Post 55 monthly withdrawals from CPF

[ocs_woodlands]

I have a question to ask to confirm my suspicion.

lets say I am 55 this year.
let's say after the RA is formed and a sum of money is already in it (be it BRS, FRS or ERS), I have 100k in OA and 300k in SA.

at the end of this year, I will earn interest on these balances.

Q.
1) Am I correct to say that ALL of the interest in BOTH accounts will flow into OA since my SA is > FRS?
2) Am I correct to say that if I want to withdraw say $2k in Jan 2020 and also $2k every month subsequently, all the amounts will have to be withdrawn from SA?

 

[kelhot2001]

I have a question to ask to confirm my suspicion.

lets say I am 55 this year.
let's say after the RA is formed, I have 100k in OA and 300k in SA.

at the end of this year, I will earn interest on these balances.

Q.
1) Am I correct to say that ALL of the interest in BOTH accounts will flow into OA since my SA is > FRS?
2) Am I correct to say that if I want to withdraw say $2k in Jan 2020 and also $2k every month subsequently, all the amounts will have to be withdrawn from SA?

LOL, I just ask this question last week but for BHS. But my understanding is it still goes into SA even with FRS full

We refer to your enquiry of 15 April 2019.
The current CPF base interest rates are as follows:

CPF Account Interest Rate
Ordinary Account (OA) 2.5%
Special Account (SA) 4%
MediSave Account (MA) 4%
Retirement Account (RA) 4%
An extra 1% interest per annum will also be paid on the first $60,000 of a member's combined balances (with up to $20,000 from OA). Members can therefore earn up to 3.5% in the OA and 5% in the SA, MA and RA.

Members aged 55 and above, will earn an additional extra interest of 1% per year on the first $30,000 of their combined balances, as part of the Government’s efforts to enhance retirement savings. This is in addition to the 1% paid on the first $60,000.

The priority of accounts to make up the first $60,000 and $30,000 are:

RA, including balances used to pay for the annuity premium under CPF LIFE
OA, up to $20,000 (extra interest earned on OA will be paid to your RA)
SA
MA
Based on your example provided

OA $0
SA $60,500
MA $57,200
RA $90,500

Monies in your SA would earn an interest of 4% per annum. If your RA balance is more than $60,000, the extra interest and the additional extra interest would only be earned in your RA.

The MA balances would be built until it reaches the prevailing Basic Healthcare Sum (BHS). When your MA is built to the prevailing BHS, any excess contribution would be transferred to your SA. Members who have met the prevailing Full Retirement Sum (FRS) of $176,000, their excess would be transferred to their OA.

 

[BBCWatcher]

1) Am I correct to say that ALL of the interest in BOTH accounts will flow into OA since my SA is > FRS?

No. SA interest is credited to SA.

2) Am I correct to say that if I want to withdraw say $2k in Jan 2020 and also $2k every month subsequently, all the amounts will have to be withdrawn from SA?

Until your SA is exhausted, correct.

CPF Investment Scheme (SA) funds are not withdrawn, so one possible approach is to shield SA funds and to make larger, infrequent withdrawals (while shielded), some of which will come from your OA. There’s a cost to do that (lost interest), so you’d want to make sure the cost is more than offset by the extra interest you’re trying to save.

 

[tangent314]

CPF Investment Scheme (SA) funds are not withdrawn, so one possible approach is to shield SA funds and to make larger, infrequent withdrawals (while shielded), some of which will come from your OA. There’s a cost to do that (lost interest), so you’d want to make sure the cost is more than offset by the extra interest you’re trying to save.

Main drawback with doing this is that each time you do this you will need to withdraw $40k from SA before withdrawing from your OA.

 

[ocs_woodlands]

Until your SA is exhausted, correct.

So if a post 55 yo person has $500K in his SA (after the RA has been formed and all that jazz), the interest on that amount i.e. about $20K will go into his SA. If he only withdraws $1.6K/mth or $20k/year after the interest has gone in, this will be the way to ensure that the $500K in SA remains untouched, right?

for context, I am looking at whether it is possible for me to retire at 55+ with help from SA interest and other sources...

 

[henrylbh]

So if a post 55 yo person has $500K in his SA (after the RA has been formed and all that jazz), the interest on that amount i.e. about $20K will go into his SA. If he only withdraws $1.6K/mth or $20k/year after the interest has gone in, this will be the way to ensure that the $500K in SA remains untouched, right?

for context, I am looking at whether it is possible for me to retire at 55+ with help from SA interest and other sources...

Yes interest on $500k will be credited in SA.

If you draw $1.6k pm from SA ($520k) after interest is credited, initial $500k will keep getting larger each year

1 Jan 520k

After 1st month withdrawal, monthly accrued interest for Jan will be calculated on 520k less $1600 or 518,400

After 2nd month withdrawal, monthly accrued interest for Feb will be calculated at 518,400 less $1600 or 516,800

Same for rest of the months.

