CPF optimisation for retiree

[TiedInsurer]

I'd like some advice for how best to optimise CPF. The person in question is 60yo already. Her HDB is fully paid up, and her current main source of income is contributions from her kids, which is higher than her monthly expenditure. Right now, the combined sums in her CPF is less than $60k. The amount in her RA is only $10k+, and she has another $10k+ in the OA. The rest is in her Medisave account.

I'm intending to advice her to do the following:
1. Top up her OA, until her combined CPF balances is equal to $60k, to take advantage of the increased interest on the first $60k balance.
2. Transfer ALL the monies in her OA to her RA, to take advantage of the increased interest in the RA account.


Would this be good advice? What risks would I be exposing her to, if she goes ahead with the above 2? Actually, is there a need for people to keep money in their OA, once they already fully paid up their house? Transfer to RA/SA will get more interest right? Not like you can use the money in OA for anything other than buying house anyway....

 

[BBCWatcher]

I'd like some advice for how best to optimise CPF. The person in question is 60yo already. Her HDB is fully paid up, and her current main source of income is contributions from her kids, which is higher than her monthly expenditure. Right now, the combined sums in her CPF is less than $60k. The amount in her RA is only $10k+, and she has another $10k+ in the OA. The rest is in her Medisave account.

I'm intending to advice her to do the following:
1. Top up her OA, until her combined CPF balances is equal to $60k, to take advantage of the increased interest on the first $60k balance.
2. Transfer ALL the monies in her OA to her RA, to take advantage of the increased interest in the RA account.

Would this be good advice?

No, not quite in my view. She can already transfer her OA funds to her RA and deposit funds into her RA directly. She doesn't need to repay any OA dollars used for housing to do any of that, so just skip that step. It's completely unnecessary complexity, and she preserves her OA repayment opportunities in full.

True, this distinction probably won't matter in her case, but if she happens to win the lottery next year she'll be happy she preserved all of her OA repayment opportunities. And at the very least it's more complicated to repay OA then shuffle the money around, so she should just keep it simple: transfer OA to RA, add funds directly to RA.

What risks would I be exposing her to, if she goes ahead with the above 2?

None that I can see. Her OA is presumably liquidity restricted already (not available for lump sum withdrawal).

Actually, is there a need for people to keep money in their OA, once they already fully paid up their house? Transfer to RA/SA will get more interest right? Not like you can use the money in OA for anything other than buying house anyway....

For those who have "adequately" funded Retirement Accounts (Full Retirement Sum, or Basic Retirement Sum with property pledge/charge), having some "surplus" OA dollars is fine as a pool of liquid, 2.5% interest earning funds. Those OA dollars can also be transferred to other family members' Special/Retirement Accounts. And they can be used to pay Dependants' Protection Scheme (DPS) premiums. Starting on April 1, 2021, the DPS will be extended to age 65, so in some cases a person in her early 60s might care about having a few OA dollars for DPS premiums. (Not in this particular case.)

That said, yes, generally it's a really good idea to transfer all "surplus" OA dollars into SA/RA, as long as that's allowed (SA/RA respective limits not yet reached). The surplus might even equal all OA dollars.

 

[BBCWatcher]

OK, I thought of one potential "risk." She may currently be eligible for the Matched Retirement Savings Scheme which is commencing from 2021. However, if she ends up with a much better funded Retirement Account (very close to or above the Basic Retirement Sum) before her MRSS calculation is made next year, she could lose a little bit of MRSS funding.

However, if somebody is planning to help push her RA up to the Full Retirement Sum (for example) tomorrow, the relatively tiny $600 of MRSS support shouldn't stand in the way at all -- it's not nearly enough to compensate for the lost interest in delaying a big top up.

 

[TiedInsurer]

No, not quite in my view. She can already transfer her OA funds to her RA and deposit funds into her RA directly. She doesn't need to repay any OA dollars used for housing to do any of that, so just skip that step. It's completely unnecessary complexity, and she preserves her OA repayment opportunities in full.

True, this distinction probably won't matter in her case, but if she happens to win the lottery next year she'll be happy she preserved all of her OA repayment opportunities. And at the very least it's more complicated to repay OA then shuffle the money around, so she should just keep it simple: transfer OA to RA, add funds directly to RA.

You lost me here haha. I didn't think the order matters.

However, if she ends up with a much better funded Retirement Account (very close to or above the Basic Retirement Sum) before her MRSS calculation is made next year, she could lose a little bit of MRSS funding.

