CPF SA Shielding hack - RIP (Obsolete)

[Okenba]

Read the 2 articles here:

Why do u need to shield before u hit 55?

I've read the articles and am no more enlightened frankly. Basically it says that RA will be taken from OA and SA and my question was why not just transfer from OA to SA.

I thought the reminder of max SA made sense.

 

[maple96]

I've read the articles and am no more enlightened frankly. Basically it says that RA will be taken from OA and SA and my question was why not just transfer from OA to SA.

I thought the reminder of max SA made sense.

Because u are only interested in transferring OA to SA before u hit 55.

People who explore SA shielding are interested in stopping CPFB from transferring monies in SA to RA at 55.

We talk chicken, u talk duck!

Anyway how many more years u have before u hit 55, maybe no need to think anymore

 

[Okenba]

What about this scenario:

Wife not working. She has $176,000 in her SA and 0 in her OA. She turns 55 in Nov 2019.

Can she:

(1) Prior to her birthday, invest $136,000 from her SA in eligible investments and the balance $40,000 remains in her SA;

(2) Upon her birthday in Nov 2019, her RA is created with $40,000 transferred from her SA;

(3) She then tops up her RA subsequently with (cash of) $136,000 (preferable in one lump sum) to form her FRS for her RA;

(4) She then divests the earlier $136,000 investment which goes back to her SA and keeps it there to earn 4% p.a. interest, for withdrawal at will subsequent to her turning 55 years old.

Okay. This helped a lot. Thanks for the example.

So from what I'm reading, the 'hack' is made to put more of your own cash money into SA for a guaranteed 4% interest rate.

So first, you need a good amount of cash on hand that would allow you to top up your RA from (40k+OA) to BRS/FRS/ERS.

Then, you invest as much of SA as you can so that RA is only able to pick up the minimum amount from SA. (You might do the same with OA if guaranteed 2.5% interests you...)

Then you top up RA with cash so that whatever you used to invest in SA and OA can continue to earn you a guaranteed 4% and 2.5% respectively.

Not a bad idea for SA I guess. Good guaranteed returns at a time in your life when stability is important...

 

[whizzard]

I've read the articles and am no more enlightened frankly. Basically it says that RA will be taken from OA and SA and my question was why not just transfer from OA to SA.

I thought the reminder of max SA made sense.

Let’s assume this scenario. A person has $176k in her SA. She has $0 in her OA. She turns 55 next month. She has $1m cash in the bank. Let’s also assume she has no properties to her name in order not to complicate the FRS/BRS requirement - basically she has to set aside FRS of $176k in her RA.

(1) Upon turning 55, CPF creates a RA for her.

(2) The RA will be funded by her SA balances and if insufficient, from her OA balances, in that order.

(3) As she has $176k in her SA, her FRS of $176k in her RA will be funded entirely by her SA. She is left with nothing in her SA and OA.

(4) Now, assume she did the “shielding” by buying some unit trust using $136k of her SA balance prior to her 55th birthday. She would have $40k left in her SA.

(5) When she turns 55, her RA is created and her balance $40k in her SA is transferred to her RA.

(6) Can she thereafter deposit $136k from her bank account to her RA to form her $176k FRS?

(7) After that, she sells her unit trust (assuming at par) and gets back $136k deposited into her SA. She gets to earn 4% pa on her SA account for this $136k and can withdraw her SA balances at will. This compares to her 1.5% interest rate she gets from her bank account.

(8) Effectively, she has transferred $136k from a 1.5% yielding bank account to a 4% yielding account, which also allows her the flexibility of withdrawing the cash at will since she is already above 55 and has already formed her FRS.

(9) She was unable to transfer cash from her bank account to her SA earlier because her SA has already hit the limit of $176k for her cohort’s FRS.

(10) However, she is free to transfer more money from her bank account to her RA (up to her ERS). But, the downside is, any money in her RA will be locked up for monthly distribution when she turns 65 and cannot be withdrawn at will.

Am I understanding this correctly?

