Special Account After 55

[BBCWatcher]

Assuming for male it’s 10% and female is 20% due to life expectancy, am very hesitant to top up from FRS to ERS when the time comes.

So let’s make the following assumptions:

1. You turn 55 in 2019 and add $88,000 to your Retirement Account to boost it from the Full Retirement Sum to the Enhanced Retirement Sum.

2. You earn 4% on that $88,000, compounded annually for 15 years.

3. At age 70, you start payouts, and 20% (let’s suppose) of that $88,000 plus interest is allocated to the CPF Lifelong Income Fund. (That’s too high since there’s bonus interest that’s bearing more of the 20% figure.)

OK, so at the end of 15 years you’ll have $158,483. 80% of that is $126,786. That equates to a 2.46% effective yield even if you pretend the funds in the CPF Lifelong Income Fund vanish and you assume 20% of the ERS top up plus interest. Neither is true, of course.

Is there any government bond yielding 2.46%? Let’s take a look.... Nope. A 2.16% yield is the best you can do at the moment on a 30 year SGS.

Toss in the most pessimistic assumptions you want, and this is still a good to great deal.

 

[dork32]

So let’s make the following assumptions:

1. You turn 55 in 2019 and add $88,000 to your Retirement Account to boost it from the Full Retirement Sum to the Enhanced Retirement Sum.

2. You earn 4% on that $88,000, compounded annually for 15 years.

3. At age 70, you start payouts, and 20% (let’s suppose) of that $88,000 plus interest is allocated to the CPF Lifelong Income Fund. (That’s too high since there’s bonus interest that’s bearing more of the 20% figure.)

OK, so at the end of 15 years you’ll have $158,483. 80% of that is $126,786. That equates to a 2.46% effective yield even if you pretend the funds in the CPF Lifelong Income Fund vanish and you assume 20% of the ERS top up plus interest. Neither is true, of course.

Is there any government bond yielding 2.46%? Let’s take a look.... Nope. A 2.16% yield is the best you can do at the moment on a 30 year SGS.

Toss in the most pessimistic assumptions you want, and this is still a good to great deal.

what you posted is very bad. 2.46% is terrible, considering that cpf life funds is perpetually tied up.

if it is really 2.46%, you have this 88k, you should
1. VC in all 3 accounts (oa is liquid, sa gives as high an interest)
2. payback your housing withdrawal (wat did i say about oa)
3. top up to ers (money is all tied up)
in this sequence.

but the fact is that it is better that 2.46%. so the decision becomes very tight.

 

[maple96]

Assuming his maths is correct, someone posted yesterday in another CPF thread that he will not do the SA Hack, he will withdraw all his SA monies and invest in the stock market which can definitely return more than 4%.

Some people have always been posting in hwz that they can earn more than 7% with dca into STI ETF or more than 12% into S&P ETF, or more than CPF interest rate being invested in the stock market. Some are teaching others with formula to allocate their investments to achieve higher returns.

Then some who teach dun practice what they preach (self declared when asked).

So there are better returns u can get if u are savvy with investments.

I am putting my monies into my own "portfolio" which guarantees at least 4% pa compounded returns.

 

[BBCWatcher]

what you posted is very bad. 2.46% is terrible, considering that cpf life funds is perpetually tied up.

Obviously the yield is not that low — no, your CPF Lifelong Income Fund claim does not disappear — but such a yield would still be 30 basis points higher than the current yield on the longest bond issued by the same government. (Which in turn is generally the world’s highest nominal yielding AAA rated government bond.)

The bottom line is that even if you make absurdly pessimistic assumptions that are downright false, RA top ups are still a good to great deal comparatively. People who are genuinely wealthy (and rational) will take this deal, all of it. And they don’t have to think hard.

if it is really 2.46%, you have this 88k, you should
1. VC in all 3 accounts (oa is liquid, sa gives as high an interest)

That doesn’t work. You can only deposit a maximum of $37,740 that way, inclusive of compulsory contributions. (So zero incremental for some people, especially among the people who can make ERS top ups.) The 2019 gap between the FRS and the ERS is $88,000, quite a bit higher.

2. payback your housing withdrawal (wat did i say about oa)

You can also do that, particularly just before age 55 if you need more OA dollars to fund your Retirement Account (and with Special Account shielding).

 

[lifeafter41]

what you posted is very bad. 2.46% is terrible, considering that cpf life funds is perpetually tied up.

if it is really 2.46%, you have this 88k, you should
1. VC in all 3 accounts (oa is liquid, sa gives as high an interest)
2. payback your housing withdrawal (wat did i say about oa)
3. top up to ers (money is all tied up)
in this sequence.

but the fact is that it is better that 2.46%. so the decision becomes very tight.

