CPF SA Shielding hack - RIP (Obsolete)

[koolkool]

Hi. I am reaching 55 years old in a few years' time. I am wondering if anyone also plan to do voluntary housing refund (VHR) just before reaching 55 with SA shielding? I am thinking of doing the housing refund to clear the amount in my OA used for my housing loan, including the accrued interest just before 55. I see some benefit in doing this, in the sense that my property is no longer paid with CPF and reset my accrued interest. Since I am reaching 55, I can withdraw the amount I refunded with VHR.

My plan:
1. A month before 55, do housing refund (VHR)
2. A month before 55, shield SA
3. At 55, CPF used mainly my OA to form FRS. Keep SA early higher interest in CPF.
4. Withdraw remaining OA, including what is being refunded to the OA from VHR. Keep a small amount in OA as buffer so my future OA contribution can cover the monthly repayment thereafter.
5. un-shield SA

Is this approach sound or it is not how I should interpret the VHR? Just want to be sure this is feasible as I don't seemed to see this discussed with SA shielding.

Some questions I have:
How long will it take for the housing refund to be in OA? Is 1 month a reasonable time? I presume the fund returned to OA is eligible for withdrawal?
After VHR, the financial institutions will treat the VHR amount as being paid by cash?

 

[BBCWatcher]

No, it’s not a good idea.

First of all, OA‘s 2.5% interest rate is terrible right now. Even 6 month T-bills are still yielding about 3.75%. Second, when you’re age 55+ and have funded your Retirement Account to the Full Retirement Sum, or higher, your property charge is moot. If/when you sell your home you can receive the entire net sales proceeds in cash if you wish. You’re no longer required to repay OA. So there’s no encumbrance. It’s purely an opportunity, not an obligation at that point. Third, you can get some tax relief if you’re able to fund your RA (somewhere below the FRS) using a bit of cash instead of OA. Fourth, OA repayment is literally the least attractive way to inject funds into CPF whenever you want to do that. Every other cash to CPF pathway yields higher interest. Fifth, why would you ever want to burn through any of your OA repayment “quota”? If OA’s 2.5% interest ever becomes attractive again, and after you’ve exhausted other better ways of injecting cash into CPF, THEN you can start consuming OA repayment “quota.” But funding a Retirement Account is not something you need OA dollars for. Cash works really well for any legal purpose, including RA funding — up to the Enhanced Retirement Sum if you wish.

 

[polyglob]

my property is no longer paid with CPF and reset my accrued interest.

After VHR, the financial institutions will treat the VHR amount as being paid by cash?

Can you elaborate why these matter?

Just treat CPF used for housing and accrued interest as you borrowing money from yourself. No need to pay back.

If you sell your property, yes those amounts have to go back to your CPF, but that money then becomes available for you to buy your next property.

 

[BBCWatcher]

If you sell your property, yes those amounts have to go back to your CPF, but that money then becomes available for you to buy your next property.

Nope. When you’re 55+ and have met the Full Retirement Sum you don’t even need to pay yourself back. You have that option, but the CPF Board doesn’t require it.

Compulsory OA repayment only applies if you’ve used OA for housing and either sell your home before age 55 or sell your home thereafter and haven’t met the Full Retirement Sum.(*) See here for reference.

(*) Conceivably this could be the Basic Retirement Sum if you have pledged another home.

 

[vsvs24]

Nope. When you’re 55+ and have met the Full Retirement Sum you don’t even need to pay yourself back. You have that option, but the CPF Board doesn’t require it.

Compulsory OA repayment only applies if you’ve used OA for housing and either sell your home before age 55 or sell your home thereafter and haven’t met the Full Retirement Sum.(*) See here for reference.

(*) Conceivably this could be the Basic Retirement Sum if you have pledged another home.

Thanks. Learnt something new.

Did not know above 55 with RA at FRS makes a difference.

 

[koolkool]

Are you still serving housing loan ? You doing this because OA bal is low ?

You should at least share how much you have or expect to have in SA and OA when you are 55 (if you do nothing).

Hi. Thanks all for the replies. From the replies, I think this isn't a good idea. Hahaha..

Yes, I am still serving my housing loan. Expected to finish my loan when I reach 60 years old, I think.
@ 55, I should have around 300k OA and 350k SA if everything remain unchanged.

Can you elaborate why these matter?

Just treat CPF used for housing and accrued interest as you borrowing money from yourself. No need to pay back.

If you sell your property, yes those amounts have to go back to your CPF, but that money then becomes available for you to buy your next property.

My thinking is to reduce the repayment using CPF to the minimum so that in the unlikely event I need to do an equity loan, I can loan a larger quantum. The other minor part is to clear my accrued interest so that I don't owe myself any money and the interest is now part of my OA and not the regrossed balance. I know this is actually non material and just my OCD behaviour.

