CPF SA Shielding hack - RIP (Obsolete)

[BBCWatcher]

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)?

You really should make this (first) decision at age 55 while your SA is "shielded." That provides an opportunity to transfer your own OA dollars (if you have some left) to RA without touching your SA dollars. Self-to-self transfers to RA draw from SA first, so it's best to perform any such transfers while the SA "shield" is in place so that you're drawing from OA, not SA.

However, if you're increasing your RA above the FRS using OA transfers from someone else (such as a spouse -- and you can return the favor when your spouse gets a Retirement Account) and/or cash then that works with or without a SA "shield" in place.

As you point out if you make this move as early as possible (within your 55th birthday month) then you earn as much RA interest as possible. Moreover, every time the ERS is raised you can add more funds to your RA if you wish, with the caveat above that self-to-self transfers to RA draw from SA first.

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?

Yes. However, your future CPF LIFE payouts will still be much higher in that event. Instead of BRS-level payouts you'll enjoy FRS-level payouts. (And even a little more than that because of the additional ERS-based interest you've accumulated that stays in RA and compounds.) Thus your ability to afford the same RA withdrawal improves because you're not taking your CPF LIFE income down as far into poverty income. Reducing $1,000 per month to $500 per month is a LOT more painful than reducing from $1,450 to $1,000. (Not the real numbers, but that's the basic point.)

That said, I would not worry about RA withdrawals at all. It's kind of silly IMHO. You're shielding SA at age 55, and (once your RA reaches the FRS) you have lots of SA (and maybe even more OA) you can withdraw in a lump sum in any increment at any time. And then you want to worry about how much you can also withdraw from RA (and of course reduce your CPF LIFE income down into poverty income levels)? Seems odd! But OK, sure, if it helps you sleep at night, yes, you can still withdraw exactly the same number of RA dollars whether you fund your RA to the FRS or ERS.

 

[royalmix]

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!

You really should make this (first) decision at age 55 while your SA is "shielded." That provides an opportunity to transfer your own OA dollars (if you have some left) to RA without touching your SA dollars. Self-to-self transfers to RA draw from SA first, so it's best to perform any such transfers while the SA "shield" is in place so that you're drawing from OA, not SA.

However, if you're increasing your RA above the FRS using OA transfers from someone else (such as a spouse -- and you can return the favor when your spouse gets a Retirement Account) and/or cash then that works with or without a SA "shield" in place.

As you point out if you make this move as early as possible (within your 55th birthday month) then you earn as much RA interest as possible. Moreover, every time the ERS is raised you can add more funds to your RA if you wish, with the caveat above that self-to-self transfers to RA draw from SA first.

Yes. However, your future CPF LIFE payouts will still be much higher in that event. Instead of BRS-level payouts you'll enjoy FRS-level payouts. (And even a little more than that because of the additional ERS-based interest you've accumulated that stays in RA and compounds.) Thus your ability to afford the same RA withdrawal improves because you're not taking your CPF LIFE income down as far into poverty income. Reducing $1,000 per month to $500 per month is a LOT more painful than reducing from $1,450 to $1,000. (Not the real numbers, but that's the basic point.)

That said, I would not worry about RA withdrawals at all. It's kind of silly IMHO. You're shielding SA at age 55, and (once your RA reaches the FRS) you have lots of SA (and maybe even more OA) you can withdraw in a lump sum in any increment at any time. And then you want to worry about how much you can also withdraw from RA (and of course reduce your CPF LIFE income down into poverty income levels)? Seems odd! But OK, sure, if it helps you sleep at night, yes, you can still withdraw exactly the same number of RA dollars whether you fund your RA to the FRS or ERS.

Agate88, DYODD - do your own due diligence. His replies makes sweeping assumptions/logical fallacies! Your brother has to "pawn" his qualified property! It is a long story, I am not free to write now.

 

[Okenba]

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.

At 55, your main task it to decide how much to put into RA. CPF will automate filling up RA to FRS (2x BRS), but you can top that up to ERS (3x BRS). The more you top up, the more your CPF life payout will be.

