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He met the CPF minimum sum but has one regret.

Wednesday, June 22, 2016

Regular readers know that AK transferred all his CPF-OA money into his CPF-SA in the first few years of his working life. That provided a bigger base and a longer time for compounding to work its magic. Of course, I have shared the numbers here in my blog too.

Now, this was part of a chat this evening with a reader who is buying a HDB flat:

do you mean that letting HDB wipe out the OA money first? My flat will be ready in 2019. So in this 3 years, do you have any views on what should be done using the CPF OA money?eg. Transfer abit to SA account? I will take your comments as opinions. Do not WORRY!"

That was what I told a friend. He transferred a large portion of his OA money into his SA about 10 years ago before he bought his flat and now his SA has already hit the minimum sum. But this will work for someone with an emergency fund on hand that would also cover the mortgage payment initially as his OA builds up again after the flat purchase.

The chat gave my memory a jog. I cannot remember exactly how many years ago but it was probably more than 10 years ago when a friend discussed with me what to do with his CPF-OA money. He was still single then and not buying a flat yet.

During a meet up a few months ago, he told me that he already hit the CPF minimum sum and to a large extent, it was thanks to the hefty interest payments received for his CPF-SA savings. He basically transferred all his CPF-OA money into his CPF-SA after the discussion we had and did nothing to his CPF-SA since. 

So, apart from the mandatory contributions from employment, the money in my friend's CPF-SA really grew through compound interest!

Did my friend regret anything?

Well, it was something like this:

"I should have transferred more money from OA to SA in the following years. Then, I would have received even more interest and hit the MS even earlier."

Alamak. If AK had done that, he would have even more money in his CPF now too. Aiyah.

Of course, all our circumstances and motivations are different. We have to question if this route is something that is good for us too.

This would work for someone who is not thinking of buying a property soon or is able to buy a property without using money in his CPF-OA. 

In the latter case, to be safer, he should have emergency cash on hand which also allows for 12 to 24 months of mortgage repayments as his CPF-OA savings is rebuilding.

For a more complete picture, please read the related posts below.
3. A lot of my CPF-SA money...
...the interest I received in my CPF-SA has been higher than my mandatory contributions to it for many years by now... 


Disclaimer said...

Hi AK, I also transferred my oa money to sa after reading your blog. So now my sa will have the time to accumulate from compounding the amount, I initially wanted to transfer more so that I don't need to do the regular top ups and hit the minimum sum faster, but due to liquidity concerns and also the possibility that I may need money from cpf oa to buy a hdb I only transferred what ever I could. What I did was to estimate based on my current pay annual contribution to cpf plus interest on the future value in each of my accounts and I should hit the current minimum sum in 5 years or so with the annual 7k top up. I was so tempted to transfer more and have to revisit my rationale for my plans whenever I feel the urge to do so. To avoid over transferring and not having the cash to live a decent lifestyle or my type of life style.

AK71 said...

Hi Disclaimer,

We know our circumstances best. Whether OA to SA Transfer or MS Top Up to the CPF-SA, each action has its benefits and trade offs.

With OA to SA Transfer, there is no cash out of pocket but there is no income tax relief while MS Top Up to the CPF-SA (up to $7K a year) gets income tax relief but it means having less cash on hand, for example.

So, OA to SA Transfer or MS Top Up to CPF-SA? Although both would help us grow our CPF savings faster, to what extent we adopt these methods depends on our circumstances.

Gambatte! :)

Mao Mao said...

Hi AK and everyone,

Since MS top-up to SA (up to $7,000) allows tax relief. Does it make sense to proceed to top-up if the person is unable to improve/lower the tax bracket? Such an example will be low-income people or people who have already contributed a lot to their SRS accounts.

AK71 said...

Hi Mao Mao,

I feel that any CPF member who pays income tax and who would like to have an investment grade bond that pays 4% per annum should consider doing MS Top-Up to their CPF-SA (up to $7K a year). :)

vicster said...


I have questions on the MS Top and VC.

1) I have about close to 70k in OA in which about 20k is in OA investments. If I were to do a transfer of 30k (leaving 20k in OA and 20k in OA investments) to SA, the 20k in OA investments is still intact right? It's only after I sell that I will be constrained by the 35% investible amount above 20k ruling yes?

2) I have about 110k in SA now and my HDB is fully paid up. I'm coming to 42 years old. Make sense to do the transfer from OA to SA ?

3) Doing transfer of OA to SA is limited to the current FRS which is 161k? VC is the only one that can technically exceed if it doesn't exceed the maximum CPF contribution amount for the year?

Thanks AK for responding!

AK71 said...

Hi Vicster,

1. I don't use my OA money for investments. I don't know how the rule might affect you.

2. If your HDB flat is fully paid up and you have no other use for the money in your OA, doing OA to SA transfer makes sense.

3. I am not allowed to do OA to SA transfer anymore because my SA has exceeded the FRS. However, I am still allowed to make annual voluntary contributions up to the annual limit each year.

vicster said...

Thanks AK!

If I do top up to the FRS amount to 161k, then any contribution will flow out back to OA? Only interests earned will exceed 161k?

AK71 said...

Hi Vicster,

If your SA has hit the FRS, a share of your mandatory and voluntary contribution (if any) will still go to your SA (percentage determined by your age). This is allowed up to the prevailing annual limit. :)

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