Retirement money made to last longer without risk.

Reader says...

My mom is now 71 and she has $200k retirement money.

She is not on the CPF life scheme but on the past retirement sum scheme.





I am trying hard to help her get some passive income.

She has parked this money in short term duration funds but the returns has been really peanuts.

I am trying to see how to help her.

Do you have any suggestions?

AK says...

I would say that at her age, it is more about capital preservation and she should not take any risk with her savings.

The CPF is a good risk free tool in helping to fund her retirement and topping up her CPF-RA will ensure that her retirement money earns 4% to 6% per annum.

I would say that for any investor, 4% to 6% returns per year is difficult to achieve without taking any risk at all.





So, she should take full advantage of her CPF membership and max out her CPF-RA.

Doing so would most probably help to make her retirement money last quite a bit longer.

If her MA is maxed out, she could also consider doing voluntary contribution to her CPF to max out the CPF Annual Limit.

To her, then, the CPF is like a savings account that earns 2.5% interest per annum in her OA.






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Sensible to do CPF OA to SA transfer?

Reader said...

Currently working, 31 years old.

Quick question - My current SA sits at $40k and MA sits at $40K.

Based on current MA limit = $54,500, remaining money will go to my SA account.

I have started contributing $7000 yearly into my SA account for tax relief.




Based on my calculation and projected increase of limit yield of 4.4% per annum on MA, my MA contribution will flow into my SA account in 3-4 years time.

When that happens, my monthly contribution to MA and SA will be around $15K/year (Including VC of $7K), taking into consideration of the 4.4% increase limit of MA per year.

With that projection again, I will hit the current FRS of $171K in 7-8 years time.

Does it still make sense to transfer my CPF OA account money to my SA account?

AK said...

Once you CPF-SA hits the prevailing Full Retirement Sum (FRS), you will no longer be able to do Top Ups to your CPF-SA to enjoy income tax relief.

So, if getting income tax relief is hugely beneficial to you (i.e. you are in a high tax bracket), you might not want to do OA to SA transfer.

However, this option of topping up the SA is also only viable if you have the free cash flow to do top ups each year.





If income tax relief is less important to you or if you do not have the free cash flow to do top ups, doing OA to SA transfer would be less demanding as it is simply moving money that is already in your CPF account. 

Bigger OA to SA transfers will also, of course, help to give your SA a bigger base faster for compound interest to work its magic.

Make sure that you do not need your OA money for any other purposes before doing this.






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