Pay back CPF or HDB first?

[BBCWatcher]

I was wondering if there is any chance that the elderly needs to top up cash since the proceeds of the sold flat have to all go back to RA account given the large amount of accrued interest compounded over the years.

Top up cash to buy the new unit? Sure, there’s a chance of that. It’s possible especially if the larger unit is close to the end of its leasehold, and so it sells for a very low price relative to the smaller unit, which might be in a more desirable location and with many more years of leasehold remaining. Also, if the couple has a zero or nearly zero Retirement Account, and has used OA funds for housing, upon sale of the larger unit the funds will flow back into CPF, and the Retirement Account will be given some attention.

So, it’s possible this hypothetical couple will need cash if they want to buy another unit, sure. If they’ve got low or zero RAs, they’ve used OA funds for housing, the unit they’re selling is relatively unattractive in the market (short leasehold remaining, less desirable location), they still have a big mortgage on the unit they’re selling (limited equity), they’ve aged out of the ability to get a mortgage on the new unit (or just don’t have the ability to service one), and/or the unit they’re buying is attractive in the market (long leasehold remaining, more desirable location). They won’t need cash for CPF — that’s not a requirement — but they might need cash to buy housing, sure.

If you’re nearly broke, you’re nearly broke, basically. CPF cannot entirely fix that problem, but it does help. In the hierarchy of needs, owning a house is less important than lifetime retirement income security (which can pay rent after all), so in this particular scenario CPF automatically acts to nail down some retirement income security, if it can. Then, if there’s anything left above that (any OA funds), those funds can be used for housing again, if desired. Or withdrawn (first from any SA funds, then from OA) for any purpose if the person is age 55 or older.

The government is correct, by the way. As a general matter, it’s often really smart for “empty nesters” to swap housing units.

 

[tangent314]

Ya. I know. That’s why I’m trying to do some calculations to make sure BRS is hit when I’m 55 27 years later.

Hitting the BRS is really quite easy. In fact, I think most people should be able to purchase a HDB and still hit FRS. To illustrate this I did a simulation assuming someone with a below-average income buying an above-average HDB:

1. Start work age: 25
2. Starting pay: $2000/month, 1 month bonus at end of year, 3% increment per year
3. FRS and BHS increase by 3% per year
4. Buys a $250k BTO (4 room flat in Seng Kang is currently $217k) at age 30, with a 25 year loan being serviced at $1140/month split 50-50 with spouse.

This the result at age 55:
MA / BHS: $128,432.82
RA: $371,521.19
FRS: $402,972.70

So this person has well over the BRS and is almost able to hit the FRS, and would have easily hit it if had transferred the OA portion not used to pay off the HDB loan into SA.

 

[GeraldineT]

Hitting the BRS is really quite easy. In fact, I think most people should be able to purchase a HDB and still hit FRS. To illustrate this I did a simulation assuming someone with a below-average income buying an above-average HDB:

1. Start work age: 25
2. Starting pay: $2000/month, 1 month bonus at end of year, 3% increment per year
3. FRS and BHS increase by 3% per year
4. Buys a $250k BTO (4 room flat in Seng Kang is currently $217k) at age 30, with a 25 year loan being serviced at $1140/month split 50-50 with spouse.

This the result at age 55:
MA / BHS: $128,432.82
RA: $371,521.19
FRS: $402,972.70

So this person has well over the BRS and is almost able to hit the FRS, and would have easily hit it if had transferred the OA portion not used to pay off the HDB loan into SA.

I also understand that they say SA max we can put is 161k is it the amount we trf From OA to SA or cash topup max is 161k?

Thanks for ur illustration. Cause when I did my own calculation was a bit confuse. Cause I want to move some before the 5% wipe out (key collection) and I intend to use cash for monthly installment to save the 2.5% accrued interested

 

[henrylbh]

I also understand that they say SA max we can put is 161k is it the amount we trf From OA to SA or cash topup max is 161k?

You behind time. SA max (for transfer from OA and topping up by cash) was 166k and now 171k. No limit for mandatory contribution going into SA.

 

[tangent314]

I also understand that they say SA max we can put is 161k is it the amount we trf From OA to SA or cash topup max is 161k?

The maximum you can transfer into your SA from OA or using cash is the current prevailing FRS (which at the moment is $171k)

 

[henrylbh]

Ya. I know. That’s why I’m trying to do some calculations to make sure BRS is hit when I’m 55 27 years later.

Since you are using cash for monthly instalments, you will likely to hit Frs, but unlikely you can pledge property for Brs.

 

[GeraldineT]

Since you are using cash for monthly instalments, you will likely to hit Frs, but unlikely you can pledge property for Brs.

what is the pledge property meaning? I thought only those that can't meet then need to pledge?
But what difference does it make

if my calculations are correct
I used my same salary with no increment over the next 27 years but moving 30k to SA this year:
MY OA:$343,386.63
MY SA:$334,776.34

my CPF used for the house with accrued interest for 27 years would be
TOTAL USED CPF $210963 (base on the 1st 5% in 2018 and 5% in 2021)

 

[tangent314]

I personally don't see the point of pledging property. CPF Life is something you should want to maximize, ideally by topping up to ERS at age 55.

