CPF Accrued Interest

[chopra]

Download the form "Application to Make Cash Refund of CPF Savings Used for Property" from below CPF website:

https://www.cpf.gov.sg/Members/Services/forms-and-e-app/schemes/housing/public-housing-scheme

In that case, use dork32 life hax.

When u r 54yo, use the above for form. Pay e accured.

At 55yo and assuming u already surpass (by then) retirement sum, u can draw out this money.

 

[chopra]

Another option is to pay off your housing loan earlier, and that's probably the smarter move if the loan interest rate is higher than 2.5%.

Paying off early and delaying payment is a matter of 0.1%.
2.6% - 2.5%


It's not really a smart move as Hdb loan interest is pegged to OA interest plus 0.1%

 

[starfish.starfish]

If you cannot earn 2.5% from the money then of course does not make sense. If you are investment savvy then it shouldn't be a problem to earn 2.5% PA.

Even for non investment savvy peeps there are risk free ways to get above 2.5% interest unless all these instruments are already fully utilized.

 

[BBCWatcher]

Paying off early and delaying payment is a matter of 0.1%.

Which is more than zero. If you want to donate 0.1% of your outstanding principal to me instead, please do.

 

[chopra]

Which is more than zero. If you want to donate 0.1% of your outstanding principal to me instead, please do.

Sure. Lol.

 

[kzonexx]

Even for non investment savvy peeps there are risk free ways to get above 2.5% interest unless all these instruments are already fully utilized.

can u share what those are?

 

[starfish.starfish]

can u share what those are?

Also depends on your time horizon, and I believe these are not the full list there are other experts who know more.
UOB1, OCBC360, SSB, BOC account etc.

 

[BBCWatcher]

Sure. Lol.

I'm just making the serious point that, if you've narrowed your two choices to paying a 2.6% debt early or paying a 2.5% accrual account, I'd take the 2.6% deal.

There is one reason I can think of why you would make a cash reimbursement payment into OA. First, you'd make a $7000 cash top-up to your SA if you qualify for tax relief. Then you'd reimburse funds into your OA. Then you'd convert OA funds to SA, to earn the higher interest rate and put them toward retirement. That approach might make sense compared to paying off the 2.6% loan earlier. But I don't think I'd reimburse any more than what is required to raise the SA to the Full Retirement Sum ($166,000 in 2017). Once that's done, then you'd switch to using cash to accelerate repayment of the 2.6% loan.

Anybody see a problem with that logic?

 

[RoLanTo]

I'm just making the serious point that, if you've narrowed your two choices to paying a 2.6% debt early or paying a 2.5% accrual account, I'd take the 2.6% deal.

There is one reason I can think of why you would make a cash reimbursement payment into OA. First, you'd make a $7000 cash top-up to your SA if you qualify for tax relief. Then you'd reimburse funds into your OA. Then you'd convert OA funds to SA, to earn the higher interest rate and put them toward retirement. That approach might make sense compared to paying off the 2.6% loan earlier. But I don't think I'd reimburse any more than what is required to raise the SA to the Full Retirement Sum ($166,000 in 2017). Once that's done, then you'd switch to using cash to accelerate repayment of the 2.6% loan.

Anybody see a problem with that logic?

previously i have the same idea.. return to OA then xfer to SA from OA.
but i think it will remove the opportunity for me to top up more using cash into SA if i reached FRS by (OA->SA)..

the lesser cash i can top up, means lesser i can earn the interest..
my idea is to withdraw all the excess when i hit 55.. should be able to accumulate quite a bit with all interests.

 

[BBCWatcher]

So let's explore this a bit more....

previously i have the same idea.. return to OA then xfer to SA from OA. but i think it will remove the opportunity for me to top up more using cash into SA if i reached FRS by (OA->SA)..

Once your SA reaches the FRS, further top-ups and conversions are not allowed, correct. Compulsory contributions will continue, though.

However, every full month without money in your SA is lost interest. If you're thinking of the tax relief, that makes sense, take it first, now. A January $7,000 cash top-up is a very good idea. I'd do it within the next week so the funds are credited to your SA in January.

Waiting for each year's $7,000 tax relief top up, though, might or might not make sense. At least, it's not a straightforward calculation. It'll depend in large measure on your tax rate and how much interest your cash can reliably earn outside CPF. It's best to create a simple spreadsheet to figure out whether you should push more than $7,000 of cash in now versus waiting for more tax relief.

the lesser cash i can top up, means lesser i can earn the interest..

Yes, SA (and MA for that matter) earns higher interest than OA or than cash outside of CPF. The faster your SA (and MA) balances zoom up, the more compounded interest you earn. A Singaporean baby with a generous grandparent, for example, who deposits $166,000 into the baby's SA is a very lucky baby.

my idea is to withdraw all the excess when i hit 55.. should be able to accumulate quite a bit with all interests.

Why would you withdraw all the excess when you hit 55? It'll still be earning annually compounded interest, a lot of it. The financially prudent decision is to withdraw CPF funds only when you actually need the funds and you have tapped out other sources of funds that are earning less interest. If you don't need the money, or if you have other money that isn't working as hard for you, don't withdraw anything from CPF -- and certainly not a full withdrawal. That'd be financially crazy, wouldn't it?

 

[wealth_farmer]

I'd prefer to only do my tax deductible contributions for SRS as well as CPF-SA in December though. Cos at that point I'd know my tax liabilities better, and more importantly if I happen to get laid off during the year, I'd still have the funds in hand as a buffer.

 

[BBCWatcher]

I'd prefer to only do my tax deductible contributions for SRS as well as CPF-SA in December though. Cos at that point I'd know my tax liabilities better, and more importantly if I happen to get laid off during the year, I'd still have the funds in hand as a buffer.

