By now, are you sick of reading and hearing about the closure of SA account at 55?
As mentioned in my earlier post, I am minimally affected by it as I have planned for a non-shielding SA option. And given that I have intended to draw down from my CPF from 55, I would have depleted my SA in a few years time after setting aside for FRS.
Nonetheless, the saga made me rethink my plan. The good thing is I get a refresher about CPFLife and I did learn something new which I wasn’t aware of in the past. Do choose the right youtube channels and/or websites to learn. There are some that perpetuates misleading information. I would strongly recommend watching the various videos by Christopher from Providend. He explains it very well and provides very reasonable suggestions. I will embed two videos which I found useful at the end of this post.
Going for Basic Retirement Sum (BRS) at 55
Originally, I was planning to just go for Full Retirement Sum (FRS). It’s a typical lazy thinking model. There are three choices – BRS, FRS and ERS; so just go for the middle choice. Just found out that his cognitive bias is known as the Centre-Stage Effect.
After rethinking about it, and running the numbers, I decided to change my plan. I am very likely to go for BRS, instead of FRS. There are a few reasons behind this decision.
Prioritising liquidity
As mentioned in my post Why I did not top up CPF with cash?, I do not like my money to be locked up. So similarly, why lock up more for 10 years from 55 to 65 before I can payout? This will also a period of time when my children will be doing their tertiary education. So having access to cash and CPF-OA will come in handy.
Getting a better return than RA
One advantage of RA is its “risk-free” 4% return. However, given that I am an experienced active investor, I do stand a good chance of getting a better return. The current portfolio’s XIRR since its inception in 2020 is around 8.9%. If I can continue to get such average return, then the CPFLife payout really does not matter to me. Base on current projection, I should be doing alright if I get high 5% average return. Hence, I do have some buffer.
Will I be taking too much risk?
It’s manageable. From 55 to 65, maximum invested amount is no more than 70% and it will decrease after that. Also, I am planning to have 4 to 5 years of cash buffer, so that I do not need to draw down on my portfolio during bear markets.
Option to top up to FRS before 65
I am not ruling out having FRS in CPFLife to get a higher payout. I could still do that any time before 65, for one reason or another. Maybe I am not getting a good enough investment return, or I might be bored with investing along the way. I do not know. However, given that this option is available, I don’t have to rush to lock up my money at 55.
This is my current thinking but I might still change my mind, nearer to 55. I will definitely make an appointment to speak to them at 54 to find out more of the nitty gritty, and fine prints.
Below are the videos from Christopher. Enjoy.
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