Tea with EY: Questions for the CPF Board (Part 2)

Q:
For the Medisave balance in excess of the Medisave Minimum Sum (MMS), i.e.[MCC] $48,500 – [MSS]$43,500=$5,000, would CPF automatically transfer this amount to the member’s OA when he/she reaches 55 years old or would CPF allow the member to maintain his/her Medisave balance up to the MCC of $48,500?

A:

The balance above the latest Medisave Minimum Sum (MMS) in your Medisave Account (MA) at age 55 will not be automatically transferred to the OA.

If you are able to set aside your full Minimum Sum when you turn age 55, you may then apply to withdraw the remaining CPF savings from your OA, SA and any balance above the latest Medisave Minimum Sum (MMS) in your Medisave Account (MA). The MMS is adjusted each year in July.

Q:
To participate in the CPF LIFE Basic plan with the entire MS of $161,000 at 55 years old, what does the member need to do?

A:

When you join CPF LIFE, all your RA savings (except for new money that is paid into your Retirement Account after your drawdown age) will be used for your CPF LIFE plan.

We would like to share that for the CPF LIFE Basic plan, we will take the annuity premium from your Retirement Account (RA) in two instalments.

When you are 55 years old, we will deduct a small portion (about 10%) of your RA savings as the first instalment of your annuity premium. The rest of your RA savings will stay in your RA.

One to two months before your drawdown age (DDA), we will deduct a small portion (about 10%) of any new money that has built up in your RA between your 55th birthday and your DDA as the second instalment of your annuity premium.

When you reach your DDA, you will receive monthly payouts (paid from your RA) starting up until one month before you reach 90 years old. Once you reach 90 years old, you will continue to receive monthly payouts (paid from the annuity fund) for as long as you live.

Singapore citizens and permanent residents who are born in or after 1958 will be placed on CPF LIFE if they have at least $40,000 in their Retirement Account (RA) when they reach 55 or at least $60,000 when they are reaching their Draw Down Age (DDA). We will write to them one month after their 55^th birthday on their participation in CPF LIFE.

For more details under the CPF Life and its plans, you may refer to the CPF Life booklet for more information:

CPF LIFE Information Booklet

http://mycpf.cpf.gov.sg/NR/rdonlyres/09EA0C05-C8E9-4705-9D91-E8BD1D12CF1E/0/LIFEBrochure.pdf?NRMODE=Unpublished&wbc_purpose=Basic&WBCMODE=PresentationUnpublished

Q:
For a member who has participated in the CPF LIFE Basic plan based on the prevailing MS of $161,000 at 55 years old and subsequently, the MS is adjusted to say $200,000 by the time he/she reaches 65, would the member be able to ‘top up’ $39,000 by transferring the OA/SA balance into the RA account and use it to add to the CPF LIFE Basic plan?

A:
In general, the maximum amount that you can commit to CPF LIFE is the prevailing Minimum Sum which is revised yearly (i.e. $161,000 from 1 July 2015). To receive higher CPF Life payouts at your DDA, you can make top-ups into your RA after 55, up to the prevailing Minimum Sum when there is any upward revision in future.

A big "thank you" to EY for graciously allowing me to share some of the questions and answers here in my blog with all my readers.

Related post:
Tea with EY: Questions for the CPF Board (Part 1)

Tea with EY: Questions for the CPF Board (Part 1)

EY asked the CPF Board some questions.

Q:

At 55 years old, if the member does not intend to withdraw any amount from any of his/her CPF accounts and would like to use the entire MS to participate in the CPF LIFE Basic Plan, how would the savings in each of the accounts be redistributed among the OA/SA/RA/Medisave? Is the following balance distribution and interest rate correct based on prevailing guidelines?

OA – $50,000 (2.5% interest)

SA – $39,000 (4% interest)

RA – $161,000 (1st $60,000 at 5%, balance at 4% interest) Medisave - $48,500 (4% interest)

A:

As in your example, upon reaching age 55, the Board will set aside the Minimum Sum in your CPF Retirement Account (RA) by transferring funds in the following accounts and sequence:

(i) funds in your Special Account (SA);

(ii) if (i) is insufficient to set aside your Minimum Sum in full, funds in the Ordinary Account (OA) will be transferred to your RA to make up the Minimum Sum.

The balance (if any) in excess of your Minimum Sum will remain in the OA/SA and will earn the respective interest rates. 

The CPF interest rate for the OA\SA\MA are reviewed quarterly, while the interest rate for the RA is reviewed yearly.

The extra 1% interest per annum will be paid on the first $60,000 of a member's combined balances. 

The priority of the accounts that make up the $60,000 is as follows:

1st        : Retirement Account (RA), including balances used to pay for the annuity premium under CPF LIFE

2^nd        : Ordinary Account (OA), up to $20,000

3^rd         : Special Account (SA)

4^th         : Medisave Account (MA)

The extra interest received on the OA will go into member’s RA (if he is 55 and above), to enhance his retirement savings.

For a member who has joined CPF LIFE scheme, the extra interest earned will be paid into his RA or the CPF LIFE Annuity Fund.

See also:
Tea with EY: Questions for the CPF Board (Part 2).

Heart to heart talk on achieving financial freedom (UPDATED).

I have heart to heart "talks" with readers sometimes and those whom I have "talked" to know that the conversations could last an hour or more sometimes. 

Although I am not a financial planner nor a trained counsellor, I try my best to put things in perspective for everyone and, hopefully, throw some light on issues.





I know that Singapore can be a bit of a figurative pressure cooker sometimes and a topic that is evergreen in our very green garden city has the same color. 

Green is the color of money or so they say. 

Yes, the topic is "money".

There are more than a few readers who have, in the past, left me comments, sent me emails and chatted with me in FB who told me that they want to be like me. 

They want to achieve financial freedom. 

However, they think it is really hard to do so in just 20 years which is more or less the time I have taken to do the same.





Some readers even told me that although they are inspired by my blog, they also feel some depression at the same time. 

This, of course, is not what I want to achieve through my blogging efforts. 

If this is what my blog is doing to people, then, I should stop blogging.





Not too long ago, I had a chat with another reader in FB and I think that a few "bubbles" from me neatly encapsulate what I want to say to readers who are 

1. married with children, 

2. who make above average salaries, 

3. who have a mortgage to service 

and 

4. a car to maintain. 





Here it is:

I keep saying that all of us have difference circumstances in life. 

We might make very different choices in life and with those choices, there are pluses and minuses. 

We must make the best of our situations and, if possible, improve on our situations. 





Incidentally, I believe that it is almost always possible to improve on our situations. 

More often than not, it depends on how badly we want things to change.

So, some might take 20 years, some might take less than 10 years and some might take 40 years or, maybe, more. 





The important thing is that we all get there in the end or at least try our very best to do so.

Anyone who is diligently working towards financial freedom in a responsible manner is, in my opinion, already a winner and we should never forget that.





Related post:
Journey to financial freedom is not a race.