Maximize withdrawal amount from CPF at age 55

[DioupBartley]

Hi all,

I am a new CPF member since I finally get my PR.
Hence, pending my first employer contrib next month, my total CPF balance stands today at 0$ First two years will be at very low level as you know.

To give you some insights, my monthly income is above 6k and my annual bonus is above 30k. Hence, starting year 3, my compulsory contrib will reach the current max of 37,740$ yearly. Also, I am below 35yo.

My objective IS to maximize the amount of cash potentially "withdrawable" at age 55. Does not mean I want to withdraw it all at one time which would not make sense if I don't use it immediately. That is why I add the word potentially.

My understanding is that I can top up my cpf via mainly these ways:
- VC to all 3 accounts up to limit 37k;
- Top up to RA up to FRS;
- Top up to MA up to limit 37k.

I exclude the top up to RA cos my understanding is that any top up to RA, and interest accrued related to this top up, cannot be withdrawn and will form part of CPF life (hence only increase my monthly pay out, which is not the objective). This is for sure if I want to withdraw amount above BRS. Not sure if I want to withdraw above FRS though.

My idea so far is do a VC of roughly 37k this year (minus my compulsory contrib) and then transfer OA to SA as I understand that VC are part of the amount that can be withdrawn either above BRS or FRS (except for the part that would be channeled to MA). Then I would do the same on the second year. Then starting third year, I would only do monthly transfer from OA to SA.

Top up of MA brings some tax relief but I already use SRS up to limit to lower my tax and then use it to invest. So the tax relief on MA does not seems very appealing to me.

I saw a lot people recommend to top up MA first. But what would be the interest of top up first to MA versus VC to all 3 accounts then transfer OA to SA, except for the tax relief?

I understand that when MA reach BHS, contrib will flow to SA, but anyhow it will be the case sooner or later, since both MA and SA bring 4% I do not see the interest. Even though MA can be used from times to times but the limit are very low, so again I don't find it very enticing... By the time we need MA the most (when get older), it will be already full in my simulation.

Sorry for the long post and sorry for any mistake as CPF is totally new to me. So far I tried to document myself and now I need some experts insights. Hence I am here

Thanks!

 

[Aion99]

Hi all,

I am a new CPF member since I finally get my PR.

I guess a lot of people including Citizens also very interested in this Topic. But your annual income of more than 120k could be within Top 5% in your age group. So your scenario are quite special and may not applicable to general "normal" income group.


If your goal is to maximize "withdrawal" amount at age 55, and you found that 4% interest rate at MA/SA "not enticing", tax relief also "Not Appealing", why consider "Top Up" in the first place? Why not invest your money in other high dividends funds etc. since you are still young, and not much commitment yet.

 

[DioupBartley]

I guess a lot of people including Citizens also very interested in this Topic. But your annual income of more than 120k could be within Top 5% in your age group. So your scenario are quite special and may not applicable to general "normal" income group.


If your goal is to maximize "withdrawal" amount at age 55, and you found that 4% interest rate at MA/SA "not enticing", tax relief also "Not Appealing", why consider "Top Up" in the first place? Why not invest your money in other high dividends funds etc. since you are still young, and not much commitment yet.

Sorry if I wasn’t clear. I was trying to explain that since both MA and SA yield 4% (which is good for risk free), I did not see the interest of top up to MA. I would rather increase my SA first.

I see CPF as part of an overall retirement plan.

Again my objective is to maximize the potential withdrawal at age 55.

Any thoughts on which (1) top up or (2) VC followed by transfer from OA to SA would serve the purpose?

Thanks

 

[BBCWatcher]

Sorry if I wasn’t clear. I was trying to explain that since both MA and SA yield 4% (which is good for risk free), I did not see the interest of top up to MA. I would rather increase my SA first.

Then I think you need to learn more, so let me start that process.

Since you’re earning enough to hit the CPF Annual Limit starting from 2022, now, 2020, and 2021 will be your only opportunities for the time being to top up your own MediSave Account with tax relief. And you now qualify for 5% interest because the first $60,000 attracts bonus interest. You have to start paying MediShield Life premiums now, MediSave dollars can be additionally useful at any age, and once your MediSave Account hits the Basic Healthcare Sum the portion of your compulsory contributions allocated to MA will spill over into your SA.

