CPF SA Shielding hack - RIP (Obsolete)

[Andrew833]

Can try to check with CPF Board but they are likely to ask you to check with the bank.

They could not advise me on transfer of tbills and ask me to check with agent bank DBS. But then I was one of the earliest batch of people to use OA to buy Tbills.

Maybe can also check with them if it is possible to transfer only tbills and SGX stocks over and leave the unit trust in CPFIA (assuming you are OK with this). If they ask why transfer the rest can just say so that no need to keep paying charges and easier for rights issue if stocks are in CDP.

Thanks

 

[Agate8]

Am seeking an recommendation/opinion/suggestion on behalf of a senior who's approaching 55yo, on what/how to use/shield CPF OA. Looking att the past posts, I guess CPFIA (OA) & property are some options.

Some info:
#Property investment/Unit Trust are not considered for now
#frs achieved

Looking for investments (spread) which pay dividends at least annually. Can be long term 10-20yrs.

Would like some suggestion/options to "shield" S$400K in OA please?

 

[BBCWatcher]

You really mean OA, not SA? Because this soon to be 55 year old is going to fund her/his RA with more cash, perhaps for asset protection reasons?

 

[Okenba]

Am seeking an recommendation/opinion/suggestion on behalf of a senior who's approaching 55yo, on what/how to use/shield CPF OA. Looking att the past posts, I guess CPFIA (OA) & property are some options.

Some info:
#Property investment/Unit Trust are not considered for now
#frs achieved

Looking for investments (spread) which pay dividends at least annually. Can be long term 10-20yrs.

Would like some suggestion/options to "shield" S$400K in OA please?

You seem to have 2 separate and contrasting questions.
A long term (10-20yr) investment that pays annual dividends isn't usually what people look for to shield their OA.
People look for short term investments (1 month or less. Maybe 6mths for t-bills) that are stable and (ideally) capital guaranteed.

 

[polyglob]

Am seeking an recommendation/opinion/suggestion on behalf of a senior who's approaching 55yo, on what/how to use/shield CPF OA. Looking att the past posts, I guess CPFIA (OA) & property are some options.

Some info:
#Property investment/Unit Trust are not considered for now
#frs achieved

Looking for investments (spread) which pay dividends at least annually. Can be long term 10-20yrs.

Would like some suggestion/options to "shield" S$400K in OA please?

So after shielding OA, the picture is intended to look like this?

RA = FRS
SA = whatever amount, assuming SA also to be shielded
OA = as close to zero as possible

What is the rationale to shield OA?

If the idea is to earn cash dividends from investing OA, I dunno that's how it works, would like to hear from people who've shielded OA. Under CPFIS, CPF investment returns go back to CPF account.

 

[dork32]

So after shielding OA, the picture is intended to look like this?

RA = FRS
SA = whatever amount, assuming SA also to be shielded
OA = as close to zero as possible

What is the rationale to shield OA?

If the idea is to earn cash dividends from investing OA, I dunno that's how it works, would like to hear from people who've shielded OA. Under CPFIS, CPF investment returns go back to CPF account.

Shield oa only when you feel that the oa 2.5% is good.

all schemes under cpfis can be done using cash. no point going thru cpfis and let bank charge a fee for it.

oa kena stuck behind sa, not easy to withdraw all

 

[Agate8]

You seem to have 2 separate and contrasting questions.
A long term (10-20yr) investment that pays annual dividends isn't usually what people look for to shield their OA.
People look for short term investments (1 month or less. Maybe 6mths for t-bills) that are stable and (ideally) capital guaranteed.

Ok am sorry. I probably dont understand the concept of shielding here.

Pai seh!

My family member who's going to cross the 55yo mark and is think of what to do with the OA balance. To withdraw and invest (=>2.5%) or just keep it in OA (2.5%) and use to invest to enjoy >2.5% returns and when close the investments the funds are return to OA for 2.5% interest.

 

[Agate8]

So after shielding OA, the picture is intended to look like this?

RA = FRS
SA = whatever amount, assuming SA also to be shielded
OA = as close to zero as possible

What is the rationale to shield OA?

If the idea is to earn cash dividends from investing OA, I dunno that's how it works, would like to hear from people who've shielded OA. Under CPFIS, CPF investment returns go back to CPF account.

Maybe i rephrase my points here and hope its clearer. My Snr CPF position is:

SA = FRS (this goes to RA down the road, balance is like ~$1-2K then, so no need to consider this account)

OA = $400K (i believe he can withdraw $400K?)

Snr financial position is, he does require to use the money for the next 10-20yrs (base on all things constant lah). So....

