Using CPF as fixed deposit after age 55

[gzbkel]

Currently, I keep a cash reserve of about 30% for market correction or crash, and most of this is in fixed deposit.
I am mulling the idea of using CPF as a substitute for fixed deposit after 55, since the interest is higher.
This seems feasible, since you can withdraw from CPF as often as you like at age 55 if you are no longer working.
Do any of you plan to do so? (or already doing so?) Or do you prefer to withdraw as much as possible after age 55?

These are the differences I have gathered so far:
(CPF rules based on my understanding after I called their hotline. Please correct me if I am wrong)

Interest rate:
Fixed D: Current rate about 1 - 1.3%
CPF: 2.5% for OA, 4% for SA. (+1% for first 20k/40k)

Depositing:
Fixed D: No limit
CPF: Called "Voluntary contribution". Currently capped at $30,600 per year (If you are retired and have no mandatory contribution).
OA/SA/MA allocation ratios apply. (You cannot specify account). If hit MA ceiling, will overflow to SA. If hit SA ceiling, will overflow to OA.

Withdrawing:
Fixed D: Will lose all or part of interest income if withdraw before maturity.
CPF: Can withdraw any time on hitting age 55 if retired. Else, once a year. Since interest is credited monthly, interest loss is minimal.
*Cannot choose the account to withdraw from. Instead, withdrawal is based on the following order:
1) Interest income
2) Employer contribution (none if retired)
3) Medisafe, if exceed MA minimum sum.
4) SA
5) OA
**Each time you withdraw, you will be forced to top up your MA if balance is less than MA minimum sum. See following blog for details.
http://atans1.wordpress.com/2013/07/30/t...acilities/

Problems with this idea:
1) Forced to top up MA. May be an issue if MA minimum sum grows too fast.
2) Depositing into CPF capped at $30,600 per year. May be a bottleneck if this amount does not grow with inflation, or you are HNWI.
3) Risk of government policy change that results in additional withdrawal restrictions.

Can you think if any other problems if using CPF as "personal fixed deposit"?

(Edited to correct wrong link)

[Layman A]

No offence, but I find it difficult to understand why you want to use CPF as an FD instrument , as much as why people want to invest in zero coupon convertible bond in a junk company .

The similarity :

Your case :
1. You earn peanut difference in the interest rate, but risk locking up the whole entire sum when there is major change in policy.

2. Maybe tomorrow when you wake up from you dream, you find that interest rate already start ticking up, and may be in a year or two the interest rate offer by the bank could well beat the miserable 2.5% by CPF board .

The zero coupon convertible bond case :
There is nothing to gain except risk risk and risk. Default risk, company wind up risk etc.

In conclusion :
You are taking on overwhelming risk just to gain the miserable interest difference. Is it worthwhile ?


And since you are toying with the idea :
1. I presume you are reaching 55 soon.
2. I presume you are cash rich CPF rich uncle who could easily beat the minimum sum set by the CPF board.

For me, I park a portion of my cash in bank preference share, Genting perpeptual 5.125%, and REITs .
( yes REIT. Since I'm taking risk, I might as well going for the highest interest possible in the market ! )

On the other hand, if this a just a technical TCSS scenario just for discussion purposes, then it's a different story !

[Temperament]

Currently, I keep a cash reserve of about 30% for market correction or crash, and most of this is in fixed deposit.
I am mulling the idea of using CPF as a substitute for fixed deposit after 55, since the interest is higher.
This seems feasible, since you can withdraw from CPF as often as you like at age 55 if you are no longer working.
Do any of you plan to do so? (or already doing so?) Or do you prefer to withdraw as much as possible after age 55?

These are the differences I have gathered so far:
(CPF rules based on my understanding after I called their hotline. Please correct me if I am wrong)

Interest rate:
Fixed D: Current rate about 1 - 1.3%
CPF: 2.5% for OA, 4% for SA. (+1% for first 20k/40k)

Depositing:
Fixed D: No limit
CPF: Called "Voluntary contribution". Currently capped at $30,600 per year (If you are retired and have no mandatory contribution).
OA/SA/MA allocation ratios apply. (You cannot specify account). If hit MA ceiling, will overflow to SA. If hit SA ceiling, will overflow to OA.

Withdrawing:
Fixed D: Will lose all or part of interest income if withdraw before maturity.
CPF: Can withdraw any time on hitting age 55 if retired. Else, once a year. Since interest is credited monthly, interest loss is minimal.
*Cannot choose the account to withdraw from. Instead, withdrawal is based on the following order:
1) Interest income
2) Employer contribution (none if retired)
3) Medisafe, if exceed MA minimum sum.
4) SA
5) OA
**Each time you withdraw, you will be forced to top up your MA if balance is less than MA minimum sum. See following blog for details.
http://atans1.wordpress.com/2013/07/30/t...acilities/

Problems with this idea:
1) Forced to top up MA. May be an issue if MA minimum sum grows too fast.
2) Depositing into CPF capped at $30,600 per year. May be a bottleneck if this amount does not grow with inflation, or you are HNWI.
3) Risk of government policy change that results in additional withdrawal restrictions.

Can you think if any other problems if using CPF as "personal fixed deposit"?

(Edited to correct wrong link)

This seems feasible, since you can withdraw from CPF as often as you like at age 55 if you are no longer working.

No you can't! CPF is not your commercial bank hoh! i don't think our G is stupid hoh!

[gzbkel]

This seems feasible, since you can withdraw from CPF as often as you like at age 55 if you are no longer working.

