CPF SA Shielding hack - RIP (Obsolete)

[CrashWire]

It is a natural law in Singapore that if Singaporeans put in $1 but get back $2, there is no need to make it mandatory. A good example of this is HDB BTO. No need mandatory but forever over subscribed.

Most people are myopic. You can see a BTO in 5 years. You won't see CPF Life payouts until 70.

 

[BBCWatcher]

What’s a Safe Withdrawal Rate (SWR)?

The SWR is the (maximum) percentage of your total retirement savings in Year 1 that you can withdraw to support a constant real living standard without significant risk of savings exhaustion (a greater than 99% chance you won’t exhaust your savings). Your Year 1 withdrawal is the SWR, then thereafter you continue making withdrawals while holding real dollars constant (i.e. you adjust that Year 1 amount only for inflation). It’s normally computed from age 65, the traditional/classic retirement age.

The ”Liberty Study” in the U.S. kicked off the SWR studies and computed a 4.0% SWR. That was in the U.S. context with a recommended mixed investment portfolio of stocks and bonds and U.S. life expectancies from age 65 (and many years ago). If you retire earlier than 65, have longer life expectancies (Singapore, yes), and/or have a lower average yielding investment portfolio (lots of bank fixed deposits for example) then the SWR is lower. SWRs are lower for women, although I believe the Liberty Study approached the problem assuming a married couple.

For a 65 year old male today (2024) with $300,000 in his CPF Retirement Account the CPF LIFE Escalating Plan pays the equivalent of a Year 1 withdrawal rate of 5.2% (payouts starting now). Not 4.0%, not 3.5%, not 3.1%. 5.2%!

Now, in fairness the Escalating Plan is not quite full inflation defense. Singapore’s inflation rate from 1961 to the present has averaged about 2.5% per year. So you should plan for more inflation, and thus the 5.2% figure that the CPF LIFE Escalating Plan offers should be effectively adjusted downward a bit. Nonetheless, you should see how this works. When you anchor your retirement financial plan with a strong life annuity (longevity insurance) you can safely afford a higher retirement income than otherwise. You can use this higher retirement income however you wish (as long as it’s legal). You can retire earlier, you can give away more money…whatever you like.

What does you retirement financial plan look like?

 

[DevilPlate]

https://www.hdb.gov.sg/residential/...flat/types-of-flats/community-care-apartments

Have you considered selling your 5-rm flat and buying a CCA? CCA provides assisted living arrangements which could significantly reduce the possibility of needing to actually go to a nursing home. With this "downgrade", you can then release a substantial amount of cash, either to fully topup your RA to 4x, or as emergency fund for other living expenses.

As the CCA is effectively a 1.5 room flat, you would presumably get a bit more subsidies as compared to living in a 5 room flat. For the Bukit Batok CCA, you even have priority for Bukit Batok Care Home should you need to.

https://www.moh.gov.sg/docs/librari...partments-press-release-(10-dec-2020-6pm).pdf

Ya la….i mentioned in the above…..apply 2rm comcare or flexi bto at age 65-70yo and sell away current flat upon TOP
Not advisable to manage rental at vy old age unless u have a trusted person and set up LPA.

 

[DevilPlate]

Btw, SA interest rate in theory is not guaranteed.
it is actually 10y SGS+1%. So it can even be lower than OA 2.5% whahaha

Simi policy risk lah blah blah……u withdraw cpf monies also got risk what…..

so depends what kind of risks u wana take on lah. Whahaha

 

[vsvs24]

There’s no change to the withdrawal options. Just look through the Budget 2024 CPF rule changes and you’ll see no such changes.

I don’t think we know yet whether compulsory contributions (the former SA portion) will land in RA or OA for someone who chose the BRS with property pledge or charge, but it doesn’t matter much. Those dollars would still be available for withdrawal.

Particularly since SA is going away (but not only) your friend may wish to boost her retirement income by transferring OA dollars to RA (or leaving additional RA dollars in RA, as the case may be). She can do that now if she wishes, and (to the extent the transfer now involves OA dollars) she’d upgrade dollars from 2.5% to 4.08% (current rate) interest. That would make financial sense if she’s going to do that anyway in early 2025 when her SA dollars are downgraded to OA. If she’s not going to upgrade any current OA dollars then she can wait.

