CPF Top up questions

[BBCWatcher]

As a follow up, here's an interesting maneuver that may be available to you. Please double check whether this actually works before attempting it.

Let's suppose you have an older sibling, Polyglobia, who is 56 years old. This older sibling has a Retirement Account funded to the Full Retirement Sum. You strike a deal with her, and the deal has two parts:

1. You transfer OA dollars to top up Polyglobia's Retirement Account to the Enhanced Retirement Sum (or closer to the ERS).

2. When your Retirement Account is formed on your 55th birthday (in 2021 presumably), Polyglobia transfers the same number of OA dollars, plus 2.6% p.a. interest (a little more than what you would have earned on them and a lot less than what she earned in her Retirement Account), to top up your new Retirement Account up to the ERS (or close to it).

Could that work or something like it? It's a little unclear from the CPF Board's description, but it looks like it might.

 

[polyglob]

You could take a look at the following family members' Special and Retirement Account balances:
to see if there are any good transfer opportunities. The CPF Board provides some more information on those transfer options here.

Thanks. Spouse's CPF balances are in good shape. Will check out the others.

invest now via the CPF Investment Scheme (OA). Although I think the CPFIS (OA) is kind of dubious this close to age 55 since you're probably better off just withdrawing OA dollars while SA is shielded and then reinvesting those OA dollars outside of the high cost/limited choice CPFIS.

Agree. Anyways I am fully invested with my non-CPF monies. As markets continue to reach new highs my portfolio is doing well and I don't have FOMO.

 

[polyglob]

As a follow up, here's an interesting maneuver that may be available to you. Please double check whether this actually works before attempting it.

Interesting scheme...

 

[Okenba]

Agree. Anyways I am fully invested with my non-CPF monies. As markets continue to reach new highs my portfolio is doing well and I don't have FOMO.

What's your asset allocation? Are you concerned that the market might crash just before you hit 55?
Curious. =)

 

[polyglob]

What's your asset allocation? Are you concerned that the market might crash just before you hit 55?
Curious. =)

Excluding CPF, 85-10-5, plus 5 months emer cash fund. Not worried about crash:

- I won't lose sleep even if stock portfolio has a 50% MTM drawdown as long as I don't have to realize the loss.

- I am close enough to 55 that I can draw on my FI and then CPF to sit out a stock market downturn. If the downturn lasts more than 2 years, then tighten the belts a bit will be fine.

- My home is fully owned. Its market value is well ahead of what I paid including interests. Worst case, I sell and downsize.

 

[Okenba]

Excluding CPF, 85-10-5, plus 5 months emer cash fund. Not worried about crash:

- I won't lose sleep even if stock portfolio has a 50% MTM drawdown as long as I don't have to realize the loss.

- I am close enough to 55 that I can draw on my FI and then CPF to sit out a stock market downturn. If the downturn lasts more than 2 years, then tighten the belts a bit will be fine.

- My home is fully owned. Its market value is well ahead of what I paid including interests. Worst case, I sell and downsize.

Thanks. I ask because I'm wondering if I should be more conservative as I approach 55 so that I can use cash from investments to top up to ERS.

If I go for more asset preservation, will not accumulate as much, but greater confidence to be able to top up to ERS at 55.

If I stay full accumulation, then may have to accept that I may not be able to top up to ERS at 55, or may have to use more CPF and may even affect shielding. =/

 

[BBCWatcher]

I ask because I'm wondering if I should be more conservative as I approach 55 so that I can use cash from investments to top up to ERS.

If I go for more asset preservation, will not accumulate as much, but greater confidence to be able to top up to ERS at 55.

If I stay full accumulation, then may have to accept that I may not be able to top up to ERS at 55, or may have to use more CPF and may even affect shielding. =/

Polyglob already has S$500K in combined OA+SA balances at age 53, so it appears Polyglob has ample maneuverability to push his/her Retirement Account up to the Enhanced Retirement Sum when formed on his/her birthday if that's what Polyglob wishes to do. The 2021 Enhanced Retirement Sum will be $279,000, and that's barely more than half Polyglob's current ~S$500K balance by the time you add the interest that'll be credited on December 31, 2020. (The interest will be about S$16,850 assuming a full year of interest on the whole S$500K.)

