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Retire with an investment grade bond and an annuity.

Monday, November 23, 2015


The CPF is a risk free and volatility free retirement funding tool that Singaporeans should learn to take advantage of.

However, depending on what we want it to do for us, the way we use it would be different.

 

Hi AK! Can I ask u for some advice.. or rather ask u to talk to urself! My wife and I r both self employed, and I want to boost our CPF SA account, but I'm not sure whether we should boost just one or both accounts. 

My SA has Xk and i'm XX, she has Xk and XX, and I'm thinking if we both contribute to her account, its quicker to reach the minimum sum and exceed that, so we can draw out a lot in excess of the MS when she reaches 55, whereas if we contribute to both i have to work harder to reach the MS and we may just slightly exceed the MS when we reach 55 in our respective accounts, and can't withdraw as much. 


I'm contributing 2k a month, and she 800 a month to our SA atm. If you are faced with this, what is the more sensible choice?



I sidestepped the question about whether it is better to contribute to only one account or work harder to contribute to both accounts. I think the reader has the answer somewhere in his head. 





It really is a matter to be decided by him and his wife. I don't want them to scold me for some reason when they hit 55.

However, I had this to say:


Well, you have to remember that MS Top Ups to the SA including the interest earned cannot be withdrawn even if you exceed the prevailing MS at age 55.

So, if your CPF-SA is made up exclusively of money from MS Top Ups, you don't get to withdraw anything at age 55. It all goes to your CPF RA which becomes CPF Life at age 65.

If you are thinking of withdrawing your CPF money at age 55 above the prevailing MS, then, I think you might want to consider maxing out the annual contribution cap for the CPF. The cap this year is $31,450 (mandatory and voluntary contributions combined).

The money voluntarily contributed gets apportioned into your OA, SA and MA. You could then do an OA to SA transfer as long as your SA has not hit the ceiling (which is the prevailing MS). Any money that has gone into the SA this way is allowed to be withdrawn at age 55 if it is in excess of the prevailing MS. smile emoticon

Note that there is no income tax relief for OA to SA transfer unlike MS Top Up to the SA (for the first $7K per year).



Doing MS Top-Ups to the SA makes the CPF an annuity and we will get a monthly payout for life from age 65. 

Doing OA to SA transfer will also make the CPF an annuity but there is a bond like feature which allows us a larger lump sum withdrawal (i.e. anything above the prevailing MS) at age 55.

 


Note:
Please see comments section below. Whether we are able to withdraw Top Ups and the accrued interest would depend on the age at which the Top Ups are done.

"Top-up monies are set aside specifically for retirement needs and will be used to increase the recipient’s payout level and/or payout duration. Hence it cannot be used for other purposes such as education, investment, insurance premium payments, housing, pledging and/or exemption.

"If you had received top-ups before age 55, the top-ups and accrued interest in your Special Account (SA) will be transferred to your Retirement Account (RA) when you turn 55. Any excess, above the Full Retirement Sum applicable to you, can be withdrawn when you apply for withdrawal at age 55."


Source: CPF FAQ.

Related posts:
1. How to upsize $100K to $225K in 20 years?
2. Another step towards retirement adequacy.
3. What happens to our CPF money at age 55?

22 comments:

Deron Tan said...

Hi AK, i found the below information from CPF website:

If you had received top-ups before age 55, the top-ups and accrued interest in your Special Account (SA) will be transferred to your Retirement Account (RA) when you turn 55. Any excess, above the Full Retirement Sum applicable to you, can be withdrawn when you apply for withdrawal at age 55

So it means that excess voluntary contributions can be withdrawn at age 55? But it seems you are saying otherwise. Would be good if you can confirm your information. Thanks!

AK71 said...

Hi Deron,

It took me a while to find this:

betta man said...
An extraction from the link below:

"Top-up monies are meant for the recipient’s retirement needs. Therefore, he cannot apply to withdraw the top-up monies:
(a) under any CPF schemes for payment of education, investments, insurance, housing, etc;
(b) by pledging his property in lieu of the retirement sum; and
(c) via exemption from the Retirement Sum Scheme."

https://mycpf.cpf.gov.sg/assets/members/documents/form_rsstp.pdf

Through clarifications with CPF board, I understand that cash top ups to CPF SA cannot be withdrawn even if you meet the BRS or FRS. They will be locked into the CPF Life scheme. Monies from VC or transfer from OA to SA is not subjected to this regulation.

Hence, I have serious reservations on topping up SA using cash, which I used to support in the past. As the payout eligibility age keeps postponing, I am not sure how long my monies will be locked up in the future. I would rather use the monies to buy into private annuity plans where I can define my own drawdown age or even dividend stocks.
June 12, 2015 at 9:59 AM


Source:
In the comments section - http://singaporeanstocksinvestor.blogspot.sg/2015/06/what-happens-to-our-cpf-money-at-age-55.html

AK71 said...

On Facebook,

A reader shared something else with me and I dug this up:

Q
How can the top-up monies be used?

