Options after making out SA and MA

[nautilus]

Options after maxing out SA and MA

Hi All,

I would like to seek some advise on recommendations on retirement planning after maxing out CPF SA and MA, assuming an age of 40.

Some options I was thinking of are:
- invest in a perpetual annuity from a private insurer to supplement CPF life after 65.
- transfer to SRS account but not sure what’s the best thing to do with the funds after. Also the interest rate in SRS are really low so I’m not sure if it’s worth it.

Any thoughts are appreciated.

Edit: I meant maxing out not making out

 

[BBCWatcher]

- invest in a perpetual annuity from a private insurer to supplement CPF life after 65.

It doesn't make sense to do this until after you have topped up your new Retirement Account within your 55th birthday month to the Enhanced Retirement Sum. That's because CPF LIFE is far and away the best value life annuity available in Singapore, far better value than any private sector annuity. So you'd buy more CPF LIFE first. (You're actually allowed to top up to the new ERS again every time it increases since RA interest isn't factored into the RA top up limit.)

- transfer to SRS account but not sure what’s the best thing to do with the funds after. Also the interest rate in SRS are really low so I’m not sure if it’s worth it.

I think you mean that you'd make cash deposits into a SRS account in order to get tax relief. SRS accounts are not meant to be parked as cash earning 0.05% interest. Those dollars are meant to be invested.

Do you have a spouse or other qualified family member with CPF SA/RA balances that invite top ups with tax relief?

 

[Okenba]

After making out with your money, you should get out more and find a real girl to make out with...

 

[Okenba]

Hi All,

I would like to seek some advise on recommendations on retirement planning after maxing out CPF SA and MA, assuming an age of 40.

Some options I was thinking of are:
- invest in a perpetual annuity from a private insurer to supplement CPF life after 65.
- transfer to SRS account but not sure what’s the best thing to do with the funds after. Also the interest rate in SRS are really low so I’m not sure if it’s worth it.

Any thoughts are appreciated.

On a more serious note...
- Make sure your spouse's CPF is in the same position as yours.
- Contribute to your parents CPF for their retirement and your own tax relief.
- Review and sort out insurance matters with a view towards retirement.
- Invest. Make sure you educate yourself first.

If you are interested in annuities, consider those that are SRS eligible so you can bag some tax relief from them as well.

 

[BBCWatcher]

If you are interested in annuities, consider those that are SRS eligible so you can bag some tax relief from them as well.

Manulife's fully SRS qualified single premium life annuity really only gets interesting if/when your SRS account balance reaches into the stratosphere by age 62+, and perhaps not even then.

One scenario I can imagine when a private life annuity might make some financial sense is if you live a "bi-national" (or multi-national) retirement, perhaps because your spouse is from another country and you end up spending a substantial fraction of the year living in that country. In that case you might want to supplement CPF LIFE with another life annuity from a high quality overseas provider, preferably an escalating (inflation-linked), joint/survivor (or joint/contingent) life annuity. This scenario is also fairly rare, though.

In some unusual cases (beyond gigantic SRS account balances) a life annuity can offer some overseas tax benefits.

 

[nautilus]

It doesn't make sense to do this until after you have topped up your new Retirement Account within your 55th birthday month to the Enhanced Retirement Sum. That's because CPF LIFE is far and away the best value life annuity available in Singapore, far better value than any private sector annuity. So you'd buy more CPF LIFE first. (You're actually allowed to top up to the new ERS again every time it increases since RA interest isn't factored into the RA top up limit.)


I think you mean that you'd make cash deposits into a SRS account in order to get tax relief. SRS accounts are not meant to be parked as cash earning 0.05% interest. Those dollars are meant to be invested.

Do you have a spouse or other qualified family member with CPF SA/RA balances that invite top ups with tax relief?

I intend to max our CPF life by going for ERS when I’m 55. Do you mean you are able to do top ups in your RA on top of your RA interest annually up to the new annual ERS limit then?

For the second question, I’ve no one in the family that is qualified to receive top ups with tax relief.

 

[nautilus]

After making out with your money, you should get out more and find a real girl to make out with...

Lol. If only it’s so simple

 

[nautilus]

On a more serious note...
- Make sure your spouse's CPF is in the same position as yours.
- Contribute to your parents CPF for their retirement and your own tax relief.
- Review and sort out insurance matters with a view towards retirement.
- Invest. Make sure you educate yourself first.

If you are interested in annuities, consider those that are SRS eligible so you can bag some tax relief from them as well.

Thanks for your reply.

For 1,2,3, they’re already done.

I’m not too sure about 4, which is why I’m not making any commitments first until I’m very sure.

 

[nautilus]

Manulife's fully SRS qualified single premium life annuity really only gets interesting if/when your SRS account balance reaches into the stratosphere by age 62+, and perhaps not even then.

One scenario I can imagine when a private life annuity might make some financial sense is if you live a "bi-national" (or multi-national) retirement, perhaps because your spouse is from another country and you end up spending a substantial fraction of the year living in that country. In that case you might want to supplement CPF LIFE with another life annuity from a high quality overseas provider, preferably an escalating (inflation-linked), joint/survivor (or joint/contingent) life annuity. This scenario is also fairly rare, though.

