CPF SA Shielding hack - RIP (Obsolete)

[oceanicmanta]

Then unshield.
Placed order to sell on 24 Jan before cutoff time 3pm. Refunded to CPF SA with posting date 26 Jan.

if Sell on a Thurs (before cut-off) ... is it likely for CPF SA refund on a Sat ? or Sun ? ( a month end weekend )

 

[GrandJedi]

Let's illustrate with some examples. And let's start with the easiest one: the unit trust-based method. We'll assume you're shielding $200K of SA and that the SA interest rate is steady at 4.08%.

Unit Trust-Based Method

Lost SA Interest (1 Month): $680
Unit Trust Price Variation (for the few days you hold it): unknown, but expected to be low
If you have quite bad luck and the price declines by 0.5% over the few days you're holding it then that's a $1,000 loss.
Total result: -$1,680 to +$320 (assuming a +/- 0.5% price wobble band)

T-Bill Based Method

Lost SA Interest (7 Months): $4,760
T-Bill Profit (6 Months @ 3.77% effective net yield): $3,770
Total result: -$990, guaranteed

My personal view is that if your birthday is not at the beginning or end of the calendar month when it's "too close" to move the funds in/out of the unit trust within the same month (and on either side of your birthday) then I think I'd pick the T-bill-based method. Otherwise, I think I'd pick the unit trust-based method. Your average loss ($680 in this example) is lower than the guaranteed $990 T-bill loss (this example), and I think that's a very reasonable bet.

Note that you're allowed to combine methods if you wish. For example, there's no harm in placing a "high" competitive T-bill bid when you're still a few months away from your birthday (and the T-bill would mature after your birthday). Your bid probably won't get filled if the bid is too high, but it doesn't hurt to try. Then fall back to the unit trust-based method if you're not satisfied. Or do some of both.

Thanks for the explanation and calculations. I do not quite follow why for the UT option, you included a potential decline of 0.5% and then included another 0.5% for "wobble". What is the base of this wobble to get $320?

 

[BBCWatcher]

shouldn’t it be unit trust- based method for those birthday not at the beginning or end of the month?

What I wrote is backwards from what I was thinking. I've gone back and fixed that. Thanks.

Thanks for the explanation and calculations. I do not quite follow why for the UT option, you included a potential decline of 0.5% and then included another 0.5% for "wobble". What is the base of this wobble to get $320?

The bond unit trust's price might go down OR UP when you're holding it. Your timing could be lucky, unlucky, or somewhere in between. If you assume a +/- 0.5% range of price movements then there's a range of final outcomes. If the unit trust's price increases enough while you're holding it then you can actually make a small profit, recovering all of the lost month of SA interest and a little more. That'd be nice, but obviously you can't count on that. The average bond unit trust price experience should be barely above 0.0% (steady price). The average is a tiny bit above zero because bonds yield interest.

You can look back at the price history of the bond unit trust you're thinking of using for shielding to determine how much it has wobbled in price in the past over your expected short holding period. You can also observe the daily price behavior of your chosen bond unit trust in the months and weeks before your 55th birthday. I'm merely using +/- 0.5% as an example. Make sure you steer clear of unit trusts with ill-timed dividend distributions.

 

[oceanicmanta]

Not sure.

Birthday close to month-end such that Mon is next month ?

This is where the test comes in useful. Sacrifice $100 to do a test if it is important ?

yep,

will definitely test it out first

 

[Froggyman]

Yes. Mine falls on 24th.

Once you see RA created at 12.05am, can execute the sale. Purchase and sell before 3pm is executed same day.

Be it tbill or short term fund, always do a small test first to check how long it takes to deduct from SA and return to SA. This allows you to check the process too. Afterall there is no charges (tbill using SA no charges too as verified by my friend).

My case :
Placed order to purchase on Mon 17 Jan before cutoff time 3pm. Deducted from CPF SA with posting date Tue 18 Jan.

On birthday 24 Jan (anytime after 12.05am), checked that RA is created. SA balance zero. Withdraw OA if required by payment mode paynow. Received money in the bank registered for PayNow NRIC immediately. If wish to transfer from OA to topup RA above FRS do it also.

Then unshield.
Placed order to sell on Mon 24 Jan before cutoff time 3pm. Refunded to CPF SA with posting date Wed 26 Jan.

Hi, vsvs24,
Thanks for your kind sharing.

 

[philips110104]

Yes. Mine falls on 24th.

Once you see RA created at 12.05am, can execute the sale. Purchase and sell before 3pm is executed same day.

Be it tbill or short term fund, always do a small test first to check how long it takes to deduct from SA and return to SA. This allows you to check the process too. Afterall there is no charges (tbill using SA no charges too as verified by my friend).

My case :
Placed order to purchase on Mon 17 Jan before cutoff time 3pm. Deducted from CPF SA with posting date Tue 18 Jan.

