— Wife cpfSA..
First housing-refund to cpfOa. After full (housing) refund to cpfOA, we can consider voluntary cash top-up to cpf split 3-way, then cpfOA -> cpfSA
Sooner or later, by her age 55 I want to give her enough red_packet for FRS, so shall we do it now? See answer in https://tanbinvest.dreamhosters.com/17194/age-50-asset-allocation-aggressive/
— rules governing the VCon 3-way split
Rule: no limit on SA. Any contribution (by employer or voluntary) will go into SA. In contrast, top up to SA-only .. won’t be allowed after you hit FRS.
Rule: the 3-way split is computed first. If MA has reached 66k, then the MA share will overflow to OA. This is very likely to happen, so SA would end up receiving about 21% of the total contribution, and OA receiving the remainder.
Rule 1: if 5k of your contribution exceeds the annual limit $37740, that 5k will be refunded to you without interest [Rule 1b] and without penalty.
Any OA amount you contributed can be used for housing.
tax exemption (and liquidity restriction) doesn’t cover VCon
— Risk: cpfSA IRF(interest rate floor) is subject to change. No guarantee like cpfOA IRF of 2.5%.
cpfSA rate has been above 4% since 1995.
— Q1: How about housing-refund to my cpfOA by 50-100k.
(necessity)big-ticket items pre55: CPF top-up has a conclusion.
— Q2:Â shall we transfer some amount from OA to SA?
Is this transfer safe for wife’s account? I think 1k is ok but she may not understand the implications.
— All CPF accounts are illiquid to varying degrees. Some amounts in OA and SA can be invested. Some amounts in OA/SA can be withdrawn at 55. Some amounts in RA can be withdrawn at 65. CPF-life is the most illiquid.
A cash Top-up transfers liquid cash from bank account into illiquid CPF accounts. Top-up is usually irreversible — You can’t withdraw anything into liquid cash, with certain exceptions.
Lock-in/lock-up means no withdrawal, and is the main drawback of top-up. As to the benefits of top-up, there are two
- top up 33k to SA and this 33k would earn interest (around 4%) in SA, but this interest is not usable as cash
- top up 88k to CPF-life and this 88k would produce monthly payout in cash đ and the return rate is rather high.
— At age 65, RA will be used to pay annuity premium, and monthly payout will start.
Any excess across CPF accounts would probably be liquid.
— After age 55, there’s a limited level of liquidity, perhaps incompatible with my plan
— At some time before 55, when I pay down a mortgage, this is the best level of liquidity in CPF-OA
— Here I discuss four forms of top-up.
B1) IFF at 65 you don’t have ERS (Enhanced retired sum) in RA, and decide to top up 100k into RA (not to exceed the ERS), this 100k will be locked in and generating compound 4%. This 100k starts producing monthly payout at 65.
The earlier you top up, the more interest you earn, at the cost of liquidity. For example (I described at Sep 2022 CPF appointment), If you set aside 100k 6M in advance, then you can top up 100k 6M before 65th birthday. Waiting period is 6M. During the waiting period, your 100k earns 4% in RA.
B2) You can also top up, say, 50k to RA at, say, age 58 (after 55), and this 50k would be locked in for a lengthy 7 years until it transfers into cpf-life and starts “producing”.
CC) If you (VCon) top up before age 55, then it (partially) hits SA. You can withdraw it at 55 or any time
CPF confirmed that $2k transferred from OA to SA will earn $30 (1.5%) more every year.
DD) if you top up to OA (up to the housing-refund limit), it pays down the housing portion. This is an interesting option. — discussed in depth at (necessity)big-ticket outlays now till 55
— decision to make at age 65, not 55!
At 65, CPF members choose how much money to committed to CPF-life. The amount will be locked in.
No real minimum participation amount — Even if you have only 20k in RA, it can still transfer to the annuity account.
— Rule 37740 .. Not a separate rule, but a consequence of the 6k rule on OW and 30k rule on AW.
For a max-earner, the contribution “engine” would self-stop (like a self-driving car) at $37740. By design, the engine would never break the 37740 rule and lead to refund from cpf. (If a payroll software system doesn’t use this engine, it could break 6k rule or 30k rule, resulting in refunds from cpf.)
Let’s illustrate with real eg. In my 2021 (and likely 2022),
- AW [additional wage] contribution by employer+employee was capped at 37% x 30k = $11,100
- .. If your bonus exceeds 30k, the surplus bonus is ignored by the engine
- OW [ordinary wage] contribution was capped at 37% x 6k x 12M = 37% x 72k = $26640
- ^^ add up to 37% x 102k = $37740, also equal to 17M of 6k/M x 37%. As a breakdown
- employer’s contribution was actually capped at 17% x $10,200/Y = $17,340
- employee’s contribution was actually capped at 20% x $10,200/Y = $20,400
Deciding factor for the “max-earner” is …. 30k bonus! If AW hits 30k and OW hits 6k, then you are (regarded by CPF system) a max-earner and should not make a VCon [voluntary contribution]. Here’s why.
VCon is designed for non-max-earners. Max-earners’ accounts already receive sufficient OW/AW contributions, so CPF board probably don’t want to pay such high interests on additional amounts contributed by these max-earners. Any VCon would be 100% refunded at end of year, without interest. You would be lending that amount to CPF board at zero interest.