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What an unemployed 53 year old can do with $20K?

Tuesday, January 17, 2017


Dear AK,
I am 53 and I have been jobless for more than a year. I have given up on job search. Fortunately, I am a saver and have almost 200k in savings.
Jobless 10 years too soon, I need to make my savings last longer. 
My sister told me about a 5 years endowment plan from _____Life.
Minimum required is $20,000.
2.25% p.a. is more than fixed deposits. (Email truncated.)


Hi JK,

5 years is a long time and if we believe that interest rates are rising and could continue to rise in the next few years, then, this endowment plan is not attractive to me. In another year or so, could FDs offer 2% interest per annum? I wouldn't be surprised.

Unlike a FD, a premature termination of the endowment plan would mean losing quite a bit of money. With a FD, if you break it, you just lose all or some of the interest you would have otherwise earned. Your principal sum is safe.

Here is an idea. If you are quite sure you do not need the $20,000 for the next 5 years, if you have enough in your CPF to meet the Full Retirement Sum (formerly the Minimum Sum) and if your Medisave has already hit the BHS* level, you could consider a voluntary contribution to your CPF account.

*(Basic Healthcare Sum (BHS) which was known as the Medisave Contribution Ceiling (MCC) in the past has been raised from $49,800 to $52,000 in 2017.)

Being 53 years old, the "lock in period" is only 2 years. At 55, you would be able to withdraw from your CPF account all money (including this $20,000 and the interest earned) in excess of the Full Retirement Sum.  

In effect, you are getting 2.5% to 4% interest per annum for a 2 years "fixed deposit".

In fact, you might want to max out the CPF Annual Limit ($37,740) this year and next. I am unemployed like you and that is what I plan on doing.

I hope you like a shorter lock in period and higher interest rates. I know I would if I were in you.

(Watch the video at the top of this blog post and you will learn that AK is economically inactive and JK is a discouraged worker. We are not considered unemployed by the Ministry of Manpower.)

2016 ALLOCATION RATES:


Related post:
AK is buying a 12 year bond.

32 comments:

SAFE said...

Dear AK,

"At 55, you would be able to withdraw from your CPF account all money (including this $20,000 and the interest earned) in excess of the Full Retirement Sum. "

several questionS:
1. as long as you hit the FRS amount( consist of mandate contribution and VC), you can withdraw the amount in excess?
2. if I don't withdraw the excess amount, can I leave it in SA to earn 5%? but if i don't withdraw at 55, i have no chance to use these money?

thanks

AK71 said...

Hi SAFE,

As far as I know:

1. Yes.

2. The FRS will go to your CPF-RA. This cannot be touched until age 65. The balance, you could leave in your CPF account if you don't wish to withdraw. You will be allowed a yearly withdrawal if you are still working then or if you are no longer working, you can withdraw at any time you wish.

SAFE said...

Hi AK,

thanks for your reply.

For 2. I can withdraw excess amount up to 5000 in lump sum at 55. The balance in SA still earn 5% and can be withdraw annually up to certain limit, right?

That seems reasonable. Thanks you VM

AK71 said...

Hi SAFE,

Only if you do not meet the FRS nor are you able to meet the BRS that you get to withdraw only $5K. If you meet the FRS, you can withdraw whatever is left after the FRS is transferred to the CPF-RA. There is no annual limit for withdrawal. You can take out everything above the FRS anytime at or after 55.

STE said...

Hi AK,
Just side track a bit on CPF voluntary contribution,,, if a person after reaching 55 years old and setting aside enough money in Full retirement sum , after deducting the money from SA and having less money e.g. Left with $50 K in SA,, can he/she still doing voluntary contributions to SA to enjoy the higher interest ? Of 4 % ,,,if yes ,,, what will be the max or cap for the SA after 55 ? Still Same as prevailing FRS amount ? Just curious if some cash rich uncle wanted to take advantage on this... :-)
Cheers !

Phileas.Wind said...

Just a reminder that Min sum will be increased in 2 years time too..

AK71 said...

Hi STE,

The answer is yes because that is what my parents are doing (after I bugged them). The voluntary contribution is subjected to the CPF Annual Limit. There is no ceiling for CPF-SA through mandatory or voluntary contributions. ;)

AK71 said...

Hi Phileas,

I wouldn't worry about that because if the person has already met or exceeded the FRS (Minimum Sum), the annual interest earned would take care of the increase in FRS and then some. ;)

STE said...

Hi AK,
Thanks for the confirmation! That's sounds good for those uncle / auntie who are "cash rich" and already fuifling their FRS in RA,,,,they could use this SA as to park their excess cash with 4% yield of FD p.a since they could withdraw it on yearly basis... 😃😃👍👍,,ops! Some may use their parents account to park the cash as well,, up to yearly VC max cap to earn the 4% FD ,,, ummm,,,,, AK mush fully use up all your parents' VC limit ,,, hahaha :-)
Cheers !👏🏽👏🏽✌️✌️

AK71 said...

Hi STE,

More accurately, it is 2.5% to 4% since some of the voluntary contribution will go to the OA. ;)

apex property investment said...