At 65, (or you can wait until 70), you decide what CPF life plan you want to be on, then your RA is used for that particular plan and you are subequently paid out according to that plan.

You can withdraw from RA, though I think there are certain limits and conditions you may have to meet, but I don't intend to so I've never really read up on that. If you are concerned that you may not have enough for yourself, perhaps keep it in SA? And then when you feel more comfortable, move the monies to your RA.


The choice of withdrawal of OA really depends on the individual.
If you think risk-free 2.5% pa is good for you, then by all means leave it in OA.
If you aspire for your money to earn more, or have a plan on what to do with it, then you can withdraw.

Generally, if you are the type that doesn't want to bother with investing your money, and have enough such that you do not need your OA monies for your own expenditure, you probably might as well just leave it in OA. (tbh, with Fixed Deposits, t-bills, SSB, there are various instruments that can probably earn you more than 2.5%, but interest rates may not always be favourable over the long term, and all of these require more effort than leaving it in OA and just forgetting about it...)

It isn't really a critical choice in the sense that you can always withdraw later. (Under certain conditions.)
The advice to withdraw at 55 is under the assumption that you are already shielding SA, which meets one of the conditions for OA withdrawal, so you might as well capitalise on that and withdraw OA too.

If you withdraw later, you either
a) Withdraw all SA first before you can withdraw OA.
b) Shield SA again so that you can withdraw 40k from SA and rest of OA. (This also goes to show that you can't repeatedly use this trick as every time you do so, you 'waste' 40k from SA.)
c) Use the CPFIS to buy shares with OA and close your investment account so they transfer your shares to your CDP. (I am really not familiar with this so do ask someone else if this is something you intend.)

 

[BBCWatcher]

Agate88, DYODD - do your own due diligence. His replies makes sweeping assumptions/logical fallacies!

If you have a specific objection to anything I wrote then just quote the text you disagree with and explain why you disagree with it.

Your brother has to "pawn" his qualified property!

He always has to "pawn his qualified property" to make a (large) lump sum withdrawal from RA. Whether he increases his RA above the FRS or not. That's called a property pledge (or having a property charge in place). The question was whether he can withdraw funds from his RA at all, and how much. The answer is yes, and the same amount. And exactly the same withdrawal rules apply, including the requirement to have a property pledge/charge.

It is a long story, I am not free to write now.

It's not a long story. I just wrote it. And if you don't have sufficient time to offer constructive information then just come back later when you do have time. This forum isn't the Singapore General Hospital A&E department. This brother isn't celebrating his 55th birthday until later in 2024.

 

[BBCWatcher]

We should note that Special Account "shielding" is a currently available option. There's no guarantee that this option will be available tomorrow or at some other point in the future. The CPF Board can change CPF Investment Scheme rules as it deems fit.

 

[BBCWatcher]

Top up to RA are not reversible.

True.

So you can't top up to ERS and later change your mind and want to go back to FRS.

Not true, not as you've written it. The top up/transfer to RA (from FRS to ERS) doesn't change the amount you can withdraw from RA (equal to the BRS typically). Withdrawing an amount equal to the BRS knocks you back down to the FRS. (Approximately. The interest stays put, as always. And there's more RA interest when at the ERS.)

You can topup your RA anytime upto the current year's ERS, even after 55.

Yes, but you can't claim RA interest for the current and prior months. If the RA interest is attractive it pays to boost the RA balance earlier if otherwise reasonable to do.

Whether to topup RA to ERS depends on whether higher CPF life payout is more important or being able to withdraw anytime you want is more important.

The top up/transfer funds cannot withdrawn in a lump sum. But any other preexisting RA withdrawal options you have are either the same or (if starting below the FRS) improved.

CPF Board allows 20% of RA to be withdrawn at age 65. Amount is calculated based on some rules. Can read this article. Other than this, RA can only be withdrawn via CPF life via monthly payout.

No, you can (usually) withdraw more with a property pledge/charge.

So those who value liquidity more will just have RA at FRS and keep the excess in SA and OA which can be freely withdrawn.

