Sunday, July 10, 2016

Transferring monies from CPF-OA to CPF-SA

It has been on my mind for quite sometimes...especially after reading blogs by ASSI & a couple of others; I finally decided to follow suit.

On 23 Jun 16, I transferred $23,265.74 from my CPF Ordinary Account (OA) 2.5%pa to CPF Special Account (SA) 4%pa, topping up my SA to $50,000, at age 31.

Then on 3 July 16, I transferred another $50,000 from my CPF Ordinary Account (OA) to Special Account, topping it to $100,000! Leaving aside $28,308.10 in CPF OA for about 17.5 months of mortgage payment. 
Should I decide to buy HDB BTO, I would have 2 years to save up, increasing OA to $65K before TOP (est.$900 x 30mths incl.bonus).
If I top up $7K with cash each yr, that would result in close to $80K, lasting 50mths/4years assuming same $900 CPF contribution (for a $2,500monthly mortgage or $569K loan in 25years@2.35%)



Do note that the transfer is irreversible!

Some Pros & Cons I personally felt:

Pros
  • Benefit from the "risk free" higher 4% compounding interests rate
    • Instead of using CPF OA to buy property where 2.6%-4% compounding interests work against you, transfer monies that are not needed in near future (2-3years) over.
    • If you can set enough minimum sum now in CPF-SA you essentially accomplish your retirement planning as CPF interest kept pace with market interest rates but higher!
      This means the interests earned in CPF-SA would more or less keep pace with the minimum sum increase year on year.
    • Finally any excess above the minimum sum amount, at the end of the day, is still available for withdrawal when one hit retirement age, so why not take action for it now?
  • In the event if you do need to use CPF-OA to help with property purchase, most HDB BTO or Exec.Condo launch takes 2-3years to build, you can always use the time to save up.
  • Following my own calculations, my CPF contributions would be sufficient to handle my mortgage payments for 17.5 months if I stop work or 50months if I continue to work with voluntary contributions top up each year
Cons
  • Amount available for CPF Investment scheme, dropped from initial $30K to $8K after OA-SA transfer
    • This limits the growth of my CPF to contributions, as I have lesser to invest now
  • Monies are locked away for retirement, and one must set aside take home income to pay for mortgage payment
  • CPF policies are subject to changes, and we rely on prudent management by CPF of our funds for withdrawal when we retire
  • Should government one day change or mismanage the country, hyperinflation & depreciation in currency would destroy the savings in CPF!

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