CPF optimisation for retiree

[TiedInsurer]

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

Ah ok, i didn't know that. Thanks.

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.

I was thinking that she could use her own savings to top it up instead. She has very significant cash savings just sitting in a bank earning 0.5% interest rate. The plan is to advise her to top up her RA first with her own cash.

If she encounters liquidity issues after that, the kids will step in to keep her afloat, though it probably won't happen barring a medical emergency.

 

[tanchinkoo]

I don't believe all those ads of ppl top up $$$ unless kids spare CPF top up which is a form of cash out early.

Sent from Xiaomi REDMI NOTE 8 using GAGT

 

[henrylbh]

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....

I guess the first 5k in her OA can be withdrawn anytime she wishes. If she decides to withdraw the 5k from her OA, I believe the balance will automatically go in her RA since she has not met FRS at 55.

Since she does not need the money, the first step is to convince her to move her OA to RA. Tell her to withdraw 5k (if possible 7k) and pass it to you and you top up her RA with the amount withdrawn together with tax savings that you can claim

If she refused to consider this first step, forget whatever great ideas that you may have

FYI, 1st 30k in RA earns 6% and the next 30k earns 5% and the remaining balance earns 4% for the time being. So doing nothing with her current 10k in OA is great sin

 

[henrylbh]

I was thinking that she could use her own savings to top it up instead. She has very significant cash savings just sitting in a bank earning 0.5% interest rate. The plan is to advise her to top up her RA first with her own cash.

If she encounters liquidity issues after that, the kids will step in to keep her afloat, though it probably won't happen barring a medical emergency.

It appears she was never a working (with CPF contribution) mother. Cash is her security, not CPF nor kids

Good luck trying to convince her. You think she would believe the kids would step in when she really needs money. Easier for her cohort to convince her, but most would be just as sotong as she.

 

[henrylbh]

My father had 6 digits savings in posb paying pittance (interest was 0.05%). I managed to convince him to put into higher interest accounts.

Took him to CIMB. Opened a savings account with 5k (that time interest was 0.8% which is 16x more than posb) and placed another 45k in an FD account for a start.

Quietly without my knowing, he withdrew the FD in cash. I only found out when my sister told me that father was counting cash in his room after withdrawing the FD

I even guaranteed him that should he lose his money, I will make good.

 

[twinbaby]

my mother has 50k RA, and 50k in cash how do I optimise it?

 

[qhong61]

Ah ok, i didn't know that. Thanks.



I was thinking that she could use her own savings to top it up instead. She has very significant cash savings just sitting in a bank earning 0.5% interest rate. The plan is to advise her to top up her RA first with her own cash.

If she encounters liquidity issues after that, the kids will step in to keep her afloat, though it probably won't happen barring a medical emergency.

Don't force her to top up using her own cash. Let her enjoy her money. U won't know when she will leave the world.

 

[qhong61]

Don't force her to top up using her own cash. Let her enjoy her money. U won't know when she will leave the world.

I also prefer keeping cash in fixed deposit instead of topping up.

 

[dork32]

Ah ok, i didn't know that. Thanks.



I was thinking that she could use her own savings to top it up instead. She has very significant cash savings just sitting in a bank earning 0.5% interest rate. The plan is to advise her to top up her RA first with her own cash.

If she encounters liquidity issues after that, the kids will step in to keep her afloat, though it probably won't happen barring a medical emergency.

another risk is a lot of old (and young) people do not trust cpf. they feel that money into cpf is lost. you have to convince mother about this.

and dont worry about the 10 years or 20 years to get back your money. there is no losses with cpf. lets say your mom passed on 5 years down the road. if she had topped up, you will receive an inheritance from the cpf. if she had not topped up, you will receive an inheritance from her cash. you dont lose a thing throughout the days she lives, unless cpf go bankrupt

if liquidity is not a problem, then there is no risk. go ahead and do what you plan.

 

[dork32]

Don't force her to top up using her own cash. Let her enjoy her money. U won't know when she will leave the world.

i will not comment on this. some old people just sit on the pile of cash they have. they dont know how to enjoy the money. it really depends on the mother.

but i do agree that if mom likes to go for holiday, and you put all her holiday money into cpf, then it is quite mean.

 

[dork32]

I also prefer keeping cash in fixed deposit instead of topping up.

now even the best fd is giving 1+%. no fight if you compare it with cpf.

for people that are much younger, fd may be a good choice. money into cpf is money that you will see after 30 years.

but the wait is much shorter for mom, cpf may be a good choice.

 

[TiedInsurer]

Tell her to withdraw 5k (if possible 7k) and pass it to you and you top up her RA with the amount withdrawn together with tax savings that you can claim

Wah so smart! Dammit, i already convinced her to transfer all her OA to her RA last night. Missed out on a few hundred dollars in tax savings....

i will not comment on this. some old people just sit on the pile of cash they have. they dont know how to enjoy the money. it really depends on the mother.

but i do agree that if mom likes to go for holiday, and you put all her holiday money into cpf, then it is quite mean.