The released statements so far is : upon closing SA, SA bal will be transferred to RA upto FRS, then to OA.

If this happens for those with BRS with property pledge then that would have an impact on withdrawal since you cannot withdraw freely from RA. Likewise for future CPF contribution. If it goes to OA then there is no impact on withdrawal.

Hope the implementation of closing of SA follows the spirit of current rules that BRS with property pledge SA can freely withdraw and don't force SA into RA.

Her income is not high and she is worried if she can continue working due to poor health or retrenchment. She wants the funds to be liquid as her concern is getting through to age 65 and have some emergency funds. So further sums going to RA is not top consideration.

Hope to receive reply from CPFB soon.

 

[royalmix]

The released statements so far is : upon closing SA, SA bal will be transferred to RA upto FRS, then to OA.

If this happens for those with BRS with property pledge then that would have an impact on withdrawal since you cannot withdraw freely from RA. Likewise for future CPF contribution. If it goes to OA then there is no impact on withdrawal.

Hope the implementation of closing of SA follows the spirit of current rules that BRS with property pledge SA can freely withdraw and don't force SA into RA.

Her income is not high and she is worried if she can continue working due to poor health or retrenchment. She wants the funds to be liquid as her concern is getting through to age 65 and have some emergency funds. So further sums going to RA is not top consideration.

Hope to receive reply from CPFB soon.

CPFB website FAQ answers:

I have set aside my Full Retirement Sum with a mixture of property and cash. With the closure of Special Account (SA), which account will my SA savings be transferred to?

Once you have met the Full Retirement Sum (FRS), whether fully in cash, or with a mixture of property (up to half the FRS) and cash, your Special Account (SA) savings will be transferred to your Ordinary Account, where they remain withdrawable and will earn the short-term interest rate. No SA savings will be transferred to your Retirement Account to replace the portion of your FRS set aside using property.

 

[Oldnerd79]

Ya la….i mentioned in the above…..apply 2rm comcare or flexi bto at age 65-70yo and sell away current flat upon TOP
Not advisable to manage rental at vy old age unless u have a trusted person and set up LPA.

If the single person can still stay in comcare apartments, he/she should be fit enough to manage rental. Only when he needs to stay in nursing home then it becomes a problem. Better to hold on to the bigger flat for the rental income. Should have niece/nephew who can help out w the rental.

 

[fr33d0m]

If the single person can still stay in comcare apartments, he/she should be fit enough to manage rental. Only when he needs to stay in nursing home then it becomes a problem. Better to hold on to the bigger flat for the rental income. Should have niece/nephew who can help out w the rental.

in nursing home situation, trust on niece/nephew is going to be on their conscience only. Nothing is going to stop them from taking all the rents and leaving nothing/little to the one and eventually inherit the property, too.

In these situation, a custodian could be much better than relatives.

 

[DevilPlate]

If the single person can still stay in comcare apartments, he/she should be fit enough to manage rental. Only when he needs to stay in nursing home then it becomes a problem. Better to hold on to the bigger flat for the rental income. Should have niece/nephew who can help out w the rental.

How to own 2 flats sia….?
goto sell away current flat within 6mths upon 2rm comcare TOP

 

[DevilPlate]

in nursing home situation, trust on niece/nephew is going to be on their conscience only. Nothing is going to stop them from taking all the rents and leaving nothing/little to the one and eventually inherit the property, too.

In these situation, a custodian could be much better than relatives.

The main challenge for a single is to find a trustworthy custodian to setup LPA.
Surviving spouse of DINK also have this problem.

*Not saying all kids can be trusted. Hahahaha

 

[Value.Matrix]

What’s a Safe Withdrawal Rate (SWR)?

The SWR is the (maximum) percentage of your total retirement savings in Year 1 that you can withdraw to support a constant real living standard without significant risk of savings exhaustion (a greater than 99% chance you won’t exhaust your savings). Your Year 1 withdrawal is the SWR, then thereafter you continue making withdrawals while holding real dollars constant (i.e. you adjust that Year 1 amount only for inflation). It’s normally computed from age 65, the traditional/classic retirement age.