1) Either withdraw OA $400K and put in some shares or SSB or ..... and just enjoy the "dividends pay out"!
2) Leave it in OA $400K and use CPFIA/IS (not sure which one) and invest it and enjoy the "dividends payout" and when the Shares sold or bonds matures, the funds goes back to OA (2.5%).


Base on suggestion, in future the difference (i assume) is the "fall back" plan aka worst case scenero when stocks sold or matures, #2 has a minimum interest of 2.5% when it goes back to OA against #1 (which would prob fall to old bank retail interest rates <2.5%) . I hope i articulate my thoughts better then before.

Not sure if my intent can be considered CPF "Shielding" (2.5%) or leveraging or "Choping"?

Ps, Snr doesnt plan to use any of the above OA funds for daily necessities!

Am not a financial savy so i thought i look into this thread for some suggestion. Am just trying to offer alternative plans to Snr on the viability of CPF OA to my Snr.

Appreciate your suggestion or creative ideas on this.

 

[Okenba]

Ok am sorry. I probably dont understand the concept of shielding here.

Pai seh!

My family member who's going to cross the 55yo mark and is think of what to do with the OA balance. To withdraw and invest (=>2.5%) or just keep it in OA (2.5%) and use to invest to enjoy >2.5% returns and when close the investments the funds are return to OA for 2.5% interest.

FRS next year is $205,800.
You mentioned senior would use SA to fund RA up to FRS, leaving $1-2k left in SA.
(So about 207k say)
And then he has to decide what to do with OA of about $400k.

Shielding is the process of putting most of your SA into investments so that your RA is funded mostly by OA instead of SA.

For example, senior could buy t-bills with SA before his 55 birthday. RA would then be funded by remaining SA (40k) and then from OA (205.8k - 40k = 165.8k).

So his RA would then have FRS of 205.8k
SA would have 207k - 40k = 167k
OA would have 400k - 165.8k = 234.2k

SA would earn 4% PA.
OA can be immediately withdrawn (while SA is still in t-bills) for investment purposes.

His remaining monies would still be roughly 400k, but with significantly more remaining in SA where it earns a risk free 4% pa.
This is the benefit of shielding.

 

[BBCWatcher]

A further variation is that it's possible to transfer additional OA dollars to RA, up to the Enhanced Retirement Sum (ERS) if desired. That could be a spouse's or other qualified family member's OA dollars, one's own OA dollars (while SA is still shielded), or some of both.

 

[Agate8]

FRS next year is $205,800.
You mentioned senior would use SA to fund RA up to FRS, leaving $1-2k left in SA.
(So about 207k say)
And then he has to decide what to do with OA of about $400k.

Shielding is the process of putting most of your SA into investments so that your RA is funded mostly by OA instead of SA.

For example, senior could buy t-bills with SA before his 55 birthday. RA would then be funded by remaining SA (40k) and then from OA (205.8k - 40k = 165.8k).

So his RA would then have FRS of 205.8k
SA would have 207k - 40k = 167k
OA would have 400k - 165.8k = 234.2k

SA would earn 4% PA.
OA can be immediately withdrawn (while SA is still in t-bills) for investment purposes.

His remaining monies would still be roughly 400k, but with significantly more remaining in SA where it earns a risk free 4% pa.
This is the benefit of shielding.

(Bold) Ahhh... I got it now. Thanks!

Will share this with Snr.

Snr have applied for CPF IA with OCBC, can this be use for "investment" from SA or need a separate application!

 

[Agate8]

A further variation is that it's possible to transfer additional OA dollars to RA, up to the Enhanced Retirement Sum (ERS) if desired. That could be a spouse's or other qualified family member's OA dollars, one's own OA dollars (while SA is still shielded), or some of both.

Transfering more OA funds to RA is for one who wants to upsize FRS to ERS (ie FRS X2) right?

what's in RA cant be withdrawn before 65yo if change of mind (eg downgrade from EFS > FRS > BRS) am i right? 1 way street?

 

[Froggyman]

Maybe i rephrase my points here and hope its clearer. My Snr CPF position is:

SA = FRS (this goes to RA down the road, balance is like ~$1-2K then, so no need to consider this account)

OA = $400K (i believe he can withdraw $400K?)

Snr financial position is, he does require to use the money for the next 10-20yrs (base on all things constant lah). So....

1) Either withdraw OA $400K and put in some shares or SSB or ..... and just enjoy the "dividends pay out"!
2) Leave it in OA $400K and use CPFIA/IS (not sure which one) and invest it and enjoy the "dividends payout" and when the Shares sold or bonds matures, the funds goes back to OA (2.5%).


