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