*Official* BBCWatcher club

[BBCWatcher]

(a) what happens when the SA hit the prevailing FRS (171K as of now)? Does all the compulsory contribution (which I understand as the employer/employe contribution if one is employed) flow automatically into OA?

No change. The normal allocation rules still apply, and a portion of funds continues to flow into SA.

(b) if I aggressively do transfer from OA to SA and hit the FRS or hit pretty close to FRS (say 150K), my concern is that it won’t allow me to do cash top up to SA in the future for tax relief.

The tax relief is a nice bonus, but the compounded interest is even better. And you may still have other tax relief opportunities such as topping up your Medisave Account, topping up a non-working spouse’s Special Account, topping up another qualified family member’s (such as a parent’s) Retirement Account, and SRS.

On a related note to (b), will the interest earned from SA (the compounded 4%) stay and accrue in the SA notwithstanding that the prevailing FRS has been met?

Yes.

 

[MrHighlander]

Thank you BBCW. My income is hitting the 19-20 per cent tax bracket and I am in my mid thirties. Will your advice change that SA interest is preferable to tax relief for cash top up if the income tax bracket is relatively high ?

No change. The normal allocation rules still apply, and a portion of funds continues to flow into SA.


The tax relief is a nice bonus, but the compounded interest is even better. And you may still have other tax relief opportunities such as topping up your Medisave Account, topping up a non-working spouse’s Special Account, topping up another qualified family member’s (such as a parent’s) Retirement Account, and SRS.


Yes.

 

[JuniorLion]

Thank you BBCW. My income is hitting the 19-20 per cent tax bracket and I am in my mid thirties. Will your advice change that SA interest is preferable to tax relief for cash top up if the income tax bracket is relatively high ?

If it is hitting the 19-20 percent bracket, all the more you should contribute $7000 to your Medisave AND $15300 to your SRS per year.

The tax savings you get are: $22300*0.19 = $4237 - huge amount.

 

[BBCWatcher]

My income is hitting the 19-20 per cent tax bracket and I am in my mid thirties. Will your advice change that SA interest is preferable to tax relief for cash top up if the income tax bracket is relatively high ?

If it is hitting the 19-20 percent bracket, all the more you should contribute $7000 to your Medisave AND $15300 to your SRS per year.

If you’re in the 19, 19.5, or 20 percent tax bracket, you could be hitting the CPF Annual Limit. It really depends on the pattern of your employment income. If you are hitting the CPF Annual Limit, you won’t be able to make a Medisave Account top-up.

No, the recommendation doesn’t change. Tax relief is great, but the 4% (versus 2.5%) compound interest is more important. Although, in fact, the OA funds you would transfer to SA did enjoy tax relief if they were part of your compulsory contributions, so you aren’t “missing” anything, really.

 

[MrHighlander]

So there are NO instances ever where SA savings or contributions will ever spill into OA (even where prevailing FRS is reached)?

No change. The normal allocation rules still apply, and a portion of funds continues to flow into SA.


The tax relief is a nice bonus, but the compounded interest is even better. And you may still have other tax relief opportunities such as topping up your Medisave Account, topping up a non-working spouse’s Special Account, topping up another qualified family member’s (such as a parent’s) Retirement Account, and SRS.


Yes.

 

[BBCWatcher]

So there are NO instances ever where SA savings or contributions will ever spill into OA (even where prevailing FRS is reached)?

No. Cash top-ups, and transfers from OA, to SA are simply not permitted once the SA has reached the Full Retirement Sum (FRS). (They are also not permitted once the member reaches age 55. Cash top-ups to the Retirement Account, up as high as the Enhanced Retirement Sum, are permitted from age 55.) The portion of compulsory contributions, and of “all three” voluntary top-ups (CPF Form VC/1 or electronic equivalent), ordinarily allocated to the Special Account continues to flow into the Special Account — no change.

The portion of compulsory contributions, and of “all three” voluntary top-ups, to Medisave can spill over into the Ordinary Account. MA to OA spillover happens if both these conditions hold:

(a) The Medisave balance has reached the Basic Healthcare Sum (BHS);
(b) The Special Account has reached the FRS.

