Pay back CPF or HDB first?

[GeraldineT]

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.

very confusing about the tax relief top-up.
that is only if we use cash to popup to SA right?

You can transfer OA to SA up to the point where your SA reaches the current Full Retirement Sum
-> So eg if current SA is alrdy at FRS, we cannot trf OA to SA, but the monthly contribution by the company still valid right

 

[henrylbh]

very confusing about the tax relief top-up.
that is only if we use cash to popup to SA right?

You can transfer OA to SA up to the point where your SA reaches the current Full Retirement Sum
-> So eg if current SA is alrdy at FRS, we cannot trf OA to SA, but the monthly contribution by the company still valid right

If your SA has not reached current limit of 171k (i.e. FRS), you can transfer OA to SA or pump cash to SA up to the point when SA reaches the limit.

Transfer of OA to SA, no tax relief. Transfer of cash to SA has tax relief of up to 7k.

 

[RoLanTo]

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.

he did a slightly more expensive way, walk into bank, say he want to invest his cpf SA into lowest risk unit trusts/bonds..

if im him. i will just buy via dollardex or whichever platform that are lower in fees. maybe he feel much safer to be executed by bank.

going back to your earlier research, using the same number i gave (as below)

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

so, it means i can withdraw 40k from OA at 55yo right? after that then i sell my SA investment to shoot back into SA.. Else, default will withdraw the excess from SA? (assuming i sell-back before withdraw)

 

[BBCWatcher]

....so, it means i can withdraw 40k from OA at 55yo right?

Yes, that seems to be how it works under current CPF rules. You're describing a double hack, where you're first shielding SA funds (except for the stranded ~$40K) such that your RA is formed mainly from OA funds, quickly followed by a withdrawal at age 55 which comes from OA (since SA is then empty), quickly followed by a return of CPF Investment Scheme (SA) funds to SA. That's all supposed to work, yes.

The OA withdrawal part (at age 55) you'd only do if you either need the money right away or if you're highly confident you can redeploy those funds into something reliably better than 2.5%. Another key assumption here is that you're not going to be making another withdrawal any time soon, i.e. the lost SA interest when executing this maneuver will be recouped (and more) as you let your SA funds grow for some period of time.

Let's suppose your 55th birthday is on September 18, 2018. I think what I'd do is stop by all three of the big banks and ask for quotations on t-bill BY17103S, which matures on October 31, 2018. So let's suppose the best (lowest price) quotation you get, inclusive of all costs, is $999 per unit. That'll do. You buy as much of that t-bill as you're allowed on September 3 -- allow ample time for this and don't cut it too close -- and then just let the funds return to your SA when the t-bill matures in October. Funds will probably return in November, so you'll lose 3 months of SA interest in this example (September, October, and November -- CPF interest rules are based on minimum balance during the month). You could compare that sort of approach to a quick in/out of A35 through one of the low cost paths, and that might work OK as long as you're willing to take a little principal risk since the A35 share price can fluctuate. (A t-bill is principal guaranteed.) You can also check longer term bond issues to see if anything matures in a tighter date closer to your 55th birthday. In this example (September 18, 2018, for your 55th birthday) let's see....nope, nothing better in the longer bonds. T-bill BY17103S would be the best you could do in this example with an ironclad principal guarantee.

Good luck, and please let us know how it works out for you!

 

[angtc11]

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.

It's true that I will lose top up opportunities, but it's because my SA will reach FRS quite early. This is independent of whether I choose BRS or FRS. In fact I regret contributing to SA so early since my tax bracket is higher now and I am nearing FRS.

Wrt point 2, I will be living with 500+ from BRS (based on your example) plus 440 from SA interest per month. Not very far off the 1k+ from FRS (also based on your example). I deem this better than getting FRS directly as I keep control of the principal of 133k and wanted to know why you deem this inferior.

 

[BBCWatcher]

Wrt point 2, I will be living with 500+ from BRS (based on your example) plus 440 from SA interest per month. Not very far off the 1k+ from FRS (also based on your example). I deem this better than getting FRS directly as I keep control of the principal of 133k and wanted to know why you deem this inferior.

What percentage of your total household wealth does that ~$133K represent? Why would "control" of that last X% be important?

