FRS vs ERS

[celtosaxon]

I would say that in either scenario (self-funded bucket approach or guaranteed annuity method) you’ve got to “lock up” a similar amount of capital to reliably generate a 3-4% income stream over your lifetime.

Although CPF LIFE does give you higher returns than the market on the safest bucket, is it enough of a game changer that it would allow one to pay a $250-500k for a grandchild’s Harvard education?

OK, but you don't have to self-insure and won't if you have a life annuity (such as CPF LIFE) in the pipeline. Since you have a life annuity in the pipeline, what can you do with it? Read on....


With a reliable life annuity in the mix, you're no longer restricted to a safe withdrawal rate. You're free, or at least more free, to give a grandkid 13.5% of your wealth on August 15, 2032, for tuition at a prestigious university, for example. Is that lifetime gift-ability worth something, or even a lot? Hell yes! It sure is worth a lot to the grandkid, and that's just one example.

 

[Geeezz]

i like hw in depth u guys talked abt cpf life to any man on the street all these doesn’t matter, as long as gt money can riao. nt enough just kpkb nia

 

[BBCWatcher]

I would say that in either scenario (self-funded bucket approach or guaranteed annuity method) you’ve got to “lock up” a similar amount of capital to reliably generate a 3-4% income stream over your lifetime.

How do you figure that?

With a fair, not-for-profit, near-universal longevity insurance program, longevity risk is pooled. You only need to pay for the average mortality experience, or something close to that. With self-insurance, you've got to bear the full risk of the longest life all on your own. That is, you have to pay for the longest tail mortality experience.

Although CPF LIFE does give you higher returns than the market on the safest bucket, is it enough of a game changer that it would allow one to pay a $250-500k for a grandchild’s Harvard education?

Longevity insurance certainly gives you more ability, safely, to give away more wealth sooner, sure. (All remaining wealth immediately if the longevity insurance payout is large enough in real terms.) And I have first hand experience with this phenomenon, on the receiving end.

By the way, most experts now agree that a 4% withdrawal rate is too high.

 

[celtosaxon]

By the way, most experts now agree that a 4% withdrawal rate is too high.

I’ve done quite a lot of study on the topic of SWR and whether 4% is still valid. I have even done my own multi-iterated scenarios to convince myself. I think once you understand how the percentage is derived you gain a lot of confidence in its legitimacy.

Ever since Bill Bengen did his now famous “Trinity Study” that gave us the 4% SWR, there have been further studies that have now taken it a few steps further.

In a 2013 article in be Journal of Financial Planning, David Zolt published a new method called TPA or Targeted Percentage Adjustment. This allows for an even higher 5.9% withdrawal rate, while maintaining the same 95% probability of not running out after 30 years. The only change is this: you must be willing to forgo the inflation increases during years when the withdrawal would cause you to exceed 5.9% reduction in your holdings. However, this may end up eroding your purchasing power over time, so the method is not suitable unless there the retiree has a great deal of disposable, non-essential retirement income that they are willing to put at risk and don’t mind cutting back if needed.

Based on all of my research, I have not found any credible sources that disprove the 4% SWR with any kind of real facts or data, but would love to see it if it’s out there.

 

[BBCWatcher]

Based on all of my research, I have not found any credible sources that disprove the 4% SWR with any kind of real facts or data, but would love to see it if it’s out there.

It's about the bonds, specifically the persistently low bond yields that have now been reality for the past decade. It's reasonable and entirely appropriate to temper forward yield forecasts now that we have a decade more of bond data to ponder.

One potential, novel solution that might save the 4% SWR, or at least come closer to it, is the Kitces-Pfau approach of steadily increasing exposure to stocks during one's drawdown years (after decreasing exposure in the run-up to retirement).

 

[celtosaxon]

One potential, novel solution that might save the 4% SWR, or at least come closer to it, is the Kitces-Pfau approach of steadily increasing exposure to stocks during one's drawdown years (after decreasing exposure in the run-up to retirement).

Bob Brinker always got callers who were concerned about the 4% SWR. His advice was always - monitor and adjust if needed. In fact, the TPA method is a good way of doing that. Anytime a future inflation adjusted withdrawal ends up exceeding the SWR, wouldn’t that give you pause? The other thing that needs to be considered is the retirement spending smile, where early years and later years are the highest spending times. I think one should take opportunities (and I think most do) to save during the mid-retirement years so that there is enough to cover longevity risks. This has certainly been the case for my parents who are now in their 80’s, even though they are still active and travel, they have plenty of contingency, ready to be centenarians, or whatever else may come.