The ”Liberty Study” in the U.S. kicked off the SWR studies and computed a 4.0% SWR. That was in the U.S. context with a recommended mixed investment portfolio of stocks and bonds and U.S. life expectancies from age 65 (and many years ago). If you retire earlier than 65, have longer life expectancies (Singapore, yes), and/or have a lower average yielding investment portfolio (lots of bank fixed deposits for example) then the SWR is lower. SWRs are lower for women, although I believe the Liberty Study approached the problem assuming a married couple.

For a 65 year old male today (2024) with $300,000 in his CPF Retirement Account the CPF LIFE Escalating Plan pays the equivalent of a Year 1 withdrawal rate of 5.2% (payouts starting now). Not 4.0%, not 3.5%, not 3.1%. 5.2%!

Now, in fairness the Escalating Plan is not quite full inflation defense. Singapore’s inflation rate from 1961 to the present has averaged about 2.5% per year. So you should plan for more inflation, and thus the 5.2% figure that the CPF LIFE Escalating Plan offers should be effectively adjusted downward a bit. Nonetheless, you should see how this works. When you anchor your retirement financial plan with a strong life annuity (longevity insurance) you can safely afford a higher retirement income than otherwise. You can use this higher retirement income however you wish (as long as it’s legal). You can retire earlier, you can give away more money…whatever you like.

What does you retirement financial plan look like?

Stop using this argument when you do not fully understand what constitutes the SWR (safe withdrawal rate), when you are only looking at non-inflation adjusted cpf life payouts which are constant. 5.2% of the capital? Please revise else disregard what you wrote.

Comparing escalating plan also does not fully address what the Study did for Safe Withdrawal Rate.

Kyith from investment moats wrote extensive case studies on them and its definitely not as simple. You are cherry picking data points.

 

[BBCWatcher]

Stop using this argument when you do not fully understand what constitutes the SWR (safe withdrawal rate), when you are only looking at non-inflation adjusted cpf life payouts which are constant.

Yes, and I further explained why the 5.2% figure should be reduced slightly to account for a more realistic 2.5%/year inflation projection. (Singapore's inflation has averaged 2.5%/year since 1961 according to the latest data I can find.)

Note that I picked age 65 as payout start. That non-default earlier start tends to reduce CPF LIFE's power for these purposes. If you start payouts at age 70 (the default) that'll make CPF LIFE look even better.

5.2% of the capital? Please revise else disregard what you wrote.

Do you have any other complaints aside from the one based on misreading what I wrote?

Comparing escalating plan also does not fully address what the Study did for Safe Withdrawal Rate.

Yes, and I noted that in one of my posts. I've noted it again above. The CPF LIFE Escalating Plan comes close to the mark, and it hits the mark exactly if your inflation forecast is 2%/year. I think 2.5%/year is more realistic and would stress test to 3.0%/year.

Note that inflation/real return assumptions affect SWRs across the board. Increasing your inflation assumption tends to reduce the SWR, making a life annuity (even a 2%/year escalating one) all the more important, not less.

Kyith from investment moats wrote extensive case studies on them and its definitely not as simple. You are cherry picking data points.

This isn't a 10,000 word blog article (for example).

Do you disagree that it's harder (more expensive) to assure a particular steady real retirement income without a decent or better life annuity in the mix? Because that's the core point here, and it happens to be factually correct — a statement of general consensus and uncontroversial. In fact, the U.S. studies tend to be grounded in typical U.S. Social Security retirement income, a constant real life annuity — a joint/survivor one, too. (Social Security benefits are pegged to the U.S. CPI.)

What ARE you disagreeing with, specifically?

 

[castafarian]

now all the YouTubers are encouraging investing using OA…
property agents say buy property… FA says buy US stock
is risky if you have a shorter time horizon and still have elderly and schooling kids to take care…

invest in what using OA?
buy stock? got 35% limit cap
one utuber advocated endowus, as it's perceived to let one invest all of OA less the first 20k

 

[castafarian]

Doesn’t removing SA give the members more options to take care of themselves instead of letting government take it?

everyone should rejoice.

care to share with us the additional options with this move?

