CPF SA Shielding hack - RIP (Obsolete)

[kranjipioneer]

I used Nikko AM Shenton Short Term Bond SGD fund using FSMone.

Can refer to this :
https://secure.fundsupermart.com/fsm/funds/factsheet/370332/Nikko-AM-Shenton-Short-Term-Bond-SGD
Under Fund performance, can click on the icon Price History to view the past daily prices. Note that the prices do move up and down and there is risk of capital loss. So keep the shield period as short as possible by doing a trial run using the min allowed of $100 to iron out any issues.

From my personal experience, I would suggest to firstly work out the amount of SA that you can shield. Do your estimates of what would your SA be on your 55th birthday, then less $40,000 that cannot be invested. The SA that you shield must be of a reasonable figure otherwise it is not worth the effort. Work out how much more interest you can get annually if you were to shield SA (4% - 2.5% X SA shield amount) vs not shielding at all. Also make sure that your OA has enough funds such that the RA can be formed with FRS .

Thereafter, based on the estimated shield amount, start to work on the opportunity cost of shielding. Eg there are those who do not want any capital loss. So work out the opportunity cost of shielding using eg 6 mth tbill.

When I was 55 in Jan 2022, tbill yields was not high. 20 Jan 2022 issue of 6 mths Tbill cut off yield was only 0.48%. I looked at the Nikko AM Shenton Short Term Bond SGD fund prices for the last one year. It was quite stable initially, and started to get volitile from Dec 2021. So the risk of capital loss is real.

I did simulation of buy at highest price and sell at lowest price based on price history for last 1 month and last 1 week. This is quite extreme but just to have a gauge of the possible capital loss vs the extra interest earned per annum and whether it is worth the risk. Based on my estimate, capital loss based on 1 mth price worse scenario is $694 and 1 week worse scenario is $417. Loss of SA interest for 1 mth (because SA was returned within the same month) is $821. The extra interest earned for shielding SA is $2277 per year. So it works out to be still worth to do the SA shield as I would still have a overall nett gain in the first year alone, not to mention the extra interest for many more years to come.

The final capital loss I suffered was $134.59. Purchased on 17 Jan, sold on 24 Jan. CPF deducted with posting date 18 Jan. CPF return with posting date 26 Jan.

So do your sums first before deciding.

Sharing my own SA shielding experience via FSMOne investing in Nikko AM Shenton Short Term Bond SGD fund :

21-Apr (Thu) Buy @1.57203
22-Apr (Fri) CPF-SA deducted

27-Apr (Wed) Sell @1.57332
29-Apr (Fri) CPF-SA credited

 

[luei74]

Bookmark for reference

 

[kranjipioneer]

Excluding forgoing 7 days of CPF SA interests (when SA monies were with FSMOne), it was a positive transaction.
But its through sheer luck as we cannot control the final executed price when we buy/sell, based entirely on my birth date and trying to keep the shield period as short as possible.

 

[a4973]

Excluding forgoing 7 days of CPF SA interests (when SA monies were with FSMOne), it was a positive transaction.
But its through sheer luck as we cannot control the final executed price when we buy/sell, based entirely on my birth date and trying to keep the shield period as short as possible.

Confirm only forgo 7 days of interest? My understanding is CPF interest is calculated on the lowest balance in the month.

 

[andyhtc]

The compounding effect of 4% versus 2.5% is huge. Shielding looks attractive.

 

[kranjipioneer]

Confirm only forgo 7 days of interest? My understanding is CPF interest is calculated on the lowest balance in the month.

I didn't study that CPF part and only based on my own logical thinking. If what you said (based on the lowest amt for the month) is how CPF practised currently, then my CPF-SA interests for April is zero after entire SA balance is emptied (into RA) and before shield amount is returned back to CPF-SA.

 

[kranjipioneer]

I have zero amount in SA for few days after 40k is transferred to RA and before the shield money is returned to CPF-SA.
So lowest balance in SA for the month of April is $0 and therefore zero interests.

 

[lslsls]

please advise best way to shield
55 in Dec 2022
OA-138K
SA-242K
CPFIS-OA -58K
Cash -100K

 

[sohguanh]

please advise best way to shield
55 in Dec 2022
OA-138K
SA-242K
CPFIS-OA -58K
Cash -100K

You can scroll up and read experience for a few readers who have done it before. They are choosing FSMOne investing in Nikko AM Shenton Short Term Bond SGD. In particular vsvs24 Aug 11, 2022 post is full of info.

 

[luei74]

please advise best way to shield
55 in Dec 2022
OA-138K
SA-242K
CPFIS-OA -58K
Cash -100K

is your housing loan fully paid?

 

[dork32]

is your housing loan fully paid?

it does not matter if the home loan is paid. just shield. if no money to pay installment, just draw from sa to pay.

 

[dork32]

please advise best way to shield
55 in Dec 2022
OA-138K
SA-242K
CPFIS-OA -58K
Cash -100K

after shielding you should have
oa - 0
sa -202k
cpfis oa - 58k (assumed invested in something)
cash 46k
ra 192k

oa kena trap behind sa. no point keeping money in oa
now tbills 2.9%, oa 2.5%. tbills buy with cash a lot more convenient. no point using oa.

 

[sohguanh]

after shielding you should have
oa - 0
sa -202k
cpfis oa - 58k (assumed invested in something)
cash 46k
ra 192k

oa kena trap behind sa. no point keeping money in oa
now tbills 2.9%, oa 2.5%. tbills buy with cash a lot more convenient. no point using oa.

