Retirement account question

[andyhtc]

As a side note, I just realised that the retirement age will be 65 soon and we can be re-employed until 70 years old. That is a really long way to go for me

Raising the retirement and re-employment ages​

In addition to increasing CPF contributions, the government is expected to increase the retirement age from 62 to 63 by July 2022, and eventually to 65 by 2030. The re-employment age is also set to increase from 67 to 68 by 2022 and to 70 by 2030.

https://www.aseanbriefing.com/news/...ntral-provident-fund-contributions-from-2022/

 

[zoneguard]

Can one have more than the existing ERS in RA?

If increase in ERS each year is approximately 3% and RA's interest rate remains at 4%, it is possible.

We take a person who turns 55 on 1 Jan 2021 and top-ups with cash to ERS.

ERS in 2021 is $279K. Accrued interest in 2021 at 4%: $11.16K. RA balance after 2021 interest credited on 1 Jan 2022: $290.16K

ERS in 2022 is $288K.

EDIT:
RA earned interest for 2021 is only 11.16*11/12= $10.23K as RA formed in Jan 2021 doesn't earn interest until Feb 2021 as CPF calculates interest based on lowest monthly balance.
RA balance after adjustment: $289.23K still higher than ERS at $288K.

 

[jayou8]

If increase in ERS each year is approximately 3% and RA's interest rate remains at 4%, it is possible.

We take a person who turns 55 on 1 Jan 2021 and top-ups with cash to ERS.

ERS in 2021 is $279K. Accrued interest in 2021 at 4%: $11.16K. RA balance after 2021 interest credited on 1 Jan 2022: $290.16K

ERS in 2022 is $288K.

So in this example, assuming the 3% and 4% assumption remains constant from age 55 to 65. Upon reaching age 65 the RA would have very much more then the ERS by then. Does it means you will enjoy a very much more monthly payout?

 

[zoneguard]

Upon reaching age 65 the RA would have very much more then the ERS by then.

Given ERS is raised every year (by approx 3%), the final difference between RA balance (earning 4% every year) and the ERS limit at 65 will be around 1%.

LIFE payout have other parameters to consider besides RA balance( LIFE premium) so I will point you to the LIFE estimator for you to draw your own conclusions.

 

[BBCWatcher]

So yea bottom line is, no point topping up my uncle's RA for the benefit of higher interest since my uncle can't withdraw it out and pass me back ya.

There is a point in topping up his Retirement Account: it boosts his monthly retirement income stream from CPF, and it's a very good deal. How he chooses to spend, save, and/or distribute his retirement income is up to him, but he could hand dollars to you if he wishes.

Can one have more than the existing ERS in RA?

Yes in terms of the sheer number of dollars since the Enhanced Retirement Sum limit is based on principal only. Interest can push the total above the ERS.

As a side note, I just realised that the retirement age will be 65 soon and we can be re-employed until 70 years old. That is a really long way to go for me

This age doesn't really matter much. It's really about two things:

1. What's the earliest age when an employer can fire you solely for being "too old"? Workers at least generally want this minimum age to be as high as possible. In practice this minimum age is largely toothless in Singapore since Singapore is mainly an "at will" employment country, but it's a little something I guess.

2. The earliest age when you can make a tax qualified withdrawal from a Supplementary Retirement Scheme account. You can lock in age 62 as long as you're at least 18 years old on or before June 30, 2022, and deposit even one dollar in a SRS account on or before June 30, 2022.

You can retire at whatever age you want. We don't have legal or widespread illegal slavery in Singapore, assuming you complete your National Service if required to serve. Whether it's financially wise to retire at a particular age is a separate question, but there are plenty of adults who aren't working to earn an income. Just visit a fitness club during normal office hours where you might find some of Singapore's "idle rich."

 

[highsulphur]

What I'm asking is can I contribute say 300k into the RA to arrive on a customised annuity plan? Or the cap at 55 is the ERS

 

[zoneguard]

What I'm asking is can I contribute say 300k into the RA to arrive on a customised annuity plan? Or the cap at 55 is the ERS

RA cap at 55 onward is the current ERS. You'll need to bridge the gap with a private annuity for anything above ERS or rely on the risk portfolio and/or properties.

 

[jayou8]

Given ERS is raised every year (by approx 3%), the final difference between RA balance (earning 4% every year) and the ERS limit at 65 will be around 1%.

LIFE payout have other parameters to consider besides RA balance( LIFE premium) so I will point you to the LIFE estimator for you to draw your own conclusions.

thanks for the link. interestingly at age 55, the life estimator does allow me to key in up to $300,000 into the RA account. Anything above that hits the limit. Not sure it is just a round off figure of current ERS amount or we can indeed be able to stretch out to $300k.

 

[zoneguard]

Not sure it is just a round off figure of current ERS amount or we can indeed be able to stretch out to $300k.

