cpf Special account shielding

[BBCWatcher]

What's in the SRS account in that hypothetical?

 

[decibel.]

What's in the SRS account in that hypothetical?

To be specific, 400k in EndowUs' World Equity Fund through SRS.

 

[BBCWatcher]

I don't think you'd withdraw OA in this hypothetical scenario because you can't, not unless you draw down SA first. However, you could conceivably invest the OA dollars via the CPF Investment Scheme (OA). If the OA balance is "big" then that might make sense to achieve a desired age late 50s portfolio allocation.

 

[Okenba]

What would you recommend to do with OA balance if one has ERS in RA, 680k in SA, 400k in SRS, 500k in World ETF? Should one keep 100% balance in OA enjoy 2.5% guaranteed or withdraw in cash to get more bonds, or something else?

Take out and invest. Cash has more options than investing with OA.
Can use for expenses from 55-62. Then SRS, then CPFlife from 70.

I actually don't think Singaporeans need too much in bonds. Especially once they are on CPF life.

I think 2.5% should not be too difficult to beat? I'm thinking the 10yr SSB rates should push past 2.5%pa maybe some time next year...

 

[decibel.]

I don't think you'd withdraw OA in this hypothetical scenario because you can't, not unless you draw down SA first. However, you could conceivably invest the OA dollars via the CPF Investment Scheme (OA). If the OA balance is "big" then that might make sense to achieve a desired age late 50s portfolio allocation.

Technically if I shield my SA, then I could withdraw all my balance in OA at 55 since my RA is topped to ERS from OA, is that correct? If that is possible then would you recommend keeping in OA to invest from 55 onward or withdraw in cash then drawdown monthly before touching SA?

 

[decibel.]

Take out and invest. Cash has more options than investing with OA.
Can use for expenses from 55-62. Then SRS, then CPFlife from 70.

I actually don't think Singaporeans need too much in bonds. Especially once they are on CPF life.

I think 2.5% should not be too difficult to beat? I'm thinking the 10yr SSB rates should push past 2.5%pa maybe some time next year...

Oh you brought up interesting point. I wanted to start CPF life at 65. But my SRS would start at 62 then and last till 72. So maybe I should spread these out instead of overlapping. For SRS I'm using EndowUs, should I redeem all one shot at 62 and keep in SRS or just redeem on monthly basis like a typical retirement draw down portfolio? I wanted redeem one shot so to avoid tax, but not sure if that matters anyway.

 

[BBCWatcher]

Technically if I shield my SA, then I could withdraw all my balance in OA at 55 since my RA is topped to ERS from OA, is that correct?

Not quite. If you're shielding SA just prior to your 55th birthday then your RA is funded to the FRS (if possible) first from your SA (the $40,000 minimum you must leave behind) and then the rest from OA. Yes, at that point (while your SA shield is in place) you can withdraw some or all of the remaining OA dollars. You can redeposit some of those dollars in OA (or ask the CPF Board for a direct transfer while your SA shield is still up, but it amounts to the same thing). And that's a good thing to do in these circumstances in my view, but funding your RA to the ERS is not automatic.

If that is possible then would you recommend keeping in OA to invest from 55 onward or withdraw in cash then drawdown monthly before touching SA?

I'm not sure what the drawdown monthly part refers to unless you mean retirement on your 55th birthday, which isn't a default assumption anyway. Investment costs are lower outside CPF OA (for cash), so that's a good reason to withdraw.

 

[decibel.]

Not quite. If you're shielding SA just prior to your 55th birthday then your RA is funded to the FRS (if possible) first from your SA (the $40,000 minimum you must leave behind) and then the rest from OA. Yes, at that point (while your SA shield is in place) you can withdraw some or all of the remaining OA dollars. You can redeposit some of those dollars in OA (or ask the CPF Board for a direct transfer while your SA shield is still up, but it amounts to the same thing). And that's a good thing to do in these circumstances in my view, but funding your RA to the ERS is not automatic.

I'm not sure what the drawdown monthly part refers to unless you mean retirement on your 55th birthday, which isn't a default assumption anyway. Investment costs are lower outside CPF OA (for cash), so that's a good reason to withdraw.

Yes, I meant while my SA shield is up and RA is formed by taking 40k SA and remaining from OA to hit FRS. Keeping SA shield in place, I then transfer my OA to RA until ERS is reached and withdraw the rest of my OA into cash?