Accrued interest will be credited at the end of the year.

But how are you going to have 500k in SA after creation of RA with FRS?

 

[henrylbh]

LOL, I just ask this question last week but for BHS. But my understanding is it still goes into SA even with FRS full

The MA balances would be built until it reaches the prevailing Basic Healthcare Sum (BHS). When your MA is built to the prevailing BHS, any excess contribution would be transferred to your SA. Members who have met the prevailing Full Retirement Sum (FRS) of $176,000, their excess would be transferred to their OA.

Your understanding is ???

Excess in MA will flow to SA. But if you have FRS in SA (or RA), excess would be transferred to OA.

 

[kelhot2001]

Your understanding is ???

Excess in MA will flow to SA. But if you have FRS in SA (or RA), excess would be transferred to OA.

My understanding is as long as amount inside SA not more than FRS, MA interest will goes to SA, without considering the amount in RA. But now seem that you have woke me up from that dream

 

[BBCWatcher]

So if a post 55 yo person has $500K in his SA (after the RA has been formed and all that jazz), the interest on that amount i.e. about $20K will go into his SA. If he only withdraws $1.6K/mth or $20k/year after the interest has gone in, this will be the way to ensure that the $500K in SA remains untouched, right?

for context, I am looking at whether it is possible for me to retire at 55+ with help from SA interest and other sources...

Yes, you can withdraw interest only.

There’s one wee problem: inflation. If you want to hold a constant standard of living for you and for your CPF nominee, a fixed nominal withdrawal with a fixed nominal SA balance (residual) doesn’t work. What you could do instead is to do something like this:

(a) Residual will be at least S$250,000 (current dollars), and you then calculate a stepped up protected residual that grows at 2%/year compounded, and the protection extends at least to your age 110.

(b) You’d then calculate a payout stream that also increases at 2%/year compounded while respecting (a).

This (a)(b) math is a little more complicated, but it’s a useful, more realistic exercise.

Another possible choice is you calculate a payout stream from age 65 (or age 70) that lasts to your age 110 and with a 2%/year escalation, whereupon there’s zero residual. You keep a fixed percentage of that payout, and you give your CPF nominee the rest.

I’m a little puzzled why so many people evidently want to force their survivors/heirs to wait until they expire to receive windfalls. Why not give more money away sooner? Then it could be used on down payments for homes, educational investments, long-term investing (including CPF deposits if desired)...all kinds of things that are more timely. What am I missing here — why is this concept seemingly so alien? I’m already giving away money to various family members (for education mostly), and I love it. It’s timely for them — I’m not making them wait until they’re 50 year old university undergraduates! — and it makes me happy, too. And it’s a smart investment, as it happens.

 

[ocs_woodlands]

thanks to BBC and Henry for clarification of my doubts.

 

[mummynew]

I’m a little puzzled why so many people evidently want to force their survivors/heirs to wait until they expire to receive windfalls. Why not give more money away sooner? Then it could be used on down payments for homes, educational investments, long-term investing (including CPF deposits if desired)...all kinds of things that are more timely. What am I missing here — why is this concept seemingly so alien? I’m already giving away money to various family members (for education mostly), and I love it. It’s timely for them — I’m not making them wait until they’re 50 year old university undergraduates! — and it makes me happy, too. And it’s a smart investment, as it happens.

Maybe I can share my perspective (sorry TS, going to OT a bit from your thread).

Despite having millions, I continue to live a frugal life (of way less than $1000 per month on personal expenses). Not so much of I am 'stingy' but I am very fine with this amount. My 'material aspirations' are close to zero. That is the value that my parents left behind for me.

I have two kids, both above mid 20s, who hold similar values (frugal) as me. Every month, they give me $1000+ monthly allowance (and this is part of their monthly budget that they will set aside).

I can give them a lot now if I want to and refuse their monthly allowance (since my needs are relatively minimal) so that they can have 'better lives'. But I am holding back all these as of now till the values (to spend within means by a budget, to appreciate a simple life can be a happy life, etc) that I want to inculcate can be more deeply ingrained in them. I would start giving when the time is right (probably in their mid 30s after they get their HDB after married).

Money is a two-edged sword. My objective is not so much of leaving behind money but more on a legacy on values that I hope can pass on to future generations.

 

[BBCWatcher]

Despite having millions, I continue to live a frugal life (of way less than $1000 per month on personal expenses). Not so much of I am 'stingy' but I am very fine with this amount. My 'material aspirations' are close to zero. That is the value that my parents left behind for me....

I’m sympathetic to the approach you describe, but you could also step up your philanthropy and charitable giving, right? For example, you could divert that allowance you’re receiving from your children (that you don’t need) to a charity.