Can I check if I also have SA invested outside for many years so when form the RA they will not take from those correct? I read readers purposely use SA buy SA approved bond funds outside so for my case is all along it is already invested outside so just want confirmation when they form the RA at age 55 they cannot touch my SA that is invested outside. Logical ?

 

[sohguanh]

Yes. If they can touch SA investments, then no one will be shielding SA.

Your SA investments earning more than 4% ?

If you follow in the other thread there is in times of bull market but now I stop DCA. Go FSMOne Fund Selector select SA approved funds. There is 1-2 that beat 4% slightly over 10 years period.

 

[BBCWatcher]

it does not matter if the home loan is paid. just shield. if no money to pay installment, just draw from sa to pay.

Yes, that makes perfect sense provided SA can be withdrawn on demand. And that'll require an adequately funded RA. If RA isn't funded sufficiently then there's a withdrawal constraint.

after shielding you should have
oa - 0
sa -202k
cpfis oa - 58k (assumed invested in something)
cash 46k
ra 192k
oa kena trap behind sa. no point keeping money in oa
now tbills 2.9%, oa 2.5%. tbills buy with cash a lot more convenient. no point using oa.

Yup, you're assuming some cash is used to boost RA to the Full Retirement Sum. (It could be boosted beyond that if desired.) That would "liquify" SA.

Given current market interest rates it'd probably be a good idea for a spouse to transfer his/her OA dollars into the new RA to get it funded that way instead of using cash. That's assuming there's a spouse with OA dollars that can be transferred. Situations vary.

Can I check if I also have SA invested outside for many years so when form the RA they will not take from those correct? I read readers purposely use SA buy SA approved bond funds outside so for my case is all along it is already invested outside so just want confirmation when they form the RA at age 55 they cannot touch my SA that is invested outside. Logical ?

Yep, CPF Investment Scheme (SA) dollars are already "shielded."

In the past it might've made sense for some people to "double shield," meaning they also shield their OA balances just before their 55th birthdays. That'd mean their new RA gets funded to $60,000 ($40,000 from SA, $20,000 from OA), and then they'd quickly make a large cash top up to RA to get it up at least to the Full Retirement Sum (and "liquify" their SA and OA but keep those dollars parked for a while). However, given that even ordinary 6 month T-bills are yielding more than OA it's probably not a great idea to shield OA any more. I suppose it depends on your interest rate forecast. You might forecast that OA's 2.5% floor rate will be attractive enough again fairly soon, and for some time. It's up to you, of course.

 

[sohguanh]

In the past it might've made sense for some people to "double shield," meaning they also shield their OA balances just before their 55th birthdays. That'd mean their new RA gets funded to $60,000 ($40,000 from SA, $20,000 from OA), and then they'd quickly make a large cash top up to RA to get it up at least to the Full Retirement Sum (and "liquify" their SA and OA but keep those dollars parked for a while). However, given that even ordinary 6 month T-bills are yielding more than OA it's probably not a great idea to shield OA any more. I suppose it depends on your interest rate forecast. You might forecast that OA's 2.5% floor rate will be attractive enough again fairly soon, and for some time. It's up to you, of course.

I invest both my OA and SA so I don't think I need to "double shield" in your explanation. As long as OA invest outside is > 2.5 and SA invest outside > 4 that is all it matters. Since they both cannot be touched when they form RA at age 55 I don't think I need to do any shielding.

Just to share to those investing outside with OA,SA it can be done (as in beat the 2.5 and 4) just need to pick the correct funds (only OA,SA approved funds). Pick the equities fund for more returns or at least balanced fund else just leave it inside OA,SA don't waste time and energy.

 

[BBCWatcher]

I invest both my OA and SA so I don't think I need to "double shield" in your explanation.

You're "double shielded" already.

But you ought to fund your RA "adequately," preferably in your 55th birthday month when your RA is formed. Otherwise you cannot withdraw much (or anything) from CPF to support your retirement. I'd give some thought to that question as you get near age 55.

 

[sohguanh]

You're "double shielded" already.

But you ought to fund your RA "adequately," preferably in your 55th birthday month when your RA is formed. Otherwise you cannot withdraw much (or anything) from CPF to support your retirement. I'd give some thought to that question as you get near age 55.

Sorry I am not inclined to your thinking to fund RA more. All I want to is to meet the "law" requirement and then I want to take my CPF monies out at age 55. My family at least my dad side have short life never cross age 65 so I think I may follow same so why go and fund RA and let other ppl enjoy my hard earned monies?

 

[lslsls]

is your housing loan fully paid?

fully paid

 

[BBCWatcher]

Sorry I am not inclined to your thinking to fund RA more. All I want to is to meet the "law" requirement and then I want to take my CPF monies out at age 55.

OK, but since you're "double shielded" your RA will presumably be funded at $60,000 (or maybe a bit more) when you turn 55. That's not enough if you then want to make any withdrawals. You'll need substantially more than that in your RA to release all your other funds. It'll need to be at least the Basic Retirement Sum (with property pledge/charge).

My family at least my dad side have short life never cross age 65 so I think I may follow same so why go and fund RA and let other ppl enjoy my hard earned monies?

Well if you're reasonably sure you're going to die before age 70 then you probably ought to inject as much cash as you possibly can into your RA. That's because it'll earn 4.0% interest (or more) until you die. Your heirs (CPF nominees) will then inherit all of it, including all that lovely interest.