It depends on the source of funds used for the RA top up/transfer and the circumstances. For example, it seems correct to say that a 35 year old member who transfers his/her OA dollars to his/her 85 year old spouse's RA has improved the household liquidity of those particular dollars.

I personally think liquidity is more important especially when we age.

Liquidity is important, but so is not being forced to live on a poverty income (or worse). I'm mystified why people with hundreds of thousands of dollars of CPF liquidity alone would worry about a BRS amount of liquidity, especially when it's so often possible to use fairly illiquid and/or "trapped" funds (OA dollars) to effect the RA increase. And nobody seems so worried about liquidity when they buy resale HDB flats -- and pay off 3.X% or 2.6% mortgages on them faster than required. Adequate liquidity is what you need.

Imagine something unpredictable happen and you need cash. You have a lot of money in RA yet you cannot touch it and can only draw down monthly bit by bit after age 65.

Nothing changes in terms of RA withdrawal options when you top up a RA, except perhaps an increase in RA withdrawal options (if you're starting below the FRS).

Also imagine you have to survive in Singapore for the rest of your life on poverty income. Kind of a problem!

On the same reasoning, CPF Board can change any rules. Including lump sum withdrawal of RA by pledging or even CPF life.

True, but it's reasonable to infer from the CPF Board's statements that SA shielding is at more risk of rule changes than other aspects.

 

[royalmix]

1) Do one need to make a decision on whether to go for ERS by 55yo? NO Or any time before 65yo (disregarding the benefits of higher Interest)? NO, as long as he is alive and can click the topup button showing amount allowed. You also need to understand choice of CPF Life Plans and what happens to topups once CPF Life Plan is chosen.

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? NO, unless your brother "pawn'' his qualified property to CPFB. Not his objective right?

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

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! YES
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! YES

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

Answers as you like it, YES/NO bolded above.

 

[BBCWatcher]

I'll repeat since at least one portion of the previous answer is misleading. To withdraw up to an amount equal to the Basic Retirement Sum (BRS) from a CPF Retirement Account you must have a property pledge or property charge in place. Adding funds to a Retirement Account that starts at the Full Retirement Sum to boost it above the Full Retirement Sum (to the ERS for example) does not in any way affect this withdrawal option from RA. The withdrawal option remains available, in the same amount (up to the BRS), and with the same conditions (property pledge or property charge).

If you're upset about "pawning" your house to make a large lump sum withdrawal from your RA then you're already upset whether you fund your RA at the FRS, ERS, or anywhere in between.

Also, all dollars in RA earn RA interest for all whole months they are on account.(*) That includes all dollars above the FRS. Both principal and interest contribute to future CPF LIFE payouts.

(*) Transferred OA dollars might do even a bit better, earning the higher RA interest rate even for the month when the transfer occurs.

 

[Agate8]

@BBCWatcher @royalmix @vsvs24 @Okenba

You guys/gals are amazing!! I would like to Thank you all for not only replying but putting time to type out so much and sharing your knowledge!

Thank You!!!

ps. i hope when my turn comes (>10yrs) to prepare for my cpf shielding, it's still viable!

 

[BrandonnC]

I always subscribed to topping up to ERS to make use of the 4% to compound interest.
But looking at the likely next decade of high interest environment (I stand corrected), it may not be so worth it to top up to ERS and have the money locked up for a marginal difference in RA interest as compared to what one can gain outside the cpf system.
Hence I am having second thoughts of topping up ERS.
Any views?

 

[rizhal]

I always subscribed to topping up to ERS to make use of the 4% to compound interest.
But looking at the likely next decade of high interest environment (I stand corrected), it may not be so worth it to top up to ERS and have the money locked up for a marginal difference in RA interest as compared to what one can gain outside the cpf system.
Hence I am having second thoughts of topping up ERS.
Any views?

I have a question, in event the external interest goes weak, could I request changing to ERS (& top up) when I choose FRS at 55 ?

 

[BBCWatcher]

I always subscribed to topping up to ERS to make use of the 4% to compound interest.
But looking at the likely next decade of high interest environment (I stand corrected), it may not be so worth it to top up to ERS and have the money locked up for a marginal difference in RA interest as compared to what one can gain outside the cpf system.
Hence I am having second thoughts of topping up ERS.