 

[tangent314]

There's a window of time when a higher BHS is announce you can quickly top up your MA to the new limit before compulsory contribution does it for you.

It's not much, but it's something.

It may work for SA too but I'd imagine most people that have hit the FRS limit will have compulsory contributions covering the raised FRS prices.

 

[MCKawe]

Hi BBCW,

I have a few queries regarding CPF RA and the BRS/FRS and retirement.

1) If I have a property pledge, I can still opt for the FRS plan right? Is this advisable?

2) Should I leave the excess money in the RA(that is not used for BRS/FRS) for the interest or take it out for other investments or top up my children's SA? I read that withdrawals can be made anytime.

3) I have AIA healthshield gold plan Max B on top of my medisave. Since I'm approaching retirement, are there any other insurances I should take up to cover myself?

4) I have a few Endowment plans made years ago that will provide me a significant lump sum after maturity in the next few years. What should I do with these money? Should I invest in a dividend paying stock/ETF, use the dividends for retirement and pass it on to my NOK when I pass away?

Thank you

 

[ExtremeWays]

Here is my strategy:
1. Transfer all OA to SA every month until minimum sum is reached.
2. Don't buy a house. Live with parents or rent (if kid is getting big).
- Don't invest in properties. Buy a REIT and make someone work for you.
3. Invest at least 50% of monthly salary and 100% of bonus to:
- Stocks (NO ETFS or DCA strategy)
- Forex (No Stop Loss)
4. Minimise expenses:
- Parents: 1000
- Family: 500 (Future)
- Personal: 200

I am just an ordinary guy sharing some secrets to getting wealthy.

 

[peipei1]

Another, more common example in the United States is car financing. Car manufacturers fairly often offer 0.0% or 0.9% loans for up to 36 or even 48 months on new car purchases, especially for models that aren't selling as well as they hoped. The cars are built, so they really need to sell them since the carrying costs are rather high and the end of the model year keeps approaching. So they're often willing to finance them free or basically free. So should you pay cash when somebody is offering 0.0% financing for 36 months? No, of course not -- that'd be silly. You can take that same cash, push it into a 3 year fixed deposit (called a certificate of deposit in the United States) which is government insured up to US$250,000, earn some interest, and pocket that extra money. Free (or cheap) loans are wonderful when they're offered. Then you just set up your car loan payments to be automatic (so you don't forget one), and you pay off the car loan on schedule, but no faster than on schedule.

We always use 12 month interest free installment from our Credit Card providers.

Installments used to be frown upon here, but CC are very useful so long one keeps good spending habits.

On CPF topic,
BBC I commented in another post, CPF interest rates can be subjected to changes, we see CPF monies form part of our SWF, if their performances are bad, our CPF board can be forced to cut interest rates no?

Another way of saying is our CPF locked in funds have quite high TER on the 2.5-4% pa returns!

 

[JuniorLion]

Here is my strategy:
1. Transfer all OA to SA every month until minimum sum is reached.
2. Don't buy a house. Live with parents or rent (if kid is getting big).
- Don't invest in properties. Buy a REIT and make someone work for you.
3. Invest at least 50% of monthly salary and 100% of bonus to:
- Stocks (NO ETFS or DCA strategy)
- Forex (No Stop Loss)
4. Minimise expenses:
- Parents: 1000
- Family: 500 (Future)
- Personal: 200

I am just an ordinary guy sharing some secrets to getting wealthy.

Thanks for sharing.

 

[MrHighlander]

What is ETFS?

Here is my strategy:
1. Transfer all OA to SA every month until minimum sum is reached.
2. Don't buy a house. Live with parents or rent (if kid is getting big).
- Don't invest in properties. Buy a REIT and make someone work for you.
3. Invest at least 50% of monthly salary and 100% of bonus to:
- Stocks (NO ETFS or DCA strategy)
- Forex (No Stop Loss)
4. Minimise expenses:
- Parents: 1000
- Family: 500 (Future)
- Personal: 200

I am just an ordinary guy sharing some secrets to getting wealthy.

