4 Things to know about Withdrawing Money Out of CPF

We all know that we can withdraw some of our money from CPF upon reaching the age of 55, but do you know there are some things you should know about it?

MORE LINKS
Fresh Year, Fresh Pessimism? 
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55

1) Withdraw $5,000 at age 55
If you turn 55 in the year 2016 and after, you may withdraw up to $5,000 from your CPF OR amount above the Full Retirement Sum (FRS).
You can also withdraw from your Retirement Account amount above the Basic Retirement Sum (BRS) if you have sufficient property charge.

2) Let it Grow~ Let it Grow
Should you decide not to withdraw money from your account when you reach 55, the money will continue to grow and earn interest inside your CPF!
You can also use the money to finance your housing loan or other approved purposes.

3) Withdraw Money Bit by Bit
You may choose NOT to withdraw the whole withdraw-able amount out at one go.
If you have $5,000, you can choose to withdraw $2,000 first, and subsequently withdraw the rest on another occasion.

4) Withdraw Money any time after 55th Birthday
You may withdraw the excess money any time after your 55th birthday.
You can submit an application at any time to withdraw your savings and CPF Board will assess the request.


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6 Points your CPF is like your Bond Portfolio

For an updated version, refer to the article HERE.

While most people consider CPF money not as theirs and ignores it as part of their retirement planning or investment portfolio, we tend to think that CPF compliments those 2 things!

We think that money in CPF is like money invested in Bonds (Terms & Conditions applied).

MORE LINKS
Fresh Year, Fresh Pessimism? 
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
5 Things about CPF Nomination you should know
What Bond Buying Taught Me about Car Buying
CPF +1% Interest for those age Below 55

A standard retirement portfolio consists of bonds, stocks (equities) and cash.
In most cases, the goal is to try put as much money as possible inside your portfolio and withdraw as little as possible, allowing your money to grow over time to finance your retirement in the future.

We recommend Indexing for equities, read more about equities-indexing HERE

CPF fits into this criteria nicely - money only in, rarely out!
You can look at your Special Account like it is part of your Bond Portfolio!

1) Pays you Interests
Think of your Special Account as a bond you bought that pays you interest annually.
Even better, think of it as a long-term bond! - one that starts when you start working and ends when you reach your retirement age (kind of like a 40-year bond).

2) Pays you a Higher Interest
Bonds today pay little/low interest! - you are lucky if you found one paying you 3%!
Fortunately, CPF SA pays a minimum of 4%!
It comes with a bonus +2% interest too (terms & conditions applied).

3) High Credit Rating
The money inside is "backed" by the Singapore government!
That is essentially risk-free!
It is hard to find a high interest-paying risk-free rate of returns these days!

4) Fits your Retirement Goal
To reach your retirement nest egg, not only is the returns you get important, but also the discipline to keep the money inside your nest!
It is preferable to have more money going in and less money going out of your retirement portfolio.
CPF is able to do just that - it is almost literally one-way traffic!

5) The disadvantage of this "Bond"
You cannot withdraw money out from your CPF - unlike a normal bond where you can sell it for cash.
That is the drawback of getting a higher interest from a "bond".
But, since it is for your retirement goal, you really shouldn't mind the problem of not being able to withdraw it out.

6) Allows more Money in Equities
Because the money in your CPF forms part of your bond portfolio, you can allocate less of your money into bonds and more into equities, which allows you to earn a better rate of return.


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5 Things about CPF Nomination of Your CPF Monies

CPF has been pushing for its account holders to state their Nomination for their CPF money.
Below are 5 points you should know about it!

MORE LINKS
Fresh Year, Fresh Pessimism? 
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
What Bond Buying Taught Me about Car Buying
CPF +1% Interest for those age Below 55

1) A nomination is recommended for CPF money to be distributed to your nominees.
Your CPF money is unable to be distributed according to your will.
Your CPF money will be distributed via
      a) a CPF nomination
      b) a public trustee if you do not have a nomination

2) Below is a table showing the items covered and not covered under the CPF nomination.

3) A will is unable to touch your CPF money.
Thus if you state in your will how to distribute your CPF money, it is not recognized.
A will states all your assets as estates, your debtors will have claim over your estates and the excess after paying off the debtors will be given to the dependents.

CPF money that is covered under a nomination will not form part of your estate. Because it is not part of your estate, your CPF money will go straight to your dependents or nominees in the event of your demise. It would not be claimable by your debtors!

4) Debt Repayment is Optional.
If you have any outstanding debt, chances are your nominees might use the CPF money for debt-repayment. However, that is their choice as they can also choose NOT TO REPAY YOUR DEBTS!

5) No Nomination? No Problem (sort of).
If you did not create a nomination, your CPF monies will be distributed via a Public Trustee.

It will still be distributed to your dependents, just not in the proportion that you wished they would receive it in.


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What Bond Buying Taught me about Car Buying

Buying a Car in Singapore can follow the same principles as Buying a Bond.
Mainly it is not the car but the Certificate of Entitlement (COE).
COE prices are like Bond prices.
Although COEs are not affected by interest rates movement like bonds, they follow similar buying patterns in terms of future expected prices.

MORE LINKS
Fresh Year, Fresh Pessimism? 
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55

Bonds
If you expect interest rates to be going up, you will want to hold short-maturity bonds so that your money will be returned to you fast and you can re-invest it back into new higher interest-paying bonds.

Cars - mainly COE
If you expect COE to go down, buy cars with COE that is expiring soon - 1 year or so. When your car's COE expires and the price of COE has fallen, you can buy a new COE (10 years duration) at the lower price. This is cheaper than buying the full COE at the high price, even though you expect COE to fall in the coming years.