Base on suggestion, in future the difference (i assume) is the "fall back" plan aka worst case scenero when stocks sold or matures, #2 has a minimum interest of 2.5% when it goes back to OA against #1 (which would prob fall to old bank retail interest rates <2.5%) . I hope i articulate my thoughts better then before.

Not sure if my intent can be considered CPF "Shielding" (2.5%) or leveraging or "Choping"?

Ps, Snr doesnt plan to use any of the above OA funds for daily necessities!

Am not a financial savy so i thought i look into this thread for some suggestion. Am just trying to offer alternative plans to Snr on the viability of CPF OA to my Snr.

Appreciate your suggestion or creative ideas on this.

It would be good if you could revisit on the purpose of shielding.
read again to understand the purpose of shielding.
seems like the idea of shielding the SA is not on your first priority.
hopefully I am wrong about it.

 

[Agate8]

It would be good if you could revisit on the purpose of shielding.
read again to understand the purpose of shielding.
seems like the idea of shielding the SA is not on your first priority.
hopefully I am wrong about it.

Now after understanding what SA shielding better! it is important for me when my turn comes! But i dread to find out what is the FRS amount is then!

@Okenba made it simpler for me to catch what you all been talking about when i was looking at different area. The goal posts keeps changing that i just tired of following till time comes.

I will show my elder bro this posts that Okenba wrote and i am sure he will be grateful and smile.

 

[Agate8]

Make sure your senior get access to OCBC internet banking. Need that to buy tbill to shield SA.

When is senior's 55th birthday ?

Next year 3rd quarter.

We were just talking over dinner last weekend and he asked my opinion on CPF matters. I have little knowledge since its still quite a decade +++ down the road! So i got into this forum to look look see see for tips!

He said he took the "test" and has CPFIA account with OCBC. Does he need to apply for another CPFIS/?? for investment of CPF SA?

 

[BBCWatcher]

Transfering more OA funds to RA is for one who wants to upsize FRS to ERS (ie FRS X2) right?

The ERS = FRS + 50%. Or the ERS = 3 * BRS if you prefer to think of it that way.

what's in RA cant be withdrawn before 65yo if change of mind (eg downgrade from EFS > FRS > BRS) am i right? 1 way street?

No, not entirely correct. Topping up to the ERS does not change any/all preexisting RA withdrawal options. The ERS top up/transfer itself must be paid out via CPF LIFE, that’s all. Of course those transferred dollars earn 4.0% interest (instead of 2.5% OA interest) then boost monthly retirement income for life and boost residuals for any/every age when residuals still apply. And since your CPF LIFE income is that much higher then it makes it easier to afford a RA withdrawal if need be, although I suggest you shouldn’t withdraw RA dollars if you can avoid it. Typically that’s a very expensive source of liquid cash.

3rd qtr of 2024. Tbill rates likely to be lower than now. Nevertheless still should shield SA. Maybe revisit 6 mths before birthday.

The bond unit trust-based method of SA shielding should be presumed as the default. T-bill yields are historically high right now, and that’s (historically anyway) rare. I agree we shouldn’t assume T-bill yields will be high next year. So get ready for the unit trust-based method.

However, 3Q2024 allows plenty of time to cycle OA dollars through a round or two of T-bills starting now. And they’re currently beating OA’s 2.5% interest, at least if the T-bill quantum is big enough. So that’s well worth doing now just to boost near-term OA performance.

 

[Okenba]

Now after understanding what SA shielding better! it is important for me when my turn comes! But i dread to find out what is the FRS amount is then!

@Okenba made it simpler for me to catch what you all been talking about when i was looking at different area. The goal posts keeps changing that i just tired of following till time comes.

I will show my elder bro this posts that Okenba wrote and i am sure he will be grateful and smile.

Generally for CPF matters:
Pre-55:
- Make use of top-ups to SA & MA for tax relief.
- If necessary, SRS will provide another source of tax relief.
- Make use of OA for investments if 2.5% is considered too low.

Just before turning 55:
- Invest as much of SA as possible (cannot invest last 40k) before 55th birthday to shield SA. Typically these are short term investments of less than a month to max 6 months.
- On 55th birthday, CPF will automatically fund your RA from SA first, and then OA. Since SA is invested, only 40k from SA will be used, and then OA.
- Once RA is funded to FRS, can consider withdrawing remaining OA. You can leave it in OA, but future withdrawals come from SA first, then OA. So some consider it better to just withdraw OA first and invest it outside of CPF. Otherwise, if you need to withdraw from CPF later, you will be withdrawing from higher yielding SA first.
- Once all that is done, return the SA investments to SA for guaranteed 4% yield.