In some unusual cases (beyond gigantic SRS account balances) a life annuity can offer some overseas tax benefits.

My wife’s local so I’m rooted here.

Should I find out more about manulife’s annuity or are there options of annual payment type of annuity?

 

[BBCWatcher]

I intend to max our CPF life by going for ERS when I’m 55. Do you mean you are able to do top ups in your RA on top of your RA interest annually up to the new annual ERS limit then?

You can top up your new Retirement Account to the then current Enhanced Retirement Sum (ERS) within the month you celebrate your 55th birthday. Thereafter, every January (presumably) when the ERS increases, you can top up your Retirement Account again, repeatedly, to the new ERS if you wish. Interest earned in your Retirement Account is not counted toward this particular limit (the ERS).

My wife’s local so I’m rooted here.

Does that mean you're not as rooted in Singapore, and that you have the potential to spend significant retirement time outside Singapore? For example, would you be "snowbirds" who spend summers in Sweden (another country beginning with the letter S)?

Should I find out more about manulife’s annuity or are there options of annual payment type of annuity?

First you have to decide whether ~S$1,585 per month (2029 dollars) per spouse is a sufficient amount of longevity insurance for your needs. That particular figure is the average monthly payout if you are celebrating your 55th birthday this month, top up your Retirement Account to the Enhanced Retirement sum this month, and start collecting CPF LIFE Escalating Plan payouts from age 65. (You can get a higher payout figure if you start collecting payouts from age 70 and/or if you make subsequent ERS top ups every January as the ERS increases, so this figure is not quite the maximum. I'm using the Escalating Plan because it's the only plan that combats inflation, to achieve a more stable real lifestyle. Without the Escalating Plan you need some other way to combat inflation to preserve a stable real lifestyle, and that's at least more complicated. When we're looking at retirement planning we really should be looking at the Escalating Plan, whether or not you actually choose it. Otherwise we're just pretending inflation doesn't exist, and that's clearly wrong.)

If you decide that you want more lifetime monthly (or quarterly or annual -- that part doesn't particularly matter) annuity income than CPF LIFE alone provides, then and only then you'd consider adding another life annuity, from a high quality life insurer in Singapore or overseas depending on what you're trying to achieve. I think that's fairly rare, actually, since ERS-pegged/age 70 payout start/Escalating Plan CPF LIFE generates a pretty reasonable monthly payout for foundational real lifestyle preservation, but it's up to you of course.

 

[Okenba]

Thanks for your reply.

For 1,2,3, they’re already done.

I’m not too sure about 4, which is why I’m not making any commitments first until I’m very sure.

My own sense is that you're basically looking for an easy (not troublesome) route to good returns to supplement CPF life in the future.

Even buying annuities would mean that you need to do some research into whether or not the annuities are worthwhile. Guaranteed returns are probably low, so it becomes about how much you trust their projected returns.

Consider passive investing into a global index etf. If you're concerned that the bear is just around the corner, DCA into it. If you want income, find one with distributing dividends.

High interest savings accounts can get pretty high. Possibly higher than CPF OA. Assuming you are okay to jump through their hoops.
If you used your CPF for housing, you may be able to top-up the amount (+ accrued interest) that you took out back into your OA for fuss-free 2.5%

 

[BBCWatcher]

High interest savings accounts can get pretty high. Possibly higher than CPF OA. Assuming you are okay to jump through their hoops.

The interest on those accounts isn't guaranteed to last, though. They aren't like 30 year government bonds or 10 year Singapore Savings Bonds, with government guaranteed coupons. They aren't even like the CPF Ordinary Account with a floor interest rate (2.5%).

Citibank, for example, just torpedoed its MaxiGain Savings Account starting this month (December, 2019). It's now considerably less attractive, with much lower interest. Poof, gone, practically overnight.

I don't have any problem with those who want to jump through those hoops for their day-to-day cash reserves as long as you're not doing something financially imprudent. But savings and current accounts, even with currently/temporarily decent interest, simply aren't long-term investment vehicles for your decades of retirement.

 

[nautilus]

You can top up your new Retirement Account to the then current Enhanced Retirement Sum (ERS) within the month you celebrate your 55th birthday. Thereafter, every January (presumably) when the ERS increases, you can top up your Retirement Account again, repeatedly, to the new ERS if you wish. Interest earned in your Retirement Account is not counted toward this particular limit (the ERS).

That's a nice hack. Can you explain what you mean by "Interest earned in your Retirement Account is not counted toward this particular limit"?

Does that mean you're not as rooted in Singapore, and that you have the potential to spend significant retirement time outside Singapore? For example, would you be "snowbirds" who spend summers in Sweden (another country beginning with the letter S)?

I wish but both of us are rooted here.