Take a look at how your current CPF balances look, make a reasonable forecast about your future compulsory contributions, add in the interest, and estimate what your balances are going to look like around age 54.5. Assume a 3%/year increase in the ERS. If you feel like you want to tweak your current trajectory a bit, OK, but you may be in fine shape already and converging well on the ERS.

And, as always, don't forget about your spouse/partner.

 

[polyglob]

Thanks. I ask because I'm wondering if I should be more conservative as I approach 55 so that I can use cash from investments to top up to ERS.

I am also thinking about ERS.

What's your rationale for wanting ERS? I mean, payout is higher of course. So you think the higher payout outweighs losing the flexibility over that chunk of cash?

 

[BBCWatcher]

Interesting scheme...

It critically hinges on whether CPF draws only from your Ordinary Account for these transfers. If they do, it certainly looks like what I'm describing is viable, assuming you have at least one cooperative, qualified family member who is positioned well for these purposes.

If the choice is between an ERS-level Retirement Account and a higher Special Account, that's an "interesting choice." (The bigger RA might still be desirable, but it's a closer call.) But if you're able to execute the maneuver I've described, or something similar, you don't need to make that choice. You can do both, because you'd be circulating OA dollars into somebody else's Retirement Account (or conceivably Special Account) and then they'd be doing the same in reverse when your RA is formed. Interesting! I hope it's possible.

 

[Okenba]

I am also thinking about ERS.

What's your rationale for wanting ERS? I mean, payout is higher of course. So you think the higher payout outweighs losing the flexibility over that chunk of cash?

For an additional 90.5k, we get an additional 6k per year. That's a withdrawal rate of more than 6% a year. Don't think we can find anything to beat that.

I'm simple like that. =D

 

[sg_lancelot]

That'll be in 2027 or later, presumably. It depends on what you expect to be doing after you sell your BTO in terms of replacement housing (which could be housing with about the same capex, higher capex, lower capex, or no capex), how much other wealth your household (and perhaps wider family including inlaws) have, and the contribution flows into CPF over the next 7+ years.


Yes, that math is quite straightforward. Take your combined household OA balances (your spouse counts too!), divide by your monthly mortgage payment, and you have the minimum number of months that your OA balances can service your mortgage at current interest rates.


It seems like you've got the basics down. I would also point out that if your Special Account is bigger sooner, more of your future money is working harder, longer. That means you can slightly reduce your current non-CPF retirement savings flow and still arrive at the same desired retirement outcome....

....What, you're not saving and prudently investing for retirement beyond CPF (you might say)? OK, it'd probably be a good idea to fix that, but more dollars working harder, longer in SA means it's a little easier to fix.


Yes, but factor into the equation the expected CPF inflows over the next couple years. The OA balance keeps increasing with every paycheck, and there's 2.5% interest credited every December 31st.


The 55th birthday creation and funding of the Retirement Account is:

1. A good thing, because that's what funds your future foundational lifetime retirement income (CPF LIFE). The better funded your RA, the higher your monthly retirement income will be.

2. Not peculiar to the Special Account. Dollars are drawn first from the Special Account but, if the Special Account is not sufficient to fund the RA to the then current Full Retirement Sum, dollars will be drawn from the Ordinary Account. (Special Account "shielding" is at least currently possible.)

3. Easier to fund if you have more dollars in your Special and Ordinary Accounts, and you will definitely have more dollars if your Special Account is bigger sooner, earning the higher annually compounded interest that the Special Account enjoys.

Thanks BBCWatcher for taking the time to craft such an insightful reply!

 

[henrylbh]

As a follow up, here's an interesting maneuver that may be available to you. Please double check whether this actually works before attempting it.

Let's suppose you have an older sibling, Polyglobia, who is 56 years old. This older sibling has a Retirement Account funded to the Full Retirement Sum. You strike a deal with her, and the deal has two parts:

1. You transfer OA dollars to top up Polyglobia's Retirement Account to the Enhanced Retirement Sum (or closer to the ERS).

2. When your Retirement Account is formed on your 55th birthday (in 2021 presumably), Polyglobia transfers the same number of OA dollars, plus 2.6% p.a. interest (a little more than what you would have earned on them and a lot less than what she earned in her Retirement Account), to top up your new Retirement Account up to the ERS (or close to it).