After 55:
- Fund your retirement or discretionary expenses either from your OA withdrawals or SA (if your OA withdrawals are in long-term investments)
- You can also use OA or cash to continue to top-up your RA each year, which will result in higher subsequent CPF life payouts. For cash, so long as your RA's capital amount is below the FRS of that year, you (or family) can get tax relief from the top-up as well.

- At 62/63, you can start touching your SRS.
- 65-70 is when your CPF life payouts start.

 

[yuppieboy]

For me, shielding will allow me to withdraw a reasonable amount of pocket money to spend every year.

All I did was do a short term low risk investment using SA (e.g $250k) before 55. On 55, RA will be formed with FRS taken from OA (due to insufficient SA amt after the investment). After 55, terminate the SA investment, the full $250k will be back to SA earning 4%pa. (I.e About $10k interests per year).

Due to CPF ruling that any withdrawal after 55 will have to come from SA first followed OA, you can freely withdraw $10k interests rom SA to spend EVERY year without touching the principle amt of $250k inside SA.

With the $10k of extra pocket money to spend very year, why not?

 

[Agate8]

The ERS = FRS + 50%. Or the ERS = 3 * BRS if you prefer to think of it that way.

No, not entirely correct. Topping up to the ERS does not change any/all preexisting RA withdrawal options. The ERS top up/transfer itself must be paid out via CPF LIFE, that’s all. Of course those transferred dollars earn 4.0% interest (instead of 2.5% OA interest) then boost monthly retirement income for life and boost residuals for any/every age when residuals still apply. And since your CPF LIFE income is that much higher then it makes it easier to afford a RA withdrawal if need be, although I suggest you shouldn’t withdraw RA dollars if you can avoid it. Typically that’s a very expensive source of liquid cash.

The bond unit trust-based method of SA shielding should be presumed as the default. T-bill yields are historically high right now, and that’s (historically anyway) rare. I agree we shouldn’t assume T-bill yields will be high next year. So get ready for the unit trust-based method.

However, 3Q2024 allows plenty of time to cycle OA dollars through a round or two of T-bills starting now. And they’re currently beating OA’s 2.5% interest, at least if the T-bill quantum is big enough. So that’s well worth doing now just to boost near-term OA performance.

Noted on ERS amount!

1) Do one need to make a decision on whether to go for ERS by 55yo? Or any time before 65yo (disregarding the benefits of higher Interest)?

2) Let me rephrase my question regarding the "downgrade from ERS>FRS>BRS" question. If 1 commits at 55yo to go for ERS and down the years (say 58yo) decides to "downgrade" to FRS, ie withdraw the difference of ERS-FRS= $XXXK. Is this possible?

Pai seh, i know this is not CPF shielding related. If anyone knows the answer, short answer Yes/No will do. Thanks!

 

[Agate8]

Generally for CPF matters:
Pre-55:
- Make use of top-ups to SA & MA for tax relief.
- If necessary, SRS will provide another source of tax relief.
- Make use of OA for investments if 2.5% is considered too low.

Just before turning 55:
- Invest as much of SA as possible (cannot invest last 40k) before 55th birthday to shield SA. Typically these are short term investments of less than a month to max 6 months.
- On 55th birthday, CPF will automatically fund your RA from SA first, and then OA. Since SA is invested, only 40k from SA will be used, and then OA.
- Once RA is funded to FRS, can consider withdrawing remaining OA. You can leave it in OA, but future withdrawals come from SA first, then OA. So some consider it better to just withdraw OA first and invest it outside of CPF. Otherwise, if you need to withdraw from CPF later, you will be withdrawing from higher yielding SA first.
- Once all that is done, return the SA investments to SA for guaranteed 4% yield.

After 55:
- Fund your retirement or discretionary expenses either from your OA withdrawals or SA (if your OA withdrawals are in long-term investments)
- You can also use OA or cash to continue to top-up your RA each year, which will result in higher subsequent CPF life payouts. For cash, so long as your RA's capital amount is below the FRS of that year, you (or family) can get tax relief from the top-up as well.

- At 62/63, you can start touching your SRS.
- 65-70 is when your CPF life payouts start.

Wah!! You really spoil me!! Thank you so much!

Now all i need to do is ask him to go read himself.

I ask my bro to chai u chye peng and i chai u 2 kopi O sio-tai!

Regarding after 55yo: *
1) the topping up of RA, is just to upsize the CPF life payout only right? If no interest on ERS, then can just let RA sit!
2) If one dont require using OA funds, isnt it better to leave it in OA and do CPFIA investments since retail banking interest may possibly be lower in future!

*assuming all the family members are self-sufficient in their CPF portfolio.