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Downsizing flat and upsizing parents' retirement adequacy!

Monday, June 26, 2017

Reader:
Thank you for sharing your financial journey and thoughts on your readers’ queries with us.

My husband and I bought a BTO 4 room HDB flat 4 years ago.

We are thinking of changing our HDB from a 4-room to a 3-room flat some time after the MOP (5 years).

We are thinking of transferring the monthly CPF-OA contributions, excess of our monthly repayments, to SA for the 4% interest.

My father is 63 years old and my mother is 57 years old. If I am not wrong, topping up $60K to my father’s RA means he can apply for CPF LIFE. The monthly CPF LIFE payouts will be about $360.

AK:
If you have no other use for your CPF-OA savings after the move, transferring the money to the SA is always a good idea if you are thinking about a more secure retirement. Let the magic of compounding do its work. Your savings will amount to much more 20 years later.

With more cash in hand, you are planning to top up your parents' CPF accounts? I like that too. If you have only $60K to spare, you might want to consider splitting it so that both parents get $30K in their RAs. This is because the first $30K will get 6% interest. The next $30K gets 5%. Of course, above $60K, it is 4%.

If you have $120K to spare instead of only $60K, of course, topping up both parents' CPF-RA with $60K each is a good idea. 

Make the government do some work in supporting your parents financially. ;)

Related post:
Mom is stunned by her CPF-RA.

7 comments:

K said...

Hi AK,

After 55, all the monies will be moved to Retirement Account? Assuming you do not have the requirement minimum sum yet, the OA will be closed?

Thanks.

Spur said...

Buffer a few months worth of mortgage payments in your emergency fund if still got mortgage & you intend to "empty" your OA into SA.

Hopefully the sale price of your 4-rm can cover the subsequent 3-rm, then no more worries about mortgage.

Even after 4-yr bear market in property, most people will not approve of downsizing especially when one is still so young. Many will say good time to buy condo instead! Hahaha!!!

But most important is you know what you want, & you've done your sums.

1871e1fc-10c3-11e5-a794-7f9fad27c9b8 said...

Hmmm, fine tune a little?

1. Depending on family situation, it might be better
to sell parents' flat, downgrade theirs to buy closer
to reader. Of cos, selling reader's own is the least
problematic.

Do note, there is the proximity housing grant.
Assuming parents' flat older, maybe more maintenance
required in the long run. Not sure where is reader's
place, but usually, 5 years is a little too soon to sell,
unless in mature estate. Also consider, your next
purchase need to be close to pri school, again assuming,
kids going primary school in next 5 to 10 years.

2. Top up.
Prefer 60k into father's RA acct first. Mother is 57,
still some years to top-up. Can also consider, top up
father's till 60k - 2 x 7k, and then use 7k cash
(Husband/wife each) to top up yearly.

Do this if and only if your taxes/taxable income is
higher than 5%.

Or still can top up mother's but take into consideration
6-7 more years of 4+% interest yearly. So assuming to
reach 60k at 65, 6 more years to 64.5 (At least $60,000
in your Retirement Account six months before you reach
your payout eligibility age.)

60 / (1.04 ^ 6) = 47500
Interest could be higher but easier to use 4%, agar agar but so
long higher than 60k, should be ok.

so, 47500, 49400, 51376, 53431, 55568, 57790, 60101.. tada!

K said...

Hi AK,

My aunt is not on the CPF Life scheme but on the old Retirement Sum Scheme. If I suggest she tops up her Retirement Account (RA) up to $60k, does it mean she will get the accured interest $30k @ 6% and $30k @ 5%, and everything from her CPF will be paid out by the time she turns 80. I understand she will get a monthly payout amount that is calculated based on her current age, 72, to 80 and Sum in RA + interest. If you look at it from an investment perspective, a risk-free 8 year FD at 5.5% is very good to me.

Do you know if this is correct?

I see the Retirement Sum Scheme more like an endownment and CPF Life is an annuity.

Thanks.

AK71 said...

Hi K,

At 55, we gain a new account, the RA.

The OA and SA will not close even if they have nothing in them.

If we do not have enough to meet the FRS (formerly the MS), we could pledge our home and go with the BRS. If we do not have enough to meet the BRS, then, we could end up not being able to withdraw anything from our CPF at 55 other than a token sum of $5,000.

If we do not even have $5,000 in the CPF, then, there is no money to be withdrawn.

AK71 said...

Hi Spur and 1871e1fc-10c3-11e5-a794-7f9fad27c9b8 (that is a long nickname),

Thanks for weighing in on this. I am sure the reader appreciates your sharing. :)

AK71 said...

Hi K,

If your aunt were to top up her RA to $60K, I believe she can go for CPF Life which will pay her a monthly income for life. I know the Retirement Sum Scheme mentioned. That one will end once the money is all paid out.

Of course, being older than 55, she will enjoy the higher 6% interest on the first $30K and 5% interest on the next $30K in her CPF-RA. :)

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