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Letters on risk free, volatility free retirement funding.

Wednesday, July 22, 2015

Regular readers would have guessed what this blog post is about.

Letter number 1 from a lady:


Sorry if I sent this email to the wrong email address, not sure if this is only meant for ad enquiries only.

I enjoy reading your blog and these few days I keep coming across CPF-SA on your blog. It got me thinking about whether I should transfer some $ from OA to SA.

I just realised I have abt $50k in my OA and $20k in SA. Is there a cap on the amount transfer-able from OA to SA? I read about a $7k limit but it seems to be voluntary contribution cap as well as tax deductible.

I'm in my 20s, married with kids and have a HDB loan but it is not serviced with my OA. Do you think it is advisable for me to transfer as much as possible to my SA account?

What should be the considerations I have for leaving the balance in OA vs transferring to my SA account?

From what I gather, it sounds advantageous for me to transfer those in excess of $20 from my OA (thinking since 1st $20k earns additional 1% interest) to SA.

should I have an aim of say x% dividend yield/captial gain given that money in SA is already earning 4% and it's risk-free.

Thank you.


The ant stored food for the coming winter.

My reply:

Hi Y,

Welcome to my blog. :)

Well, if you don't have any use for the money in your CPF-OA, it would make sense to do an OA to SA transfer. Yes, leave $20K in your OA since it makes 3.5% per annum.

The first $40K in your SA will make 5% per annum. The rest will make 4% per annum.

OA to SA transfer and Minimum Sum Top Up to the SA will be limited by the ceiling imposed by the CPF. This year, it is $161K, I believe. So, people who have $161K in their SA already cannot do any transfer or top-up.

$7K in Minimum Sum Top Up to the SA each year is eligible for income tax relief. You could Top Up more than $7K but you won't get tax relief for anything more than $7K. There is no tax relief for OA to SA transfer.

There is a place for risk free and volatility free instruments in our investment portfolio, I firmly believe. I treat my CPF as the bond component of my portfolio. ;)

Best wishes,

Risk free, volatility free retirement funding.

Letter number 2 from a gentleman:

Hello Bro,

I saw your blog and am very impressed with the article you wrote on CPF SA.

I was doing some calculation but unable to really get the correct numbers and have tried using CPF compound interest calculator but the numbers I get seems to be wrong....

Wondering if you can help ?

Case Scenario : Age 33 with $40K in SA and contribute $7K to SA for the next 12 years (Till Age 45)

How much SA will I have at age 55?

My calculation comes up to about $384K which is definitely wrong....


Sorry bro forgot to add that after age 33 to age 55, a constant contribution of just $300 to SA from employment and $7K is a cash topup. At age 45 the cash topup will stop with just $300 contribution to SA from employment.

Power of compounding.

My reply:

Hi C,

If you notice, in my blog, my math is usually very simple. I think if we can be approximately right, that is good enough.

If you contribute $300 to your CPF-SA each month from age 33 to 55, starting with a base of $40K at age 33, you would have $223,381 at age 55.

Principal: $119,200.
Total interest: $104,181.

I used the CPF Compound Interest Calculator.

Of course, you would probably end up with more than this because the first $40K in your SA will get 5% interest per annum and not 4%.

Now, if you were to do a $7K Minimum Sum Top Up to your CPF-SA every year from age 33 to 45, I don't know what you might end up with at age 55. I will say "a lot more". ;p

A lump sum $7K compounding at 4% per annum for 22 years will become $16,852. Total interest: $9,852. Since you plan to stop doing Minimum Sum Top Up after age 45. Then, your final contribution at age 45 will compound for 10 years which will give you $10,436. Total interest: $3,436.

You could do the rest of the calculations yourself (11 years to 21 years) and total them up.

You will have a lot of money in your CPF-SA at age 55. ;)

Best wishes,

Related post:
How to upsize $100K to $225K?


AK71 said...

Sharing another email from a reader:

Hi AK,

Sorry for also using your "ads email address" like lady 1 in your post; couldn't find an alternative.

Just wanted to highlight that the additional 1% interest is applicable to the entire $60,000 amount, regardless of which account it is in. What confused people was the mention of "...first $60K up to $20K in the OA"; in other words, if OA = $0, but SA = $60K, all $60K in SA receives 4%+1%. Therefore if lady 1 wishes, she can just empty her OA into the SA, and still enjoy the additional 1%.

Just thought I should highlight it as your blog does have a very large following :)

Thanks for your blog btw; am an avid follower! Keep up the great work!


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