Pay back CPF or HDB first?

[hwmook]

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

Government want to make sure you have a either property + BRS or FRS. You can't have BRS and no property.

 

[GeraldineT]

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?

I’m worried about the accrued interest cause this is only going to be my first bto as mentioned. And I do intend to sell the house to change to a smaller house when my kids are older.

Yap now I know the diff, def don’t need the amount.

 

[hwmook]

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

You are going to have 119k in OA 3 years later? How to get so much when you only have 60k now?

 

[GeraldineT]

Government want to make sure you have a either property + BRS or FRS. You can't have BRS and no property.

So people without property if they hit brs or frs?
They just withdraw their cpf difference to that? Since they can’t pledge property

 

[GeraldineT]

You are going to have 119k in OA 3 years later? How to get so much when you only have 60k now?

The 119 is combined. Cause it’s wipe out from both acc

 

[RoLanTo]

sorry, abit off topic.. i like to ask for below situation what will really happen?

Lets say i age 54yo10month,
OA = 171k
SA = 171k
MA = 52k

there's a statement say 70k in SA will be earmark to transfer to RA since they are TOP UP and interests earned via MinSum topup scheme.

i want to do the SA hack, ie invest most of my SA into a short term bond = 131k, since 40k is locked from investment.. so RA will get majority of the FRS from my OA..
expected result will be:

OA = 40k
SA = 0 (after sell the bond, i should get it back to 131k)
MA = 52k
RA = 171K

Question.. can i invest the 131k? OR only 101k (if minus off the 70k i mentioned earlier)
anyone knows?

thankss

 

[BBCWatcher]

The only applicable rule for that particular “hack,” so far as I’m aware, is the CPF Investment Scheme (SA) rule about what you can invest in.

The “ideal” vehicle for this hack is probably to go to DBS, UOB, and OCBC (all three) and ask for their quotations on the t-bill that matures soonest strictly after your 55th birthday. Get the lowest price among those three dealers, and buy it using your SA funds via the CPF Investment Scheme. Principal is guaranteed, it’s simple, it’s short term (so minimizing loss of interest), and you get a tiny bit of yield to the extent the price is below face value. If they’re offering face value or lower, that’s fine, that works. This’ll be to ~$1,000 increments, so you’ll likely have a few hundred dollars that you cannot shield in SA, but “good enough.”

And I’d love to hear some reports from people who’ve attempted this hack and what the results are/were. This is a theoretical hack at this point since I don’t think we’ve heard reports of people doing it.

On edit: Oh, I see what you’re saying. When the CPF Investment Scheme funds bounce back to SA, will the top-up portion (plus interest) be swept into your RA? “Maybe,” I don’t know. If it does, then you’ve got a fatter RA and fatter future CPF LIFE payouts. And that’s not a bad thing — far from it.

 

[RoLanTo]

The only applicable rule for that particular “hack,” so far as I’m aware, is the CPF Investment Scheme (SA) rule about what you can invest in.

The “ideal” vehicle for this hack is probably to go to DBS, UOB, and OCBC (all three) and ask for their quotations on the t-bill that matures soonest strictly after your 55th birthday. Get the lowest price among those three dealers, and buy it using your SA funds via the CPF Investment Scheme. Principal is guaranteed, it’s simple, it’s short term (so minimizing loss of interest), and you get a tiny bit of yield to the extent the price is below face value. If they’re offering face value or lower, that’s fine, that works. This’ll be to ~$1,000 increments, so you’ll likely have a few hundred dollars that you cannot shield in SA, but “good enough.”

And I’d love to hear some reports from people who’ve attempted this hack and what the results are/were. This is a theoretical hack at this point since I don’t think we’ve heard reports of people doing it.

On edit: Oh, I see what you’re saying. When the CPF Investment Scheme funds bounce back to SA, will the top-up portion (plus interest) be swept into your RA? “Maybe,” I don’t know. If it does, then you’ve got a fatter RA and fatter future CPF LIFE payouts. And that’s not a bad thing — far from it.

no lah,, i am not asking after the SA comes back to me.. i mean before everything.. can i invest 131k or 101k??

i asked my boss who didthe hack, he say he not affected because he didnt perform much MSTU <meaning less than the 40k which is supposed to be locked anyway>

 

[tangent314]

I’m worried about the accrued interest cause this is only going to be my first bto as mentioned. And I do intend to sell the house to change to a smaller house when my kids are older.