While I want to thank BBC for his calculations.
I am with Dork on this.....
For item 1 and 2......
3 most likely will not be on the table.

 

[BBCWatcher]

While I want to thank BBC for his calculations.

I hope you're aware they're deliberately incorrect. (The actual yield is much higher.)

 

[maple96]

Obviously the yield is not that low — no, your CPF Lifelong Income Fund claim does not disappear — but such a yield would still be 30 basis points higher than the current yield on the longest bond issued by the same government. (Which in turn is generally the world’s highest nominal yielding AAA rated government bond.)

first correction of his own post

While I want to thank BBC for his calculations.
I am with Dork on this.....
For item 1 and 2......
3 most likely will not be on the table.

I hope you're aware they're deliberately incorrect. (The actual yield is much higher.)

second correction of his own post

People who are genuinely wealthy (and rational) will take this deal, all of it. And they don’t have to think hard.

Yes, most important is how the CPF rules really work for u!

Dun be "con" by the "best written english" , these are written to psycho u, to play with your greed and fear, to influence and steer u to make the decision they want u to so they can achieve their objective, not necessary to your benefit

nobody bothered to correct his maths posts.

 

[fr33d0m]

I want to see a genuine definition of wealthy, unless it means most average Singaporean, though in this whole world, they are wealthy.

Wealthy in the concept of SG, they care little about CPF, or they are not wealthy.

 

[BBCWatcher]

1. The actual, most pessimistic yield on an ERS top up at age 55 with the CPF LIFE Basic Plan, age 70 payout start, maximum CPF Lifelong Income Fund contribution, minimum individual return from the CPF Lifelong Income Fund (i.e. death at very precisely the worst possible time from a yield point of view, which is when the residual falls to zero) is...somewhere in the mid 3.X%/year range. (The "X" requires some more careful calculations, but the first number is definitely, solidly 3.)

Genuinely wealthy and rational people don't have to think much about whether they're going to top up their Retirement Accounts to the ERS at age 55. That decision is VERY easy. It's a great deal, and they'll take every penny of that particular deal (and thanks very much).

2. Why does the government have an Enhanced Retirement Sum limit at all? Why not allow Singaporeans to stuff as much as they want into their CPF Retirement Accounts?

3: The answer to point #2 is a direct consequence of the yield in point #1.

4. If you're not genuinely wealthy (or at least well-to-do) at age 55, or if you're not rational...OK, different story, then.

5. What does "genuinely wealthy" mean? It means that making a $88,000 (2019 gap between the FRS and ERS) or more deposit in a 3.X% (or more) yielding high quality, Singapore dollar investment offered by the AAA rated sovereign isn't even worth more than a couple minutes of thought, if that. It's only $88,000, and that's a tiny amount of money, relatively speaking. If you're genuinely wealthy.

If $88,000 at age 55 seems like a lot of money to you, then either you're not genuinely wealthy or you're not rational. (S$88K is definitely not a lot of money to a Singapore dollar multi-billionaire, but a multi-billionaire can still be irrational.)

Bottom line: "Just look at the yield." It's a great deal, folks, at least if you can afford it within your overall financial plan. If you're poor (comparatively, or more poor), or irrational, or both, well, OK, different story.

 

[henrylbh]

1. The actual, most pessimistic yield on an ERS top up at age 55 with the CPF LIFE Basic Plan, age 70 payout start, maximum CPF Lifelong Income Fund contribution, minimum individual return from the CPF Lifelong Income Fund (i.e. death at very precisely the worst possible time from a yield point of view, which is when the residual falls to zero) is...somewhere in the mid 3.X%/year range. (The "X" requires some more careful calculations, but the first number is definitely, solidly 3.)

Is that honestly the most pessimistic yield?

I wonder why you don't use escalating plan based on worst possible time from a yield point of view.

 

[BBCWatcher]

Is that honestly the most pessimistic yield?

Yes. If you're trying to maximize yield certain for you and your nominees (combined), then you pick the program features that are best aligned with that specific goal, then apply the most pessimistic assumptions to that particular feature selection. This is all quite correct.

If you're trying to achieve other financial and lifestyle goals -- and you probably should! -- then it's a different story.

 

[fr33d0m]

If $88,000 at age 55 seems like a lot of money to you, then either you're not genuinely wealthy or you're not rational. (S$88K is definitely not a lot of money to a Singapore dollar multi-billionaire, but a multi-billionaire can still be irrational.)

Multi-billionaire should not think about 88K, right? it is less than 0.01% of their wealth.

Well-to-do is much better than wealthy, because in SG, wealthy is in a different league.

 

[fr33d0m]

Is that honestly the most pessimistic yield?