 

[mummynew]

I’m sympathetic to the approach you describe, but you could also step up your philanthropy and charitable giving, right? For example, you could divert that allowance you’re receiving from your children (that you don’t need) to a charity.

I do consistently give my time and donation to charity but money not from my allowance. People in real needs can't wait till I die, that part I believe most can understand.

The allowance I get from my kids go into ETF in two different accounts under my name that my kids are not aware (I used to know only about DBS ETF). This one will be given back to them in ripe time of 'gift'.

 

[lifeafter41]

Main drawback with doing this is that each time you do this you will need to withdraw $40k from SA before withdrawing from your OA.

This is interesting.
Does it mean after shielding and when RA is created and thereafter unshielding.

We will first need to withdraw 40k from SA before OA?.

 

[henrylbh]

My understanding is as long as amount inside SA not more than FRS, MA interest will goes to SA, without considering the amount in RA. But now seem that you have woke me up from that dream

Hope you have not managed to convince others the way you understand the reply from CPFB.

A pic from CPFB's website would be clearer than what was given to you in writing by CPFB

 

[henrylbh]

thanks ..... for clarification of my doubts.

You may need to understand a little more cause it is unlikely that you have SA and no OA.

When you make any withdrawal, it will first be from the interest accrued on SA and OA (if any) to the month preceding the withdrawal month.

Example - you have 100k in OA and 520k (assuming after crediting previous year interest on 1 Jan).

If you withdraw, say 2k in Feb, you would be paid -

Interest earned in Jan (OA) - $208.33 (100k x 2.5%/12)
Interest earned in Jan (SA) - $1,733.33 (520k x 4%/12)
Principal amount from SA - $53.34
Total withdrawal = $2,000

After the withdrawal, the principal amount in your SA would be $520k - $53.34 in Feb (used to calculate subsequent months' accrued interest).

But if you withdraw 1.6k in the example I have given, you will be paid solely from interest earned in Jan (SA), leaving balance interest of 133.33 to be credited to your SA at end of the year.

not be confused, just withdraw 20k in Jan and your principal amount of 520k will become 500k for calculating interest for the year and it will remain the same every year when you withdraw 20k in Jan.

 

[compro_1975]

I do consistently give my time and donation to charity but money not from my allowance. People in real needs can't wait till I die, that part I believe most can understand.

The allowance I get from my kids go into ETF in two different accounts under my name that my kids are not aware (I used to know only about DBS ETF). This one will be given back to them in ripe time of 'gift'.

Waaa nice views you have... may you share with me the 2 etf you mentioned? I am looking to utilise my srs funds too

 

[kelhot2001]

Hope you have not managed to convince others the way you understand the reply from CPFB.

A pic from CPFB's website would be clearer than what was given to you in writing by CPFB

Hahaha, lol no, I have not taken MA interest into my consideration for retirement nor is it in my retirement calculation. Although I do some calculation for it.

But I presume the below example will works right ?

My Plan will be probably like this at age 54,
Assuming FRS: $200,000, BRS: $100,000
My SA: $200,000, OA :$160,000.00, MA: Full

At 54, I invest $160K of my SA leaving 40K into in SA
At 55, Creation of RA of FRS $200,000 from SA: 40K, OA: $160K
At 55, returned investment into SA at $160K and do nothing
At 65, SA: $238,000.00, RA: $302,000.00
At 65-70 , SA:$238,000.00, RA: 202,000.00(BRS+int from FRS) balance transfer out to OA

Doing a Basic withdrawal at 65-70 from RA, and monthly withdrawal from SA Doing this ensure a few things

1)If I do a $790.00 per month withdrawal from SA, my bequest from SA will forever be at $238,000.00 plus whatever left over from RA (Depending when I die)
2) My monthly payout will be almost equivalent to standard payout.
3) This payment mode ensure both my RA&SA will pay me till I passed on
4) I do have the flexibility to withdraw more in case I need urgent cash (But this can also be a bad thing)
5) Minimise my loss to minimum if I do passed on early (Main losses is 10-20% interest of premium annuity of $100,000.00)

 

[tangent314]

This is interesting.
Does it mean after shielding and when RA is created and thereafter unshielding.

We will first need to withdraw 40k from SA before OA?.

Yes. Whether you are shielding for RA creation or withdrawal to cash, money will first be taken of the $40k SA that is left outside the shield.

 

[henrylbh]

This is interesting.
Does it mean after shielding and when RA is created and thereafter unshielding.

We will first need to withdraw 40k from SA before OA?.

What 40k from SA before OA?

When your CPF-SA is returned to SA (unshielding), all withdrawals will be out of SA before OA.

If you still have not 'unshielded', withdrawal will first deplete whatever left in SA before OA.