Even then you don't need to have to worry about accrued interest. It will just be taken from the sale price of the house. If the sale price is higher than the principle plus accrued interest, then congrats you can keep the excess as cash. If it is not enough, you will not be forced to top up to make up the difference *unless* you sell your house below valuation.

 

[henrylbh]

Even then you don't need to have to worry about accrued interest. It will just be taken from the sale price of the house. If the sale price is higher than the principle plus accrued interest, then congrats you can keep the excess as cash. If it is not enough, you will not be forced to top up to make up the difference *unless* you sell your house below valuation.

Even if sold below valuation, no need to top up as long as done at arm's length.

 

[hwmook]

So people without property if they hit brs or frs?
They just withdraw their cpf difference to that? Since they can&#146;t pledge property

If you have no property or don't want to pledge then you need to meet FRS before you can withdraw excess.

 

[BBCWatcher]

OK, I've done some more checking. According to CPF's published rules, the only CPF Investment Scheme (SA) limit that applies is the $40K limit. You have to leave $40K behind in your SA, and that'll get swept into your RA at age 55, along with OA funds, until your RA hits the FRS.

Also, upon further research, SA top-up amounts don't matter at all if your Retirement Account hits the FRS at age 55, and if you participate in CPF LIFE at least at the FRS level. It's only below the FRS level (if you're trying to do that) that previous voluntary SA top-ups might matter, or if you top-up your Retirement Account after it's created (e.g. top-up to the ERS).

I think a lot of people really don't understand this important point. If you're thinking like a poor person, so to speak, then you're trying to fight CPF and not very successfully. But if you concede that you'll be at least a FRS-level CPF LIFE participant -- not a bad thing at all! -- and then work your profitable magic and mischief above the FRS, CPF really shines brightly. As one example, starting at age 55 (and, practically speaking, a little before that) CPF for you turns into a very special place where you can stash $37,740/year every year (CPF Annual Limit, via CPF Form VC/1 or electronic equivalent) into an on demand savings account yielding roughly 2.7% (blended OA plus SA rate), assuming your Medisave pegs at the Basic Healthcare Sum. Now where else are you going to find a deal like that on government guaranteed funds? But that's how it works, as your amazing little piggybank as you get near and past age 55.

So many people talk about withdrawing at age 55, but why? It's rather the opposite, that CPF turns into a lovely little parking place for up to $37,740/year/member. Like I've said many times, I want an invitation to a champagne-infused Age 55 CPF Withdrawal party. Where's my invitation!

 

[hwmook]

The 119 is combined. Cause it&#146;s wipe out from both acc

I will just use OA to fully pay for the house while investing the cash. 27 years is a very long horizon for investment, likely to get more than 4% returns.

 

[BBCWatcher]

i asked my boss who didthe hack, he say he not affected because he didnt perform much MSTU <meaning less than the 40k which is supposed to be locked anyway>

So this SA shielding hack (at age 54.X, strictly before age 55) worked for your boss? Which variation of the hack did he use? Did he find a resale t-bill or use something else like A35?

Awesome, glad to hear this is working for someone.

 

[GeraldineT]

Even then you don't need to have to worry about accrued interest. It will just be taken from the sale price of the house. If the sale price is higher than the principle plus accrued interest, then congrats you can keep the excess as cash. If it is not enough, you will not be forced to top up to make up the difference *unless* you sell your house below valuation.

ya, but I did a calculation if I sell the house at 400k in 2037, I would get back cash 189037 (if I did cash monthly instalment) instead of -2939 (if I used OA for monthly installment). after the accrued interest.

 

[tangent314]

ya, but I did a calculation if I sell the house at 400k in 2037, I would get back cash 189037 (if I did cash monthly instalment) instead of -2939 (if I used OA for monthly installment). after the accrued interest.

Well yes, it would make sense that if you use cash to pay for the house, most of it will come back as cash when you sell back the house, and if you use purely CPF to pay for the house, then most of the sales amount will go back into CPF.

