CPF Retirement Sum Scheme

[sohguanh]

In order for the "CPF OA investment hack" to work, the person need to be at least 55 years old and have FRS in RA. This is the requirement to transfer CPF investment to CDP.
Or there are some other ways that I missed out.

I was asking above can be done before one reaches age 55 no one seem to reply. So I guess this "hack" only applies for those age 55 and above. Thanks for sharing.

 

[BBCWatcher]

You can (and probably should) love a larger RA balance yet hate tapping 4.0% interest earning SA dollars to fund RA.

 

[reddevil0728]

You can (and probably should) love a larger RA balance yet hate tapping 4.0% interest earning SA dollars to fund RA.

Can and should is not the same as want and desire

 

[bargin]

Withdraw a 4% to pay back a 2.5%?
Also how will it increase the ra amount?

So you want to withdraw dollars that are currently earning 4.0% interest, that you can withdraw at any time, in order to deposit them in an account that earns 2.5% interest and that you cannot easily withdraw (except after you withdraw your 4.0% interest earning dollars)?

It's an "interesting" idea.

FRS = RA amount $77.5k (from OA&SA) + property pledge $77.5k = $155k
input $5k (withdraw from SA) to reduce housing loan ($95k - $5k) which will flow to RA account = $77k (property pledge) - $5k = $72k (reduce property pledge amount), thus RA will increase by $5k (4% interest).
FRS = RA $77.5k + $5k + property pledge $72.5k ?

 

[BBCWatcher]

FRS = RA amount $77.5k (from OA&SA) + property pledge $77.5k = $155k

If you celebrated your 55th birthday between July 1, 2014, and June 30, 2015 (inclusive), then $155,000 is your Full Retirement Sum, yes.

I'm interpreting this statement that you made a property pledge (or have a property charge) and funded your RA at what's now known as the Basic Retirement Sum ($77,500). But please correct me if I'm wrong.

input $5k (withdraw from SA) to reduce housing loan ($95k - $5k) which will flow to RA account = $77k (property pledge) - $5k = $72k (reduce property pledge amount), thus RA will increase by $5k (4% interest).

Why would withdrawing SA reduce your housing loan? If you use the $5,000 from your SA to pay down your mortgage then your outstanding mortgage is smaller. (This would not be a smart thing to do if your mortgage interest rate is below 4.0% and you have other, lower yielding dollars to pay your mortgage.)

If you use your $5,000 from SA to refund $5,000 used for housing from your OA then you're reducing your SA balance and increasing your OA balance. That isn't a good trade.

If you use your $5,000 from SA to refund $5,000 used for housing from your SA then you're losing one month of interest on that $5,000 and otherwise leaving your SA balance unaffected. This isn't a good idea either.

If you use $5,000 from SA to top up your RA (CPF can do this for you as a transfer if you wish), OK, you could. I'd try to find other, lower yielding sources of dollars to top up your RA, but it's allowed.

FRS = RA $77.5k + $5k + property pledge $72.5k ?

Yes, if you top up your RA (no matter what the source of funds) then your property pledge should go down. Does this matter? If you're not going to sell your house it doesn't matter at all. If you're going to sell your house and buy another one (in Singapore) it probably doesn't matter at all. If you're going to sell your house and not buy another one in Singapore then it might matter a little, but "matter" here simply means some of your home sale proceeds (or other dollars, from somewhere) need to go into RA, whereupon your CPF LIFE retirement income stream will go up substantially.

What problem(s) are you trying to solve with this idea?

 

[bargin]

I'm interpreting this statement that you made a property pledge (or have a property charge) and funded your RA at what's now known as the Basic Retirement Sum ($77,500). But please correct me if I'm wrong. Yes, u r correct

If you use your $5,000 from SA to refund $5,000 used for housing from your OA then you're reducing your SA balance and increasing your OA balance. That isn't a good trade.

The $5k used for housing refund will go straight to RA instead of OA since member is above age 55. thus, there is no increase on OA Balance. Trying to reduce the principal amount on housing as well as the property pledge amount in RA.

 

[henrylbh]

The $5k used for housing refund will go straight to RA instead of OA since member is above age 55. thus, there is no increase on OA Balance. Trying to reduce the principal amount on housing as well as the property pledge amount in RA.

FRS = RA amount $77.5k (from OA&SA) + property pledge $77.5k = $155k
input $5k (withdraw from SA) to reduce housing loan ($95k - $5k) which will flow to RA account = $77k (property pledge) - $5k = $72k (reduce property pledge amount), thus RA will increase by $5k (4% interest).
FRS = RA $77.5k + $5k + property pledge $72.5k ?