On birthday 24 Jan (anytime after 12.05am), checked that RA is created. SA balance zero. Withdraw OA if required by payment mode paynow. Received money in the bank registered for PayNow NRIC immediately. If wish to transfer from OA to topup RA above FRS do it also.

Then unshield.
Placed order to sell on Mon 24 Jan before cutoff time 3pm. Refunded to CPF SA with posting date Wed 26 Jan.

On birthday (after 0005 hours), after RA is formed. With the new rule of daily 2k withdrawal limit, to withdraw from OA need to do Singpass face ID verification and cooling period of 12 hours. So if done all these by 0100 hours, the cooling period should end by after 1300, withdraw all OA to bank via paynow. Sell UT before the cut off time of 3pm on same day. Is this the correct? TIA.

 

[reddevil0728]

On birthday (after 0005 hours), after RA is formed. With the new rule of daily 2k withdrawal limit, to withdraw from OA need to do face ID verification and cooling period of 12 hours. So if done all these by 0100 hours, the cooling period should end by after 1300 and sell the UT before the cut off time of 3pm on same day. Is this the correct understanding? TIA.

you can increase the withdraw limit also right?

 

[philips110104]

you can increase the withdraw limit also right?

Yes, increase the withdraw limit need cooling period of 12 hours. Can i do it before 55 birthday?

 

[reddevil0728]

Yes, increase the withdraw limit need cooling period of 12 hours. Can i do it before 55 birthday?

ah right. i get what you mean now. cause it kicks in at 55

 

[vsvs24]

actually tbills is sure lose money at current rates

Agree.

Latest tbill closed at 3.73%. Av yield 2.94% only . Despite MAS bill cut off higher ytd.

People using CPF bid lower to make sure they get.

Like that will just get lower and lower.

 

[reddevil0728]

Agree.

Latest tbill closed at 3.73%. Av yield 2.94% only . Despite MAS bill cut off higher ytd.

People using CPF bid lower to make sure they get.

Like that will just get lower and lower.

But how you know it’s because of ppl using CPF?

it could just be institutions take a different position for t-bill also ma

 

[oceanicmanta]

Withdraw OA if required by payment mode paynow. Received money in the bank registered for PayNow NRIC immediately. If wish to transfer from OA to topup RA above FRS do it also.

A couple of clarifications :

1) "Withdraw OA" is referring to withdrawing the excess OA after FRS swept to form RA ?

Placed order to sell on Mon 24 Jan before cutoff time 3pm. Refunded to CPF SA with posting date Wed 26 Jan.

2) if birthday is in mid month, then suppose dont have to rush to Sell on same day ?

 

[philips110104]

On birthday (after 0005 hours), after RA is formed. With the new rule of daily 2k withdrawal limit, to withdraw from OA need to do Singpass face ID verification and cooling period of 12 hours. So if done all these by 0100 hours, the cooling period should end by after 1300, withdraw all OA to bank via paynow. Sell UT before the cut off time of 3pm on same day. Is this the correct? TIA.

On sec tot, after UT sold, it took few days to return the money to SA. Should be able to withdraw all OA as long as OA withdrawal done before money go back to SA. Correct?

 

[chong18]

Really hope the govt will not close this SA shield 'loophole', it is already so difficult to retire in SG with the high cost of living, the extra interest helps a lot.

And if the CPF is to help sinkies in retirement, shouldn't RA be formed with OA monies first then SA? Might as well change the rule then people don't need to perform this so-called 'hack'. Also fair for everyone since not everyone knows about this. Or at least let people choose whether to fund from OA or SA, those with mortgage might still prefer to use SA for example

 

[reddevil0728]

Really hope the govt will not close this SA shield 'loophole', it is already so difficult to retire in SG with the high cost of living, the extra interest helps a lot.

how long before u reach 55?

 

[chong18]

how long before u reach 55?

10 years hahaha

 

[reddevil0728]

10 years hahaha

don't even talk about closing the loophole
a lot of things mgith even change during these 10 years

 

[chong18]

don't even talk about closing the loophole
a lot of things mgith even change during these 10 years

Even if there is change it should be change for the better not worse. So far the changes like moving goalpost at least can justify because people are living longer, but not so easy to justify paying less interest if close loophole.

 

[reddevil0728]

Even if there is change it should be change for the better not worse. So far the changes like moving goalpost at least can justify because people are living longer, but not so easy to justify paying less interest if close loophole.

but one man's meat is another man's poison though. depends on perspective.

it is neither better nor worse for people who will not capitalise on it. which probably might be the majority

 

[BBCWatcher]

Or at least let people choose whether to fund from OA or SA, those with mortgage might still prefer to use SA for example

SA becomes liquid for any purpose at age 55 as long as your RA is at least “adequately” funded.