Instead of worrying about the accrued interest, I think it would be wiser to consider these things when deciding to pay the mortgage loans with CPF or cash.

1) Paying with cash would allow you to transfer all your OA to SA to enjoy the 4% interest
2) Do you have enough cash for your own needs if you pay the loan with cash?
3) Perhaps you believe that in the long run you can invest your cash and get yields better than 4%, then you can pay with OA instead

 

[angtc11]

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.

Can you share why it's 2 thumbs up? My plan is to select BRS with pledge and leave the funds in SA to compound and get additional interest.

Assuming BRS is 90k in 2018 and I am 55yo, I get to keep 90k in my SA after I pledge my property. The 90k grows to ~133k at 4% interest when I am 65. This 133k gives me ~440 a month at 4% and I get to keep my principal by losing out ~200 a month cpf life payout. YMMV, the numbers will be lower if your FRS is funded by OA and SA.

 

[BBCWatcher]

Can you share why it's 2 thumbs up? My plan is to select BRS with pledge and leave the funds in SA to compound and get additional interest.

At least a couple reasons:

1. If that's the plan, then most likely you've lost SA top-up tax relief opportunities along the way. That's real money left on the table, plus the investment gains on that real money. How much money depends on your tax bracket, how early you make SA top-ups, and how many times, but under reasonable assumptions it's a major lost opportunity. There's no investment gain or refund on higher income tax payments. It's just a dead, permanent loss. (Great for other taxpayers, though, so thank you if that's your plan.)

2. I suppose we can quibble about how much longevity insurance is enough, but BRS-level CPF LIFE really isn't enough. It's what this government considers barely adequate for those with owner-occupied housing, and Singapore+government+barely+adequate is just not what you ought to be aiming for. The vast majority of other developed countries provide and/or require more longevity insurance (and typically with genuine cost of living increases). Singapore is not a particularly affordable place to live.

 

[GeraldineT]

Well yes, it would make sense that if you use cash to pay for the house, most of it will come back as cash when you sell back the house, and if you use purely CPF to pay for the house, then most of the sales amount will go back into CPF.

Instead of worrying about the accrued interest, I think it would be wiser to consider these things when deciding to pay the mortgage loans with CPF or cash.

1) Paying with cash would allow you to transfer all your OA to SA to enjoy the 4% interest
2) Do you have enough cash for your own needs if you pay the loan with cash?
3) Perhaps you believe that in the long run you can invest your cash and get yields better than 4%, then you can pay with OA instead

but cannot trf all OA to SA right?
cause when I try to trf, it only allows like half of my OA to go to SA.
I thought there is a cap of 161 or 171k in SA also?

2) that's why doing calculations, cause if I move OA to SA = the HLE loan = higher.

3) we personally don't do any other investment and lazy to monitor any, so I think easiest is to move OA to SA

 

[BBCWatcher]

but cannot trf all OA to SA right?

You can transfer OA to SA up to the point where your SA reaches the current Full Retirement Sum. And all OA to SA transfers must be strictly before your 55th birthday. Once you reach age 55, OA to SA transfers are no longer possible.

Pro tip: If you're going to transfer OA to SA, and if your SA is going to hit the FRS, then make your last, voluntary SA top-up for your tax relief first, before you make the OA to SA transfer. Wait for the voluntary SA top-up to appear in your CPF online statement, then do your OA to SA transfer. If you try to do it the other way, you won't be able to claim your $7,000 of tax relief.(*)

Also, if you can beat your employer's monthly contributions into your CPF accounts, that's best because you get a little extra SA that way. (The compulsory contribution will then start to push your SA above the FRS, which is of course nice to see.)

If you're not going to claim any tax relief, then you can skip that voluntary SA top-up. But I'd grab that one last bit of tax relief if eligible, and if you haven't already.

(*) Well, OK, you can reverse the order, but you have to adjust the amount of your OA to SA transfer to allow $7,000 of room below the FRS -- and to avoid your compulsory SA contribution from payroll reducing that $7,000 of room below the FRS. This is trickier, so it's best to do the $7,000 tax relief top-up first.