 

[MrHighlander]

Thank you BBCW for your detailed response - very helpful

No. Cash top-ups, and transfers from OA, to SA are simply not permitted once the SA has reached the Full Retirement Sum (FRS). (They are also not permitted once the member reaches age 55. Cash top-ups to the Retirement Account, up as high as the Enhanced Retirement Sum, are permitted from age 55.) The portion of compulsory contributions, and of “all three” voluntary top-ups (CPF Form VC/1 or electronic equivalent), ordinarily allocated to the Special Account continues to flow into the Special Account — no change.

The portion of compulsory contributions, and of “all three” voluntary top-ups, to Medisave can spill over into the Ordinary Account. MA to OA spillover happens if both these conditions hold:

(a) The Medisave balance has reached the Basic Healthcare Sum (BHS);
(b) The Special Account has reached the FRS.

 

[FrostWurm]

Here is my strategy:
3. Invest at least 50% of monthly salary and 100% of bonus to:
- Stocks (NO ETFS or DCA strategy)
- Forex (No Stop Loss)

Please sir, tell me which stocks or currencies to buy

 

[ExtremeWays]

Please sir, tell me which stocks or currencies to buy

Have the discipline to do your own research......

One reason why people do DCA in ETF is because they are lazy

 

[BBCWatcher]

1) If I have a property pledge, I can still opt for the FRS plan right? Is this advisable?

To my knowledge, you can start CPF LIFE payouts as late as age 70 and, provided you have the funds, you can change your mind about participation level (increase it) as long as you do it strictly before your 80th birthday.

I would prefer more than a BRS level income stream at age 65+, so yes, I think it’s advisable to participate in CPF LIFE at a higher level.

2) Should I leave the excess money in the RA(that is not used for BRS/FRS) for the interest or take it out for other investments or top up my children's SA? I read that withdrawals can be made anytime.

The former, unless you need the money for immediate consumption.

3) I have AIA healthshield gold plan Max B on top of my medisave. Since I'm approaching retirement, are there any other insurances I should take up to cover myself?

What’s your approximate Medisave balance?

4) I have a few Endowment plans made years ago that will provide me a significant lump sum after maturity in the next few years. What should I do with these money? Should I invest in a dividend paying stock/ETF, use the dividends for retirement and pass it on to my NOK when I pass away?

It depends. Approximately what percentage of your current household wealth do you have in stocks and stock-likes (which would include real estate)? And approximately how many years are you away from retirement?

 

[JuniorLion]

What is ETFS?

Probably something he made up along the way of trolling.

 

[MCKawe]

To my knowledge, you can start CPF LIFE payouts as late as age 70 and, provided you have the funds, you can change your mind about participation level (increase it) as long as you do it strictly before your 80th birthday.

I would prefer more than a BRS level income stream at age 65+, so yes, I think it’s advisable to participate in CPF LIFE at a higher level.


The former, unless you need the money for immediate consumption.


What’s your approximate Medisave balance?


It depends. Approximately what percentage of your current household wealth do you have in stocks and stock-likes (which would include real estate)? And approximately how many years are you away from retirement?

Is the new CPF LIFE escalating plan worth it? At what age would it break even assuming I start at 65?

Approximately have 40k in medisave balance.

Currently have ~25% in stocks and stocks-like. This is assuming that the current balance in endowment plan & sum in CPF is included as part of the not stocks and stocks-like portion. Plan to retire in the next 2-3 years.

 

[Lewis.T]

Probably something he made up along the way of trolling.

It's an exchange traded fund..

 

[JuniorLion]

Is the new CPF LIFE escalating plan worth it? At what age would it break even assuming I start at 65?

Approximately have 40k in medisave balance.

Currently have ~25% in stocks and stocks-like. This is assuming that the current balance in endowment plan & sum in CPF is included as part of the not stocks and stocks-like portion. Plan to retire in the next 2-3 years.

CPF Escalating life will give you total returns higher than cpf standard if you live to 90.