Haha yes. I meant it when i said "her current main source of income is contributions from her kids, which is higher than her monthly expenditure." The pile of cash she's sitting on, generating 0.05% interest, is growing year by year. She's like the proverbial dragon hoarding treasure. I'm just trying to get her to hoard it more efficiently.

and dont worry about the 10 years or 20 years to get back your money. there is no losses with cpf. lets say your mom passed on 5 years down the road. if she had topped up, you will receive an inheritance from the cpf. if she had not topped up, you will receive an inheritance from her cash. you dont lose a thing throughout the days she lives, unless cpf go bankrupt

Yeah that's true. Right now she's resistant to top up using her own cash. I'll probably speak to my siblings and we'll top up in cash for her. I mean, 5% to 6% super low risk investment? Where to find?

 

[BBCWatcher]

Wah so smart! Dammit, i already convinced her to transfer all her OA to her RA last night. Missed out on a few hundred dollars in tax savings....

Tax relief is still available. Just top up her RA.

I meant it when i said "her current main source of income is contributions from her kids, which is higher than her monthly expenditure." The pile of cash she's sitting on, generating 0.05% interest, is growing year by year. She's like the proverbial dragon hoarding treasure. I'm just trying to get her to hoard it more efficiently.

Hypothetically her children could redirect some or all of the contributions to her 0.05% interest earning cash pile to her CPF Retirement Account.

Right now she's resistant to top up using her own cash. I'll probably speak to my siblings and we'll top up in cash for her. I mean, 5% to 6% super low risk investment? Where to find?

4%, 5%, or 6%, and with some tax relief and (from 2021) matching funds? That's extremely attractive.

I suppose your mother deserves some thanks from mortgage borrowers since she's part of the reason why mortgage interest rates are low. If she's willing to loan money to DBS/POSB (for example) and only collect 0.05% interest while DBS loans money at 1.5% interest or more, that's a great deal for everyone except her. But she's not alone. Far from it.

 

[edmwing]

Some older generation are like that. They thought cash in hand is the best. Until something drastic happen. Then their mindset will change

Yeah agree. CPF LIFE provides some safeguard in that sense by slowly dispensing some money every month. Instead of one big lump sum like in the past then these old and vulnerable becomes easy prey for cheats.

 

[qhong61]

now even the best fd is giving 1+%. no fight if you compare it with cpf.

for people that are much younger, fd may be a good choice. money into cpf is money that you will see after 30 years.

but the wait is much shorter for mom, cpf may be a good choice.

His mum already 59. Still can withdraw after topping up ?

 

[qhong61]

Wah so smart! Dammit, i already convinced her to transfer all her OA to her RA last night. Missed out on a few hundred dollars in tax savings....



Haha yes. I meant it when i said "her current main source of income is contributions from her kids, which is higher than her monthly expenditure." The pile of cash she's sitting on, generating 0.05% interest, is growing year by year. She's like the proverbial dragon hoarding treasure. I'm just trying to get her to hoard it more efficiently.



Yeah that's true. Right now she's resistant to top up using her own cash. I'll probably speak to my siblings and we'll top up in cash for her. I mean, 5% to 6% super low risk investment? Where to find?

Yes, top up using ur own cash.

 

[dork32]

His mum already 59. Still can withdraw after topping up ?

if you top up at 59, you wait for 6 years and you can get payout.

you topup at 35, you wait for 30 years before you can get payout.

 

[henrylbh]

She has very significant cash savings just sitting in a bank earning 0.5% interest rate.

Are you sure her savings in a bank is earning 0.5%? That's $500 interest for every $100k per year.

If the savings, not FDs, is in one of the 3 local banks (oldies favourites), the interest rate is 0.05%
which means $50 interest for every $100k per year.

 

[henrylbh]

Dammit, i already convinced her to transfer all her OA to her RA last night.

Good that you overcome the obstacle of convincing her to move OA to RA for higher interest. Probably that idea is ok with her as she could be thinking that it doesn't matter since it's money in CPF and not her cold cash

So now she has $20k in RA earning 6%. Next you can trying to reason with her that is still a gap of $10k to fill in to earn 6% and another $30k gap to earn 5%

Just note that You will be automatically covered under CPF LIFE if you are a Singapore Citizen or Permanent Resident born on 1 January 1958 and after, and have at least $60,000 in your RA six months before you reach age 65.

If topping up RA to more than $60k, just take note the effect of Matched Retirement Sum Scheme.

 

[henrylbh]

Don't force her to top up using her own cash. Let her enjoy her money. U won't know when she will leave the world.

I never forced my father. It took me sometime to convince and he agreed with me to place his money in FD in non-local bank that paid higher interest. But he felt uncomfortable and decided to withdraw the FD.

In TiedInsurer's case, if the mother one moment is convinced to put cash into CPF, there is no way she can change her mind to withdraw the money and may live in regret.