work even one more day. Well, OK, immediate crisis averted. Take a deep breath, and let's see where you stand....]

2. A $7,000 top up to your Special Account also reduces your liquidity by $7,000, although "with reasonable assumptions" you increase your future Special Account's granular liquidity from age 55 by a more than an offsetting amount. If you're in the 7% tax bracket (for example) you reduce next year's tax bill by $490. And you're very well compensated since your top up earns at least 4% interest, double the yield on your mortgage payment acceleration. Since you are so much better compensated, you can safely, prudently adjust (slightly reduce) the trajectory of your monthly savings flow earmarked for age 55+ and retirement.

All of the above assumes that individuals are acting reasonably responsibly and prudently at all times. As one example, after allocating these particular 7,000 dollars you should still maintain adequate liquidity. That's a gigantic assumption, to be clear, since many people are irresponsible.

 

[dork32]

you people here still believe bbc's logic after the way he post?

 

[dork32]

there is no argument at all

$35 >0. This is all i have to say.

 

[dork32]

does bbc understand the word liquidity.

to me, it means money that i can spend now.

to bcc it means money that i can spend when i am 55, 65 75...

 

[dork32]

i am not tokking about myself with my plump oa.

i am tokking about liquidity. you do not have to tell me those grandmother stories. they are not related to liquidity.

you are also wrong that you can happy happy extend your loan. there are a lot of conditions. many of us have already extended it to the max.

i can give a even better suggest. you can increase your from 20 to 21 years and pay it down. you will have a reduction of 98+35 a month

 

[dork32]

i did say there is not difference in the immediate effect. you do not have to explain the reason. i am smart enuf to know. just like you are not smart enuf to tok just about the word liquidity alone.

you will talk about money coming in years from now and the increase in nett assets and other grandmother rubbish which has got nothing to do with immediate liquidity.

the fact is immediate liquid for rstu is -7000

immediate effect of paying down loan is -7000 + 35 per month

just say which is higher and stop tokking about the other rubbish