Then put the cash in some high savings account or invest in stable assets that are at least 2.5% or higher so that I can start monthly draw down for retirement at 55 from this sum I withdrawn from OA before touching my SA balance?

Will this be better than keeping in OA since if I keep all in OA, I have to draw down from SA balance first before touching OA from 55 onward?

 

[iMac]

Then put the cash in some high savings account or invest in stable assets that are at least 2.5% or higher so that I can start monthly draw down for retirement at 55 from this sum I withdrawn from OA before touching my SA balance?

I think there are hardly any "high savings account or stable assets that are at least 2.5% or higher".....that's why ppl always say leaving your money inside CPF is better.

 

[polyglob]

Will this be better than keeping in OA since if I keep all in OA, I have to draw down from SA balance first before touching OA from 55 onward?

A fully funded MA's interest overflows into OA. Once past 55, OA and SA become liquid. How much interest you can withdraw p.a. is 11/12 x (OA at 2.5% + SA at 4.0% + MA overflow at 4.0%). The 11/12 is becoz you withdraw in Dec for the interests earned from Jan thru Nov. This way principals are untouched. Total 12 months interests earned will be > 2.5% of total OA+SA+MA balance just by looking at the formula.

The numbers you are using for discussion are large. For 1M CPF balance as an example, Jan-Nov interest should be 20+k. Your other investments in SRS, cash, whatever should give more cash flow. By around age 55 you should already know your annual expenditure level. Maybe net net your total passive income, perhaps with some annual draw down on capital, already cover your living expenses.

Normally, for people in such situations, wealth preservation and risk reduction become the priority concerns.

 

[BBCWatcher]

Yes, I meant while my SA shield is up and RA is formed by taking 40k SA and remaining from OA to hit FRS. Keeping SA shield in place, I then transfer my OA to RA until ERS is reached and withdraw the rest of my OA into cash?

You can do that if you wish, yes. Or partially withdraw from the remaining OA balance.

Then put the cash in some high savings account or invest in stable assets that are at least 2.5% or higher so that I can start monthly draw down for retirement at 55 from this sum I withdrawn from OA before touching my SA balance?

As iMac pointed out, what's the "stable asset" that's reliably yielding what OA does? And do you even want a stable asset for those particular dollars? (Stable = lower yielding, other things being equal.) Maybe not. Maybe you want to take (more of) a calculated risk. Or maybe you just want to hand the money to a loved one. "It depends."

Will this be better than keeping in OA since if I keep all in OA, I have to draw down from SA balance first before touching OA from 55 onward?

Up to you really. The 2.5% interest rate is still quite good these days, but will it be over the next X decades? No one knows. You have to forecast that, and hopefully you make a reasonable forecast. Note that the CPF Investment Scheme (OA) is still available for OA balances in excess of $20K. The CPFIS(OA) is higher cost and less flexible than what you can do with cash, but it's a choice.

 

[vsvs24]

What would you recommend to do with OA balance if one has ERS in RA, 680k in SA, 400k in SRS, 500k in World ETF? Should one keep 100% balance in OA enjoy 2.5% guaranteed or withdraw in cash to get more bonds, or something else?

Technically if I shield my SA, then I could withdraw all my balance in OA at 55 since my RA is topped to ERS from OA, is that correct? If that is possible then would you recommend keeping in OA to invest from 55 onward or withdraw in cash then drawdown monthly before touching SA?

How much do you have in OA now ?

When are you turning 55 ?

Are you depending on the CPF drawouts after 55 for expenditure ie no income ?

 

[jtec14]

Hi all,

Just to check does it still make sense to do SA shielding if the balances in OA and SA does not meet FRS as OA are used for housing?

Thank you.

 

[karakorum1999]

Hi all,

Just to check does it still make sense to do SA shielding if the balances in OA and SA does not meet FRS as OA are used for housing?

Thank you.

If your combined (OA+SA) balance at 55 is less than BRS, then don’t bother.

If the balance is between BRS and FRS, there is some benefit but may not be so worth it, depending on individual preferences. You can do the shielding, then RA created, then you pledge property, then unshield SA, some SA may be swept to RA if RA is less than BRS. You get to enjoy 4% on your remaining SA until close to payout eligibility age (supposedly 6 months before) when there is another sweep of OA/SA to RA if RA less than FRS.