So, assuming you’re flush with cash, the smart play would be to slam $30+K into your MA and another $7K into your SA a few business days before the end of this month. (Calculate how much your total compulsory contributions will be for the next 3 months, subtract that from $37,740, and slam the rest into MediSave. Plus the $7K into SA.) Then do another big slam into MediSave in January (also calculated from the CPF Annual Limit, bearing in mind October/November/December 2020 will be Year 2 PR Level contributions) and another $7K into SA also in January. Furthermore, assuming you don’t need OA dollars for housing, transfer OA to SA every month it streams in. And if there’s another newly minted PR in the household, at least work on his/her maxing out of bonus interest.

Do all that and you quickly hit the BHS plus your SA grows really quickly, you quickly hit maximum bonus interest, you get tax relief on all your top ups, and you have a fat MediSave balance that you can draw from at any age for qualified medical spending if need be.

Understood?

 

[henrylbh]

DioupBartley better think twice about slam here and there.

Do your own calculations, taking into account that you may forgo future tax reliefs on MA and SA top-ups. Though monthly CPF contribution is limited to 6k, the additional wage (not limited to 30K) is based on 9% for first year and 24% for second year. Also depends on when additional wage is declared.

if you want max CPF withdrawable from 55, top up SA to prevailing FRS and top up MA annually for tax relief.

 

[BBCWatcher]

Henry, there's no room for MA top ups for a newly minted PR who is earning enough to hit the CPF Annual Limit except for the period spanning the first 24 months of lower contributions. The MA top up window for this particular new PR consists of 2019 (this month preferably), 2020, and 2021, with each of those years allowing progressively less room for MA top ups. That's it, unless and until this individual ever earns less than what's required to hit the CPF Annual Limit.

So if this new PR is going to make MA top ups for tax relief, now is the time.

 

[henrylbh]

Agree. That is assuming he hits annual limit all the time.


Theoretically, he could also hit annual limit in the first two years, though very very unlikely unless …..

 

[Merg91]

>6 month bonus job in 2018/2019.
What job is that?

 

[lyndonmaxewell]

Hi all,

I am a new CPF member since I finally get my PR.
Hence, pending my first employer contrib next month, my total CPF balance stands today at 0$ First two years will be at very low level as you know.

[BLOG LINK REMOVED by moderators]

Some of the hacks may be applicable for you, if you find it worth a read.

 

[DioupBartley]

Many thanks for your advices/opinions. Much appreciated.

I am doing my own calculations based on the options provided and will come back here... maybe with more questions

Thanks!

 

[DioupBartley]

Some of the hacks may be applicable for you, if you find it worth a read.

Indeed, it is worth a read and I discovered in it the SA shielding lol.

However, it is mentioned there that "BRS, FRS and ERS continue to rise and is fixed only when you turn 65 years old".

According to CPF, I quote "Your Full Retirement Sum is fixed when you turn age 55 and will not change. "

Source p.3 of the CPF Book Retirement Booklet found on CPF website.

So which one is correct?

 

[maple96]

Indeed, it is worth a read and I discovered in it the SA shielding lol.

However, it is mentioned there that "BRS, FRS and ERS continue to rise and is fixed only when you turn 65 years old".

According to CPF, I quote "Your Full Retirement Sum is fixed when you turn age 55 and will not change. "

Source p.3 of the CPF Book Retirement Booklet found on CPF website.

So which one is correct?

Read this thread on the latest on SA shield. https://forums.hardwarezone.com.sg/money-mind-210/cpf-sa-shielding-hack-fully-explained-6132953.html

The most trusted info is CPF website.

dun read nor rely on rubbish writeup by most bloggers

Read Lorn Tan's articles published in Sunday Times or her books!

 

[henrylbh]

Read this thread on the latest on SA shield. https://forums.hardwarezone.com.sg/money-mind-210/cpf-sa-shielding-hack-fully-explained-6132953.html

The most trusted info is CPF website.

dun read nor rely on rubbish writeup by most bloggers

Read Lorn Tan's articles published in Sunday Times or her books!

Lorna's articles not good enough for me

I want more than the 4 points. May be she is not revealing more than what we have been talking in HWZ forums

 

[maple96]

Lorna's articles not good enough for me

I want more than the 4 points. May be she is not revealing more than what we have been talking in HWZ forums

she is smart, she times her sharing to make sure she gain first, if she share then gahmen take action, then she lose here lobang lor

u also should be smart, dun kill your own lobang

she just released a new book, then got content for her new books in future mah !

 

[mummy1234]

she is smart, she times her sharing to make sure she gain first, if she share then gahmen take action, then she lose here lobang lor

u also should be smart, dun kill your own lobang

she just released a new book, then got content for her new books in future mah !

Wah, Lorna Tan released a new book? What is the title?

 

[Astro2]

Wah, Lorna Tan released a new book? What is the title?