 

[lyndonmaxewell]

(6) Can she thereafter deposit $136k from her bank account to her RA to form her $176k FRS?

Will go straight to the question.

Yes she can do lump sum top up to RA to make up the full FRS amount and also up to the ERS amount.

A recipient can receive top-ups so long as the total top-ups do not exceed the maximum top-up amount that he/she can receive.

The rest of your points are also factually correct.

 

[lyndonmaxewell]

Okay. This helped a lot. Thanks for the example.

So from what I'm reading, the 'hack' is made to put more of your own cash money into SA for a guaranteed 4% interest rate.

So first, you need a good amount of cash on hand that would allow you to top up your RA from (40k+OA) to BRS/FRS/ERS.

Then, you invest as much of SA as you can so that RA is only able to pick up the minimum amount from SA. (You might do the same with OA if guaranteed 2.5% interests you...)

Then you top up RA with cash so that whatever you used to invest in SA and OA can continue to earn you a guaranteed 4% and 2.5% respectively.

Not a bad idea for SA I guess. Good guaranteed returns at a time in your life when stability is important...

Yes correct, if you can take care of your retirement amount (FRS or BRS) in your RA, you are effectively creating a liquid higher interest-bearing "bank account" called your SA.

 

[ocs_woodlands]

Well.....all said and done.... unless you are 53 or 54 now, the knowledge of SA shielding is just academic now that some idiot has published it in the National Newspaper......

So to those who have not understood, you lost nothing cos it wont be there when you hit 55.....

 

[highsulphur]

Well.....all said and done.... unless you are 53 or 54 now, the knowledge of SA shielding is just academic now that some idiot has published it in the National Newspaper......

So to those who have not understood, you lost nothing cos it wont be there when you hit 55.....

Those who are closing 55 might want to bring forward the shielding in case it's closed in the near future.

 

[assiak71]

Have a qn.
Can one also shield max of OA at the same time? Or need to ensure available OA + SA is FRS amount

Awaiting useful reply. Thanks.

 

[Okenba]

Awaiting useful reply. Thanks.

Should be possible as scenarios bring up the use of cash top up.
As with SA, you cannot fully invest (shield) your OA. I think need to leave 20k?
But there is less incentive to shield OA as the interest rate of 2.5% is not quite comparable to 4% I guess.

 

[lyndonmaxewell]

Awaiting useful reply. Thanks.

I am not sure your purpose of shielding OA as it is not logical but can be done. Factually, you need not ensure that OA + SA amount = FRS amount in RA.

 

[lyndonmaxewell]

Should be possible as scenarios bring up the use of cash top up.
As with SA, you cannot fully invest (shield) your OA. I think need to leave 20k?
But there is less incentive to shield OA as the interest rate of 2.5% is not quite comparable to 4% I guess.

Yes can, and the main reason why the first 20K for OA and first 40K for SA cannot be touched for investment but to form RA is this,

If you are born in May 1961 or after, you will be placed on CPF LIFE if you have at least $60,000 in your RA six months before your PEA. If you are not placed on CPF LIFE, you will be on the RSS.

 

[henrylbh]

Yes can, and the main reason why the first 20K for OA and first 40K for SA cannot be touched for investment but to form RA is this,

If you are born in May 1961 or after, you will be placed on CPF LIFE if you have at least $60,000 in your RA six months before your PEA. If you are not placed on CPF LIFE, you will be on the RSS.

Don't anyhow say

 

[chopra]

whats the max one can have in special acct this year? 176k or 270k? lorna says she has 270k in SA before she turned 55yo?

 

[Okenba]

whats the max one can have in special acct this year? 176k or 270k? lorna says she has 270k in SA before she turned 55yo?

As I understand, you can top up to FRS which is 176k. But even after hitting 176k, you will still be earning interest in SA and your CPF still has a portion going into SA (I think). So totally possible for it to continue to grow far beyond 176k, especially if you hit it early. Think there's a guy out there with 1mil in SA...