I am assuming you understand how the shield works.

On the other hand, those who end up having FRS (or more) in their RA at age 55, can do the shielding and enjoy the 4% on their SA “forever”…

 

[vsvs24]

Hi all,

Just to check does it still make sense to do SA shielding if the balances in OA and SA does not meet FRS as OA are used for housing?

Thank you.

If OA + SA does not meet FRS, no point doing SA shield.

If you are still using OA to pay for housing, before turning 55, remember to inform CPF Board that you need to reserve OA for housing.

 

[Nofear40]

I am not sure if my question will deviate from the thread subject title…
if I am selling my property when I am above 55, and i have met FRS then, will the proceeds be passed to me in cash? Or only proceeds - CPF withdrawal and accrued interest?
I understand that SA must be withdrawn first before OA. So in this case, if I am not buying another property, my funds will be in OA unless I withdraw my SA which give a good risk-free 4% interest rate

 

[qhong61]

I am not sure if my question will deviate from the thread subject title…
if I am selling my property when I am above 55, and i have met FRS then, will the proceeds be passed to me in cash? Or only proceeds - CPF withdrawal and accrued interest?

Cash or may leave in OA.

 

[BBCWatcher]

Just to check does it still make sense to do SA shielding if the balances in OA and SA does not meet FRS as OA are used for housing?

If OA + SA does not meet FRS, no point doing SA shield.

I may disagree with this, actually. It's not quite this simple, not always. It depends on what you're going to do. Let's suppose you have these balances headed into your 55th birthday month:

SA: $80,000
OA: $10,000

That's clearly less than the FRS. But you could still shield $40,000 of SA, and then you get this:

SA: $40,000
OA: $0
RA: $50,000

Whereupon you could top up your new Retirement Account to the Basic Retirement Sum (with property pledge/charge), Full Retirement Sum, or even all the way up to the Enhanced Retirement Sum, all with cash. If you're going to make a significant top up when your RA is created then "SA shielding" makes a huge amount of sense.

OK, next question: why not make the top up to your CPF Special Account now since you're well off the Full Retirement Sum? Well, there are a couple possible reasons. Maybe you just got a cash windfall (from an inheritance or home sale, as examples) and couldn't do it before. And/or maybe you're getting very near age 55 and now want to stuff as many dollars into CPF as you can. Once your top ups reach a certain level you start to increase the number of SA dollars that you cannot shield, driving the number of "left behind" SA dollars above $40,000. And thus you start reducing the total number of dollars that you can stuff into SA+RA. I don't think you should worry about this if you're well below age 55 since the tax relief and compound interest are compelling. However, if you're getting rather close to age 55 then it could be a factor to consider.

 

[BBCWatcher]

I thought of another situation when "SA shielding" could make a lot of sense even when you're going to fall short of funding your new CPF Retirement Account to the Full Retirement Sum (or Basic Retirement Sum with property pledge/charge). That's when you are opting out of CPF LIFE because you already have an acceptable private life annuity as a substitute. Opting out of CPF LIFE means you fill out a form and, if approved, the CPF Board empties your Retirement Account and hands you all the money in it, including accrued interest.

Empties the RA? The account earning 4.0% interest plus bonus interest? Yes, that one. If you allow the CPF Board to sweep more dollars from your SA into your RA, then those dollars (plus accrued interest on them) will also have to come out of your RA if you make this opt-out application. But (as I understand it) if the dollars remain in SA they can remain in SA, earning 4.0% interest and even bonus interest. Therefore shielding SA dollars makes sense, to keep more dollars earning that juicy interest longer.

I'm not 100% sure this is how it works, but I think it works this way. This is a weird "edge case." You wouldn't/shouldn't actually buy a private life annuity to opt-out of CPF LIFE. That doesn't make financial sense. But if such an annuity "lands in your lap" — if you already have one because that's what your generous great uncle bought you, for example — then OK, this is an option you might have. I still think the CPF LIFE deal is a great deal even if you do have a private life annuity, but I'm sketching out the scenario for you to consider if you're in this situation.

 

[Nofear40]

Cash or may leave in OA.

Meaning I have an option to get all proceeds in cash instead of letting it flow to OA? I do not wish to withdraw my SA after 55 due to the 4% interest rate