I wonder why you don't use escalating plan based on worst possible time from a yield point of view.

You can't pick the best of both worlds and should not pick the worst of both worlds, either. No one sane will do that.

 

[dork32]

That doesn’t work. You can only deposit a maximum of $37,740 that way, inclusive of compulsory contributions. (So zero incremental for some people, especially among the people who can make ERS top ups.) The 2019 gap between the FRS and the ERS is $88,000, quite a bit higher.

yes there is max of 37k. ers is for after 55. after 55, mandatory contribution goes down. there will be opportunities to do vc after 55 unless your bonus is super high.

 

[BBCWatcher]

yes there is max of 37k. ers is for after 55. after 55, mandatory contribution goes down.

For now. The government has already announced it's raising the age 55+ compulsory contribution rates at some point fairly soon.

On edit: OK, more detail.... The government is going to extend the 37% compulsory contribution rate that currently ends at age 55 up to age 60 (i.e. for another 5 years). The government plans to make that adjustment over the next decade, probably at a pace of something like one percentage point per year. The government also plans to raise compulsory contribution rates for those age 60 to age 70 over the same period, although workers in that age range will still end up somewhere below the 37% rate.

there will be opportunities to do vc after 55 unless your bonus is super high.

If you have room under the CPF Annual Limit, then you can do both (55th birthday then annual January ERS top ups into your Retirement Account, "all three" top ups within the CPF Annual Limit). However, the latter will earn a blended rate of interest that's inferior to the Retirement Account's most pessimistic yield certain. Yes, to the extent the "all three" top up lands in OA+SA (and not MA) there's immediate liquidity from age 55, but exercising that liquidity comes at a high price because withdrawals are biased to draw from the higher yielding SA first, driving down the effective yield on remaining dollars.

For somebody age 56 (let's suppose) who makes an "all three" top up, assuming that person has a MediSave Account at or above the Basic Healthcare Sum and has previously hit the Full Retirement Sum, only 13.5% of his/her "all three" top up lands in his/her Special Account (4% interest). The rest lands in his/her Ordinary Account (2.5% interest).

 

[henrylbh]

1. The actual, most pessimistic yield on an ERS top up at age 55 with the CPF LIFE Basic Plan, age 70 payout start, maximum CPF Lifelong Income Fund contribution, minimum individual return from the CPF Lifelong Income Fund (i.e. death at very precisely the worst possible time from a yield point of view, which is when the residual falls to zero) is...somewhere in the mid 3.X%/year range. (The "X" requires some more careful calculations, but the first number is definitely, solidly 3.)

Is that honestly the most pessimistic yield?

I wonder why you don't use escalating plan based on worst possible time from a yield point of view.

Yes. If you're trying to maximize yield certain for you and your nominees (combined), then you pick the program features that are best aligned with that specific goal, then apply the most pessimistic assumptions to that particular feature selection. This is all quite correct.

In short, you were trying to say that the most pessimistic yield is somewhere in the mid 3.x/year range.

I did not indicate that I am trying to maximise yield or whatever to go for. Only questioning whether is that the most pessimistic view (on an ERS).

It appears you have selected only one plan just to suit your view.

 

[henrylbh]

You can't pick the best of both worlds and should not pick the worst of both worlds, either. No one sane will do that.

Who is picking?

I only questioning what's the worst case, not the best case

 

[BBCWatcher]

Who is picking?

You are.

I only questioning what's the worst case, not the best case

Well, the worst case for a yield certain is that, instead of topping up your Retirement Account to the ERS, you give all that money to me, with no obligation, and I give you nothing. Then you lose all your principal and all interest....

....No, I can imagine worse! You take the S$88,000 and hand it to a criminal who is instructed to torture you, and worse. A criminal who keeps the money, maybe topping up his/her own CPF Retirement Account.

....The analysis is correct, Henry. *IF* you're trying to maximize yield certain for you and your nominee(s) from your CPF Retirement Account, then that's the CPF LIFE Basic Plan plus age 70 payout start. I don't think you should typically be trying to maximize yield certain specifically from your CPF Retirement Account -- that's not the highest, best use of a CPF Retirement Account in my view -- but *IF*, then that's what you, a rational person, would do. Then "random s**t happens," notably your date of death at the worst possible time from a yield certain point of view, and you calculate the lowest (most pessimistic) maximized yield certain result. All correct.

 

[henrylbh]

I only asked question and you insist I pick? Gone case. Nothing more can I say

Not only that. Add more irrelevant comments.

 

[fr33d0m]

Who is picking?

I only questioning what's the worst case, not the best case

if you are looking at yield, don't choose ERS because ERS is not for it.

You don't buy life insurance for hospitalization, right?