CPF Top up questions

[cal3135]

Hi, @55 with your assumptions;

U be able to withdraw(SA shielded);
SA: 660k
OA: 320k

if ERS is at 520K at that time, how much can I withdraw?
Is it as such?
Balance
OA: 800K - 480K = 320K
SA: 700K - 40K = 660K
RA: 480K from OA + 40K from SA
Able to withdraw
1) 300K OA, 660K SA
Or
2) 300K OA, 660K - 14K SA??
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[abutan]

The $2800 will be refunded to you in Jan 2021 and the interest earned on that amount will be returned to CPF.

Assuming my MC from employment only exceed the limit of 37,740 in Oct 2020, will CPF refund me the interest earned on the 2800 for the months my VC did not hit the limit I.e Jan to Sep 2020. ? Or The interest is only refunded from Oct when my MC hit the limit?

 

[decibel.]

If no change in rules, ERS is 3x BRS and FRS is 2x BRS. If ERS is 520k as mentioned above, then FRS should be 346k (nearest thousand).

At 55, SA followed by OA will be transferred to RA to meet FRS and any balance can all be withdrawn except MA. If you want ERS, you need to ownself transfer from SA followed by OA to meet ERS.

In your case -

SA 700k - 346k (FRS in RA) = 354k withdrawable
OA 800k wholly withdrawable

If you opt for ERS, you have to transfer another 174k from SA to RA to meet ERS of 520k or pay by cash, if you do not wish to touch your withdrawable (anytime) SA balance.

You can do this ONLY if you use the SA shielding trick.
If you do not use the SA shielding trick, then the 520k RA will be fully deducted from your SA. After that, any withdrawal will come out of your SA before your OA.

Hi, @55 with your assumptions;

U be able to withdraw(SA shielded);
SA: 660k
OA: 320k

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Thanks all. I will do shielding to keep most funds in SA. I'm just wondering if I had done top up 14K cash to SA will I need to subtract that from withdrawal? Also the 10.5K VC to MA need to subtract? I remember some part that says exclude top up and interest thingy ?

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[vectorguru]

wow. if i use your formula and cal for 20 years, it will be around $480k in 2040. i don't think it is too realistic

ya, think 5% abit too kiasu already, perhaps use 3% then....181k x 1.03^20 = 327k.

 

[Patapon2]

Assuming my VC from employment only exceed the limit of 37,740 in Oct 2020, will CPF refund me the interest earned on the 2800 for the months my VC did not hit the limit I.e Jan to Sep 2020. ? Or The interest is only refunded from Oct when my VC hit the limit?

Good qns! I am also keen to know whether the 2800 accrue interests till the day it hits the Annual Limit or it’s a all or none thing and CPF will just refund 2800 WITHOUT interest in Jan 2021

Any experts can help?

 

[henrylbh]

Assuming my VC from employment only exceed the limit of 37,740 in Oct 2020, will CPF refund me the interest earned on the 2800 for the months my VC did not hit the limit I.e Jan to Sep 2020. ? Or The interest is only refunded from Oct when my VC hit the limit?

VC from employment? Normally, it's MC (mandatory contribution) and it can never exceed the monthly contribution limit based on OW (ordinary wage) of 6k. If AW cause MC to exceed annual limit, the employer has to make a correction.

 

[henrylbh]

ya, think 5% abit too kiasu already, perhaps use 3% then....181k x 1.03^20 = 327k.

Rate of increase in FRS/MS

1995 - 12.99%
1996 - 12.50%
1997 - 11.11%
1998 - 10.00%
1999 - 9.09%
2000 - 8.33%
2001 - 7.69%
2002 - 7.14%
2003 - 6.67%
2004 - 5.63%
2005 - 6.51%
2006 - 5.11%
2007 - 5.29%
2008 - 6.43%
2009 - 10.38%
2010 - 5.13%
2012 - 6.50%
2013 - 6.11%
2014 - 6.47%
2015 - 4.73%
2016 - 3.87%

Then fixed at 5k annual increase to 2020.

Incidentally, it was also increased by 5k per year from 1996 to 2003.

The highest increment was 11k in 2009.

 

[abutan]

VC from employment? Normally, it's MC (mandatory contribution) and it can never exceed the monthly contribution limit based on OW (ordinary wage) of 6k. If AW cause MC to exceed annual limit, the employer has to make a correction.

Paiseh, MC not VC, it was a typo. Coz AW are bonuses and highly likely to breach MC sometime in 2020. What do U mean by make a correction?

 

[nautilus]

Good qns! I am also keen to know whether the 2800 accrue interests till the day it hits the Annual Limit or it’s a all or none thing and CPF will just refund 2800 WITHOUT interest in Jan 2021

Any experts can help?

I just did a calculation of this to confirm this. It’s pretty convoluted.

Say for example you already hit BHS in dec 2019 and you top up $2800 in early Jan 2020 to hit the 2020 BHS. CPF will take the total contribution from Feb 2020 to Jan 2021 to determine if it exceeds the CPF annual limit for FY20. If it does, they will refund the $2800 to you in feb 2021.

 

[henrylbh]

Paiseh, MC not VC, it was a typo. Coz AW are bonuses and highly likely to breach MC sometime in 2020. What do U mean by make a correction?

