CPF SA Shielding hack - RIP (Obsolete)

[aeng]

So my original point was, if your only aim is to leave a large bequest, then yes that is ideal.

But for most of us, we look at our entire wealth and we decide how to efficiently draw it down to zero when our lifespan expires.

That means our aim should not be this silly rule "never touch the principal sum".

I was v confused/curious about your scenario so I put it into a spreadsheet.

TLDR: Shielded always > unshielded.
assuming a withdrawal of 20k a yr in both scenarios.

doesn't matter if you want to leave behind a large bequest or not.
if you're unshielded, you'll run out of money a few years earlier.

 

[a4973]

You shield SA because it is the highest interest rate you can earn on money that you can access immediately - i.e. emergency fund.

Of course, you hope to never have an emergency, and if you don’t… it can become a bequest. But where else can you park funds you might need in an emergency that can be withdrawn immediately and pays 4% interest?

You have summarized the pros of shielding SA very well since access to OA funds is gated by SA first rule.

 

[Guojing88]

I was v confused/curious about your scenario so I put it into a spreadsheet.

TLDR: Shielded always > unshielded.
assuming a withdrawal of 20k a yr in both scenarios.

doesn't matter if you want to leave behind a large bequest or not.
if you're unshielded, you'll run out of money a few years earlier.

The main point is that, unless you plan to never touch the SA principal sum, only withdrawing interest every year, which is a silly plan, eventually your larger OA account if you do not shield, will earn more interest than the smaller OA, if you had shield.

 

[Okenba]

The main point is that, unless you plan to never touch the SA principal sum, only withdrawing interest every year, which is a silly plan, eventually your larger OA account if you do not shield, will earn more interest than the smaller OA, if you had shield.

So you are ignoring that the smaller OA is paired up with a larger SA that gives you 4%pa?

In that case, you are right. Smaller OA will give less interest than larger OA. No problem there.
IF we ignore the larger SA, you are right.

 

[Okenba]

The main point is that, unless you plan to never touch the SA principal sum, only withdrawing interest every year, which is a silly plan, eventually your larger OA account if you do not shield, will earn more interest than the smaller OA, if you had shield.

It is very clear that you never actually run the numbers. Let me quickly explain why the article is kum gong.

By the time the SA of the shielded account runs out, the OA of the shielded account would have grown to a larger amount than the OA of the unshielded account.

This is because....
4% > 2.5%

Withdraw or don't withdraw is irrelevant.

 

[Guojing88]

So you are ignoring that the smaller OA is paired up with a larger SA that gives you 4%pa?

In that case, you are right. Smaller OA will give less interest than larger OA. No problem there.
IF we ignore the larger SA, you are right.

The moment you start to eat into the SA account, the additional interest will be lower as well.

The thing about compound interest is that, you need time for it to work its magic.

But after 55, you don't have that much time for that 1.5% interest differential, to make that much of a difference.

 

[Okenba]

The moment you start to eat into the SA account, the additional interest will be lower as well.

The thing about compound interest is that, you need time for it to work its magic.

But after 55, you don't have that much time for that 1.5% interest differential, to make that much of a differene.

prease see my reply above.
My advice is for you to run the numbers to convince yourself.
It takes 5-10 mins on excel if even that.

Bro. It has nothing to do with compound interest.
4% > 2.5% whether or not the interest is compound or simple.

 

[Guojing88]

It is very clear that you never actually run the numbers. Let me quickly explain why the article is kum gong.

By the time the SA of the shielded account runs out, the OA of the shielded account would have grown to a larger amount than the OA of the unshielded account.

This is because....
4% > 2.5%

Withdraw or don't withdraw is irrelevant.

I believe the order of withdrawal is all the interest first, OA and SA, before it eats into the SA principal account?

If that is true, then how will your OA still grow after that?

 

[aeng]

The main point is that, unless you plan to never touch the SA principal sum, only withdrawing interest every year, which is a silly plan, eventually your larger OA account if you do not shield, will earn more interest than the smaller OA, if you had shield.

The moment you start to eat into the SA account, the additional interest will be lower as well.

The thing about compound interest is that, you need time for it to work its magic.

But after 55, you don't have that much time for that 1.5% interest differential, to make that much of a difference.

you're not making sense lah.
your total sum of money is still there, but in SA earning 4% instead of only 2.5%,

If you withdraw 20k a yr, it'll take a few yrs till it's depleted, meanwhile it's earning 1.5% more interest for you.
your total interest earned is always going to be more than if just from OA alone.

go run the numbers in a spreadsheet.
simple math.

 

[aeng]

I believe the order of withdrawal is all the interest first, OA and SA, before it eats into the SA principal account?

If that is true, then how will your OA still grow after that?

order of withdrawal is SA -> OA.

there's no way to withdraw interest only

 

[Okenba]

I believe the order of withdrawal is all the interest first, OA and SA, before it eats into the SA principal account?

If that is true, then how will your OA still grow after that?

ffs run the numbers yourself lah.
Seriously. It is not difficult.

Even f you choose a withdrawal which is > interest, then that just means that the non-shielded's OA will deplete to a point where it is lower than the shielded's OA before shielded SA runs out lah! Why is 4% > 2.5% hard to understand?

Go run the numbers.

 

[Guojing88]

order of withdrawal is SA -> OA.

there's no way to withdraw interest only

No I am saying the order is like that when it comes to withdrawal

1. SA interest
2. OA interest
3. SA
4. OA

So unless your plan is to only withdraw an amount that is equal to 1 + 2, your SA principal will be lower.

