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4 ways to beef up our CPF savings! (InvestX Congress and the CPF.)

Saturday, August 19, 2017

I hope everyone who went to InvestX Congress today had a good time. 

To my regular readers who were there, I hope it wasn't too boring listening to me repeating the same old stuff about the CPF. 



Anyway, for the benefit of some in the audience who told me that they might have trouble remembering everything I shared today, here are some salient points from my segment:





Beef up your CPF account.

You could do these:


1. Top Up your SA (not beyond FRS)


2. Voluntary contribution to your MA (together with mandatory contributions, not beyond CPF annual limit and, on its own, not beyond BHS)

You will also get income tax relief for doing the above. For #1, only for the first $7,000 each year.






3. OA to SA transfer (not beyond FRS)


4. Voluntary contribution (OA, SA, MA) (together with mandatory contributions, not beyond CPF annual limit)


These will not get any income tax relief.





We don't have to do everything to capture all the benefits. It is not like Pokemon GO and we gotta catch them all. Just do what we can.

For me, the big thing was doing OA to SA transfer in the first 4 years of my life as a working adult. I emptied my OA into my SA. 


Did this in the first 4 years of my working life instead of the last 4 years of my working life. 








That makes a big difference because compound interest needs time to work its magic and a bigger base earlier makes it more magical.


Also, have enough in our CPF-MA and the interest income we receive yearly from the government will pay for our insurance. Who says there is no free medical insurance in Singapore?

See:
http://singaporeanstocksinvestor.blogspot.sg/2013/12/how-to-get-free-medical-insurance-in.html 





Here are links to some of my other blogs on the topic:

1. 
http://singaporeanstocksinvestor.blogspot.sg/2017/01/ak-showing-off-his-cpf-oa-and-ma-2017.html

2. http://singaporeanstocksinvestor.blogspot.sg/2015/01/how-did-ak-amass-so-much-money-in-his.html

3. http://singaporeanstocksinvestor.blogspot.sg/2016/02/the-cpf-is-really-national-ponzi-scheme.html



If AK can do it, so can you! Gambatte!

26 comments:

Ben said...

Hi AK,

Thks for your re-cap. It goes to show that it does not take much effort to make ourselves better equipped for the FIRE with these simple steps.

Ben

AK71 said...

Hi Ben,

Own time, own target, fire! ;)

apex property investment said...

Would it be better to pay off the HDB mortgage or top up SA?

Sweet Retirement said...

Thanks for sharing AK especially on the benefits of maxing out our medisave account.

Brina said...

Thanks for your sharing yesterday AK, and for the angpow and hilarious jokes :D
Am I right in my understanding that every year, we can only top up max 7k total into our cpf SA or cpf MA accounts combined for the max tax relief? Additionally, if I have a limited amount of money, should I allocate more to my SA or to my MA?

Thanks!

Brina

AK71 said...

Hi SR,

I am glad you found my talk useful.

For those of us who are lucky enough to have a CPF account, we should try to max out the benefits of our membership.

If AK can do it, so can you! ;)

AK71 said...

Hi Brina,

Remember, top ups and voluntary contributions are separate.

Refer to the terminology and the 4 ways to beef up our CPF which I shared during my talk.
I have listed them in this blog for easy reference. ;)

Mandatory contributions + voluntary contributions cannot exceed the annual contribution limit.

Top Ups are on top of this annual contribution limit. That is why it is "top" up. On "top" of the limit. Remember I said this during the talk? ;)

MA has more immediate utility. You can use it to pay for your insurance (i.e. H&S insurance, DPS, Eldershield) even if you are not hospitalised.

SA is meant to help fund our retirement. It is a longer term objective.

Which account you wish to beef up first depends on what you think is more important to you. ;)

apex property investment said...

Would it be better to pay off the HDB mortgage or top up SA?

AK71 said...

Hi Apex,

Oops. I missed your earlier comment.

You are probably referring to the option to do voluntary refunds to our CPF-OA for money used to pay our housing loan. This makes sense because it will stop accrued interest from growing over the years and it will help us grow our CPF-OA money.

However, topping up our SA offers income tax relief. If the income tax relief is a big deal, then, this could be a priority.

Voluntary refund to the CPF-OA or top up the CPF-SA? It will depend on our situation.

AK71 said...

David Poh:
i really enjoyed your talk. As you were showing your SA amount i was wondering how come it can b higher than the FRS? I tot capped at $166k. How did u accumulate $200K+ in your SA?
---------------

AK:
Once our CPF-SA has hit the FRS, no Top Up is allowed. No OA to SA transfer is allowed either.

However, mandatory contribution and voluntary contribution are still allowed up to the annual contribution cap (i.e. contribution that goes into all 3 accounts) every year.

CPF-SA will also continue to grow from interest earned year after year even after it hits the FRS.

I have a few blogs on this. Let me dig one out. ;)

See:
An update on my CPF-SA.

Invest Sg said...

