CPF Accrued Interest

[nautilus]

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.

Can SGS be traded in the secondary market on SGX?

 

[BBCWatcher]

Can SGS be traded in the secondary market on SGX?

Yes. Of course there's a cost to that.

I generally agree with Orange_sky, by the way, that the SRS withdrawal strategy ought to be to maximize withdrawals within the 0% tax bracket. For most people that means starting withdrawals in the January of the year following the year you stop working.

Where I might quibble a little bit is that lifting and reinvesting those funds outside the SRS usually comes at a cost, sometimes fairly significant. So I wouldn't be too fanatical about pulling SRS funds out for reinvestment. For example, if you've got a SGS bond within your SRS that's maturing a couple years after you're first eligible to make tax free withdrawals, and if you don't need the money right away, I'd probably just leave that bond alone since there's a cost in the secondary market to unload the bond before maturity. If you're paying broker commissions to trade then you can avoid unnecessary commissions if you only sell just before you need the money for consumption.

On the other hand, if there's some trade you would make regardless -- you're holding shares in Company X, the stock has appreciated well, and you think it's the right time to sell -- then go ahead and make that trade, and withdraw the proceeds in a tax-efficient manner for reinvestment outside the SRS. That makes sense, too.

 

[wealth_farmer]

If you bought shares with, say DBS Vickers, using SRS funds, you can transfer those shares out of your SRS account at 62 over ten years (without having to sell them, but you will be taxed on half the value) so you can still enjoy the dividend income if you're not hard up for cash.

Yes. Of course there's a cost to that.

I generally agree with Orange_sky, by the way, that the SRS withdrawal strategy ought to be to maximize withdrawals within the 0% tax bracket. For most people that means starting withdrawals in the January of the year following the year you stop working.

Where I might quibble a little bit is that lifting and reinvesting those funds outside the SRS usually comes at a cost, sometimes fairly significant. So I wouldn't be too fanatical about pulling SRS funds out for reinvestment. For example, if you've got a SGS bond within your SRS that's maturing a couple years after you're first eligible to make tax free withdrawals, and if you don't need the money right away, I'd probably just leave that bond alone since there's a cost in the secondary market to unload the bond before maturity. If you're paying broker commissions to trade then you can avoid unnecessary commissions if you only sell just before you need the money for consumption.

On the other hand, if there's some trade you would make regardless -- you're holding shares in Company X, the stock has appreciated well, and you think it's the right time to sell -- then go ahead and make that trade, and withdraw the proceeds in a tax-efficient manner for reinvestment outside the SRS. That makes sense, too.

 

[orange_sky]

If you bought shares with, say DBS Vickers, using SRS funds, you can transfer those shares out of your SRS account at 62 over ten years (without having to sell them, but you will be taxed on half the value) so you can still enjoy the dividend income if you're not hard up for cash.

I know that can be done for equities. Not sure about sgs

 

[BBCWatcher]

I know that can be done for equities. Not sure about sgs

It varies by investment, I'm sure. I'm just pointing out that taking the commission hit is probably not worth it. The funds are liquid starting at age 62, so there's (usually) no extreme urgency to make the maximum possible zero tax withdrawals every year. If your tax optimization takes a little more time than that, no big deal.

 

[chopra]

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?

In my opinion, 0.1% is not worth the effort. I have calculated the magnitude and not just the %.

I rather let the cpf oa rot inside and wait for a black swan.

What do u think

 

[blueliteycy]

correct me if im wrong, we would not just be losing out 2.5/6% on the accrued loan interest, we will also lose out on the opportunity cost of 2.5% which it can earn, thus we would need to ensure we can get a min of 5.1% investment before deciding it is not worth well to repay to oa?

 

[Bedokian]

correct me if im wrong, we would not just be losing out 2.5/6% on the accrued loan interest, we will also lose out on the opportunity cost of 2.5% which it can earn, thus we would need to ensure we can get a min of 5.1% investment before deciding it is not worth well to repay to oa?

Unless you have the intention to sell your HDB, the accrued interest issue is not relevant. The accrued interest is to let you know that, should you want to sell your HDB, any excess sales proceeds would go to pay the supposed amount that should be in the CPF, plus the opportunity cost of the interest earned.

So, looking at it as a whole, based on your question, it is not really 5.1%; it is the same 2.5%, just view it as your money in the CPF-OA part's interest is being paid by CPF, whereas for the amount withdrawn for HDB, you are supposed to pay back yourself the 2.5%, because by right the amount taken out is meant for your retirement.

 

[Geeezz]

so assuming housing prices falls and it doesn't make sense to pay more than its worth.
if wn sell hdb means all proceeds will go into cpf and in turn i need take out money from my bank account and top up cpf as well?

 

[anfielder]

so assuming housing prices falls and it doesn't make sense to pay more than its worth.
if wn sell hdb means all proceeds will go into cpf and in turn i need take out money from my bank account and top up cpf as well?

All proceeds go to cpf but no need to top up with cash

 

[BBCWatcher]

There's a rather compelling argument that the true cost of tapping your CPF OA is 4+% compounded, not 2.5+% compounded, as long as your SA is below the Full Retirement Sum. That's because OA not used for housing, insurance, or education is convertible to SA, up to the FRS. There's an even more compelling argument that the true cost of tapping your CPF OA is something above 2.5%, for this reason and (sometimes) for bonus interest reasons. We might quibble about how much above 2.5%, but 2.5% is understating the true cost.

 

[rrr2015]

real-life example of what happens when you sell flat after 55 with property pledged (i.e BRS). pretty interesting read …
http://finance.theindependent.sg/re...ment-sum-66-year-old-cpf-member-outraged/amp/

 

[dork32]

real-life example of what happens when you sell flat after 55 with property pledged (i.e BRS). pretty interesting read …
http://finance.theindependent.sg/re...ment-sum-66-year-old-cpf-member-outraged/amp/

wah lau, lost 15 days interest, he must cow pay cow bull.

 

[Mecisteus]

real-life example of what happens when you sell flat after 55 with property pledged (i.e BRS). pretty interesting read …
http://finance.theindependent.sg/re...ment-sum-66-year-old-cpf-member-outraged/amp/

Rich Uncle KPKB after selling his apartment. Easily 1+M.

The rate of appreciation of apartment cannot beat CPF rate?

 

[Hot_Dog]

Rich Uncle KPKB after selling his apartment. Easily 1+M.

The rate of appreciation of apartment cannot beat CPF rate?

Cpf rate is pegged to inflation rate. In an ideal world should nett 0.

 

[rrr2015]

these KPKB sometimes good, at least now i know of faster way to receive monies

wah lau, lost 15 days interest, he must cow pay cow bull.

Rich Uncle KPKB after selling his apartment. Easily 1+M.

The rate of appreciation of apartment cannot beat CPF rate?

 

[The_Davis]

so technically if you have already met FRS can choose not to refund??

 

[tangent314]

If you have already met FRS and did not make a property pledge, it just means that you do not have to pay back the property pledge. The money still needs to go a round trip into your CPF-OA and back out again (assuming you are > 55 yo) though, where there could be a slight delay.

 

[dork32]

so technically if you have already met FRS can choose not to refund??

you still have to refund. you can only take it out 15 days later.

 

[The_Davis]

you still have to refund. you can only take it out 15 days later.

oh... still got such a weird rule