CPF SA

[lordofthering]

Thanks all. I understand.

One more question. Now he is still working and has CPF contribution. What happen to these contribution when he start his RA

 

[snowcrabramyeon]

Thanks all. I understand.

One more question. Now he is still working and has CPF contribution. What happen to these contribution when he start his RA

I think your question is "what happen to these contribution when he start his payout"?

The contribution will continue to go into the three accounts (1% OA, 1% SA and 10.5% MA). You can continue to top up the RA to the prevailing ERS if you so wish. If you top up the RA, you can request for adjustment to the monthly payout.

 

[Illusionist_85]

for the voluntary top up need to 1 lump sum in or can multiples of 1k,2k?

 

[reddevil0728]

for the voluntary top up need to 1 lump sum in or can multiples of 1k,2k?

Can be a few hundred also.

I think can a few dollars too. Like daily.

 

[shallow]

Hi all, will be taking hdb loan with my wife in 2022 and i have the following plan to optimize our cpf.

my cpf bal:
Oa 56k
sa:20k

wife
oa 127k
sa 20k

other assets combined:
50k emergency fund
70k investment

hdb balance : 330k
20k down payment
reminder will be hdb loan over 30 years

I do have a plan to maximize yield from CPFSA so i plan to have wife and i to transfer most of our OA to SA right before we take HDB loan. Generally the reason for this strategy is to earn that 4% from SA while paying 2.6% interest to HDB
we still have about 20k of down payment payable in 2022 as well. with this we expect about 1.3k mortgage payment which will be paid thru our cpf in equal contribution (50% each). also, in the future when we have kid, we expect wife to take a break from working to look after kid full time (at least for first few years). For wife, she will keep about 50k balance in OA so that when she suddenly need to stop working, this 50k is to help supplement the mortgage payment for 6.4 years after which i will be taking over. is this a sound plan or is there anything that i may have overlooked?

 

[SBC]

Hi all, will be taking hdb loan with my wife in 2022 and i have the following plan to optimize our cpf.

my cpf bal:
Oa 56k
sa:20k

wife
oa 127k
sa 20k

other assets combined:
50k emergency fund
70k investment

hdb balance : 330k
20k down payment
reminder will be hdb loan over 30 years

I do have a plan to maximize yield from CPFSA so i plan to have wife and i to transfer most of our OA to SA right before we take HDB loan. Generally the reason for this strategy is to earn that 4% from SA while paying 2.6% interest to HDB
we still have about 20k of down payment payable in 2022 as well. with this we expect about 1.3k mortgage payment which will be paid thru our cpf in equal contribution (50% each). also, in the future when we have kid, we expect wife to take a break from working to look after kid full time (at least for first few years). For wife, she will keep about 50k balance in OA so that when she suddenly need to stop working, this 50k is to help supplement the mortgage payment for 6.4 years after which i will be taking over. is this a sound plan or is there anything that i may have overlooked?

Pretty well done. Congrats!

Looks a BTO for a young couple. You are very much on the rite track.
Can consider to use some cash to service loan.

Once comfortable, can reduce the load duration. Your account should be very comfortable.

 

[BBCWatcher]

You aren’t required to wait until the day before you pick up the keys to make OA to SA transfers. If you have made the decision to transfer to avoid the “sweep,” go for it and start earning the higher interest rate earlier.

 

[Value.Matrix]

Hi all, will be taking hdb loan with my wife in 2022 and i have the following plan to optimize our cpf.

my cpf bal:
Oa 56k
sa:20k

wife
oa 127k
sa 20k

other assets combined:
50k emergency fund
70k investment

hdb balance : 330k
20k down payment
reminder will be hdb loan over 30 years

I do have a plan to maximize yield from CPFSA so i plan to have wife and i to transfer most of our OA to SA right before we take HDB loan. Generally the reason for this strategy is to earn that 4% from SA while paying 2.6% interest to HDB
we still have about 20k of down payment payable in 2022 as well. with this we expect about 1.3k mortgage payment which will be paid thru our cpf in equal contribution (50% each). also, in the future when we have kid, we expect wife to take a break from working to look after kid full time (at least for first few years). For wife, she will keep about 50k balance in OA so that when she suddenly need to stop working, this 50k is to help supplement the mortgage payment for 6.4 years after which i will be taking over. is this a sound plan or is there anything that i may have overlooked?

Why not do OA shield instead? But that aside, up to you.

 

[BBCWatcher]

Why not do OA shield instead? But that aside, up to you.

A couple can keep up to $40K in OA when picking up BTO keys. If you assume a $300K HDB concessionary loan for a BTO with a 30 year loan term then the monthly payments are $1,201. Even if zero more dollars land in either OA and zero cash is used for mortgage payments, that’s 33 months of mortgage buffer in OA alone. That’s a lot! To get even more months of buffer from OA would incur a 1.5%/year interest penalty (compounded annually), the difference between the OA and SA interest rates. That’s expensive. (Imagine if your bank savings account “earned” negative 1.45% interest! That’s what it’s like.)