Don't understand what you are trying to say or ask or do You confused ownself with FRS, RA and property charge.

If at 55 your FRS is 155, all your SA/OA will move to RA to meet FRS leaving balance of 5k in OA, if FRS is not met. Only after RA is created, you can then consider pledging your property and withdraw amount in RA in excess of 77.5k. If you don't have sufficient property charge, your post 55 SA/OA will go into your RA or the amount you can withdraw from RA is restricted.

 

[BBCWatcher]

The $5k used for housing refund will go straight to RA instead of OA since member is above age 55. thus, there is no increase on OA Balance. Trying to reduce the principal amount on housing as well as the property pledge amount in RA.

I’m not sure I understand either.

You can deposit cash straight into your RA right now. You don’t need to refund OA dollars used for housing to do that. If you increase your RA then your property pledge effectively decreases. I don’t understand why that pledge bothers you so much, but there you go.

I can’t think of any reason why you would repay OA in these circumstances. Your ability to inject cash into a 2.5% interest earning account has value. Why would you burn down any of that potentially valuable opportunity to (maybe) accomplish something you can already accomplish directly (add funds to your RA)? You wouldn’t/shouldn’t.

 

[bargin]

I’m not sure I understand either.

You can deposit cash straight into your RA right now. You don’t need to refund OA dollars used for housing to do that. If you increase your RA then your property pledge effectively decreases. I don’t understand why that pledge bothers you so much, but there you go.

I can’t think of any reason why you would repay OA in these circumstances. Your ability to inject cash into a 2.5% interest earning account has value. Why would you burn down any of that potentially valuable opportunity to (maybe) accomplish something you can already accomplish directly (add funds to your RA)? You wouldn’t/shouldn’t.

I was thinking of reducing the housing loan (OA dollars to buy our HDB flat) and accrued interest in CPF account. You are right that we can deposit cash into RA, thus property pledge will be reduced and will payout be increased ?

 

[BBCWatcher]

I was thinking of reducing the housing loan (OA dollars to buy our HDB flat) and accrued interest in CPF account.

But why? If you’re going to keep that money in OA earning interest, OK, but otherwise I don’t see what you’re accomplishing except reducing possible future deposits.

You are right that we can deposit cash into RA, thus property pledge will be reduced and will payout be increased ?

Here’s what the CPF Board says: “Top-ups to the RA will increase the recipient’s retirement sum, and may reduce the CPF property pledge/charge in their RA, if any.”

 

[henrylbh]

I was thinking of reducing the housing loan (OA dollars to buy our HDB flat) and accrued interest in CPF account. You are right that we can deposit cash into RA, thus property pledge will be reduced and will payout be increased ?

You are still confused and confusing us with words that are used ambiguously.

Input $5k (withdraw from SA) to reduce housing loan ($95k - $5k) which will flow to RA? That's fallacious thought. Yes $5k will reduce the 'outstanding' housing loan but it will never flow to RA as it is paid the lender, unless you are making a housing refund (thus reducing the CPF principal sum used for housing) which doesn't make sense if you have not met BRS nor FRS.

Your SA should be zero at age 55 since you indicated that SA followed by OA are transferred to RA and if you have not met FRS/BRS, your property is automatically charged to the extent of the shortfall in FRS. I believe that the $5k mentioned by you is OA not SA money that you are thinking of withdrawing to reduce the housing loan. If that's the case, you might as well transfer the $5k in OA to RA directly to earn higher interest and get higher payout subsequently. Don't border and confuse yourself with CPF property pledge/charge and accrued interest,

The confusing part is you were thinking of reducing the housing loan (OA dollars to buy our HDB flat) and accrued interest in CPF account. Take note, reducing 'outstanding' housing loan is not the same as reducing CPF principal sum used. You mentioned that the $5k is for reducing the housing loan. That action will never reduce the property pledged amount nor the accrued interest which will keep growing as long as the CPF principal sum used and accrued interest are not paid in full with cash.

 

[dork32]

what a loss child

 

[a4973]

what a loss child

Already has RA so not a child .

 

[gold_eagle36]

lets say i have 200k sa, 200 oa and 0 cash

i want to buy car at 100k.

i can withdraw 100k from my sa to my car to leave me with 100k sa and 200k oa + 1 car
or
i can buy 3300 dbs shares using oa, close the investment account. 3300 dbs shares get transferred to cdp. sell my 3300 dbs shares using dbs vickers. use the proceeds to buy my car.
in this way, i have 200k sa + 100k oa + 1 car

given a choice, understood use oa to buy car. only gong kia will use sa unless no choice

But OA has investment limit right for shares? Is the alternative to temp shield SA after 55 so that we can withdraw from OA first ?