She will still be very very far away from the BRS, even if we topped up her CPF to $60k right now haha. Think her BRS is $80k.

 

[TiedInsurer]

There are lots of rubbish in the other CPF threads too!

Please substantiate, instead of just spouting insults, accusations, and generally unhelpful drivel.

 

[TiedInsurer]

U just need to answer all the questions I posted!

I will delete the post after.

How are u related to her? If her kids are already providing for her lifelihood, what makes u think u know better than them to advise her?

I'm the kid.

Have u seen her CPF statements? Is she born before July?

Yes to first Q. No to 2nd. She hasn't hit birthday yet this year, so technically she's 59. Why does this matter?

Pls do all your homework before u advise others what to do, to avoid being too helpful at their expense, her kids might come after u for doing damage if any.

This is why i'm here.

 

[TiedInsurer]

Good! If she is born after July, she is safe, otherwise she is not!

I will end here, and I will delete all my post here since u are the kid and she is born after July! I shall not interfere!

Wait what? Why does her birthday month even mater? I'm still lost....

 

[TheAlphaLion]

I think BBCWatcher's plan is good. To add on, if there is any cash top-up to mum's CPF, better to be from the kids so that they can get income tax relief under Retirement Sum Topping Up Scheme.

 

[tanchinkoo]

5 are more to go , not much u can earn.

Sent from Xiaomi REDMI NOTE 8 using GAGT

 

[BBCWatcher]

Let's suppose your mother has used $100,000 in Ordinary Account funds (inclusive of accrued interest) toward her housing, and let's suppose her children are going to help get her to $60,000 in her Retirement Account consisting of:

* $10,000 she transfers from her OA to RA
* $10,000 already in her RA
* $40,000 from her children

Yes, her children could help her repay part of that $100,000 she used for housing, but all that would "accomplish" is that she (and her children) would have less opportunity to add funds to her OA in the future if she'd ever like to do that. (Hey, somebody could win the lottery -- it's possible.) Taking that OA repayment path doesn't add any value in terms of getting funds into her RA. Her children can already do that, directly: just deposit cash into her RA (and likely enjoy some tax relief) and/or transfer their OA funds to her RA.

A much more interesting question is whether she used Special Account funds for housing. Did she? Because that could get very interesting indeed when her Retirement Account hits the Basic Retirement Sum, if that's in her future.

Wait what? Why does her birthday month even mater? I'm still lost....

There was evidently a "footnote" question if/whether your mother has already paid a CPF LIFE premium. But you mentioned an important detail in your original post indicating that was a very unlikely possibility.

In the alternate reality in which she has already paid a CPF LIFE premium, it's possible her Ordinary Account would be liquid now, available for lump sum withdrawal. If that measure (or some measure) of liquidity is critical to her, then she should be careful in deciding how much if any to transfer to her RA. [And that's why I wrote: "....Her OA is presumably liquidity restricted already (not available for lump sum withdrawal)."] But the point is academic assuming the details you've shared, including in your original post, are correct.

 

[tanchinkoo]

The payout very little only after 65

Sent from Xiaomi REDMI NOTE 8 using GAGT

 

[TiedInsurer]

A much more interesting question is whether she used Special Account funds for housing. Did she? Because that could get very interesting indeed when her Retirement Account hits the Basic Retirement Sum, if that's in her future.

She never put a single cent towards the HDB. She inherited it. The original owner croaked, and the administrator of that estate used funds from the estate to pay off all outstanding loans and mortgages, before handing over ownership of the HDB to her. She probably won't ever hit the BRS, barring an unexpected windfall. Like you said, someone could hit the lottery.

There was evidently a "footnote" question if/whether your mother has already paid a CPF LIFE premium. But you mentioned an important detail in your original post indicating that was a very unlikely possibility.

In the alternate reality in which she has already paid a CPF LIFE premium, it's possible her Ordinary Account would be liquid now, available for lump sum withdrawal. If that measure (or some measure) of liquidity is critical to her, then she should be careful in deciding how much if any to transfer to her RA. [And that's why I wrote: "....Her OA is presumably liquidity restricted already (not available for lump sum withdrawal)."] But the point is academic assuming the details you've shared, including in your original post, are correct.

