Read? Turning 55 Soon? Here's A CPF Special Account Hack You'd Want To Know!
Read? Comments on "My All-Weather Income Streams As Singaporean Retiree"
ED23 June 2020 at 13:58:00 GMT+8
Hi CW,
Saw the msg from "mysecretinvestment" mentioned you shared quote" on how to preserve your SA principal and that is to withdraw on or after 5 Dec of each year."
Im curious on this secret as i was checking this with CPF on some investment plans to move the funds out from SA before reaching 55.
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ED 23 June 2020 at 14:00:00 GMT+8
purpose is to keep as much funds in SA so that it is earning 4%pa. Avoid SA funds being lock up in RA till 65.
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Thank to this direct question from ED, Uncle8888 now has to be transparent on this mistaken secret on CPF SA and share his true story of CPF SA hack or actually kena hacked?
Probably; ED may have recently read about CPF SA hack and get a little excited and wanted to verify on the ground! LOL!
CPF Special Account Hack
This CPF SA hack is not new. Probably, many Merdeka generation's folks could been targeted by their friendly FAs on this hack.
If you are in your late 40s or early 50s; you can watch out for your friendly FAs coming to you to share this hack.
Long, long ago, in his late 40s; his long time FA shared this CPF SA hack (or he was actually hacked); and of course he would believe in good story of maximizing his SA and RA 4% compound interests; and invested $100K from CPF SA in XXX Global Balanced Fund!
Global Balanced Fund should closely match 4% CPF SA risk free return. Right? Don't ever believe projected return!
Hmm .. Uncle8888 was once also into passive investing! LOL!
May be Uncle8888 is just unlucky as this XXX Global balanced fund happened to go through GFC; but when it started to recover he was nearer to 55 and decided it was time be realistic that it is NOT easy to beat 4% year on year compounded interests in CPF SA or CPF RA. He sold this fund and refund back to CPF SA.
Happy lor as there is net profit after GFC Big Bear ....
CPFIS SA Net Refund (negative number is profit)
Good return for this CPF SA hack???
Alamak!
What is the Moral of his Story?
Posts
GE is on!!
ReplyDeleteGood or bad news for STI?
DeleteHaha! Depends on the % outcome LOL!
DeleteBut I think greater chance of more +ve this round ;)
Hmm some clarifications on CPF "hacks"...
ReplyDeleteWithdrawing interests in early Dec is if you have both SA & OA balances and want to keep these OA & SA balances (i.e. the "principal" is kept intact).
This is due to CPF's longstanding sequence of priority for withdrawals. Accrued SA interest ==> accrued OA interest ==> SA balance ==> OA balance. i.e. You cannot ask CPF to give you $500 from SA and $1000 from OA.
If you ONLY have OA or SA balance, then it's better to wait till early Jan to withdraw the interest.
Regarding preserving as much SA balance as possible at 55, you need to be careful (& mentally prepared) about the CPF-SA investment to use. Longtime ago it was possible to use FDs.
Balanced funds are too volatile for this hack. While super stable money market funds are not allowed for CPF-SA.
The example used by the editor in ST is a short term bond fund ... but also not foolproof. It contains a significant proportion of China bonds, & the longest recovery period (peak-to-trough-to-breakeven) was probably about 8 months during GFC. During the Covid meltdown this fund dropped over -2% from early Mar to early Apr. It's now -1% below the pre-covid high.
For those who wants to shield CPF SA can use FSM fund to screen by chosing short term duration. 3 funds can meet this criteria namely Lion, Nikko and United.
ReplyDeleteAnother tip, shield OA too. But u must have enough cash to top up RA
Ask them to provide 10 yrs ROLLING Average Return over the last two decades to cover past market cycles. LOL!
DeleteNikko one was used by the ST editor. All 3 have significant China bonds & will drop a few % if serious shocks like Lehman or Covid. During GFC they easily max drawdown of -10% and took many months to recover.
DeleteST editor was lucky to do it during good times for such bonds & managed to get good returns during the 3 months it took. Note that returns now are suppressed due to the massive global QE.
No free lunch. MMF will actually be better for this hack. But they are not CPFIS-SA approved. Reason? Coz too stable LOL. Their returns only 1+% ... cannot achieve 4%.
ST editor is lucky with CPF SA hack or else won't writing about this hack. Nobody write clearly on their losers!
DeleteCPF OA hack winning over CPF SA hack is to be terribly happy with 2.5% year-on-year until the next STI crash and hoot slowly at 100 points drop. :-)
CW and Spur,
DeleteYour comments above good example of those who can "Trust but Verify" ;)
Those who can't, pray to your gods that your friendly FA or "vested friend" so eager to share their hacks with you not just interested to earn fees and commissions from you...