Could that work or something like it? It's a little unclear from the CPF Board's description, but it looks like it might.

Interesting scheme...

What's interesting? Sounds like lppl.

S has 90500 in OA and 181k in RA.

You transfer 90500 from your OA to S’s RA,

At 55, S transfer his OA to your RA.

Did I miss out anything?

 

[henrylbh]

I am also thinking about ERS.

What's your rationale for wanting ERS? I mean, payout is higher of course. So you think the higher payout outweighs losing the flexibility over that chunk of cash?

For an additional 90.5k, we get an additional 6k per year. That's a withdrawal rate of more than 6% a year. Don't think we can find anything to beat that.

I'm simple like that. =D

Yes, stay simple. No doubt, higher CPFL gets higher payout. No need to weigh the flexibility of holding a chunk of cash even if it's sitting in SA

 

[a4973]

It critically hinges on whether CPF draws only from your Ordinary Account for these transfers. If they do, it certainly looks like what I'm describing is viable, assuming you have at least one cooperative, qualified family member who is positioned well for these purposes.

If the choice is between an ERS-level Retirement Account and a higher Special Account, that's an "interesting choice." (The bigger RA might still be desirable, but it's a closer call.) But if you're able to execute the maneuver I've described, or something similar, you don't need to make that choice. You can do both, because you'd be circulating OA dollars into somebody else's Retirement Account (or conceivably Special Account) and then they'd be doing the same in reverse when your RA is formed. Interesting! I hope it's possible.

Hi BBCWatcher, for the spouse to spouse OA to RA transfer. Is the interest earned as follows : Spouse that transfer out OA earns interest on the lowest amount in the account for that month. The spouse that receive the funds in RA only earns interest on the new funds the following month?
Thank you for your help

 

[BBCWatcher]

Hi BBCWatcher, for the spouse to spouse OA to RA transfer. Is the interest earned as follows : Spouse that transfer out OA earns interest on the lowest amount in the account for that month. The spouse that receive the funds in RA only earns interest on the new funds the following month?

Yes, that seems to be the case. There's apparently a loss of one month of 2.5% interest on this money. Of course the gain is that the money starts earning 4% interest in a Retirement Account.

For OA to SA transfers within a single member's account there's no loss of the interest. In fact, the SA interest rate is "backdated" to the beginning of the month in which the transfer is made. But for cross-member transfers my understanding is that there's one month of lost interest. Please confirm that with the CPF Board, of course.

The CPF Board says in the "FAQ" section of their Web site that, for transfers to your spouse's Retirement Account, dollars are drawn from your Ordinary Account first. Upon quick check it looks like it's the same for other eligible recipients. I wasn't sure about that particular detail, but it looks OK.

 

[henrylbh]

Hi BBCWatcher, for the spouse to spouse OA to RA transfer. Is the interest earned as follows : Spouse that transfer out OA earns interest on the lowest amount in the account for that month. The spouse that receive the funds in RA only earns interest on the new funds the following month?
Thank you for your help

The Giver will not earn any interest on the amount transferred out during the month.

There Recipient will not earn any interest on the amount received during the month.

Just make sure the out and in happened in the same month.

 

[JF123456]

Hi, I'm reaching 55 yrs next year.
SA 200k,. OA 40k,. MA 52K
Not working. I wld like to top up 37k in order to earn better interest than fd.
Q1, do I hv any option on how to allocate my top up? Using cpf calculator, it shows 11k MA, 11K SA , 15K OA.
But my current MA is 52K. Does it mean actual allocation is MS 8K, SA 11K , 18K OA?
Q2, when can I withdraw this top up? 65yrs?
Q3, can my spouse able to cpf xfer any $ to my cof acct, esply MA?
Pls help to adv.. weighing my option btw cpf vs fd.. esply since nearer 55 yrs n hopefully to get more withdrawal flexibility. Thx in advance for any help.