 

[vsvs24]

Hi. Thanks all for the replies. From the replies, I think this isn't a good idea. Hahaha..

Yes, I am still serving my housing loan. Expected to finish my loan when I reach 60 years old, I think.
@ 55, I should have around 300k OA and 350k SA if everything remain unchanged.


My thinking is to reduce the repayment using CPF to the minimum so that in the unlikely event I need to do an equity loan, I can loan a larger quantum. The other minor part is to clear my accrued interest so that I don't owe myself any money and the interest is now part of my OA and not the regrossed balance. I know this is actually non material and just my OCD behaviour.

300k OA not low. Yet still have loan till 60 years old.

If you have excess OA now should use it to get better returns. If conservative, can apply tbill which currently still have better returns than 2.5%. The rates will drop when Fed cut rates so make use of it while the rate is still ok.

Maybe others familiar with loans can advise if it is better to pay up part of the loan when interest rate dip.

 

[BBCWatcher]

Maybe others familiar with loans can advise if it is better to pay up part of the loan when interest rate dip.

Well, when interest rates dip mortgage interest rates dip, too. Some people are currently making payments on 1.4% and 1.5% interest rate mortgages. What sensible person would pay off such a loan any faster than required using Ordinary Account dollars that earn 2.5% interest?

 

[vsvs24]

Well, when interest rates dip mortgage interest rates dip, too. Some people are currently making payments on 1.4% and 1.5% interest rate mortgages. What sensible person would pay off such a loan any faster than required using Ordinary Account dollars that earn 2.5% interest?

What if take HSBC loan paying 2.6% ?

 

[BBCWatcher]

What if take HSBC loan paying 2.6% ?

What if? When even 6 month T-bills are yielding about 3.75%, as now, you certainly wouldn't pay off a 2.6% mortgage any faster than required. Right?

 

[Value.Matrix]

Hi. Thanks all for the replies. From the replies, I think this isn't a good idea. Hahaha..

Yes, I am still serving my housing loan. Expected to finish my loan when I reach 60 years old, I think.
@ 55, I should have around 300k OA and 350k SA if everything remain unchanged.


My thinking is to reduce the repayment using CPF to the minimum so that in the unlikely event I need to do an equity loan, I can loan a larger quantum. The other minor part is to clear my accrued interest so that I don't owe myself any money and the interest is now part of my OA and not the regrossed balance. I know this is actually non material and just my OCD behaviour.

Home equity loan? Meaning it's a private house. Then it may make sense to pay cash because of the home equity loan. But that's provided loan rates drops.

 

[polyglob]

Home equity loan? Meaning it's a private house. Then it may make sense to pay cash because of the home equity loan. But that's provided loan rates drops.

OP is in early 50s, with mortgage running till 60. Taking up a home equity loan, whether concurrently or after finishing the mortgage at 60, sounds highly risky. OP did say taking the loan is an unlikely event. Better to work towards not needing the loan at all in the future

 

[Value.Matrix]

OP is in early 50s, with mortgage running till 60. Taking up a home equity loan, whether concurrently or after finishing the mortgage at 60, sounds highly risky. OP did say taking the loan is an unlikely event. Better to work towards not needing the loan at all in the future

Yep. But respect people wish. For me I just tell them what can be done, cannot be done. Risky or not, it's up to OP to decide.

Though for the heads up.

 

[dork32]

the idea of taking a loan at 60 is risky is because most people feel that you will not have many years to work after 60. you will have problems paying the loan. however, if you do not need to work and you are still able to pay up the loan, then there is little risk in taking the loan

 

[GrandJedi]

Hello,

I am shielded both OA and SA with $20k and 40k left in them respectively. At 55, RA will be created with $55k taking the funds from my OA and SA.

Following that, I assume I can top up my RA up to ERS $309k with cash. And when my "shielded" amounts "mature", the funds will just return to respective OA and SA accounts?

I am deciding if I should let CPF sweep my OA funds into creating my RA or try to keep the funds there for in my OA so that I can invest it. Any views?

 

[GrandJedi]

Already done the shielding or planning to do ?

SA shielded already. Planning how much of OA to shield.
I suppose my question is really, should I top up RA to ERS using cash or OA?

 

[fr33d0m]

Cash is more expensive than OA now and more flexible in the future.

 

[GrandJedi]

Cash is more expensive than OA now and more flexible in the future.

what do you mean cash in more expensive?

 

[fr33d0m]

what do you mean cash in more expensive?

cash earns a lot more than CPF OA.

 

[Nofear40]

Why need to shield OA?