So there is no way a shielded OA will grow, the moment you are at step 3. I am still waiting for him to explain how that can happen.

 

[item2sell]

No I am saying the order is like that when it comes to withdrawal

1. SA interest
2. OA interest
3. SA
4. OA

So unless your plan is to only withdraw an amount that is equal to 1 + 2, your SA principal will be lower.

So there is no way a shielded OA will grow, the moment you are at step 3. I am still waiting for him to explain how that can happen.

this method obsoletes after year 2021

 

[vsvs24]

No I am saying the order is like that when it comes to withdrawal

1. SA interest
2. OA interest
3. SA
4. OA

So unless your plan is to only withdraw an amount that is equal to 1 + 2, your SA principal will be lower.

So there is no way a shielded OA will grow, the moment you are at step 3. I am still waiting for him to explain how that can happen.

Withdrawal rule changed from Jan 2022.

Now is simply SA balance then OA balance.

No more withdrawal of accrued interest before it is added to the SA and OA balance.

 

[aeng]

No I am saying the order is like that when it comes to withdrawal

1. SA interest
2. OA interest
3. SA
4. OA

So unless your plan is to only withdraw an amount that is equal to 1 + 2, your SA principal will be lower.

So there is no way a shielded OA will grow, the moment you are at step 3. I am still waiting for him to explain how that can happen.

dude, you're already wrong there.
what you stated is invalid.

withdrawal is from SA, then OA.

 

[Okenba]

No I am saying the order is like that when it comes to withdrawal

1. SA interest
2. OA interest
3. SA
4. OA

So unless your plan is to only withdraw an amount that is equal to 1 + 2, your SA principal will be lower.

So there is no way a shielded OA will grow, the moment you are at step 3. I am still waiting for him to explain how that can happen.

Doesn't matter.
Already explained above.
If you withdraw more than 1+2, yes, SA will be lower for shielded.
However, OA will also be lower for non-shielded. Much lower because there is less interest withdrawn and so more needs to come from OA principle.

So by the time SA is depleted, non-shielded OA will be lower than shielded OA.

Go and run the numbers.

 

[Okenba]

dude, you're already wrong there.
what you stated is invalid.

withdrawal is from SA, then OA.

Even with his wrong withdrawal method, 4% > 2.5%
Maths doesn't change because of withdrawal method.

 

[Guojing88]

Doesn't matter.
Already explained above.
If you withdraw more than 1+2, yes, SA will be lower for shielded.
However, OA will also be lower for non-shielded. Much lower because there is less interest withdrawn and so more needs to come from OA principle.

So by the time SA is depleted, non-shielded OA will be lower than shielded OA.

Go and run the numbers.

Yes, I see your point.

If you have the numbers, do present them. I want to see how much difference that really make

 

[aeng]

Yes, I see your point.

If you have the numbers, do present them. I want to see how much difference that really make

wle, please just DIY instead of ppl spoonfeeding u.
it's simple math.

 

[aeng]

wo shielding	OA	interest	SA	interest	total interest	withdrawal	total
55​	700,000.00	17,500.00	64,000.00	2,560.00	20,060.00	20,000.00	784,060.00
56​	717,500.00	17,937.50	46,560.00	1,862.40	19,799.90	20,000.00	783,859.90
57​	735,437.50	18,385.94	28,422.40	1,136.90	19,522.83	20,000.00	783,382.73
58​	753,823.44	18,845.59	9,559.30	382.37	19,227.96	20,000.00	782,610.69
59​	762,610.69	19,065.27	-	-	19,065.27	20,000.00	781,675.96
60​	761,675.96	19,041.90	-	-	19,041.90	20,000.00	780,717.86
61​	760,717.86	19,017.95	-	-	19,017.95	20,000.00	779,735.80
62​	759,735.80	18,993.40	-	-	18,993.40	20,000.00	778,729.20
63​	758,729.20	18,968.23	-	-	18,968.23	20,000.00	777,697.43
64​	757,697.43	18,942.44	-	-	18,942.44	20,000.00	776,639.86
65​	756,639.86	18,916.00	-	-	18,916.00	20,000.00	775,555.86

shielding	OA	interest	SA	interest	total interest	withdrawal
55​	554,000.00	13,850.00	210,000.00	8,400.00	22,250.00	20,000.00	786,250.00	2,190.00
56​	567,850.00	14,196.25	198,400.00	7,936.00	22,132.25	20,000.00	788,382.25	4,522.35
57​	582,046.25	14,551.16	186,336.00	7,453.44	22,004.60	20,000.00	790,386.85	7,004.11
58​	596,597.41	14,914.94	173,789.44	6,951.58	21,866.51	20,000.00	792,253.36	9,642.67
59​	611,512.34	15,287.81	160,741.02	6,429.64	21,717.45	20,000.00	793,970.81	12,294.85
60​	626,800.15	15,670.00	147,170.66	5,886.83	21,556.83	20,000.00	795,527.64	14,809.78
61​	642,470.15	16,061.75	133,057.48	5,322.30	21,384.05	20,000.00	796,911.69	17,175.89
62​	658,531.91	16,463.30	118,379.78	4,735.19	21,198.49	20,000.00	798,110.18	19,380.98
63​	674,995.21	16,874.88	103,114.98	4,124.60	20,999.48	20,000.00	799,109.66	21,412.23
64​	691,870.09	17,296.75	87,239.57	3,489.58	20,786.34	20,000.00	799,895.99	23,256.13
65​	709,166.84	17,729.17	70,729.16	2,829.17	20,558.34	20,000.00	800,454.33	24,898.47