Yes, you need to maintain adequate liquidity, but don’t go crazy about it because dragging excessive liquidity along for years or decades is expensive and will assuredly make you poorer. The ”rule of thumb” is to maintain at least 6 months of emergency reserve, and some people like 12. $40K is a LOT of buffer on a BTO/HDB loan.

OK, next question: how about the CPF Investment Scheme (OA)? Well, I think a reasonable long-term forecast for ES3 (Straits Times Index stocks), for example, is 3%. The 4% SA is offering is comparatively attractive, and even OA’s 2.5% is nothing to sneeze at. So I don’t think you should go with the CPFIS unless and until your SA is “full,” OA is piling up, and you have a long enough time horizon to make that ~3% more realistically obtainable.

 

[snowcrabramyeon]

A couple can keep up to $40K in OA when picking up BTO keys. If you assume a $300K HDB concessionary loan for a BTO with a 30 year loan term then the monthly payments are $1,201. Even if zero more dollars land in either OA and zero cash is used for mortgage payments, that’s 33 months of buffer. That’s a lot! To get even more months of buffer from OA would incur a 1.5%/year interest penalty (compounded annually), the difference between the OA and SA interest rates. That’s expensive.

Yes, you need to maintain adequate liquidity, but don’t go crazy about it because dragging excessive liquidity along for years or decades is expensive and will assuredly make you poorer. The ”rule of thumb” is to maintain at least 6 months of emergency reserve, and some people like 12. $40K is a LOT of buffer on a BTO/HDB loan.

OK, next question: how about the CPF Investment Scheme (OA)? Well, I think a reasonable long-term forecast for ES3 (Straits Times Index stocks), for example, is 3%. The 4% SA is offering is comparatively attractive, and even OA’s 2.5% is nothing to sneeze at. So I don’t think you should go with the CPFIS unless and until your SA is “full,” OA is piling up, and you have a long enough time horizon to make that ~3% more realistically obtainable.

Hi BBCWatcher, are you one of the 800?

https://www.straitstimes.com/singapore/community/over-800-volunteer-to-share-cpf-know-how

 

[BBCWatcher]

To elaborate on an earlier comment, let’s suppose the BTO costs $300,000, you’re going to use OA for the 10% down payment ($30,000), and you want to keep $30,000 in OA ($15,000 per person) when you pick up the keys next year. So you need $60,000 of OA total, but the $60,000 target is your aim point for next year. What you can/should do now, with that sort of plan (if that’s your plan, or similar), is figure out how much OA to transfer into SA before the end of this month, factoring in expected compulsory contributions and 2021 interest credited between now and key pickup to your OAs. That is to say you can get a jump start, right now, on earning the higher SA interest on some portion of what’s currently sitting in OA. If you wait until just before key pickup then make the transfer, you’ll miss several months of SA interest you could already be earning on that surplus.

Does that make sense?

 

[BBCWatcher]

Hi BBCWatcher, are you one of the 800?

No, but if someone else is I wouldn’t mind learning their perspectives.

 

[snowcrabramyeon]

No, but if someone else is I wouldn’t mind learning their perspectives.

Regardless, I think you are doing very good service to the community here by generously sharing your knowledge

 

[BBCWatcher]

I also notice that Shallow and his wife are not currently earning maximum bonus interest unless they each have at least $20K in their respective MediSave Accounts. Thus SA could earn 5% interest on the first transferred dollars, including the bonus interest. That’s even more special.

 

[shallow]

I also notice that Shallow and his wife are not currently earning maximum bonus interest unless they each have at least $20K in their respective MediSave Accounts. Thus SA could earn 5% interest on the first transferred dollars, including the bonus interest. That’s even more special.

Thank you BBC and everybody else. My wife and I have initiated the transfer from OA to SA in token sum (10K) because we felt intimidated if we do in 1 sitting, just dipping our toe in to get comfortable. Will probably transfer in several tranches after calculating clearly how much we both need to keep in our OA for mortgage payment buffer. Thank you!

 

[duhduhduh]

Hi all, will be taking hdb loan with my wife in 2022 and i have the following plan to optimize our cpf.

my cpf bal:
Oa 56k
sa:20k

wife
oa 127k
sa 20k

other assets combined:
50k emergency fund
70k investment

hdb balance : 330k
20k down payment
reminder will be hdb loan over 30 years

I do have a plan to maximize yield from CPFSA so i plan to have wife and i to transfer most of our OA to SA right before we take HDB loan. Generally the reason for this strategy is to earn that 4% from SA while paying 2.6% interest to HDB
we still have about 20k of down payment payable in 2022 as well. with this we expect about 1.3k mortgage payment which will be paid thru our cpf in equal contribution (50% each). also, in the future when we have kid, we expect wife to take a break from working to look after kid full time (at least for first few years). For wife, she will keep about 50k balance in OA so that when she suddenly need to stop working, this 50k is to help supplement the mortgage payment for 6.4 years after which i will be taking over. is this a sound plan or is there anything that i may have overlooked?

