....Now, she wants to lower her shield by topping up funds into her RA to form the FRS of $176K and thereafter sell the unit trust that was purchased earlier using the SA funds (proceeds to be repaid to the SA).
Options:
(a) Repay $141K cash to CPF OA to reduce the outstanding amount used for property investments and then transfer such amount to her RA to form the FRS - rationale is to reduce the amount outstanding to CPF OA whilst topping up her RA; or
(b) Top up $141K cash directly into her RA to form the FRS - rationale is to maintain the amount owing to CPF OA to allow flexibility to maximise the top-up of OA in the future.
• Thereafter, sell the SA unit trust and restore the SA balance.
Which would be a better option for her? I am thinking of (b).
Fundamentally I agree, but she's sitting on S$3.7 million in cash so she doesn't have to stop at the Full Retirement Sum. Why doesn't she top up her Retirement Account to the Enhanced Retirement Sum in one go? That'll require less than 7% of her massive cash pile.
She also has the option of topping up her Retirement Account again every time the ERS is raised. Lately the CPF Board has been increasing the ERS annually every January 1, so presuming that continues she could top up her RA in late January every year to the new ERS for the rest of her life if she wishes.
Is that a good deal in investment terms for her? Hell yes, I'd say.
Since she is so cashed up and her cash returns would not exceed the 2.5% paid by CPF OA, she should maximise the amount she can top up to OA in the future and use it as her bank account (after fully utilising her funds from SA).
Yes, exactly. Why "burn" any of that OA repayability unnecessarily?
To recap, here's the priority order for her (a person flush with cash who evidently has no better outlets for it):
1. Max out her RA with cash first ("ERS now, ERS forever");
2A. Pump cash into MediSave, up to the new BHS. She's already done this for 2020, and she'll be able to do this at least until the BHS is fixed for her when she celebrates her 65th birthday.
2B. Since, as a homemaker, she presumably has no compulsory contributions into CPF, pump another $34,940 into "all three" of her CPF accounts through a Voluntary Contribution. (The $34,940 figure for 2020 comes from $37,740 less the $2,800 she just pumped into MediSave.) A portion of her $34,940 will land in her Special Account where that portion earns 4% interest, so this pathway is a bit better than 2.5% interest -- i.e. a bit better than OA repayment.
She can also repeat steps 2A and 2B every late January if she wishes: top up her MediSave Account to the new BHS (she may qualify for some tax relief since she might have enough taxable rental income), then make a VC ("all three" contribution) for the remaining amount up to the CPF Annual Limit.
For future reference, she was too early with her MediSave Account top up this year. She gains no advantage doing that so early within this month (January) since interest on that top up won't start until February 1, and she loses a bit of bank interest for too much of January. (Yes, OK, she can afford that lost interest.
) A MediSave contribution via PayNow QR on the second to last business day of January should be perfectly fine.
3. Then, if she still wants to pump even more cash into CPF, repay her OA plus accrued interest. That'll earn 2.5% interest....
....and she'll
still have ~S$3 million in cash after steps 1, 2A, 2B, and 3 for 2020.