First you have to decide whether ~S$1,585 per month (2029 dollars) per spouse is a sufficient amount of longevity insurance for your needs. That particular figure is the average monthly payout if you are celebrating your 55th birthday this month, top up your Retirement Account to the Enhanced Retirement sum this month, and start collecting CPF LIFE Escalating Plan payouts from age 65. (You can get a higher payout figure if you start collecting payouts from age 70 and/or if you make subsequent ERS top ups every January as the ERS increases, so this figure is not quite the maximum. I'm using the Escalating Plan because it's the only plan that combats inflation, to achieve a more stable real lifestyle. Without the Escalating Plan you need some other way to combat inflation to preserve a stable real lifestyle, and that's at least more complicated. When we're looking at retirement planning we really should be looking at the Escalating Plan, whether or not you actually choose it. Otherwise we're just pretending inflation doesn't exist, and that's clearly wrong.)

If you decide that you want more lifetime monthly (or quarterly or annual -- that part doesn't particularly matter) annuity income than CPF LIFE alone provides, then and only then you'd consider adding another life annuity, from a high quality life insurer in Singapore or overseas depending on what you're trying to achieve. I think that's fairly rare, actually, since ERS-pegged/age 70 payout start/Escalating Plan CPF LIFE generates a pretty reasonable monthly payout for foundational real lifestyle preservation, but it's up to you of course.

That is assuming that one is still working between 65-70 before the payouts start at 70.

 

[nautilus]

My own sense is that you're basically looking for an easy (not troublesome) route to good returns to supplement CPF life in the future.

Even buying annuities would mean that you need to do some research into whether or not the annuities are worthwhile. Guaranteed returns are probably low, so it becomes about how much you trust their projected returns.

Consider passive investing into a global index etf. If you're concerned that the bear is just around the corner, DCA into it. If you want income, find one with distributing dividends.

High interest savings accounts can get pretty high. Possibly higher than CPF OA. Assuming you are okay to jump through their hoops.
If you used your CPF for housing, you may be able to top-up the amount (+ accrued interest) that you took out back into your OA for fuss-free 2.5%

You are right that I'm looking at a way to supplement CPF Life income (assuming I max out ERS) without too much trouble.

The dilemma that I'm having is should I go the SRS annuity route that gives tax breaks, but also undetermined and unguaranteed projected returns? Or do something else.

With regards to refund of the CPF OA monies used for housing, the issue is that there is no tax break for it so although I'm gaining 2.5% interest, I'm losing out on tax breaks.

 

[BBCWatcher]

That's a nice hack. Can you explain what you mean by "Interest earned in your Retirement Account is not counted toward this particular limit"?

Sure. Let's assume that you top up your newly formed Retirement Account to the Enhanced Retirement Sum within the calendar month that you celebrate your 55th birthday. Your Retirement Account then earns interest starting from the first day of the following month. Which is why it's ideal to get this top up credited within the tail end but not after your 55th birthday month, so the top up can start earning interest as soon as possible. This interest is paid/credited, of course. But the interest is not factored into determining whether you can top up to every new, higher Enhanced Retirement Sum. Under current rules, every time the government raises the ERS, you're welcome to top up your principal to the new, higher ERS. Interest is above and beyond these ERS limits.

That is assuming that one is still working between 65-70 before the payouts start at 70.

No, that's not a given. You're welcome to defer payouts to age 70 and to draw from your other assets before age 70. In terms of maximizing the longevity insurance benefits of CPF LIFE, that'd be the smart play. Your decision whether and when to stop working for income is a separate decision, really. And you don't need an annuity to "bridge" to a specific age, such as age 70. That you can do on your own, using traditional savings, appropriately paced withdrawals, and prudent investing, some of which might involve other CPF deposits. For example, if you don't have other CPF contributions (from work for example), you're allowed to deposit the CPF Annual Limit each year. That's an "all three" top up, and your top up will be allocated across your MediSave Account, Ordinary Account, and Special Account according to the standard allocation rules for your age.

The dilemma that I'm having is should I go the SRS annuity route that gives tax breaks, but also undetermined and unguaranteed projected returns? Or do something else.

If you find that a couple's CPF LIFE monthly payouts (age 70 payout start, Escalating Plan, repeated ERS top ups starting at age 55) don't provide enough longevity insurance for your needs, then you could go take a look at a SRS-funded insurer guaranteed single premium life annuity, such as Manulife's. Or an overseas life annuity in another major currency from a high quality insurer, which is a bit exotic to be sure, but the basic idea is that it would defend against a weird, severe, sudden devaluation in the Singapore dollar. I'm certainly not predicting any such Singapore dollar weirdness, but I can see some value in a little life annuity diversification that way.

With regards to refund of the CPF OA monies used for housing, the issue is that there is no tax break for it so although I'm gaining 2.5% interest, I'm losing out on tax breaks.

A Supplementary Retirement Scheme (SRS) account is a reasonable way to funnel dollars into a Singapore dollar denominated life annuity, again provided a pair of super-ERS-level/age 70 payout start CPF LIFE monthly payout streams is something you consider an inadequate amount of longevity insurance.