Nothing wrong. Everyone has to make a living! Easiest to fleece are friends and relatives! Are ber then?
This is life.
When markets good, and we can "easily" earn 6-8% yields from REITs, those voluntarily contributing to CPF must be idiots!
When markets tank, and we suffering -30% to -40% unrealised losses, hmm... CPF capital safe 2.5% and 4% interest rates all of sudden not so bad...
LOL!
The CPF hack to "protect" the SA money from being moved into the RA is not relevant to me anymore as I turned 55, years ago. But if I am not wrong, the younger people's aim to "protect" their SA money was not so much to earn higher than 4% from investing the money, but just to prevent the money from being moved to the RA when they turn 55.
ReplyDeleteSo the game plan usually is as follows:
Leave the SA money untouched till a few months before they turn 55.
As they near 55, they "invest" this SA money (leaving the mandatory $40,000 behind) and put the rest in a safe but can be low yielding instrument for eg., the Singapore Government securities.
After they turned 55, when the RA is formed with the remaining $40,000 from their SA and the rest from their OA, they can then proceed to liquidate the Singapore Government securities and the money will be returned to their SA.
In this way, they can "protect" a substantial amount of their SA money. This sum will be returned to their SA and earn the 4% interest yearly for as long as they leave it inside the SA.
So the objective was not to endeavour to invest the SA money for higher returns outside of CPF, but rather to "shield" the money temporarily until the RA is set-up. Yes, there will be transaction fees to be paid, but imagine if you can shield $250,000 in your SA, that is $10,000 of interest to be earned yearly.
It is a workable hack and has been done successfully.
mysecretinvestment,
DeleteFor the sake of those who can't count - well, we got a reader who asks how much CPF we need to get interests of $50K per year (awkward pause) - please allow me to add on to what you say for the sake of clarity ;)
This hack is about earning that EXTRA 1.5% interest rate spread between the CPF OA and SA.
So if we have $250,000 rotting in our CPF OA that we wish to hack by moving into our CPF SA at age 55 to earn that EXTRA 1.5% interests, after all that huff and puff, we are getting an extra $3,750 per year.
Not too shabby for those who have a SAVE MORE bias. (Although to some its just a rounding error)
But if one has an EARN MORE bias, let's say I'm 55 this year, and the STI tanks below 2000 points during these 1 to 2 years, that $250,000 rotting in my CPF OA might come in pretty handy ;)
(There are more investing options under CPF OA than SA)
Who knows? I might double that money 10 years later when I reach 65?
At the end of the day, its different strokes for different folks ;)
For savvy investors who can constantly earn MORE than 5% investment returns annually, CPF is a drag on investment returns.
For Charlie Brown investors, CPF is a godsend!
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DeleteHi,
ReplyDeleteOn Singapore Government Securities, may I know if we can buy from normal brokers ?
How do we select to deduct from SA rather than OA ?
Hi SMOL,
ReplyDeleteCan you take a rain check on that awkward question till Jan 2021? I can then disclose the interests earned for 2020. I dont want to "jinx" it by talking too much about it now. The pandemic is still unfolding and the GE is up next month, it would be a sad day for all CPF lovers if our government decides to reduce the CPF interest rates. The CPF is our key pillar for our retirement sustenance. The current rates are still safe till Sep this year.
For CPF lovers, these are some of the targets to shoot for:
Individual targets
1. CPF Millionaire (CW is here, I reached in 2016, wife in 2018)
2. OA Millionaire or OA1M (CW is here, I reached in 2018)
3. 2M65 (to have $2M combined in all CPF accounts by age 65 -- this lofty goal derived from dear Loo Cheng Chuan's 4M65 audacious goal for a couple)
Couple targets (ie combined CPF amounts of couple)
1. OA2M ($2M in combined OA of couple) (we reached here in 2020)
2. 3M60 ($3M in couple's combined CPF by age 60 -- again this was derived from the 4M65 audacious goal. 3M60, is a necessary checkpoint to reach that audacious goal)
3. 4M65 - lofty goal set by Cheng Chuan.
mysecretinvestment,
DeleteGood for you!
Everyone should walk their own paths.
I noticed you didn't share about your multiple rental/investment properties, nor about your multi-baggers in stocks.
I'm guessing you have taken the study hard, work hard, do well in corporate path ;)
What's wrong when EARN MORE comes mainly from our day job?
"Investing" to achieve FIRE is often used as an euphemism for I suck at my day job so I want out!
Shh...