I understand the rationale for transfering most of OA to SA before HDB loan is to earn the 4%.
But with that done, doesn't it means you have a higher amount of HDB loan to pay?

Correct my understanding - so you are trying to drag the loan tenure, since you are having your existing monies (transferred from OA to SA) to earn the 4%?

EDIT: I just realised it is about CPF SA shielding. Ignore me... i thought Shallow was a young person

 

[BBCWatcher]

I understand the rationale for transfering most of OA to SA before HDB loan is to earn the 4%.
But with that done, doesn't it means you have a higher amount of HDB loan to pay?

Yes, but that's not a bad thing. All dollars paid for a BTO are basically locked for at least 5 years (the Minimum Occupation Period), and you can only get them back in any form if you sell the leasehold. When your dollars are earning 4.0% interest on a 2.6% interest loan, you win, big time. You want that happy situation to last as long as possible as much as possible.

And that's not even counting the option for a (currently) lower interest rate bank mortgage, an option that's available for up to 75% of the valuation.

Also, most people using OA to pay their mortgages have Home Protection Scheme coverage. If you pay too much principal too soon then die (or experience a terminal illness or severe disability), the HPS simply pays out less. You lose the entire value of any accelerated payment on your insured share of the mortgage.

 

[duhduhduh]

Yes, but that's not a bad thing. All dollars paid for a BTO are basically locked for at least 5 years (the Minimum Occupation Period), and you can only get them back in any form if you sell the leasehold. When your dollars are earning 4.0% interest on a 2.6% interest loan, you win, big time. You want that happy situation to last as long as possible as much as possible.

And that's not even counting the option for a (currently) lower interest rate bank mortgage, an option that's available for up to 75% of the valuation.

Also, most people using OA to pay their mortgages have Home Protection Scheme coverage. If you pay too much principal too soon then die (or experience a terminal illness or severe disability), the HPS simply pays out less. You lose the entire value of any accelerated payment on your insured share of the mortgage.

Hello BBC,

Thanks for replying!

But I don't quite get what you mean. Wouldn't keeping balance in your OA help you with your future monthly payments as well?

So in this scenario, I am assuming I will transfer any of my available OA (after the rownpayment and stuff) to SA to earn 4% and my future monthly contribution will then be used to pay off the 2.5% monthly HDB loan?

But isn't this a bit risky if one loses his or her job where there's no income stream to OA? Then this requires the person to top up with cash?

Correct me if I misunderstand!

EDIT: I just read Shallow's last paragraph. The wife is keeping 50K in OA as 'backup funds'. Taking into this account then it truly makes sense.

 

[BBCWatcher]

EDIT: I just read Shallow's last paragraph. The wife is keeping 50K in OA as 'backup funds'. Taking into this account then it truly makes sense.

Inclusive of the future down payment. When you pick up the keys, anything above $20K per spouse in OA is swept into leasehold equity. Let’s suppose for example the key pickup is on June 15, 2022, and the couple needs a $30,000 down payment (10% of a $300,000 BTO). That means by that time they can have up to $70,000 in combined OA balances and avoid a “sweep”: $30,000 for the down payment plus up to $20,000 left in each of their OAs.

Note that it’s now possible for Shallow’s wife to transfer OA dollars into Shallow’s SA because she has reached the Basic Retirement Sum already. And that’s something to consider, particularly depending on their respective tax brackets, expected future earnings, and SA top up (for tax relief) inclinations.

 

[duhduhduh]

Inclusive of the future down payment. When you pick up the keys, anything above $20K per spouse in OA is swept into leasehold equity. Let’s suppose for example the key pickup is on June 15, 2022, and the couple needs a $30,000 down payment (10% of a $300,000 BTO). That means by that time they can have up to $70,000 in combined OA balances and avoid a “sweep”: $30,000 for the down payment plus up to $20,000 left in each of their OAs.

Note that it’s now possible for Shallow’s wife to transfer OA dollars into Shallow’s SA because she has reached the Basic Retirement Sum already. And that’s something to consider, particularly depending on their respective tax brackets, expected future earnings, and SA top up (for tax relief) inclinations.

Wow okay, this is something I am not aware of.

1. Meaning based on what we have discussed so far, we should keep our OA to an bare sufficient amount of the 30k (and transfer to excess amount to SA for 4%) prior to key pickup.
> Is there anywhere I can read up more on the process of how and when the HDB loan kicks in during the HDB flat purchasing process?
> Based on the link here, I can only see that 10% downpayment will be charged during lease signing? Is there something that is off here? Saw that you mentioned on key pick up. (sorry I am still a noob on buying a flat....)

OR did I misread your line???
Meaning suppose for key pick up is on June 15, 2022.
> Couple would have settled the 30k payment (before hand)
> The remaining in the OA should be at about 20K (to prevent it being swept into leasehold equity)
Did I get your meaning correctly?