 

[lyndonmaxewell]

whats the max one can have in special acct this year? 176k or 270k? lorna says she has 270k in SA before she turned 55yo?

$176K FRS for 2019 batch. However, only RSTU cash top up and OA to SA transfer unable to do. Mandatory contributions by employer/employee and Voluntary contribution subjected to annual limit still can bring her SA above FRS amount.

 

[lyndonmaxewell]

As I understand, you can top up to FRS which is 176k. But even after hitting 176k, you will still be earning interest in SA and your CPF still has a portion going into SA (I think). So totally possible for it to continue to grow far beyond 176k, especially if you hit it early. Think there's a guy out there with 1mil in SA...

Yes correct, the interest as well

 

[BBCWatcher]

whats the max one can have in special acct this year? 176k or 270k? lorna says she has 270k in SA before she turned 55yo?

Much, much higher. The hypothetical maximum would involve this sort of formula:

1. Deposit the Full Retirement Sum into a newborn’s Special Account within the month she is born.

2. Deposit the CPF Annual Limit into her accounts (“all three” top up) within the month she is born and every January thereafter.

3. After a childhood and young adulthood of #2, she is self-employed in Singapore or living outside Singapore and continues making CPF Annual Limit “all three” top ups every January.

4. She then celebrates her 55th birthday with a massive Special Account balance.

I leave it as an exercise to someone who’d like to calculate that SA balance. Don’t forget the bonus interest.

 

[Okenba]

At 4% interest for SA, (not even counting bonus interest), SA doubles every 18 years.

If you put in 176k at birth, this would be 352k when 18, 704k when 36, 1.4m when 54.

Basically, anything you can put into your kid's SA at birth would multiply 8x by 55 even if you don't add anything else...

 

[BBCWatcher]

Basically, anything you can put into your kid's SA at birth would multiply 8x by 55 even if you don't add anything else...

Now add in annual "all three" top ups and bonus interest. Assuming a CPF Annual Limit of $37,740 -- which is likely to increase periodically, but let's assume it's fixed for now -- here are the amounts that flow into the Special Account:

* Age 35 and below: $6,120
* Above 35 to 45: $7,140
* Above 45 to 50: $8,160
* Above 50 to 55: $11,730

Bonus interest is an extra $600 per year, starting right from the beginning in this example since it's a newborn's Special Account that's being immediately topped up to the maximum. (Assume the newborn is born in December and the first top ups are in December to make the compound interest math somewhat easier.)

So it'd be like this:

1. December, 2019 (interest starting on January 1, 2020):

* $176,000 deposited into the Special Account
* Another $6,120 deposited into the Special Account via an "all three" top up

2. Every January thereafter:

* More deposited into the Special Account via "all three" top ups, in the amounts indicated above.
* Starting in January, 2021, interest is credited for the prior year, including $600 of bonus interest. For example, in January, 2021, the interest credited on record date December 31, 2020, would be:

Bonus interest = $600
4% interest on the $176,000 deposited in December, 2019 = $7,040
4% interest on the $6,120 deposited in December, 2019 = $244.80
4% interest for 11 months on the $6,120 deposited in January, 2020 = $224.40
TOTAL INTEREST on December 31, 2020 = $8,109.20
TOTAL SA BALANCE on December 31, 2020 = $8,109.20 + $176,000 + $6,120 + $6,120 = $196,349.20

Run that forward to age 55, and you've got the maximum hypothetical nominal SA balance at age 55, assuming current interest rules and contribution limits.

Here's an interesting question: do any people actually do this? My guess is that yes, probably, there are a very few wealthy people that actually do this. Typically they'd shunt the OA dollars, which also pile up very quickly, into the CPF Investment Scheme. The reason they'd do this is that they have tremendous wealth, so these CPF deposits are "pocket change." The yield is at least decent, but more importantly the asset protection aspects of CPF are compelling. And they've got to make MediSave contributions anyway if they're self-employed in Singapore, so why not make the "all three" and get the tax relief. Yes, I suspect a very few people do this sort of thing.