 

[a4973]

Hi guys, would like to hear from cpf gurus what are the pros and cons and rules related to cash top up to RA ERS? Especially keen to know about withdrawal before 65 as would only be participating in Basic plan at PEA 65 as am most keen to leave bequest for my immediate family. In short can ERS work as a high interest on demand savings account ? 55 next month. Aware of shield already.

 

[oppoguy]

In short can ERS work as a high interest on demand savings account ? 55 next month. Aware of shield already.

ers is a retirement plan. it is not meant to be a high interest on demand savings account.

 

[lifeafter41]

Hi guys, would like to hear from cpf gurus what are the pros and cons and rules related to cash top up to RA ERS? Especially keen to know about withdrawal before 65 as would only be participating in Basic plan at PEA 65 as am most keen to leave bequest for my immediate family. In short can ERS work as a high interest on demand savings account ? 55 next month. Aware of shield already.

I look at it this way, anything that has to do with payout from CPF life, with the shifting goal post and the possible payout adjustment subsequently.

One might want to go with putting it into SA/OA instead. Where it’s is a on demand saving.

 

[henrylbh]

Hi guys, would like to hear from cpf gurus what are the pros and cons and rules related to cash top up to RA ERS? Especially keen to know about withdrawal before 65 as would only be participating in Basic plan at PEA 65 as am most keen to leave bequest for my immediate family. In short can ERS work as a high interest on demand savings account ? 55 next month. Aware of shield already.

You can kiss goodbye to any cash top up to RA/SA until 65 when you will paid in installments as long as you live.

 

[lifeafter41]

You can kiss goodbye to any cash top up to RA/SA until 65 when you will paid in installments as long as you live.

That’s the reason why now will plan for top up towards OA, or repayments of housing. Or voluntary top up instead, subject to the annual limit.

 

[dork32]

That’s the reason why now will plan for top up towards OA, or repayments of housing. Or voluntary top up instead, subject to the annual limit.

i do agree with you.

but there are some people that say that ra earns a much higher interest that the oa.

there sort of question there are no right or wrong answer.

 

[henrylbh]

That’s the reason why now will plan for top up towards OA, or repayments of housing. Or voluntary top up instead, subject to the annual limit.

You can't make top up to OA only.

Can only VC to OA, SA and MA according to allocation table, subject to annual limit.

Repaying housing only goes to OA.

Instead of repaying housing, I rather reserve the cash to VC every year, unless the annual VC is very limited.

Or use cash to top up RA when you turn 55 next year? To ERS, if you like and got chance to withdraw as much as half of FRS is needed.

 

[a4973]

You can kiss goodbye to any cash top up to RA/SA until 65 when you will paid in installments as long as you live.

Isn't there something like can do property pledge then can draw ERS - FRS ?

 

[henrylbh]

Isn't there something like can do property pledge then can draw ERS - FRS ?

With sufficient property charge/pledge one can withdraw up to half of FRS. Top ups to ERS cannot touch.

 

[tornedo]

FRS top up to ERS, then property pledge...get back half FRS. Balance still left with FRS . Is this correct?

 

[DarkMage168]

Ehh. You only need to property pledge at 55, when your RA is also created.

Before that (below 55), they are only in OA & SA (can go beyond even ERS, if you earn like bunnies)

After 55, if you property pledge, your RA will hold BRS. If u continue to work, your SA & OA continue to grow but RA stays. U can continue to top up RA with cash (for tax rebates) up to ERS.

Hope this explains the workings

FRS top up to ERS, then property pledge...get back half FRS. Balance still left with FRS . Is this correct?

 

[henrylbh]

FRS top up to ERS, then property pledge...get back half FRS. Balance still left with FRS . Is this correct?

You already asked this earlier in the thread and you never followed the response and got the answers?

 

[maple96]

Ehh. You only need to property pledge at 55, when your RA is also created.

Before that (below 55), they are only in OA & SA (can go beyond even ERS, if you earn like bunnies)

After 55, if you property pledge, your RA will hold BRS. If u continue to work, your SA & OA continue to grow but RA stays. U can continue to top up RA with cash (for tax rebates) up to ERS.

Hope this explains the workings

So much had been discussed here, yet people still post wrong info!

RA will continue to grow with compound interest. U can also topup with cash if u like up to ERS.

No tax relief for topup above FRS

 

[SKenny]

You can't make top up to OA only.

Can only VC to OA, SA and MA according to allocation table, subject to annual limit.

Repaying housing only goes to OA.

Instead of repaying housing, I rather reserve the cash to VC every year, unless the annual VC is very limited.

Or use cash to top up RA when you turn 55 next year? To ERS, if you like and got chance to withdraw as much as half of FRS is needed.

You can also do a VC solely to MA (tax deductible for recipient only). If your MA is above BHS, then it overflow to your SA/OA.

Note that VC to the 3 accounts (ie OA, SA and MA) is not tax deductible.