Almost one year ago, I wrote an article on CPF SA Shielding before RA is formed at .age 55. It is one of the several legit CPF Hacks that any Singaporeans can employ to maximise their CPF dollars to go towards their retirement funds. While we hear all the theory online, part of us is constantly thinking — are there actually people who are doing CPF Shielding for their SA or OA? Does SA Shielding work in reality? We don’t get many live examples because the people who do share willingly are just a numbered few.
Uncle X is 55 on this year and month on the 28th Sep.
Uncle X has been going his thought process in maximising the CPF hacks for OA and SA Shielding since early last year.
Uncle X has planned and perfected his execution of CPF SA and OA shielding for this very important moment of his life.
Uncle X is invested in low-cost funds during the period of shielding, which translates to shielding roughly $484,200 of OA monies and $221,400 of SA monies. This is honestly alot of monies, if you ask me, for continuing earning higher interests (2.5% and 4%) and almost risk-free.
Lorna had shared this CPF SA Shielding hack back in the Straits Times a year back.
Some quick pointers from the resulting sharing by Uncle X and the key take-aways:
Does OA and SA monies go back respectively to OA and SA accounts after the two funds are sold or divested?
Yes, technically we call it “SA or OA deshielding” or putting down the shields respectively for OA and SA accounts. Whatever investment was bought using OA and SA monies will be respectively returned back to the same accounts. The automatic transfer of SA/OA monies to set up RA account only take place once in your lifetime — the day when you turn 55. Any other SA/OA transfers to RA account is manually triggered.
Is it worth performing the CPF SA Shielding or OA Shielding hack for the cost involved?
It would be worthwhile to compare brokerage costs. For POEMS, Dollardexs and FSMOne for example, the net sales charge or commission is zero.
CPF SA Shielding is the first consideration in the past, due to higher interest earned in the SA (4%) versus the OA (2.5%). What is the rationale and why are people doing OA Shielding as well?
When RA is created, it is created first with monies from your SA account, then OA account in that order of priority. The main aim of SA Shielding, is therefore to “protect” the bulk of your SA from getting transferred over to RA.
The idea of shielding BOTH CPF SA and OA however, is to minimise the monies that gets transferred to your RA when it is created at age 55. The lowest you can go is $60,000 ($20,000 from CPF OA and $40,000 from CPF SA).
Monies in the RA has the least flexibility — it could only be used as premiums for CPF LIFE. Monies in the OA has the highest flexibility — it could be used for CPFIS investments, purchase and monthly installments of property. When BRS (with property pledge) or FRS amount is met in the RA account, the excess amount residing in the CPF SA and OA could be withdrawn as cash, at any time. This is the next reasoning why people would rather keep more of their CPF monies in OA/SA rather than RA.
The last reason, especially for those who are cash-rich, is that by having the bare minimum in RA, you have a wider range to do RSTU cash top up to RA all the way to prevailing FRS or even ERS amount. You would then enjoy the relating tax reliefs!
What if I shield my SA and OA such that RA created has less than BRS amount? Will I not be entitled to CPF LIFE?
Firstly like I mentioned from the earlier question, RA created can go to as low as $60,000 with maximum shielding for CPF SA and OA. You will be auto enrolled in CPF LIFE if you have at least $60,000 in your RA six months before reaching Payout Eligibility Age (PEA). Anything below $60,000 you will remain on the Retirement Sum Scheme (RSS). And if you were on RSS, we would not be talking about CPF Shielding in the first place.
Can we continue to transfer OA to SA after age 55?
The simple answer is No. After age 55, only OA/SA transfers to RA is allowed. CPF OA to SA transfers can only happen before age 55 or before RA is created.
What is the most important consideration in the execution of the CPF Shielding?
After you carry out SA or OA shielding, you are also planning the next steps on deshielding. You would want to deshield as soon as your RA is created to continue earning OA and SA interests, e.g. you would try as best as possible not to miss another month of interests earned as the amount could be quite substantial if your OA and SA has large numbers. Timing is of importance, especially for people whose birthdays (or they turn 55 years of age) near the end of the month.
Uncle X’s birthday is on the 28th Sep, thus he would plan to bring down his shielding either on the 29 or 30 Sep. Once it crosses to the next month e.g. 1 Oct, he would have lost another month of interest for October. Interests earned for CPF accounts are based on the lowest balance in your SA/OA for the month.