 

[henrylbh]

Already has RA so not a child .

Yes he could even be a grandfather like a taxi driver that I know. He is only 48 and already has 3 grandchildren.

 

[henrylbh]

But OA has investment limit right for shares? Is the alternative to temp shield SA after 55 so that we can withdraw from OA first ?

He TC only. How can he used 100k OA to buy shares? If no prior cpf investment, at most he can used 35% of OA for buying shares and that's not enough to pay for 3300 DBS shares. I have more than 600k in OA and yet my CPF purchase of shares was rejected as I can only use $2700 of OA to pay for part of my purchase. I screwed my agent bank for accepting part of the purchase (without my agreement) and they gave me $50 voucher to compensate/pacify me

 

[iceblendedchoc]

I am also keen to know this is applicable for ppl before age 55? If can it is a loophole to change my OA money into cold hard cash where I can touch instead of smell previously. Hope readers who have successfully taken this route share their experience

heard the trick was to transfer OA to your father/mother and they can withdraw for you! But dunno loophole close or not now.

 

[henrylbh]

Hi @BBCWatcher,
Have met the FRS (pledge with property) and wan to do voluntary housing refund by withdrawing funds from SA ($5k). the $5k will reduce the principal in housing as well the amount in the property pledge, thus will increase the RA amount. Is this a wise method ? Age above 55 but under 65. No need to consider tax relief.

Makes no sense/wisdowm in what you have in mind.

If still got money in SA after meeting FRS with property pledge, leave the SA alone instead of withdrawing it to reduce CPF principal sum used for property. It will not increase your RA amount nor reduce the pledged amount.

For example you have 77.5k in RA and sufficient property pledge of 77.5 = FRS of 155. Your refund will only show in the statement that principal sum sum for property is reduced. Nevertheless, the property pledge amount is still 77.5k and your RA is still 77.5k. The main effect of returning principal sum used for property is you will have more cash from sale proceed when you sell your property. If you want more RA, just transfer the SA to RA directly. Even then, it makes no sense as the SA is still earning 4% and freely available, like your ATM, whenever and whatever amount there is in SA.

If you have less than 77.5k in RA, it means you have no RA balance at age 55 and the property charge is the difference between 155k and the amount you have in RA. If you top up RA with cpf transfer or cash, the pledge amount will be reduced. You can also top up RA to the max i.e. 3x BRS, the property pledge will still be there

 

[sohguanh]

heard the trick was to transfer OA to your father/mother and they can withdraw for you! But dunno loophole close or not now.

It still works but don't work for my case. Reason is simple. My dad has passed away. My mum got 3 children and if I started that, my other two siblings will object. Let's just say I am not on very good terms with them. I for one don't want to have anything to do with my mum/deceased dad monies that is for sure. So I would prefer a way that only involve myself and not parents or siblings.

 

[BBCWatcher]

Bargin's posts are very confusing, but here are some possibilities. I hope Bargin will clarify his/her situation.

1. Bargin's Retirement Account was formed at age 55 and funded to the Full Retirement Sum at that time. Bargin then made a property pledge and withdrew funds from his/her new Retirement Account.

2. Bargin's Retirement Account was formed at age 55 but wasn't funded to the Full Retirement Sum at that time. Bargin continued working, and compulsory contributions continued to stream in. Bargin then made a property pledge in order to withdraw some dollars (even $1).

Bargin is now considering whether to use some spare cash ($5,000) and has two basic choices:

A. Deposit $5,000 directly into his/her RA.

B. Repay $5,000 of OA used for housing.

Option A will earn a higher rate of interest and boost CPF LIFE monthly income for life. It's also probably eligible for tax relief (if applicable) and may reduce the outstanding property pledge. (CPF says "may" because there are some edge cases when it wouldn't, not without an additional top up.) A RA top up looks like the generally best available CPF-related option if you have $5,000 of spare cash. Option B does not add to RA, not by itself. If Bargin has any SA balance and tries to transfer $5,000 to RA then the first dollars (maybe all dollars) will come from 4.0% interest earning SA, not 2.5% interest earning OA. Moreover, Option B permanently reduces the number of dollars that could be deposited into OA if/when that option ever makes financial sense in the future.

My understanding is that if Bargin ever sells his/her home then the property pledge must be closed out from the home sale proceeds. Additional home sale proceeds can either be refunded into OA or received as cash (since the Full Retirement Sum is settled up first). In other words (my understanding!) only reducing the property pledge would affect the amount of cash proceeds available from a future home sale. Repaying OA has no material impact at this point since that part is a free decision at age 55+ with a FRS-level (or higher) RA.