 

[highsulphur]

Hi, I'm reaching 55 yrs next year.
SA 200k,. OA 40k,. MA 52K
Not working. I wld like to top up 37k in order to earn better interest than fd.
Q1, do I hv any option on how to allocate my top up? Using cpf calculator, it shows 11k MA, 11K SA , 15K OA.
But my current MA is 52K. Does it mean actual allocation is MS 8K, SA 11K , 18K OA?
Q2, when can I withdraw this top up? 65yrs?
Q3, can my spouse able to cpf xfer any $ to my cof acct, esply MA?
Pls help to adv.. weighing my option btw cpf vs fd.. esply since nearer 55 yrs n hopefully to get more withdrawal flexibility. Thx in advance for any help.

Perhaps you can write in to CPF for your questions. I find them very helpful and responsive

 

[BBCWatcher]

Hi, I'm reaching 55 yrs next year.
SA 200k,. OA 40k,. MA 52K
Not working. I wld like to top up 37k in order to earn better interest than fd.

The CPF Annual Limit for an "all three account" contribution is $37,740 to be precise.

Q1, do I hv any option on how to allocate my top up? Using cpf calculator, it shows 11k MA, 11K SA , 15K OA.

Sorry, no option. The contribution is allocated according to the rules for your age and including your MediSave Account's Basic Healthcare Sum limit. If you're age 54 and make a voluntary contribution of $37,740, here's how it'll be allocated:

MA: ~$8,000 (to top it up to $60,000, the 2020 Basic Healthcare Sum)
SA: $11,729.59
OA: ~$18,010.41 (the MA portion above the Basic Healthcare Sum spills over into your OA since your SA has already reached the Full Retirement Sum)

A bit of advice, though: you're better off making a MediSave contribution first followed by an "all three" contribution. The total of these two contributions should be $37,740 or less. You get exactly the same result in terms of balances, but just in case you have enough taxable income in 2020 (Year of Assessment 2021) you'll get tax relief on the MediSave portion. For example, if you decide to go back to work (family emergency?) and/or have taxable rental income, you may get some tax relief. It doesn't hurt to split this up into two successive top ups and might help, so you might as well do it that way.

But my current MA is 52K. Does it mean actual allocation is MS 8K, SA 11K , 18K OA?

Yes, that's right.

Q2, when can I withdraw this top up? 65yrs?

For the MediSave portion, as soon as immediately, if you have a MediSave payable medical expense.

For the rest, as early as age 55. You already have plenty of dollars in your OA+SA to fund your Retirement Account to the Full Retirement Sum when it's created on your 55th birthday. Consequently all dollars added now to both your OA and SA can be withdrawn at age 55.

If you want to withdraw dollars from your Retirement Account, this top up may reduce the maximum amount you can withdraw (with a sufficient property pledge or charge). If you don't plan to withdraw many (or any) Retirement Account dollars, or (better yet) if you plan to boost your Retirement Account above the Full Retirement Sum, then this particular detail doesn't matter.

Q3, can my spouse able to cpf xfer any $ to my cof acct, esply MA?

Via CPF Form MHC-TRF, yes. Please note that the transferred funds would be drawn from your spouse's Special Account first, and those funds are earning at least 4% interest too. So it doesn't generally make sense to do this.

However, I can think of one situation when this might make sense. Let's suppose your spouse meets all the following conditions:

(a) Under age 55;
(b) Has a Special Account with a balance that is a little above the Full Retirement Sum, or less than that amount; AND
(c) Will have taxable income in 2020 (pay income tax in Year of Assessment 2021).

In this case, she could transfer Special Account dollars to your MediSave Account, then top her Special Account back up to the Full Retirement Sum, with tax relief. If her Special Account is at or below the Full Retirement Sum, then up to $7,000 of tax relief is available this way. If her Special Account is slightly above the Full Retirement Sum then the two of you have to do a little extra calculating.

You would still have the $37,740 that you can top up, and (with your MediSave Account full, or fuller), more or all of that $37,740 would flow into your OA and SA.

Unfortunately there's no MediSave-to-MediSave transfer available between you and your spouse, but you can pay each other's MediSave payable expenses, as you prefer.

If I need to explain this particular maneuver in a little more detail, please let me know.

 

[BBCWatcher]

Perhaps you can write in to CPF for your questions. I find them very helpful and responsive

I agree, and that's also a good idea, but the CPF Board won't tell you about most of the optimization "tricks" and "hacks" such as the one I just described. Such details are fun to discuss here.