03-09-2014, 01:13 PM
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)
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)