Yeah your assumption is correct. There's no payment of CPF Life premiums. Never will be. There's too little funds in her CPF for her to be eligible for CPF Life i think. She'll just be getting the basic RA payouts at 70 if i'm not wrong?

 

[tanchinkoo]

About 10 to 20 yrs to pay u back

Sent from Xiaomi REDMI NOTE 8 using GAGT

 

[TheAlphaLion]

also, make full use of the matched retirement saving scheme (from next year) which matches 1-for-1 up to $600 of cash top-up

https://www.cpf.gov.sg/Members/Schemes/schemes/retirement/matched-retirement-savings-scheme

 

[dork32]

you cannot top up the oa directly.

you can do a vc of max 37k, but it will go into all 3 accounts.

topping up of oa is meant for people that have used a lot of their oa for housing.

luckily you can top up her ra directly

 

[BBCWatcher]

She never put a single cent towards the HDB. She inherited it. The original owner croaked, and the administrator of that estate used funds from the estate to pay off all outstanding loans and mortgages, before handing over ownership of the HDB to her.

OK, so she doesn't have the opportunity to repay dollars back into her Ordinary Account. That part of your original post doesn't apply in her case.

 

[dork32]

What risks would I be exposing her to, if she goes ahead with the above 2?

the risk is not on her. the risk is on you. you are losing your liquidity when you top up her account. if you get into financial problem, want to buy the next big ticket item, this money cannot save you.

however, if these are your spare cash and you never need to look at them again then the risk is minimum

 

[BBCWatcher]

the risk is not on her. the risk is on you. you are losing your liquidity when you top up her account.

Not necessarily. One of the possible choices to jack up a parent's CPF Retirement Account is for a child to transfer some or all of his/her CPF Ordinary Account funds to the parent's RA. CPF Ordinary Account funds are also restricted liquidity funds, and it's possible this limited liquidity doesn't/wouldn't make any difference. (It depends on whether you have a mortgage to service and/or qualified educational expenses to pay. Not everyone does.) Note that the child has to meet certain minimum CPF funding levels to be able to transfer OA dollars to a parent's RA, i.e. the child cannot dig too deeply into his/her own future retirement income stream.

Also, per TiedInsurer's post this parent is already financially dependent on the child(ren), a preexisting, ongoing dependency risk every month. At present, and with no changes, this parent's financial dependency on her children will be for the rest of her life. Reducing or eliminating her financial dependence reduces the child(ren)'s risk as compensation.

 

[dork32]

Not necessarily. One of the possible choices to jack up a parent's CPF Retirement Account is for a child to transfer some or all of his/her CPF Ordinary Account funds to the parent's RA. CPF Ordinary Account funds are also restricted liquidity funds, and it's possible this limited liquidity doesn't/wouldn't make any difference. (It depends on whether you have a mortgage to service and/or qualified educational expenses to pay. Not everyone does.) Note that the child has to meet certain minimum CPF funding levels to be able to transfer OA dollars to a parent's RA, i.e. the child cannot dig too deeply into his/her own future retirement income stream.

Also, per TiedInsurer's post this parent is already financially dependent on the child(ren), a preexisting, ongoing dependency risk every month. At present, and with no changes, this parent's financial dependency on her children will be for the rest of her life. Reducing or eliminating her financial dependence reduces the child(ren)'s risk as compensation.

when you top up, we assume that we top up with cash.

whether the parent is dependent or not, it does not matter. the fact is you will be down 40k in cash. liquidity is affected. there is a big difference in a 40k lump sum vs at 400 every month for 10 years.

 

[dork32]

Not necessarily. One of the possible choices to jack up a parent's CPF Retirement Account is for a child to transfer some or all of his/her CPF Ordinary Account funds to the parent's RA. CPF Ordinary Account funds are also restricted liquidity funds, and it's possible this limited liquidity doesn't/wouldn't make any difference. (It depends on whether you have a mortgage to service and/or qualified educational expenses to pay. Not everyone does.) Note that the child has to meet certain minimum CPF funding levels to be able to transfer OA dollars to a parent's RA, i.e. the child cannot dig too deeply into his/her own future retirement income stream.

Also, per TiedInsurer's post this parent is already financially dependent on the child(ren), a preexisting, ongoing dependency risk every month. At present, and with no changes, this parent's financial dependency on her children will be for the rest of her life. Reducing or eliminating her financial dependence reduces the child(ren)'s risk as compensation.

even if you top up with oa, it may affect your current or future property which is a big ticket item