Ask your HR. Wherever an employer makes over (or under) contribution, it needs to submit correction. Max contribution on monthly OW is on 6k x 12. That leaves room for contribution on max of 30k on AW.

 

[Project_Xco]

FRS: $181,000
ERS: $271,500

After 55, govt will set aside RA up to FRS.

They mentioned you can top up RA up to ERS.

Let's say at 55, i top up RA till $260k ($11.5k short of hitting ERS). After few years, due to RA interest effect, it should have grown and surpass the ERS. Can I still top up?

Correct me if anything above is wrong.

 

[decibel.]

FRS: $181,000
ERS: $271,500

After 55, govt will set aside RA up to FRS.

They mentioned you can top up RA up to ERS.

Let's say at 55, i top up RA till $260k ($11.5k short of hitting ERS). After few years, due to RA interest effect, it should have grown and surpass the ERS. Can I still top up?

Correct me if anything above is wrong.

Top up using cash or transfer?

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[henrylbh]

FRS: $181,000
ERS: $271,500

After 55, govt will set aside RA up to FRS.

They mentioned you can top up RA up to ERS.

Let's say at 55, i top up RA till $260k ($11.5k short of hitting ERS). After few years, due to RA interest effect, it should have grown and surpass the ERS. Can I still top up?

Correct me if anything above is wrong.

Can still top up …. the difference between FRS at 55 and prevailing ERS less top ups since 55. Ignore increment due to interest, government top ups etc.

 

[henrylbh]

Top up using cash or transfer?

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Up to you.

 

[linzw00]

i am toying with the idea of returning principle sum of loan back to OA (20k partial). then from OA transfer the same amt to SA to earn higher interests. i think the fall back of this is i couldn't get tax break out of this..

 

[rizhal]

i am toying with the idea of returning principle sum of loan back to OA (20k partial). then from OA transfer the same amt to SA to earn higher interests. i think the fall back of this is i couldn't get tax break out of this..

Interesting point.

Does it mean that when I pass on, my children sell the hdb (bought with my OA) and CPF will claw back all accrued interest and leave little sale proceed to my children? So I should pay back loan principle when I can afford to do so, so that my children will get bigger sale proceed? TIA.

 

[BBCWatcher]

i am toying with the idea of returning principle sum of loan back to OA (20k partial). then from OA transfer the same amt to SA to earn higher interests. i think the fall back of this is i couldn't get tax break out of this..

There's the rub. If you qualify for tax relief, the tax relief is valuable, and you really ought to grab it. So you could instead consider a $7K cash top up and a $13K OA repayment/OA to SA transfer in the scenario you describe. Or, if you're in the 11.5% income tax bracket for example, how about $7,000 directly into your Special Account and $13,805 of OA repayment and OA to SA transfer? The extra $805 is your income tax savings (11.5% of $7,000), meaning $20,805 added to your Special Account that "combo" way has an equal cost to you (somebody in the 11.5% tax bracket) of $20,000 added without the direct SA top up. Adjust slightly if you'd like to account for the fact that the $805 is paid in the future, in the form of a reduced income tax bill next year, but you get the idea, hopefully.

Yes, I know the top up plus accrued interest is committed to your future Retirement Account (and well rewarded), but don't plan/aspire to be poor, OK? And the immediate tax relief is valuable and helps you be less poor, as the above example illustrates.

Does it mean that when I pass on, my children sell the hdb (bought with my OA) and CPF will claw back all accrued interest and leave little sale proceed to my children?

No, that's not how it works.

So I should pay back loan principle when I can afford to do so, so that my children will get bigger sale proceed?

No, you should only pay back Ordinary Account dollars (and accrued interest) used for housing when that (your CPF Ordinary Account) is the next best available choice for your savings. That's not often the case, but it is sometimes the case. For example, if you're approaching or at age 55, and if you've got thousands of dollars or more stewing in ordinary bank accounts and fixed deposits earning less than 2.5% interest, then chances are repayment into your 2.5% interest earning Ordinary Account is comparatively attractive. It might not be the best available savings/investment choice -- "it depends" -- but it's certainly better than a 1.8% interest fixed deposit.

 

[Project_Xco]

Can still top up …. the difference between FRS at 55 and prevailing ERS less top ups since 55. Ignore increment due to interest, government top ups etc.

Ok thanks man. Prevailing ERS means my ERS will be determined and 'fixed' the year i turn 55? Any increase in ERS the following years will not affect my ERS right?

 

[BBCWatcher]

Prevailing ERS means my ERS will be determined and 'fixed' the year i turn 55? Any increase in ERS the following years will not affect my ERS right?

No. Under current rules, you're allowed to top up your Retirement Account to the then current Enhanced Retirement Sum (ERS) starting when your Retirement Account is formed on your 55th birthday and then whenever the CPF Board raises the Enhanced Retirement Sum, which for the past few years has been every year on January 1. You can do this every time the ERS is raised, for the rest of your life, and only principal (not interest) is counted for purposes of determining how much top up room you have below any/every new ERS.

Being allowed to top up more every year is unambiguously a good thing. You're not required to do so, but you have the choice.

You might be thinking of the Basic Healthcare Sum (BHS), which applies to your MediSave Account and which increases annually on January 1 (according to current practice) except for those who are age 65 and older. Once you reach age 65, the then current BHS is fixed for you for life.

 

[Project_Xco]

Thanks BBC. So moving ERS and fixed BHS.