It depends on your point of view, of course, but I come at this from the point of view that nobody cares about the "score" on the capital scoreboard. Nobody should care, anyway. This isn't a basketball game. What you care about in retirement, above all else, is financial security, and that's an income issue. You really don't care about how much capital is on your monthly statement. Indeed, capital preservation as such would be a miserable goal in retirement -- you're supposed to have fun, to spend, to enjoy, but with absolute reliability that you can do that for the rest of your life. For your spouse's life, too. And the best way you get that financial security, in Singapore dollars anyway, is a CPF LIFE Escalating Plan payout from age 70, at or above FRS level at age 55.

The kids and grandkids are still going to inherit tons of wealth. That's never going to be a problem, based on your description anyway. But income smoothing -- let's call it what it is, having fun, enjoying life -- is going to be tougher without a reasonable dose of (solid value) longevity insurance.

 

[angtc11]

What percentage of your total household wealth does that ~$133K represent? Why would "control" of that last X% be important?

It depends on your point of view, of course, but I come at this from the point of view that nobody cares about the "score" on the capital scoreboard. Nobody should care, anyway. This isn't a basketball game. What you care about in retirement, above all else, is financial security, and that's an income issue. You really don't care about how much capital is on your monthly statement. Indeed, capital preservation as such would be a miserable goal in retirement -- you're supposed to have fun, to spend, to enjoy, but with absolute reliability that you can do that for the rest of your life. For your spouse's life, too. And the best way you get that financial security, in Singapore dollars anyway, is a CPF LIFE Escalating Plan payout from age 70, at or above FRS level at age 55.

The kids and grandkids are still going to inherit tons of wealth. That's never going to be a problem, based on your description anyway. But income smoothing -- let's call it what it is, having fun, enjoying life -- is going to be tougher without a reasonable dose of (solid value) longevity insurance.

The difference in 'financial security' per month is 1050-575-440 = $35 or $420 per year. Both the 1050 and 1015 are backed by the SG Gov so they are equally safe to me. Given a choice between $35 monthly cashflow from age 65 to the day I die costing 133k, I prefer to forego the $35/month and keep the 133k.

133k hopefully won't be a substantial portion of my networth at 65, but its not something to be sneezed at. At least I don't know anyone who doesn't care about 133k.

 

[BBCWatcher]

While I don't expect SA interest rates to deviate from 4% much, I cannot promise that and you should not forecast that. CPF LIFE, however, operates on a more secure footing once entered, and especially in FRS or higher, Escalating Plan, age 70+, dual spouse form. (I'd prefer it to be even more secure than it is, but it's more secure than a 4% SA forecast for decades, much more.)

What you care about (or at least should) is an outcome, a full life full of enjoyment. That's income, for life. It's not capital. Think reliable OpEx, not CapEx here, if that helps. And you've got TONS of capital, so it's only prudent to assure the income better.

 

[henrylbh]

going back to your earlier research, using the same number i gave (as below)

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

so, it means i can withdraw 40k from OA at 55yo right? after that then i sell my SA investment to shoot back into SA.. Else, default will withdraw the excess from SA? (assuming i sell-back before withdraw)

My understanding you can withdraw the 40k at 55, else the default like you say is from SA, if there is any balance. Subsequently, when you sell the bond, the money should go back where it came from, i.e. your SA.

 

[henrylbh]

Wrt point 2, I will be living with 500+ from BRS (based on your example) plus 440 from SA interest per month. Not very far off the 1k+ from FRS (also based on your example). I deem this better than getting FRS directly as I keep control of the principal of 133k and wanted to know why you deem this inferior.

Based on your numbers, you can't take out half of FRS of 171, due to your earlier top-ups which you mentioned is 70k. I think you can only take out half of FRS less 70k top-ups by pledging your property. Like that your payout will be much more than 500+ from BRS

 

[henrylbh]

What percentage of your total household wealth does that ~$133K represent? Why would "control" of that last X% be important?

It matters a lot to me. Firstly, it's flexibility and better than the old RSS

 

[BBCWatcher]

Based on your numbers, you can't take out half of FRS of 171, due to your earlier top-ups which you mentioned is 70k.

Well then, problem solved!

Firstly, it's flexibility....

For what?

Folks, what is money for? What is the only thing it's for? Let's boil it down to core principles here, because this is quite important. Is money to stare at, on an account statement, as an abstract number, at age 82 (for example)?

Are you planning to accumulate wealth to...stare at a scoreboard number? Is that the plan?