A
Top-up monies are set aside specifically for retirement needs and will be used to increase the recipient’s payout level and/or payout duration. Hence it cannot be used for other purposes such as education, investment, insurance premium payments, housing, pledging and/or exemption.

If you had received top-ups before age 55, the top-ups and accrued interest in your Special Account (SA) will be transferred to your Retirement Account (RA) when you turn 55. Any excess, above the Full Retirement Sum applicable to you, can be withdrawn when you apply for withdrawal at age 55.


Hence, it could be age related. Whether top ups are done before age 55 or at 55 and older will see different treatments.

CS said...

Hi AK,
I learnt from CPF Board that from Jan 2016 contribution to one's medisave account is no long required, which means we can have more funds to transfer to our special account or retirement account.
Further more, CPFB will introduce the Enhanced Retirement Sum. This sum will be 3 times the amount that one can contribute to the Basic Retirement Sum. This is to allow anyone who has the money (in OA or cash) to top up to his retirement account to enjoy high interest and also high payout when he reaches the eligible drawdown age. Good news right?

C.S.

AK71 said...

Hi CS,

I believe that the changes to the CPF system are good.

However, I did not know that we do not need to contribute to our MAs from Jan 2016. I think they say that there is no minimum sum required for the MA.

The ERS is an option for anyone who wants a bigger annuity at age 65. :)

Unknown said...

Hi AK, I attended your chitchat session when Christopher from Providend was there talking about CPF. If I remember correctly, he recommended that for husband and wife, it is better to top up both accounts equally. This is in the event that one spouse dies before the other, the spouse left behind would still have his own CPF life payout to depend on. If only one account was topped up to minimum sum, and the spouse who owns that account dies, the surviving spouse will not be able to enjoy CPF payouts for the rest of his/her life.

AK71 said...

Hi Unknown,

Thank you for the comment. I am sure the reader will take your idea into consideration. :)

Of course, if one should die before one's spouse, one would automatically leave the money in one's CPF account to one's spouse. This arrangement kicks in upon marriage. The surviving partner could use the money to top up his or her CPF-SA or CPF-RA then.

Eddie said...

Hi AK,
I disagree somewhat with your comments to Deron. Let me explain.

Lets assume I start contributing $7K annually to the MS Topup scheme from age 35 till 55; about 20 years. The future value of this contribution compounded for 20yrs at 4%, is about $216K. All of this $216K will be locked into the RA as part of the CPF Life scheme.

However, the compulsory CPF contributions made when one starts his/her career from age 24, till the time they are 55,( 30+years) is quite significant. Since the $216K (from the $7k annual MS toupee) will form a significant part of the CPF Life BRS, I would think that most of the compulsory CPF SA contributions made as a working adult graduate, would be able to be withdrawn at age 55, plus whatever is in the OA account as of age 55.

Am i interpreting the rules correctly, or am i missing something out here ?

Your thoughts please.

regds
Eddie

AK71 said...

Hi Eddie,

I think you are referring to the comment from betta man which I reproduced.

Yes, I agree with you. Even if the Minimum Sum Top Ups of $7K a year (and its accrued interest) could not be withdrawn at age 55, we could still withdraw anything in excess of the minimum sum at age 55 due to the compulsory contributions made to our CPF-SA in the course of our working life (provided that our income is high enough).

AK71 said...

Hi AK,

I read on the following blog post.

http://singaporeanstocksinvestor.blogspot.com/2015/06/what-happens-to-our-cpf-money-at-age-55.html?m=1

I'm quite confused as the information seems to be contradicting from the exchanges by CPF from reader "betta man" and "KK" (you posted the exchanges on 23rd June).

Based in CPF guidelines available online and verification by Betta Man with CPF, it seems that the VC and interest earned from the VC will be excluded from withdrawal even if you have above the MS at age 55. However, KK's verification with CPF seems to state otherwise.

Would you please enlighten me what am I missing?

Best regards,
K
Sent from my iPhone

-----------

Hi K,

I think they are both right if we take into consideration the age at with the Top Ups are made. Betta Man is right if the Top Ups are made at age 55 or older. If the Top Ups are made before age 55, then, whatever is in excess of the MS at age 55, we can withdraw.

Best wishes,
AK


Melvir S said...

They should definitely make it easier to understand for laymen especially if they're encouraging people to do top ups.

What I understand is that we can't withdraw top ups and interest accrued. However, over the course of 20-30 years, because it will probably make up a substantial or maybe even total amount of the FRS when the member turns 55, it is safe to say he might be able to withdraw his entire working life's worth of OA/SA contributions.

AK71 said...

Hi Melvir,

I agree that, unfortunately, it can be quite a labyrinth.

N said...

Hi AK,

You are right about leaving one's CPF money to the surviving partner who could use the money to top up his or her CPF-SA or CPF-RA then. However, I think an important point to note is that if one passes away after a certain age (85 on the standard CPF life plan or 95 on the CPF life basic plan), the bequest would $0. Assuming you only had the full retirement sum at age 55 (and withdrawn any excess), all of it would have been put into the CPF life annuity at age 65 and there would be no CPF money left for your spouse should you die at 85 or older.