HOWEVER

IF after 1 year passed, and the price of COE did not go down as you expected it to, you will be drawn into a higher COE price. At that point, you would need to decide if you wish to lock yourself in with a longer period COE or buy another short-term COE while waiting for the prices to drop.

This is the same as buying a short-term bond (hoping interest rates to go up soon), but interest rates drop. Resulting in you being required to buy another bond that pays you a lower interest.


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A new year; fresh pessimism?

As we are almost done with the first month of the new year, there seems to be more pessimism lurking in the market, especially locally. Stock markets are tumbling lower, where the STI has dropped an estimated 9%. The local property market is not doing well either. To add on, recently there was news of retrenchments that will be done in the local jobs market. Is just me or it seems that 2016 doesn't feel like a good year?

MORE LINKS
Accrued Interest More than Housing Profits?
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55

The earlier crash of oil prices to new yearly-lows has negatively affected numerous local sectors, especially the oil rig industry. Although being one of the world-best oil rig builders, this has not defended KepCorp and SembCorp from the industry-wide trend. Posting of falling profits and announcements of major restructuring, it seems that the management is doing its best to tide against this resultant crisis.

I believe that KepCorp will soon be in good valuation and presents a good buying opportunity. With the lower pricing, M&A seems to be ripe, evident from the recent rumours of Semb Mar's news.

Furthermore, following the plunge of oil prices and predicted continuation of this trend, the management appears to be reacting to it. Numerous action plans were announced to withstand pressures and having an existing strong financial balance sheet will definitely aid it in this "crisis". The major shareholder, Temasek, is also actively monitoring the situation.

Last but not least, being one of the world's largest oil rig builders, the performance of KepCorp can act as a proxy to the performance of the industry, though limited. It can also be a bet in the entire industry, in my opinion.

While the news this year is not limited to just KepCorp and Semb Mar, numerous counters are priced at lower prices and may present a good buying opportunity for all.


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CPF Interest if I am age 55 & Above

In 2016, if you are age 55 or above, the First $30,000 of your CPF Balance will receive a bonus +1%.
This bonus +1% is on top of the extra +1% given on your first $60,000 CPF balance.

MORE LINKS
Accrued Interest More than Housing Profits?
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55

If you are age 55 and above, the order of the bonus 1% interest goes like this:
1) Retirement Account (RA)
2) Ordinary Account* (OA)*
3) Special Account (SA)
4) Medisave Account (MA)

*Bonus 1% interest earned on your OA goes into your RA. The rest of the interest earned goes to the respective account (Eg; interest from MA amount goes into your MA)

Up to $20,000 comes from your Ordinary Account, the rest from Special & Medisave Accounts.
If your RA has $30,000 or more, the $30,000 will earn the full 1% bonus interest. No bonus interest will be given to the other accounts.

If you have less than $20,000 in your OA,

Eg1
RA earns 6% interest (4% +1% +1%)
OA earns 4.5% interest (2.5% +1% +1%)
SA earns 6% interest (4% +1% +1%)
MA earns 6% interest (4% 1% +1%)
Eg2
RA earns 6% interest (4% +1% +1%)
OA earns 4.5% interest (2.5% +1% +1%)
SA earns 6% interest (4% +1% +1%)
MA earns 5% interest (4% +1%)
Eg3
RA earns 6% interest (4% +1% +1%)
OA earns 4.5% interest (2.5% +1% +1%)
SA earns 5% interest (4% +1%)
MA earns 5% interest (4% +1%)

If you have $20,000 or more in your Ordinary Account,

Eg4
RA earns 6% interest (4% +1% +1%)
OA earns 4.5% interest (first $10k) & 3.5% (next $10k)
SA earns 5% interest (4% +1%)
MA earns 5% interest (4% +1%)
Eg5
RA earns 6% interest (4% +1% +1%)
OA earns 4.5% interest (first $10k) & 3.5% (remaining $10k)
SA earns 5% interest (first $20k) & 4% (remaining $5k)
MA earns 4% interest (4% +1%)
Eg6
RA earns 6% interest (4% +1% +1%)
OA earns 3.5% interest (2.5% +1%)
SA earns 5% interest (first $10k) & 4% (remaining $15k)
MA earns 4% interest


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CPF LIFE Income DIfference

For an updated version, refer to the article HERE.

In today's post, we will be discussing why is the Full Retirement Sum monthly payout not double the Basic Retirement Sum's payout.

MORE LINKS
Accrued Interest More than Housing Profits?
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55

As you can see below, it is an image of the monthly payout you will get based on the different Retirement Sum.

The FRS is 2x of BRS.
However, the monthly payout from FRS is not 2x of BRS.
The same is for ERS, where the payout is not 3x of BRS.

This is because the Effective Interest Rates (EIR) on each Retirement Sum is different.
EIR is the real interest rate return you get from your money.

In 2016,
a) OA earns 2.5%
b) SA, MA & RA earns 4%
c) First $60,000 of your CPF balance gets extra +1%
d) First $30,000 of your CPF balance gets extra +1% if you are age 55 & above

FRS is 2x of BRS, however, the income derived from FRS is not 2x of BRS because the effective interest rate is not the same.
BRS enjoy a higher effective interest rate than FRS and ERS even though it will earn higher than the base 4%.

For a clearer picture on the EIR issue, please refer to our other post: EIR of CPF.
It will explain why is the effective interest on your CPF money decreasing as more and more money is accumulated in your CPF accounts


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