Money Smart.

 

[mummy1234]

Money Smart.

Available in Popular? How much?

 

[BBCWatcher]

However, it is mentioned there that "BRS, FRS and ERS continue to rise and is fixed only when you turn 65 years old".

According to CPF, I quote "Your Full Retirement Sum is fixed when you turn age 55 and will not change. "

Source p.3 of the CPF Book Retirement Booklet found on CPF website.

So which one is correct?

CPF is correct, but some elaboration is merited here.

On your 55th birthday your Retirement Account is formed, and it's funded (if possible) up to the then current Full Retirement Sum, drawing first from your Special Account balance then, if you're still below the FRS, from your Ordinary Account balance. Of course there are cases when SA+OA is less than the FRS, but let's assume your RA is fully funded on your 55th birthday.

Then you're "done." You're not required to add any more dollars into your RA, and you can withdraw some if you wish before you start CPF LIFE payouts (which can start as early as your 65th birthday or as late as your 70th birthday). "Your" FRS is fixed. So is your BRS, for that matter.

However, the ERS keeps increasing annually, assuming CPF continues its current practices. You're allowed to top up your RA to the ERS. Oddly enough only principal is counted in determining whether you still have top up room below the then current ERS. Thus you can continue topping up your RA every January to the new, higher ERS, if you wish.

 

[DioupBartley]

CPF is correct, but some elaboration is merited here.

On your 55th birthday your Retirement Account is formed, and it's funded (if possible) up to the then current Full Retirement Sum, drawing first from your Special Account balance then, if you're still below the FRS, from your Ordinary Account balance. Of course there are cases when SA+OA is less than the FRS, but let's assume your RA is fully funded on your 55th birthday.

Then you're "done." You're not required to add any more dollars into your RA, and you can withdraw some if you wish before you start CPF LIFE payouts (which can start as early as your 65th birthday or as late as your 70th birthday). "Your" FRS is fixed. So is your BRS, for that matter.

However, the ERS keeps increasing annually, assuming CPF continues its current practices. You're allowed to top up your RA to the ERS. Oddly enough only principal is counted in determining whether you still have top up room below the then current ERS. Thus you can continue topping up your RA every January to the new, higher ERS, if you wish.

Thanks BBCWatcher!

I am finally done with my computations. I worked out multiple scenarios on a nice excel spreadsheet. Assumption for increase in BHS is 5% yearly and 3% for FRS.

To cut it short, best is indeed max out MA+Monthly transfer OA to SA up to FRS+Annual top up of 7k SA up to FRS.

Doing so, MA is maxed out at the end of next year once interest is credited.
For SA, I will have to wait end of 2024.

However, the next scenario that provide so far the highest withdrawal at age 55 would be top up SA up to FRS at the end of this month (or let's say 7k this month and 163k in jan for add. 7k tax relief) + max out MA as previously.

By doing so, tax relief is not optimize (only top up to MA and 7k x2) but over the long run, the compounded interest beats by far the tax relief missed (which could only have been another 7k x3 before reaching FRS).

You have to assume you got some spare cash but on the other hand, by doing so, MA and SA are max out next year and then your OA increase very fast since all contrib goes to it + overflow from MA and SA + interest.

In four years, the cash avail in the OA is already superior to the top up of 170k. Meaning if I need the cash to pay my loan for instance, I could tap into it.

Any thoughts?

 

[BBCWatcher]

You're allowed to deposit $176,000 (the 2019 Full Retirement Sum) into your Special Account right now if you wish, assuming your SA's current balance is zero. Plus the difference between $37,740 and your total 2019 compulsory contributions into your MediSave Account. Every one of those dollars will earn 4% interest.

What happens next is that Ordinary Account dollars start piling up with your compulsory contributions, and they earn 2.5% interest. True, that's an OK yield nowadays, and those dollars can be used for housing (e.g. servicing a mortgage in Singapore) and to some extent for the CPF Investment Scheme, which is a high cost, limited choice investment "window."

How to play this really depends on how much spare cash you have lying around, what investment alternatives you have and feel comfortable with, how far away you are from age 55, where you plan to retire, and what your projections are are about your future compulsory contributions. Oh, and also your spouse/partner -- don't forget him/her, if you have one.

Personally I'm satisfied maximizing the tax relief opportunities and OA to SA transfers. I'm not enthusiastic about piling up "too many" OA dollars, although I can certainly think of worse "problems" to have. However, I am pondering whether it makes sense to slam a bit harder into SA than I'm already doing, and I might. "To be determined."