30 September 2019

End of Life - Last Wishes

Browsing around books on Personal Finance at the Library, there are plenty of books with exciting titles screaming out for attention!

But here's one that probably wouldn't naturally draw interest.

Would you borrow it to read?

It's one of those subjects that don't excite, but when the time comes, there is just no time left to read!

Give it a go. It's an easy read.

Dilemmas dealing with end of life
End of Life - Death Certificate
End of Life - How much does a funeral cost?
End of Life - What happens to your CPF?

23 September 2019

How are the excess CPF funds withdrawn after meeting the Full Retirement Sum?

Presuming that at age 55, you have the necessary CPF Retirement Account (RA) funded, what happens to the rest of the 'excess' money in the Ordinary Account (OA) and Special Account (SA)?  Can we withdraw freely, and how in what order will it be withdrawn from the respective accounts?

Here goes the responses from CPF Board ...

Question: If there is still balance in my SA after deducting the sum for RA, will it remain in the SA, or will the balance be transferred to OA?
It will remain in the SA.

Question: And thereafter, is it correct that any time after age 55, I can withdraw any balance left in both OA and SA?
Yes, your understanding is correct.

Question: Which gets deducted first if I choose to withdraw? Must it be from SA first, before OA? Or do I have a choice?
The Board processes your withdrawal in the following deduction sequence:

Question: Is it true that I can then withdraw as often as I want after age 55? For instance, can I withdraw a monthly sum of my choosing till the balance in OA and SA are depleted?
Yes, you can withdraw all the savings in your SA and OA at any time from age 55 (i.e. multiple times in a year), provided you have set aside the FRS in your RA.

What happens to my CPF savings when I turn 55?
How much CPF savings can I withdraw from age 55?
How much CPF LIFE monthly payouts will I receive?

16 September 2019

How will the CPF Retirement Sums be formed upon age 55?

So we have heard about the various CPF retirement sums, i.e. Basic (BRS), Full (FRS) and Enhanced (ERS), which gets committed upon reaching age 55, and for which these will generate lifetime of payout from age 65 onwards (or deferred till age 70 if so decided).

Here's an interesting response that a friend of mine obtained from CPF Board on his queries. It provided details on how the FRS and ERS will actually be formed.

[edited extract]

Question 1: Instead of FRS or ERS, can I choose any amount that is in between, even though I have enough for ERS at age 55?

Allow us to share with you how Retirement Account (RA) will be created for you when you turn 55.

By default, the Board will create your RA when you turn 55, by setting aside the applicable Full Retirement Sum (FRS) in the RA.

The transfers of CPF accounts to make up the FRS will be made in the following accounts and sequence:
(i) funds in the Special Account (SA); and
(ii) if (i) is insufficient to set aside the FRS in full, funds in the Ordinary Account (OA) will also be transferred to your RA to make up the FRS.

The process of setting aside the FRS is automatic and applies uniformly to all members turning 55.

After the RA is created (with FRS) at 55, you can then transfer the remaining savings in your SA and/or OA of any amount and at any time to your RA, as long as it is within your topping-up limit. The topping-up limit is the maximum amount you can top up to RA.

Topping-up limit in RA is computed as follows:

Hence, if you wish to transfer an amount lesser than the topping-up limit in RA (i.e. setting aside a retirement sum between FRS and ERS), you can do so as well.

Question 2: If there is still balance in my SA after deducting the sum for RA, will it remain in the SA, or will the balance be transferred to OA?

It will remain in the SA.

For more information:
What happens to my CPF savings when I turn 55?
How much CPF savings can I withdraw from age 55?

Maximising CPF Post-55

09 September 2019

Maximising CPF Post-55

It's really great to hear from the post-55ers on their interesting ideas and experience in maximising retirement benefits.  Here's one from 'Adam' that cropped up in a previous conversation which I found especially interesting ... (re-posted with edits):

OA: Ordinary Account
SA: Special Account
RA: Retirement Account
FRS: Full Retirement Sum
ERS: Enhanced Retirement Sum

How do you protect your SA money from being taken to form the RA upon reaching 55 years old?

As it stands now, money in the SA earns 4% pa of interest. Likewise money in the RA also earns 4% per annum of interest. For those 55 years old and above, CPF also gives 6% per annum to the first $30,000 in your RA, and 5% per annum to the second $30,000 in your RA, while the rest of the money in your RA earns 4%.

So for example, I have $176,000 in my RA, the interest my RA money would earn in a year is: $176,000 x 0.04 + $900 = $7,940. The $900 is derived from the 6% and 5% interest for the first $30,000 and second $30,000 respectively.

Now, the issue is, how to "prevent" the CPF from taking money from your SA to form the FRS in your RA when you turn 55?

