Most of our parents are not aware of the many CPF rules and
are not making full use of CPF to help them in their retirement. In fact I have
only started to learn and understand more about CPF a few years ago and in that
journey, I have also started to monitor my Mom's CPF account and slowly helping
her to fully maximize its benefit. Below are some of the actions that I had or
wished I had taken to help her maximize her CPF account.
Prepare them for Special Account (SA) shielding.
I had talked about SA shielding in my previous post but unfortunately,
I didn't managed to do this for my Mom since she was way past 55 when I started
looking at her CPF account a few years ago. Also my mom was a full time homemaker
and there was not much in her CPF account for SA shielding to make sense.
If your parents have not reached 55, you can start to help
them plan for SA shielding. The aim is to have sufficient in their Ordinary Account
(OA) such that they can hit Full Retirement Sum (FRS) in Retirement Account
(RA) and it will be mainly made up of OA funds rather than SA funds. This will
result in the SA account having bulk of the remaining CPF money earning 4%
interest that you can withdraw anytime.
Prioritize the 4% base interest in your parents RA
When I first looked at my mom's CPF account a few years back
when she was past 55, I was surprised that not all of my mom's CPF money is in
her Retirement Account. She had some money in her OA just getting 2.5% base interest. Those money in her OA could be
earning 4% base interest instead. I thought CPF will automatically transfer her
money in SA/OA to her RA since she have not meet FRS. However, that is not the case.
There are only 3 trigger points for CPF to automatically transfer of your SA/OA money to your RA by CPF. The 3 triggers are
- When you reached 55 and your RA is first formed.
- When you request for a withdrawal from your CPF SA/OA
- 6 months before you reach your Payout Eligible Age
So in order to maximize interest earned from her CPF money, I had actively transfer her CPF money from SA/OA to RA for the higher 4% base interest. Note that any transfer will prioritize SA first before OA and the transfer is not reversible. Make sure your parents don't need the money in their SA/OA account before the transfer.
Ensure the 6% interest in your parents RA is fully utilized.
The first $30,000 in the RA account currently earns 4% base interest plus
an additional 2% interest. That's 6%! Since my Mom doesn't have much in her CPF
account, she wasn't making full use of the 6% interest. One of the first thing
I did for her besides transferring all her SA/OA to RA was to quickly top her
RA up to $30,000. I did this via the Retirement Sum Topup Scheme (RSTU) and got
a tax relief of up to $7000.
The next $30,000 in the RA currently earns 4% base interest plus an
additional 1% interest. That’s still a good 5%. I have also slowly transferred
my OA to her RA to help her quickly build up to $60,000 to earn the higher
interest. I wrote about this in my previous post as well and how I treated these
top ups as advanced household allowances.
I have also advise my Mom to defer her payout till she is 70 to maximize the interest earned from her RA since she doesn’t need the payout now.
Hopefully sharing my experience of helping my mom use CPF to build up her retirement funds helps some of you here.
Happy CPFing!
Good move....
ReplyDeleteAnd thank you for sharing.
Glad it helps.
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