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CPF: Pitfalls to Avoid at All Cost!

Terry Xu, the Executive Editor of theonlinecitizen messaged me – if I have any comments on MP Dr Lily Neo’s following facebook posting:

“Meet-the-people session tonight left me with ‘down’ feeling seeing unhappy residents that I could not assist due to regulations in place. One such example was that one resident tonight was unhappy with me because I could not get CPF to allow him to withdraw his savings.According to the reply from CPF board, the minimum sum (MS) Scheme, members who turned 55 between 1 July 2005 to 30 June 2006 need to set aside MS $90,000 in their Retirement Account (RA), of which $45,000 must be in cash and the remaining $45,000 may be in the form of a property pledge.

For those who turn 55 after July 2015 the MS will be $120,000.CPF explained, in reply to my appeal letter, that the savings in the RA are meant to provide members with a regular income to meet their retirement needs from their drawdown age. In view of the aging population and longer life expectancy for Singaporeans, the RA savings need to be stretched for as long as possible as they may be the only source of funds which members can turn to for financing their living expenses in the old age.”

Actually, the current minimum Sum is $148,000 and the Medisave required amount at age 55 is now $38,500.
As an example, what this may mean is that even if you have say $200,000 in CPF in total at 55, you can only withdraw out $12,500.
How many Singaporeans can meet the CPF Minimum Sum?
I estimate only about 1 in 8.

Terry also highlighted a facebook posting about the issue of using one’s CPF after 55 to pay for housing mortgage monthly payments. (link)

“And so I received a call from HDB informing me that there is insufficient funds in my CPF to pay for my monthly mortgage. That came as a surprise as the last time I check, there was still some money in my account.

At the CPF counter, a CSA patiently explained to me that my money has been moved into a retirement account leaving practically zilch in my ordinary account and although I am still making monthly contribution to CPF, that money cannot be used to service my mortgage as I do not have the required minimum sum.

I am left with 2 options. One is to make monthly cash payment. the other is to use the meagre $5K payout to fund my remaining mortgage.”

For many Singaporeans with outstanding housing mortgages, their Ordinary Account (OA) balance may be transferred to their retirement accounts – thus, no longer can be used to pay for monthly mortgage payments.
As I understand it, if you are buying your only HDB flat after 55, you can use up to half your RA.
I also understand that for those who continue to work and have OA contributions after 55, you may not be able to use it for monthly mortgage payments, if you have yet to meet your minimum Sum.

Therefore a few points to take away from this,

1) If you have not paid up your flat in full and you are reaching the age of 55 years old, do consider doing a partial redemption to pay off the outstanding loan using your CPF.

2) Be aware that if you are collecting your flat after the age of 55, you can only use 50% of your retirement account for the flat and the rest in cash.

Terry – Something that the CPF board could look at is to send a letter to those who will be turning 55 years old and remind them of this limitation, less they get caught in a situation as above.

 

This article is courtesy of Mr Leong Sze Hian. You can find the original article here.

 

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