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60% higher interest income from age 55?

Friday, August 11, 2017

Reader:
Would you leave your money in CPF-OA (beyond 55)? I can understand CPF-SA @ 4%. Wouldnt it be better to move into CPF Life for better returns? Noted that leaving it in CPF-OA will provide more flexibility. Thanks.





AK:
We have the option of moving more funds into the CPF-RA up to the prevailing ERS (1.5x the prevailing FRS) at age 55. Is it better? 

If what you want is a higher payout from CPF Life, yes.

However, do note that you will be required to move funds from your CPF-SA first and not from your CPF-OA. Only when the CPF-SA has insufficient funds, then, the CPF-OA is tapped.





So, let us say we have quite a bit of money remaining in our CPF-SA after our CPF-RA is created and FRS requirement met at age 55, it is not all that more beneficial for us to move more funds into the CPF-RA because we are not getting a higher interest. 

It is the same 4%, assuming things were to remain unchanged.

However, for someone whose CPF-SA is depleted after the creation of his CPF-RA, if he wants to have the ERS in his RA, he would be moving funds from his CPF-OA and the funds would then be receiving 4% instead of 2.5% interest. 

That is 60% more in interest income!






Like you said, flexibility is sacrificed but, in my opinion, the loss is well compensated.

Sweet but not available for everyone.

I have the happy problem of having much more in my CPF-SA than the prevailing FRS. 

So, will I move more money into my CPF-RA at age 55 to meet ERS? I will decide when I turn 55.





To anyone who just dropped in, another blog on the CPF was published earlier today. 

See:
CPF Life Escalating Plan.

9 comments:

Darren How said...

Hi AK,

I came across a post whereby forummer posted an interesting idea. He is wondering if he have enough to meet FRS/ERS in both SA and OA at age 54, would the following idea work?
1) Invest the maximum SA allowed in shortest term FD/bond/t-bill I can find.
2) At age 55, they would move remaining sum in my SA then OA to make up my RA.
3) When SA amount invested matures, it goes back to my SA and continues earning 4% per year.

Do u think this idea is possible? Thanks.

AK71 said...

Hi Darren,

It is so devious that it could work. LOL.

However, I don't have any practical experience nor have I heard of anyone doing this. Of course, people who have a lot of money in their CPF-OA (enough to meet FRS) are uncommon and this is required for the idea to work.

AK71 said...

You can invest your CPF savings under the CPF Investment Scheme – OA (CPFIS-OA) after setting aside $20,000 in your OA.

Likewise for CPF Investment Scheme – SA (CPFIS-SA), you will need to set aside $40,000 in your SA.

AK71 said...

"INVESTMENT PRODUCTS INCLUDED UNDER CPF INVESTMENT SCHEME (CPFIS)"

See:
https://www.cpf.gov.sg/Assets/members/Documents/CPFISInvestmentProducts.pdf

Darren How said...

Hahaha...I have still 18 years to go before I can try this. Please talk to yourself if you are going to try when you are 54.

AK71 said...

Hi Darren,

I am growing to be quite forgetful. Do remind me 9 years later. ;p

AhJohn said...

Interesting, I am reading CPFIS, then found this:
https://www.cpf.gov.sg/Members/Schemes/schemes/optimising-my-cpf/cpf-investment-schemes

"The Special Discounted Shares (SDS) Scheme is part of the Government’s asset enhancement programme to make Singapore a share-owning society, thus giving Singaporeans a greater stake in the country.

Singaporean CPF members were able to buy Discounted Singapore Telecom (SingTel) shares in 1993 (ST "A" shares) and 1996 (ST2 shares). Members who held on to their discounted SingTel shares were entitled to loyalty shares."

So this is part of the history, can't buy again, only sell?




AK71 said...

Hi AhJohn,

The SDS was the brainchild of Mr. Goh Chok Tong. It was a one off item. I still have those SingTel shares. :)

AK71 said...

Reader:
Since you have so much money in your CPF, will you opt for ERS?

AK:
Probably not.

Reader:
Is there any reason why?
I just read your latest blog on how annuity works for the average investor.
Wondering if I should opt for ERS in future.

AK:
In a nutshell, it is because there is no increase in benefit for me.
For the full explanation, read this blog. :)

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