 

[henrylbh]

my CPF used for the house with accrued interest for 27 years would be
TOTAL USED CPF $210963 (base on the 1st 5% in 2018 and 5% in 2021)

Since you mentioned earlier that $18,403 would be paid by CPF and instalments would be paid by cash, how you arrived at CPF used of $210,963 including interest

At most it is no more than 36k after 27 years.

 

[henrylbh]

Anyone can verify if at age 55.
OA $315,132.21
SA $282,355.31
MA $52k

Then after - FRS can cash out 416k?

FRS is now 171k and will rise to 181k in 2020. Thereafter, no numbers given but can expect about 3% annual rise.

If your CPF balances meet future FRS at age 55, the excess, except MA, can all be withdrawn.

 

[henrylbh]

Ya. I know. That’s why I’m trying to do some calculations to make sure BRS is hit when I’m 55 27 years later.

what is the pledge property meaning? I thought only those that can't meet then need to pledge?
But what difference does it make

Why bother 'trying to do some calculations to make sure BRS is hit when I'm 55'?

Those who go for BRS instead of FRS is because they wish or intend to withdraw half of FRS from 55 by pledging their properties.

 

[GeraldineT]

Since you mentioned earlier that $18,403 would be paid by CPF and instalments would be paid by cash, how you arrived at CPF used of $210,963 including interest

At most it is no more than 36k after 27 years.

18k was first 5% wipe out this year
Accrued interest for the next 27 years is 12040?
2021 they will wipe out cpf which is $119k
And the accrued interest for the next 24 year is 61545c

 

[GeraldineT]

Why bother 'trying to do some calculations to make sure BRS is hit when I'm 55'?

Those who go for BRS instead of FRS is because they wish or intend to withdraw half of FRS from 55 by pledging their properties.

Sorry. I meant to hit the FRS and then able to cash out some money too.
I still don’t understand the pledging of property.

Is that a must? What difference does it make

 

[hwmook]

Sorry. I meant to hit the FRS and then able to cash out some money too.
I still don’t understand the pledging of property.

Is that a must? What difference does it make

Pledging of property mean that you promise to top up your CPF to the FRS amount if you sell away the property so CPF will allow you to withdraw anything above BRS. If you don't pledge then you only can withdraw anything above FRS.

 

[hwmook]

18k was first 5% wipe out this year
Accrued interest for the next 27 years is 12040?
2021 they will wipe out cpf which is $119k
And the accrued interest for the next 24 year is 61545c

The CPF amount you keep mentioning is for 2 persons or only yours? It seem to me that you have a lot of CPF OA for yourself only but your 25-27years projection is not very high.

 

[BBCWatcher]

If you don't pledge then you only can withdraw anything above FRS.

Right, but Tangent314 and others are arguing that a rational person would never do this unless he/she really, really needs the money — is just barely clinging to solvency at age 54 and 364 days. Which is not what you ought to be aspiring to, at least (barely getting by on your 55th birthday).

I’m with Tangent314 and others on this point. Even if I qualify to make a property pledge at age 55+, I probably wouldn’t do it. Why would I want to tap my best bond-like/fixed income instrument first? That doesn’t make any financial sense.

I’m still waiting for my invitations to all these Age 55 CPF Withdrawal parties that I seem to be missing. Where’s my share of this CPF-funded champagne? Why aren’t you all inviting me, you BRS-level people?

 

[tangent314]

18k was first 5% wipe out this year
Accrued interest for the next 27 years is 12040?
2021 they will wipe out cpf which is $119k
And the accrued interest for the next 24 year is 61545c


Sorry. I meant to hit the FRS and then able to cash out some money too.
I still don’t understand the pledging of property.

Is that a must? What difference does it make

I'm not sure why you are so worried about the accrued interest. You will only need to pay the principle taken out plus accrued interest if you sell your HDB flat. If you are already thinking of pledging your property that means you are not selling your HDB flat, so there is no need to worry about the accrued interest at all.


Pledging of property is not only optional, but it is generally a BAD IDEA unless at 55 years old you have stopped work, run out of money and REALLY need the money. You are already projecting yourself to be able to hit the FRS (maybe even ERS) at age 55. After taking out the excess, will you REALLY be that cash strapped that you need another BRS worth of money to take out as cash as well?

 

[BBCWatcher]

Pledging of property is not only optional, but it is generally a BAD IDEA unless at 55 years old you have stopped work, run out of money and REALLY need the money.

Yes, amen, preach it, two big thumbs up. If you have to steal half of a ~$1,050/month (2018 dollars) lifetime income stream from your age 65+ self when you're age 55 -- if that's your plan, what you intend to do at age 55 -- then you're planning to be poor from age 55 if not earlier. And I don't understand why you'd plan to be poor. Who aspires to be poor?

Maybe, in reality, you end up poor at age 55 (or below), and you'll just have to muddle through life at age 65+ on ~$575/month (2018 dollars). But if that's your plan, I'd make a new plan.

 

[GeraldineT]

Pledging of property mean that you promise to top up your CPF to the FRS amount if you sell away the property so CPF will allow you to withdraw anything above BRS. If you don't pledge then you only can withdraw anything above FRS.

Oh. so it’s just the different amount from brs and FRS.

 

[GeraldineT]

The CPF amount you keep mentioning is for 2 persons or only yours? It seem to me that you have a lot of CPF OA for yourself only but your 25-27years projection is not very high.

It’s only mine.
I’m only using a constant salary as of now w no increment for the next 27 years