Seriously, why can't you just get a job? Anything that pays is better than seeking to maximise whatever you save at the moment. At 53, the investment horizon is not long and the risk is super high. Getting a job gets you higher returns than any investment out there, being frugal and being a saver is good. You can be active for a few moe years before totally not doing anything. 20k today, I mean you can definitely get by with 250 a month. Been there done that, butis that what you intend to do? 25 years more in terms of life expectancy? How about your house? Fully paid? Rent out a room? Think laterally. 53, is too young is you are financially unsecured.

STE said...

Oh I C ! Can't just doing the SA top up ,,, but I think the 2.5 to 4% interest 1year FD is much better than any FD given by most the bank ,, :-)
Cheers !!👍👍

AK71 said...

Hi apex,

For a moment there, I thought you were asking me why can't I just get a job. ;p

The reader is a discouraged worker. Structural unemployment is getting worse. Maybe, he could become a security guard or a taxi driver for the time being, for examples. However, psychologically, it would require adjustment.

These days, even taxi drivers are throwing in the towel. Disruption to the old economy is rapid and here to stay.

Thanks for encouraging him to get a job, any job. I hope he won't be a discouraged worker for much longer.

AK71 said...

Hi STE,

Exactly. 2.5% interest p.a. for a 2 years FD? I take. ;)

KW said...

Hi AK and STE,

For VC, allocation rate will change with employee age.

Age 50 - 55 = SA 11.5%
Age 55 - 60 = SA 3.5%

The reminding VC will go into OA if MA reached it's cap.

Not too bad?

K said...

Hi AK,

Is my understanding correct?

If you have more than the Enhanced Retirement Sum when you turn 55 in CPF, you can still keep everything in CPF to earn 4% interest. And only withdraw as and when you need the funds later on?

Cory said...

200K Saving at Age 53 without a job doesn't seem enough. He should try to get a job that can supplement his income. 1-2 K is better than nothing.

AK71 said...

Hi KW,

I provided the allocation table at the end of the blog above.
I hope it is correct. :)

AK71 said...

Hi K,

Yes, it is not compulsory to withdraw any money from our CPF at age 55. :)

AK71 said...

Hi Cory,

He is currently very discouraged. I can understand that. So, some psychological adjustment is required. Time will heal. :)

kehyi said...

Hi AK, the allocation table was revised on 1 Jan 2016 to take into account the change in CPF contribution rates. You might want to update the image...

AK71 said...

Hi kehyi,

Yikes! Thanks for letting me know. :D

KW said...

Hi AK,

I realised it after reading your post again on the allocation table. Ha ha.
AK, you are always so humble in your reply :)
Your table is correct too, it is base on 100% of the salary contributed to CPF.

Mine is quoted from CPF : https://www.cpf.gov.sg/Assets/Members/Documents/Jan2016_Con_Rate_Page.pdf
CPF contribution for age 50 - 55 is 37% of salary and for age 55 - 60 is 26% of salary
e.g if our salary is $2000 / month, our CPF contribution (employee and employer) will be $740 (37% of salary) for age 50 - 55
this will be the best 5 years to increase our SA from our contribution be it MC or VC.

Therefore, in my view, contribution after 55 years old will see a reduced amount contributing to SA but more to OA. Still not too bad as we enjoy 2.5% interest.

AK71 said...

Hi KW,

I have just added the 2016 allocation table. Only slightly different from the 2015 table but always good to have the latest. :)

I will have to wait for another 5 years to get to the 50-55 bracket. Patience. ;p

Tanya said...

Sigh another mistake I made. Not fully understanding CPf and maximising it fullest.

AK71 said...

Hi Tanya,

It would have been nice if you had, I am sure, but at least it is not a need for you. :)

Marinabay Avillion said...

Hi AK

I just turned 59, retiree with no income. My RA account is currently at ERS, some balances in my OA and CPFIS but zero in my SA. I was reading about your post on VC to SA. Is it possible for me to still do a VC to my SA, at this age? Thanks for your input.

AK71 said...

Hi MA,

If you are referring to Top Ups to your SA only, no.
You can do VC to your CPF account but this money will be allocated to your OA, SA and MA. If you MA is at limit, then, just OA and SA.

Marinabay Avillion said...

Thank for your prompt reply. Yes, my MA is currently at BHS. From my understanding, if I were to contribute the annual limit of 37,740, does it mean it will go to my OA (current balance at 18,000)? Would you know how much of any top up beyond OA will then flow into the SA?

Much appreciated on your reply as I will have a clearer understanding when I visit the people at the CPF office. Thanks!


AK71 said...

Hi MA,

Any VC will be split between the OA and SA. Check the Allocation Table which I have included in the blog post above. Of course, a visit to the CPF is the best way to clarify your doubts. ;)

Tanya said...

Hi AK,

I need it :) will lose the rent of one of my houses soon as I will be moving in when the lease expires!

AK71 said...

Hi Tanya,

Ah, yes, I think I know why. Congratulations! ;)

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