Don't count on it, the estimator is a regression in my view. The rule for ERS cap is very clear:
https://www.cpf.gov.sg/members/FAQ/...ping-Up Scheme&folderid=12543&ajfaqid=2188778

 

[henrylbh]

What I'm asking is can I contribute say 300k into the RA to arrive on a customised annuity plan? Or the cap at 55 is the ERS

The max one can have in RA is the prevailing ERS (excluding interest), meaning you can only top up the difference between ERS now and ERS at 55.

 

[jayou8]

So let's say at just before age 55 I have a combined amount of $300k in my SA and OA. On age 55, a RA account is created for me and CPF transfer of the FRS amount happens from my SA and OA to the RA account. If I choose to have a higher monthly retirement payout after age 65, I have an option to top up my RA to ERS amount from my remaining SA and OA.

Is there any incentive from me to do the CPF transfer just after age 55 or should I wait till just before age 65 to transfer my SA and OA to the RA account with the context of both SA, OA and RA are still earning interest.

 

[zoneguard]

Is there any incentive from me to do the CPF transfer just after age 55 or should I wait till just before age 65 to transfer my SA and OA to the RA account with the context of both SA, OA and RA are still earning interest.

If the source of funds for the ERS top-up is SA/OA, don't do it as you are sacrificing liquidity. RA is relatively illiquid compared to SA/OA once you've hit FRS in RA.

There is more than 1 way to create a payout from CPF - a periodic withdrawal from SA/OA at a frequency you determine is also a payout. There were some discussions on drawing out the accrued interest annually in the month of December.

You can also draw out a lump sum if you wish given the liquidity of SA/OA but the sequence will always be SA first - that lump sum can then raise your RA to ERS at a later age when you may be more concerned then of longevity risk.

 

[henrylbh]

So let's say at just before age 55 I have a combined amount of $300k in my SA and OA. On age 55, a RA account is created for me and CPF transfer of the FRS amount happens from my SA and OA to the RA account. If I choose to have a higher monthly retirement payout after age 65, I have an option to top up my RA to ERS amount from my remaining SA and OA.

Is there any incentive from me to do the CPF transfer just after age 55 or should I wait till just before age 65 to transfer my SA and OA to the RA account with the context of both SA, OA and RA are still earning interest.

Say after FRS in RA is created from SA/OA and you are left with X in OA and Y in SA . X will grow at 2.5% and Y will grow at 4%. But If you transfer X and Y to elevate RA to ERS at 55, X and Y will both grow at 4%. Isn't it obvious that you do asap? The sooner you do, the greater will be the RA at 65 for higher payout. But you forgo the flexibility of withdrawing Y and X anytime in case you need them.

If you still wish to have ERS, better to cash top up RA to ERS, if your cash is earning less than X and Y which are withdrawable anytime.

 

[Smokey.B]

Say after FRS in RA is created from SA/OA and you are left with X in OA and Y in SA . X will grow at 2.5% and Y will grow at 4%. But If you transfer X and Y to elevate RA to ERS at 55, X and Y will both grow at 4%. Isn't it obvious that you do asap? The sooner you do, the greater will be the RA at 65 for higher payout. But you forgo the flexibility of withdrawing Y and X anytime in case you need them.

If you still wish to have ERS, better to cash top up RA to ERS, if your cash is earning less than X and Y which are withdrawable anytime.

1.) if I top up RA to like 98% of ERS at 55 years old. At 56 due to interest it hits 100%. I cannot top up anymore ?
2.) which would u guys recommend standard or escalating ?

when I’m 55 rules will definitely change by then but oh well

 

[jayou8]

If the source of funds for the ERS top-up is SA/OA, don't do it as you are sacrificing liquidity. RA is relatively illiquid compared to SA/OA once you've hit FRS in RA.

There is more than 1 way to create a payout from CPF - a periodic withdrawal from SA/OA at a frequency you determine is also a payout. There were some discussions on drawing out the accrued interest annually in the month of December. You can also draw out a lump sum if you wish given the liquidity of SA/OA but the sequence will always be SA first.

If I were to use my SA/OA as a vehicle for my additional "private annuity" will it work? i.e. I top up VC from age 55 to 65 ($37,740 x 10) and arrange my own withdrawals to compliment my payout from the retirement account.

At the same time if emergency happens, I can still withdraw anytime from my SA/OA? Sound like a good vehicle during low interest rates environment?

Say after FRS in RA is created from SA/OA and you are left with X in OA and Y in SA . X will grow at 2.5% and Y will grow at 4%. But If you transfer X and Y to elevate RA to ERS at 55, X and Y will both grow at 4%. Isn't it obvious that you do asap? The sooner you do, the greater will be the RA at 65 for higher payout. But you forgo the flexibility of withdrawing Y and X anytime in case you need them.

If you still wish to have ERS, better to cash top up RA to ERS, if your cash is earning less than X and Y which are withdrawable anytime.

Can I choose to CPF transfer OA first or it has to be SA then OA?

So it makes sense to CPF transfer to RA if SA has to be used up first right?