AK71 said...

Hi N,

You are certainly thinking far ahead. I like that. :)

Yes, we could be blessed with longevity. Then, the situation which you have described could indeed happen. Better to have $600 each a month than to have all $1,200 from one partner and nothing from the other.

Solace said...

This comment came slightly overdue, but i will still add in hahaha.

Doing MS top-up consistently when one is below 55 is an excellent plan, when one is risk averse of market loss and wants to get a reasonable return that is on par with inflation.

Coupled with tax saving, the total return should not be underestimated.

http://singaporeanstocksinvestor.blogspot.sg/2015/06/a-chat-on-fds-ssbs-ocbc-360-and-cpf-top.html

When this plan is executed well, we should be able to meet and even exceed the CPF Minimum Sum when we reach age 55.

One way to look at CPF MS top up is this.
Use MS top up and accrued interest to form up the bulk of MS/FRS, which will form RA. Then one can withdraw the excess amount in CPF from mandatory contribution from yr salary and employer at age 55. This sounds like a good deal to me.

Tentatively, i have anchored my full-time retirement from work at around age 55. This CPF plan if planned well, will become part of my crucial plan in retirement.

Solace said...

This comment came slightly overdue, but i will still add in hahaha.

Doing MS top-up consistently when one is below 55 is an excellent plan, when one is risk averse of market loss and wants to get a reasonable return that is on par with inflation.

Coupled with tax saving, the total return should not be underestimated.

http://singaporeanstocksinvestor.blogspot.sg/2015/06/a-chat-on-fds-ssbs-ocbc-360-and-cpf-top.html

When this plan is executed well, we should be able to meet and even exceed the CPF Minimum Sum when we reach age 55.

One way to look at CPF MS top up is this.
Use MS top up and accrued interest to form up the bulk of MS/FRS, which will form RA. Then one can withdraw the excess amount in CPF from mandatory contribution from yr salary and employer at age 55. This sounds like a good deal to me.

Tentatively, i have anchored my full-time retirement from work at around age 55. This CPF plan if planned well, will become part of my crucial plan in retirement.

AK71 said...

Hi Solace,

I wait until neck long long for this comment. Thank you very much. :)

Siew Mun said...

I am fortunate to reach MS at age 50. Once you reach your MS you cannot top up from OA or cash to the SA. What more can I do?

AK71 said...

Hi Siew Mun,

We are on the same boat. :)

Unfortunately, we will have to find other ways to grow our nest egg. Remember what DPM Tharman said at the IPS Forum on CPF matters? The CPF is not to help the rich. ;p

AK71 said...

Laurence N:
... even though CPFB dangles the 4% (SA) interest rate, I think most retirees would not get to enjoy it as most would choose to withdraw their OA money. If CPF really wants to give us the 4% interest rate, they should let us withdraw from the OA while maintaining some funds in the SA.

AK:
I don't think we should say:
"If CPF really wants to give us the 4% interest rate, they should let us withdraw from the OA while maintaining some funds in the SA."

At 55, we are still getting 4% from money that used to be in the SA. The money has just moved into the RA.
In fact, we would be getting 4% to 6% for money in the RA at 55. That is more than what the SA was paying.

The CPF is meant to help us with retirement adequacy and in the current form, it is already doing its job...

From:
http://singaporeanstocksinvestor.blogspot.sg/2017/04/know-how-to-grow-our-cpf-savings.html?showComment=1492048795768#c5645241475317722468

AK71 said...

From my FB wall:

Vincent Chan H S:
(1) Based on what I understand, there are currently 2 types of CPF Life, standard and basic. You will be paid more monthly for standard compared to basic. This will also means that standard will use up the funds faster. Interest earned will still be 4-6% for both.

(2) Both standard and basic is not adjusted for inflation. A third plan will be out in jan 2018 which will be inflation adjusted at 2% annually. But the starting amount will be lesser than basic plan.

(3) The differences between standard and basic is for standard plan 90% of the money is put into a pool, while for basic, 10% is put into the pool. When you pass on, the interest that you make inside this pool will not be given to your bequest. Only the principal sum that is remaining is paid back.

For e.g, you are on standard plan and have $100k in cpf life. $90k will be in the pool. The 4-6% interest that this $90k earns will be forfeited when you pass on. Whatever is left of the $90k that you didn't withdraw will be given back to your bequest.

(4) You can park the excess remaining amount in your RA after deducting for CPF life and that will continue to earn 4%. And you can withdraw anytime the money inside.

=========================
Basically, to maximise what you get back from CPF, try to live as Long as possible. The longer you live, the more you get back. Also take the basic plan.

AK71 said...

If we have more than the FRS at 55, the FRS will be transferred to the newly created CPF-RA while the excess remains in the SA and OA. The money in the SA will be transferred to the CPF-RA first and if that is sufficient, the OA money will be untouched.

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