Hi AK,
Good recap of your talk.. thank you:)
Got a question: "Top Up your SA (not beyond FRS) - is it possible to max out SA to buy SG gov bonds, then top up SA to max, and then sell the SGBs and return money back to SA? workable bo?

Match said...

Hi AK,

If your voluntary contributions exceeds the annual contribution, CPF would refund the excess fund less the interest. Lets say if your MC is $37,740 at the end of the year and through the months, VC of total $12,000 ($1000 per month) is made. CPF would refund the excess of $12,000 less the interest and what would happened to the interest or would there be interest earned on the additional funds for that year?

Regards,
Match

AK71 said...

Hi InvestSg,

I guess I should blog about this and here it is:
Do this to inject more funds into CPF-SA?

AK71 said...

Hi match,

No interest would be given for any excess contribution.

Basically, we would get back the excess contribution and nothing else.

Match said...

AK,

Thank you so much. Just want to check if my understanding of how CPF works is correct on the interest earned. Interest are earned as per OA, SA and MA, and the interest earned flows from MA to SA to OA when it reaches per say the Max. BHS or FRS. Is this correct?

AK71 said...

Hi Match,

Very succinct. Yes, that is correct. :)

Brina said...

Thanks for clarifying AK! I must have laughed too much from all your jokes and got everything mixed up. >.<

brina

AK71 said...

Hi Brina,

I must remember to water down my jokes in future. The CPF is no laughing matter. ;p

Ben said...

CPF is the avenue in which one can take full advantage of the reasonable high interest by making voluntary contributions as well as transfer from OA to SA.

It will be fastastic if one refrains from using the CPF funds to pay for the housing related payment. It will be difficult for one to do so especially for those with minimal CPF savings when they join the workforce. In a few years' time, they need the fund to purchase the home.

One possible way of avoiding such payment is to delay marriage so that the couple can have more time to accumulate more saving. That being said, this option might not be favoured cup of tea for the couple. This is especially applicable for the couples who intend to have kids early.

Each individual has his/her preferred choice. There is no right or wrong decision. It is entirely to the individual.

Ben

AK71 said...

Hi Ben,

There is a right or wrong decision.

If our actions are detrimental to what we want to achieve, it is the wrong decision. Having said this, we don't always make the right decisions in life.

We have to take ownership and find remedies.

Unfortunately, most people just complain and blame the government.

Alvin Chong said...

1) Is there any drawbacks to contribute the full Annual Limit of $37,740 from age 22 onwards till age 55?
2) Can I use the CPF SA as a high yield savings account whereby I just withdraw the interest earned from the previous year for daily usage for the following year? Meaning to say can I live on the 4% interest earned year on year?
3) If we reached FRS in RA we can absolutely withdraw everything we want except FRS regardless of where the money come from (eg Top Ups, Voluntary Contribution, Interest Earned)?

Alvin Chong said...

1) Is there any drawbacks to contribute the full Annual Limit of $37,740 from age 22 onwards till age 55?
2) Can I use the CPF SA as a high yield savings account whereby I just withdraw the interest earned from the previous year for daily usage for the following year? Meaning to say can I live on the 4% interest earned year on year?
3) If we reached FRS in RA we can absolutely withdraw everything we want except FRS regardless of where the money come from (eg Top Ups, Voluntary Contribution, Interest Earned)?

AK71 said...

Hi Alvin,

1. Saving as much as possible and as early as possible can only be a good thing especially with compound interest in the mix.

2. You can do that from age 55 if you still have money left in your CPF-SA once your retirement sum option (BRS, FRS or ERS) is locked in your newly created CPF-RA then.

3. Anything above the FRS can be withdrawn from your CPF account at age 55.

Yan said...

Hi AK,

If one has reached the Full Retirement Sum limit and is over the age of 55, will they still get the tax exemption for the $7000 cash top up, assuming that they have not reached the Enhanced Retirement limit?

Thanks

AK71 said...

Hi Yan,

Older than 55?

No top ups to CPF-SA is allowed.

You are allowed to top up your CPF-RA if it has yet to hit FRS.

The Top Up will get income tax relief.

You have to decide on BRS, FRS or ERS at age 55 but top up is only till FRS.

ERS is achieved by transferring money from SA/OA to RA.

AK71 said...

Reader says...
Let's say my medisave is already $52K for 2017 and next year the cap is $54.5K.
My employment contributes more than the $2.5K increase e.g. $3K in medisave cap for 2018.
So even if i top up $2.5K medisave next year in January, I am not entitled to the VC-MA tax relief right? How about the interest calculated
----------------

AK says...
If we contribute $2.5K to our MA at the start of the year, this sum will get 4% interest for the full year. So, that is $100.

In your case, if you do that, you would hit the BHS of $54.5K and you will still get income tax relief on this $2.5K voluntary contribution to the MA.

Then, all your mandatory CPF contributions from employment for the year will only go to your OA and SA. Nothing goes to your MA.

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