 

[BBCWatcher]

1.) if I top up RA to like 98% of ERS at 55 years old. At 56 due to interest it hits 100%. I cannot top up anymore ?

You can. Interest is NOT counted as part of the CPF Retirement Account limit. The maximum you can squeeze into your CPF Retirement Account involves these two steps:

1. Top up your CPF Retirement Account to the prevailing Enhanced Retirement Sum within your 55th birthday month;

2. Continue topping up your CPF Retirement Account within every month the Enhanced Retirement Sum is raised, for the rest of your life.

That's the best you can do in terms of shoving in as many dollars as allowed into your CPF RA.

2.) which would u guys recommend standard or escalating ?

First of all I would not start payouts before the maximum allowed age (age 70) unless you absolutely need the money. "Let it ride" since it's a great deal.

when I’m 55 rules will definitely change by then but oh well

Exactly. Right now if you're in genuinely poor health at age 69.9 you'll probably want to choose the Standard Plan if you have no heirs or charities you care about or the Basic Plan if you do. Otherwise I like the Escalating Plan both in order to protect/defend bequests/lifetime gifts and/or real lifestyle, and to maintain a more aggressive (and long-term higher yielding) posture using other assets. However, presumably you have plenty of time until you're age 69.9 and needing to make this particular decision.

If I were to use my SA/OA as a vehicle for my additional "private annuity" will it work? i.e. I top up VC from age 55 to 65 ($37,740 x 10) and arrange my own withdrawals to compliment my payout from the retirement account.

SA/OA aren't an annuity, not a life annuity anyway. You should compare them with other traditional investment and savings vehicles. They can be quite useful, yes.

At the same time if emergency happens, I can still withdraw anytime from my SA/OA? Sound like a good vehicle during low interest rates environment?

Yes, they're quite popular.

Can I choose to CPF transfer OA first or it has to be SA then OA?

SA first then OA. It's really just a convenience service that the CPFB offers since it's essentially equivalent to a lump sum withdrawal followed by a deposit into RA.

If you are "shielding" SA when your RA is formed on your 55th birthday then that's a good time to transfer funds into your new RA since you'll be drawing from your OA. Then you can drop the shield.

So it makes sense to CPF transfer to RA if SA has to be used up first right?

Usually SA wouldn't be your lowest cost source of funds for RA top ups. Usually it'd be something else like cash sitting in a bank earning 0.05% interest (or whatever). I wouldn't be in a rush to tap a 4.0% interest earning liquid account (SA from age 55, assuming RA is funded).

 

[jayou8]

Usually SA wouldn't be your lowest cost source of funds for RA top ups. Usually it'd be something else like cash sitting in a bank earning 0.05% interest (or whatever). I wouldn't be in a rush to tap a 4.0% interest earning liquid account (SA from age 55, assuming RA is funded).

Thanks BBCw. So looks like at age 55, I would be better off topping up my RA to ERS using cash idle in my bank first and only look to use CPF transfer from SA/OA after that. After all, I still will be able to access emergency funds from SA/OA which will serve the original purpose of my idle cash in the bank. Thanks for reminding me the cheapest cost of funds!

 

[zoneguard]

2. Continue topping up your CPF Retirement Account within every month the Enhanced Retirement Sum is raised, for the rest of your life.

Did the math for this, in terms of the dollar value, it seems that RA balance can indeed go over the current ERS at an interesting quantum as each annual top-up isn't constrained by the interest earned before and yet they all earn 4% interest to contribute to the overall balance.

Of course, one have to balance this with the lowest cost of funds for the cash top-ups to see if it make sense to perform this maneuver.

 

[BernardWYF]

Before reaching the age of 55, your topping up of RA ($7000 max per year) actually depends on how much you have in the SA account (existing funds + funds used for investing) + RA (total top up made earlier) not exceed Full Retirement Sum.

In other words, if you have contributed earlier for topping up RA say $100k and your SA account (existing holding $40k and invested $50k). Your total SA (RA + SA total) is $190k >= FRS $190k, you will not be able to do anymore top up RA for this year (or until the FRS is raised).

For the case of uncle, seems most unlikely you can transfer your CPF to his SA if his SA is more than FRS.

 

[katana71]

Say after FRS in RA is created from SA/OA and you are left with X in OA and Y in SA . X will grow at 2.5% and Y will grow at 4%. But If you transfer X and Y to elevate RA to ERS at 55, X and Y will both grow at 4%. Isn't it obvious that you do asap? The sooner you do, the greater will be the RA at 65 for higher payout. But you forgo the flexibility of withdrawing Y and X anytime in case you need them.

If you still wish to have ERS, better to cash top up RA to ERS, if your cash is earning less than X and Y which are withdrawable anytime.

It wouldn't be that obvious if your balance SA (your Y) is already more than enough to Top up in your RA (yes there is a limit to how much you can top-up and the limit is your ERS) i.e. no need X at all. Then you are getting 4% whether in SA or 4% in the RA. If still in SA you got the flexibility. You can't do anything once the funds are transferred to your RA.