 

[tangent314]

The difference in 'financial security' per month is 1050-575-440 = $35 or $420 per year. Both the 1050 and 1015 are backed by the SG Gov so they are equally safe to me. Given a choice between $35 monthly cashflow from age 65 to the day I die costing 133k, I prefer to forego the $35/month and keep the 133k.

133k hopefully won't be a substantial portion of my networth at 65, but its not something to be sneezed at. At least I don't know anyone who doesn't care about 133k.

You are comparing against an escalating plan, where the payouts increases by 2% every year. It starts at ~$1050/month at age 65 but will become ~$1560/month at age 85


To make sure we are comparing payouts from using the same BRS, we should be using $85.5k BRS. Which means $126,560 in SA at age 65, with a payout of ~$420/month through interest with SA. At age 85 the ~$580/month from CPF Life would have escalated to ~$860.

So while your payout may only be ~$50 higher with FRS in CPF Life, the difference escalates to $280 at age 85.

 

[angtc11]

Based on your numbers, you can't take out half of FRS of 171, due to your earlier top-ups which you mentioned is 70k. I think you can only take out half of FRS less 70k top-ups by pledging your property. Like that your payout will be much more than 500+ from BRS

I didn't top up 70k, will top up probably around 40k by the time I hit FRS. I didn't want to compare other sources of income as I wanted to do an apple to apple. BRS+SA or FRS

 

[angtc11]

While I don't expect SA interest rates to deviate from 4% much, I cannot promise that and you should not forecast that. CPF LIFE, however, operates on a more secure footing once entered, and especially in FRS or higher, Escalating Plan, age 70+, dual spouse form. (I'd prefer it to be even more secure than it is, but it's more secure than a 4% SA forecast for decades, much more.)

What you care about (or at least should) is an outcome, a full life full of enjoyment. That's income, for life. It's not capital. Think reliable OpEx, not CapEx here, if that helps. And you've got TONS of capital, so it's only prudent to assure the income better.

My personal view is that if government needs to change the SA/RA rates, expect the CPF Life payout to decrease. If its in SA, I would have an option to withdraw and invest. Don't bet on being able to get back part of your CPF Life lump sum just because monthly payouts drop

 

[BBCWatcher]

Oy. I guess we'll just need another generation or two before there's a general understanding of foundational lifetime retirement income security.

 

[angtc11]

You are comparing against an escalating plan, where the payouts increases by 2% every year. It starts at ~$1050/month at age 65 but will become ~$1560/month at age 85


To make sure we are comparing payouts from using the same BRS, we should be using $85.5k BRS. Which means $126,560 in SA at age 65, with a payout of ~$420/month through interest with SA. At age 85 the ~$580/month from CPF Life would have escalated to ~$860.

So while your payout may only be ~$50 higher with FRS in CPF Life, the difference escalates to $280 at age 85.

I took BBCW numbers without checking which plan its for, so you are right, its not a balanced comparison. I just used the CPF Life calculator for a male born on 7 Jun with 85500 and 171000 respectively for payout at 65.

Average of basic payout for 85500 is 708 versus average of basic payout for 171000 is 1297 for a difference of 589. 85500 at 4% interest for 10 years is 126560 and this will give $421 per month. The difference is $168 per month and I will still choose to forego $168 per month to keep my 126k

 

[henrylbh]

I didn't top up 70k, will top up probably around 40k by the time I hit FRS. I didn't want to compare other sources of income as I wanted to do an apple to apple. BRS+SA or FRS

Sorry it was RoLanTo who mentioned 70k. You only mentioned "In fact I regret contributing to SA so early since my tax bracket is higher now and I am nearing FRS"

My personal view is that if government needs to change the SA/RA rates, expect the CPF Life payout to decrease. If its in SA, I would have an option to withdraw and invest. Don't bet one being able to get back part of your CPF Life lump sum just because monthly payouts drop

SA/RA rates are most likely to go together as more than 20 years' monthly payouts are taken from RA under CPF Life Basic Plan.

 

[angtc11]

Oy. I guess we'll just need another generation or two before there's a general understanding of foundational lifetime retirement income security.

Thank you, I rest my case

 

[angtc11]

SA/RA rates are most likely to go together as more than 20 years' monthly payouts are taken from RA under CPF Life Basic Plan.

Agree RA/SA rates are likely to be similar. I was trying to counter BBCW point on interest rate risk for leaving the funds in SA versis CPF Life payout. If the rates of SA (and by extension RA) are reduced, my view is CPF Life payouts will definitely be reduced