1. How do you know there will be a “next decade of high interest environment”? And is now even a high interest environment? Not so much. There were much higher Singapore dollar interest rates in the past.

2. CPF interest rates, including the RA rate, are pegged to market rates but with a floor. That’s why the SA and MA rates this quarter are 4.01%, one basis point above the floor. (RA is recomputed less frequently, but it is recomputed.) SA, MA, and RA rates are pegged to a benchmark Singapore Government Security rate. These rates will go up right along with the benchmark SGS rate. With a lag, but they do move if they need to.

3. I’m not aware of any other vehicle that offers the asset protection benefits of CPF. If you’re sued into financial oblivion the one common exception will be whatever you have on account in CPF. And considering even ERS-level CPF LIFE income won’t support a luxurious lifestyle (far from it) I’m not worried about stuffing “too many” dollars into CPF. Within reason.

I have a question, in event the external interest goes weak, could I request changing to ERS (& top up) when I choose FRS at 55 ?

You can top up a CPF Retirement Account any time you wish. Even at age 96. The limit is the then current ERS.

 

[royalmix]

I always subscribed to topping up to ERS to make use of the 4% to compound interest.
But looking at the likely next decade of high interest environment (I stand corrected), it may not be so worth it to top up to ERS and have the money locked up for a marginal difference in RA interest as compared to what one can gain outside the cpf system.
Hence I am having second thoughts of topping up ERS.
Any views? It is triple the benefits if you leave it at FRS: Make hay while the sun shine! 1. If you are still working, you get to claim tax relief if you topup every year to the current FRS! 2. Take advantage of better opportunities to earn more than 4%pa outside CPF. 3. Liquidity for any needs and another source of retirement funds/income anytime you need to enjoy it!

See my comments above (bold)

 

[BBCWatcher]

1. is . I forgot about the tax relief advantage of keeping at FRS

Well, about that...

The Basic Healthcare Sum increased $2,500 between 2022 and 2023. It will presumably increase at least $2,500 on January 1, 2024. (I wouldn't bet against a bit more.) You also typically have MediShield Life, Integrated Shield, and even CareShield Life premiums deducted from MediSave — perhaps for the whole household. Plus any MediSave payable medical expenses. Add that all up and you've grabbed at least a nice chunk of the $8,000 of tax relief (for self) potentially available.

Note your BHS is fixed at the BHS when you celebrate your 65th birthday. But if you're retired by age 65 then presumably you don't have much (or any) taxable income and thus no tax relief opportunity. Also, there's an overall tax relief limit of $80,000. If you're already getting $80,000 of tax relief otherwise then RA-related tax relief isn't available.

If you leave your Retirement Account at the Full Retirement Sum then you're really only adding the amount of CPF-related tax relief than you cannot grab via MediSave. And that's at least much less than $8,000. You would then weigh your tax relief estimate — let's suppose that's $3,000 — against the benefits of increasing your RA to the Enhanced Retirement Sum, or closer to the ERS. And those benefits are considerable: above market rate interest (yes, even now) and asset protection. For example, if you're in the 7% tax bracket then $3,000 of tax relief would yield $210. The interest on $99,400 (equivalent to the difference between the ERS and FRS in 2023) is $3,976 at the 4.0% floor rate. If you subtract $210 from $3,976 then you get $3,766. That's equivalent to 3.79% interest. Which is still really rather good even today! Adjust your estimate per your situation, but that's the basic idea.

 

[BBCWatcher]

I am determined to have RA at FRS for liquidity.

What do you mean? Are you short of liquidity? Oversimplifying only slightly that means you expect to be "poor" at age 55+, correct?

If for example depositing $99,400 (or some lesser sum — you can pick any value between the FRS and ERS) drops your liquidity from $5,000,000 to $4,900,600 then I'm going to ask, "What the heck are you worried about?" If depositing $99,400 drops your liquidity from $99,400 to $0, OK, fair enough, maybe you worry about that. So which is it, broadly speaking?