No you can't! CPF is not your commercial bank hoh! i don't think our G is stupid hoh!

I was surprised too, but that was what I heard when I called CPF.
If you look at this document (http://mycpf.cpf.gov.sg/NR/rdonlyres/89B...avings.pdf), it says this:
"If you have not withdrawn your CPF at 55, you may apply to do so anytime. If you had previously withdrawn your CPF upon reaching 55, you will be eligible to withdraw yearly, on or after your birthday each year. However, you may apply for another withdrawal within your birthday year if you have been unemployed or if you are a self-employed and have not been continuously working nor receiving income in any business or trade for six months before the date of your CPF withdrawal application."

It seems to say that you can withdraw at least two times per year, provided you are not employed.
That is not that bad compared to fixed deposit.

[gzbkel]

Hello Layman

I am currently also vested in some REITs and pref stock.
I am taking about moving the cash part of my portfolio from Fixed D to CPF after 55. (I do not intend to top-up before 55)
Since you can withdraw from CPF at least once a year after 55, interest rate risk is not a problem I think.

My main concern is change of CPF policy, and how fast the MA minimum sum will grow (since you are force to top up MA before each withdrawal.

No offence, but I find it difficult to understand why you want to use CPF as an FD instrument , as much as why people want to invest in zero coupon convertible bond in a junk company .

The similarity :

Your case :
1. You earn peanut difference in the interest rate, but risk locking up the whole entire sum when there is major change in policy.

2. Maybe tomorrow when you wake up from you dream, you find that interest rate already start ticking up, and may be in a year or two the interest rate offer by the bank could well beat the miserable 2.5% by CPF board .

The zero coupon convertible bond case :
There is nothing to gain except risk risk and risk. Default risk, company wind up risk etc.

In conclusion :
You are taking on overwhelming risk just to gain the miserable interest difference. Is it worthwhile ?


And since you are toying with the idea :
1. I presume you are reaching 55 soon.
2. I presume you are cash rich CPF rich uncle who could easily beat the minimum sum set by the CPF board.

For me, I park a portion of my cash in bank preference share, Genting perpeptual 5.125%, and REITs .
( yes REIT. Since I'm taking risk, I might as well going for the highest interest possible in the market ! )

On the other hand, if this a just a technical TCSS scenario just for discussion purposes, then it's a different story !

[opmi]

CPF protected from bankruptcy. If u are doing risky business. Or hoot big property at peak prices.

[Layman A]

Ok, on a serious note, you have set aside 30% of your total fund as cash.
I presume this 30% hard cash is for emergency purpose, or opportunity fund should the 2009 worldwide stock market crisis should appeared again.
So this portion of cash should be as liquid as possible, even though it is earning miserable interest rate at our local banks.

In my opinion, if this portion of cash is parked into CPF, which carries many restrictions and uncertainties, it can never be considered as hard cash anymore. And therefore it contradict your original purpose of keeping 30% of your portforlio as cash !

Even Warren Buffett is setting aside a big portion of his funds as hard cash. I'm sure we have something to learn from him.

Hello Layman

I am currently also vested in some REITs and pref stock.
I am taking about moving the cash part of my portfolio from Fixed D to CPF after 55. (I do not intend to top-up before 55)
Since you can withdraw from CPF at least once a year after 55, interest rate risk is not a problem I think.

My main concern is change of CPF policy, and how fast the MA minimum sum will grow (since you are force to top up MA before each withdrawal.

No offence, but I find it difficult to understand why you want to use CPF as an FD instrument , as much as why people want to invest in zero coupon convertible bond in a junk company .

The similarity :

Your case :
1. You earn peanut difference in the interest rate, but risk locking up the whole entire sum when there is major change in policy.

2. Maybe tomorrow when you wake up from you dream, you find that interest rate already start ticking up, and may be in a year or two the interest rate offer by the bank could well beat the miserable 2.5% by CPF board .

The zero coupon convertible bond case :
There is nothing to gain except risk risk and risk. Default risk, company wind up risk etc.

In conclusion :
You are taking on overwhelming risk just to gain the miserable interest difference. Is it worthwhile ?


And since you are toying with the idea :
1. I presume you are reaching 55 soon.
2. I presume you are cash rich CPF rich uncle who could easily beat the minimum sum set by the CPF board.

For me, I park a portion of my cash in bank preference share, Genting perpeptual 5.125%, and REITs .
( yes REIT. Since I'm taking risk, I might as well going for the highest interest possible in the market ! )

On the other hand, if this a just a technical TCSS scenario just for discussion purposes, then it's a different story !

[funman168]

I have this problem.
I am only in my late 30s but I hv the below in my accounts

Cpf OA: $500k
Cpf ma:$50k
Cpf sa:$70k

I hv already bought my condo, o/s loan abt $600k

Shld I also consider to add another $100k into cpf so
That can max cpf benefit n nt pay interest?

[sgd]

If I have that kind of cash I will not put any money into cpf, if all I really want is a no lose money investment just put into sgs bonds. SGX got 4% bonds listed no need to put into special account. returns go back to your pocket and I understand are tax free no even need to declare on ira. Minimum amt 250k broker will trade for you.

god knows what kind of emergency money situation you can run into if have to wait till 55 but also "maybe or maybe not" if they keep changing the rules.

[funman168]

Sgs bond only abt 2.5%
The bonds listed on sgx all hv certain risk associated with it.
That y I am contemplating putting in cpf.
My idea is just to set aside all my hse $$, and try to earn the interest rate difference
I am thinking of buying another ppty in 2020 with my cpf...