 

[castafarian]

Only if they realise what's wrong. Most people don't realise how the recent change from government is bad for them.

Not that they are directly affected, but how the government can take away options just like that.

We may live to see a day where SA/RA interest rates are lower than the annual FRS limit increase. Or CPF SA rates to be lower than 4%. Would cpf members be investment savvy enough to fend for themselves?

I doubt so

BHS already increasing at 5% for years liao, heheh

 

[fr33d0m]

care to share with us the additional options with this move?

You can do whatever you want with your extra fund. The government does not lock your money any more.

 

[castafarian]

You can do whatever you want with your extra fund. The government does not lock your money any more.

oh, you mean able to withdraw the excess from OA after RA is formed?
that's nothing new

 

[QinWei]

invest in what using OA?
buy stock? got 35% limit cap
one utuber advocated endowus, as it's perceived to let one invest all of OA less the first 20k

i think Kelvin (youtuber) mentioned that

or the other guy 1mDB guy? cant b Chris...


just make sure that if u have excess funds at OA, the investment u opted must return way more* than 4%++ (after decution of all sort of fees /admin charges etc )
Endowus or some other platforms might list down the expected returns
however , exp returns r still expectations ONLY!


i been using OA to buy Reits, i dont even have BRS
Endowus funds too abit -cos their expectations didnt turn out so positively ...
reits are still shares , they will move up and down (prices too) though the payout is rewarding

i noticed alot are not even willing to part their funds without mainstream banks' protection
eg some funds /FDs is insured by the SDIC for up to only certain amt or not ..... Syfe yes
Edwus has many pdts but Cash Smart is an investment product and not a bank deposit, it is not insured by the SDIC too...


* : if not, i rather let it sit at SA Now to earn i/r

 

[castafarian]

just make sure that if u have excess funds at OA, the investment u opted must return way more* than 4%++ (after decution of all sort of fees /admin charges etc )
Endowus or some other platforms might list down the expected returns
however , exp returns r still expectations ONLY!


i been using OA to buy Reits, i dont even have BRS
Endowus funds too abit -cos their expectations didnt turn out so positively ...
reits are still shares , they will move up and down (prices too) though the payout is rewarding

i noticed alot are not even willing to part their funds without mainstream banks' protection
eg some funds /FDs is insured by the SDIC for up to only certain amt or not ..... Syfe yes
Edwus has many pdts but Cash Smart is an investment product and not a bank deposit, it is not insured by the SDIC too...


* : if not, i rather let it sit at SA Now to earn i/r

yup, agree with you on the expectations of making investments using OA

if you buy reits using OA, you can't use the "max" amount unlike the amt that you could have used for buying t-bill for example. that is, if you buy ONLY reits using cpf, does that mean you have lotsa of funds sitting in OA and SA uninvested?

That's unlikely since you mentioned that you have not meet BRS, unless the amt that you have invested in reits is really, really low

when i turn 55, i think i'll withdraw some money and buy some speculative assets

 

[s0crates]

i think Kelvin (youtuber) mentioned that

or the other guy 1mDB guy? cant b Chris...


just make sure that if u have excess funds at OA, the investment u opted must return way more* than 4%++ (after decution of all sort of fees /admin charges etc )
Endowus or some other platforms might list down the expected returns
however , exp returns r still expectations ONLY!


i been using OA to buy Reits, i dont even have BRS
Endowus funds too abit -cos their expectations didnt turn out so positively ...
reits are still shares , they will move up and down (prices too) though the payout is rewarding

i noticed alot are not even willing to part their funds without mainstream banks' protection
eg some funds /FDs is insured by the SDIC for up to only certain amt or not ..... Syfe yes
Edwus has many pdts but Cash Smart is an investment product and not a bank deposit, it is not insured by the SDIC too...


* : if not, i rather let it sit at SA Now to earn i/r

Endowus offer index funds. Why need to think so much?

So what if it's without mainstream bank protection? That should be the expectation for investment products. No protection.

If you want protection keep it in cpf then.