You can certainly do that, and many people follow that pattern for exactly the reasons you describe. CPF encourages January contributions to maximize interest earnings, and they are also correct. There is a significant interest earnings benefit if you can make your top-ups in January versus December.

Another approach, if you're uncertain about your tax liabilities, is to wait until you're certain you will have some tax liabilities -- that you're going to end up at least in the 2% income tax bracket -- then make your $7,000 SA contribution. That might be in March, or May -- it just depends on how quickly your taxable income is rolling in. Another approach if you're in HDB housing with an OA balance, then laid off, is to tap OA for servicing your loan if need be. But if you haven't set aside an adequate reserve of emergency funds, then that should take priority over cash CPF top-ups, in my view. A Singapore Savings Bond (SSB) is a great place to keep your emergency funds.

For PRs (in particular) who are laid off and who decide to leave Singapore, there's an interesting decision to make. There is strong financial merit in pushing a lot of money into CPF before cutting ties with Singapore, if the cash flow issues can be managed in the midst of the job loss and international relocation. Relatively few people can execute that maneuver, but it is often the smart maneuver, before going through the exit door. For former PRs (and former citizens) CPF turns into a highly liquid, on demand but still high yielding account, a very special thing indeed.

 

[Singleton]

I know earn interest for the cpf after 55 is good.. but what is the point when the $ are meant to spend after all these years of saving..now should be time to enjoy the fruit of labor isnt it?

Anything can happen before 55 due to retrenchment, illness etc... have a plan is good thing sometimes plan didnt go accordingly to plan...

 

[BBCWatcher]

I know earn interest for the cpf after 55 is good.. but what is the point when the $ are meant to spend after all these years of saving..now should be time to enjoy the fruit of labor isnt it?

Yes! That's called "needing" the funds, exactly what I wrote.

But that's generally not the same thing as spending every last surplus dollar you could withdraw from your CPF accounts to throw the biggest birthday party ever. Sure, if you want to spend the money, spend the money. (We could debate the wisdom of such intensive and massive spending on your 55th birthday, but that's a separate question.) If you aren't going to spend the money on actual present consumption in the month or two after you turn 55, it's financially silly to withdraw the money from CPF. If you're just going to pull it then let it sit in a bank collecting 1 percent or less interest instead of 2.5+ or 4+ percent, what's the sense in that? It makes no sense whatsoever.

The amounts you can withdraw from CPF starting at age 55 are on demand funds. They are highly liquid. It's very hard to reliably beat CPF interest in the real world (especially over short time horizons), so those liquid dollars ought to be among the last you spend, not the first. I'm talking pure, personal financial sanity here.

Relatedly, there are also smart ways to withdraw SRS funds and not-so-smart ways. In particular, it's best if you can both pace your SRS withdrawals (so that you're structuring your withdrawals to avoid pushing you into the 2% tax bracket) and defer them to let them grow as long as possible. If you're still working at 62, or 66, then you may have no need to withdraw any funds at all, and that's great. Starting at age 62 your SRS account becomes highly liquid, available on demand. So if you've got a 0.5% interest bank account and a 2.5% yielding SRS, you'll probably want to draw from the 0.5% interest bank account first if you need some money for consumption.

Use your head, basically. High yielding liquid funds are magical and special. Leave them alone if you don't need them. Tap the lower yielding stuff first.

 

[nautilus]

Bbc,

Can you elaborate on 2.5% yielding SRS? Are you talking about OA?

 

[BBCWatcher]

Can you elaborate on 2.5% yielding SRS? Are you talking about OA?

No. It's an example.

As a simple example, a SRS invested in an original issue 15 year Singapore Government Security (bond), which goes on sale in August, 2017, will probably yield about 2.5%.

 

[nautilus]

No. It's an example.

As a simple example, a SRS invested in an original issue 15 year Singapore Government Security (bond), which goes on sale in August, 2017, will probably yield about 2.5%.

[/QUOTE]

Ah ok. With regards to SRS, I'm still unsure what would be the long term strategy be. Perhaps I should wait for part 2 of Shiny's book.

 

[BBCWatcher]

With regards to SRS, I'm still unsure what would be the long term strategy be.

Well, at age 62 a SRS becomes highly liquid. So it can be tapped for consumption needs at any time starting then. However, for tax optimization reasons it's best to withdraw from a SRS with a pace and timing that avoids propelling the recipient into a taxable bracket. For most people that means waiting at least until the next January after the year they stop working. For example, if a 64 year old SRS holder stops earning income from work in August, 2017, then waiting at least until January, 2018, to withdraw any funds from the SRS helps reduce or eliminate tax on the withdrawal.

If the SRS is reliably yielding 2.5%, and if cash in the bank is yielding 1%, it's best to use the cash in the bank first to support current consumption needs. Among liquid assets, the sensible thing to do is to withdraw the lowest yielding assets first and leave the reliably higher yielding assets right where they are. For someone age 55 or older, CPF (excluding CPF LIFE and MA) is a reliable, remarkably high yielding, highly liquid, Singapore tax free asset. That's very, very special. Keep it as long as you can.

 

[orange_sky]

Not really fair to compare cpf vs srs as the base interest for cpf is 2.5 whereas srs is 0.05%. For srs the key is regular withdrawal as soon as you hit the eligible age to minimize tax liability. You can always use the cash withdrawn for investing the same products if not more than those available under srs. For cpf, I agree it makes no sense to withdraw if you don't need the money urgently

 

[orange_sky]

BBC point on investing sgs made me think. Sgs is a good idea but if you buying a long tenure bond close to the withdrawal age, you may want to break it up into "withdrawal sizes" as I'm not sure they can allow you to withdraw part of a sgs holding. Might be worth checking.