Note also that spouses and other qualified family members can often transfer OA dollars into RA. But you can't transfer OA dollars into MediSave. That is to say you're not required to deposit liquid cash into a RA in order to raise it above the FRS. You (a family member) can often use relatively illiquid OA dollars. I'm a fan of cross-spousal OA to RA/SA transfers since they can make a lot of sense financially.

Also keep in mind that pegging your MediSave Account at the BHS generates some more liquidity from compulsory CPF contributions at age 55+. That's because the portion of compulsory contributions that ordinarily would flow into MA actually bounces over to OA. And there it's liquid again, albeit "gated" by SA (and with the usual "tricks" to withdraw OA dollars ahead of SA dollars if you're so inclined).

And finally it's not like ERS-level CPF LIFE is lavish, and you still gotta eat at age 65+. It seems a bit silly in most "Money Mind" scenarios to worry about liquidity in relation to still pauper-like retirement income levels. I find that really confusing, actually, and wonder if y'all are as wealthy as you claim.

But good to know can take advantage of the yearly FRS increase (and yearly medisave limit increase) for tax relief.

Yearly BHS increase I think you mean (up until you're 65 when your BHS is fixed), plus all MediSave deductions (insurance premiums and medical services). And you should use MediSave to pay eligible medical bills when you'll then swoop in with cash to claim tax relief.

 

[BBCWatcher]

I like to have control over my money

Sure, so do I. However, it needs to be effective control — actually actionable. Do you really have effective, actionable liquidity if you'd be pauperizing yourself for the rest of your life to exercise it? I don't think so. So I'm not shy about nailing down a survival income for life. Then the rest really is, in fact, liquid.

 

[Okenba]

Thanks.

I am determined to have RA at FRS for liquidity. But good to know can take advantage of the yearly FRS increase (and yearly medisave limit increase) for tax relief.

I like having the option of tax relief not only for myself but also for my loved ones to utilise.
My kids can top up my RA and get tax relief for it.

 

[BBCWatcher]

I like having the option of tax relief not only for myself but also for my loved ones to utilise.
My kids can top up my RA and get tax relief for it.

It's not that big. Between 2022 and 2023 the Full Retirement Sum increased a mere $6,800. With only 2 kids (the minimum number to get a plural "kids") that's a maximum of only $3,400 of tax relief per kid. So maybe $3,600 per kid next year? Something like that. And then you can't fill that gap yourself (to win your own tax relief) because this $6,800 gap is shared.

In exchange for holding open this minor bit of possible incremental tax relief you lose out on (at least) 4.0% interest on an amount equivalent to the BRS, plus ERS boosts thereafter. I don't think that's a great trade, not even at current market interest rates (6 month T-bills for example).

 

[Okenba]

It's not that big. Between 2022 and 2023 the Full Retirement Sum increased a mere $6,800. With only 2 kids (the minimum number to get a plural "kids") that's a maximum of only $3,400 of tax relief per kid. So maybe $3,600 per kid next year? Something like that. And then you can't fill that gap yourself (to win your own tax relief) because this $6,800 gap is shared.

2 kids can top up for me and my spouse. So its still $6.8k per kid.
Also, it gets larger over the years. It outstrips the $8k ceiling pretty fast I think. Though by then, the ceiling will probably be raised too.

In exchange for holding open this minor bit of possible incremental tax relief you lose out on (at least) 4.0% interest on an amount equivalent to the BRS, plus ERS boosts thereafter. I don't think that's a great trade, not even at current market interest rates (6 month T-bills for example).

It depends on what you're comparing it to isn't it?
Even in SA, that's an equivalent 4%.
Some might argue that they can get more than that too.

i don't think its an outright clear decision one way or another.
Really depends on many circumstances.
- Liquidity outside of CPF
- General expenditure.
- Life expectancy.
- Level of financial knowledge
- Relationship with kids
- Kids' levels of wealth and financial literacy
etc

I guess that's why it's called personal finance.

 

[GrandJedi]

Must I pay any charges/platform fee using Fundsupermart to buy Nikko AM Shenton for SA Shielding?