Supposing I am now 54 years and 11 months old, and I have $230,000 in my SA. Next month, when I turn 55, CPF would automatically take $176,000 from my SA to form the FRS in my RA, leaving me with only $54,000 in my SA. I would rather that CPF take the $176,000 from my OA to form the FRS in my RA and leave my $230,000 in my SA intact to earn 4% interest pa.

Right on my 55th birthday, I woke up in the morning, logged in into my CPF account and lo and behold, my RA was created. At that time, the FRS was $161,000, and all the money came from my SA with a little leftover.

Right from the start, I had planned to top up my RA to ERS. If I were to use my CPF money to top up my RA to ERS, they would take money from SA first before taking money from the OA. Since I didn't want my SA to be hollowed out, I had to use cash ($80,500) to top up my RA to the then ERS of $241,500.

Every January 1st since then, I have been topping up my RA with $7,500 in cash, to keep up with the new ERS limit. The interest earned in your RA each year is not counted towards the new ERS limit. Let me explain:

This year the ERS limit is $264,000. By next year, it would be increased by $7,500 to the 2020 limit of $271,500. My current RA amount is $296,000 including the interests earned over the few years, but I would still be able to top up another $7,500 in January 2020.

So you can indeed continue to top up your RA to meet the new ERS amount of each progressive year up till you are 70 years old. 70 years old is the latest age at which you can join the CPF Life plan. 55 years old is the earliest age at which you can opt to join the CPF Life plan.
[This para may be misleading. Firstly, what Adam is saying is that a CPF member can choose to delay CPF LIFE payout till age 70. So up till then, top-ups to RA up to ERS are still possible. Secondly, a CPF member can decide which CPF LIFE scheme to select any time after age 55, up till a decision is made to begin payout (latest by age 70).]

The biggest hurdle (and pain) is the very first top-up from the FRS to ERS. For those turning 55 years old this year, the FRS is $176,000 and the ERS is $264,000, this makes the top sum to be a whopping $88,000!! This is no small sum and takes some saving effort to build up. So if you intend to top up your RA to ERS, you must plan and start saving early. After that first top-up, every year is $7,500, a more manageable sum.

How's that for maximising our CPF?

[Appended ...]
Stay tuned for next two weeks' posts on CPF Board's responses to some related queries.

02 September 2019

Using CPF-OA as a High-Yield Savings Account

Property is really expensive in Singapore. For most, buying a home is pretty ingrained as a basic need to establish a family. So it is often the case that we would tap on our CPF as a source of cash to fund the purchase of a house.

We are poor savers, by and large, particularly at the tender ages of 20's to 30's. Being new in our career, with a salary at its lowest point, and yet filled with floords of commitments and distractions. Plus, we're probably dead silly in the way we manage our money anyway.

So we raid our CPF-OA (Ordinary Account) to help fund a huge chunk of the property purchase and continue to ride on our CPF-OA to pay the consequent installments. And we thank the gahmen for forcing us to compulsorily contribute to this. Over time, it can be a really huge chunk that we take out of our CPF-OA.

Now, there is actually no requirement to pay it back, unless we sell away our property. It remains optional to pay back what we took, plus accrued interest, otherwise. And so we never have to if we don't wish to, till the day we kaput (transit to the netherworld).

So here's an idea:

Suppose you are already past 55 years of age, and you have fully funded the Full or Enhanced Retirement Sum (FRS/ERS) into the CPF-RA (Retirement Account).  And because you have achieved FIRE, you are happily retired, drawing a passive income that is generated from a range of investment instruments. Well done! Being the studious hack that you are, you are looking for ways to manage this cash flow generation.

Suppose you generate $50,000 a year, but you only require $4,000 a month to cover monthly expenses.  Instead of keeping the remaining $46,000 for the rest of the year in cash in a bank savings account at a pathetic savings interest rate, what if you do a voluntary cash refund of CPF savings used for housing into your CPF?  The money goes into your CPF-OA where it earns 2.5% (or whatever prevailing rate). But because these are excess over the fully funded FRS/ERS, we can request to withdraw anytime, any number of times, as you're already post-55. So we can gradually withdraw $4,000 per month thereafter. Rinse and repeat.

Now, 2.5% (or whatever it may be) is pretty much risk-free and not to be scoffed at.

Is this workable?  Any catch?

This is what the CPF website says:

You can refund any amount, capped at the full principal amount you have withdrawn for the property with the accrued interest. Please complete the Application to make cash refund of CPF savings used for property (HSD/VR) (PDF, 0.4MB) and enclose a cheque/cashier's order in favour of 'CPF Board' for the amount you want to refund.

Mail both the form and the cheque/cashier’s order to:

Central Provident Fund Board
Housing Schemes Department
Robinson Road
P.O. Box 3060
Singapore 905060

Alternatively, you can deposit the cheque/cashier's order and the form at any of the CPF service centres.

The refund will be made to your CPF account within 7 working days from the receipt of your cheque/cashier's order (subject to fund clearance). 

I don't understand why they still go with cheque though. *shrug*