Asked by Anonymous

Is it advisable for a 25 year old to transfer some of their OA( OA above 20k) into SA to aid in reaching 1M65 when they are buying a bto flat 5 room (price 350k & no grants) in 4 to 5 years time?

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  • Loo Cheng Chuan
    Loo Cheng Chuan, Founder at 1M65 Movement
    Level 6. Master
    Answered on 04 Nov 2018

    Good question. I often get a this question or a similar one on should one pay up their home loan with their OA or use it to transfer to SA to get 1M65.

    If I were in your situation, I would try to make sure that I have enough money in either cash or OA to pay for the deposit for the house. Then, the next question is reduce my loan with OA (or cash) or transfer OA to SA (thus incurring higher debt). I cannot tell you what you should do, but I will tell you what I have done. I transferred to SA more because the home loan interest rate is much lower than SA - one can arbitrage the difference. Usually between 4% minus 2.5% (or more). Not everyone likes to incur debt, but I think some debts are healthier than others. This is one of them.

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  • Kok Koon
    Kok Koon
    Level 5. Genius
    Answered on 07 Nov 2018

    I'm 34 and only maxed out my SA after the housing is settled.

    Speaking from personal experience (got our resale in July last year), we did ours in this sequence:

    • Check housing budget and overall cash buffer combined with le-spouse/fiance

    • Decide on choice of housing (BTO/Resale/EC/Condo - these were the options we were exploring then)

    • Signed the OTP for resale with keys scheduled to be collected in 5 months (mutual agreement)

    • Got the HDB housing grants via CPF

    • THEN got both of us to transfer all the OA to SA.

    • Service the downpayment and bank loan with cash.

    One can argue the "opportunity cost" lost in not transferring OA to SA from as young as 25 but I didn't know what was our final housing choice then. So although I'm a proponent of maxing SA as young as possible, I think common sense must reign. A bird in hand is better than 2 in the bush. If you are getting married soon, please make sure you are not financially stressed and do it in the right sequence.

    Liquidity is very important for a stress-free living. Good sleep is better than any returns.

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  • Hariz Arthur Maloy
    Hariz Arthur Maloy, Independent Financial Advisor at Promiseland Independent
    Top Contributor

    Top Contributor (Apr)

    Level 7. Grand Master
    Answered on 04 Nov 2018

    Only if you're willing to pay your mortgage in cash, pay a higher monthly per month, and cm get the loan of 350k from HDB or the bank.

    I would prefer cashflow over a slight bump in returns. So I personally wouldn't.

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    • Loo Cheng Chuan
      Hi. It is a good question. Commonly asked by aspiring home owners. Also similar to this question is that of : should one use OA and pay up their home loan compared to transferring to SA.
      04 Nov 2018
  • Lim Tian Shang
    Lim Tian Shang
    Level 3. Wonderkid
    Answered on 05 Nov 2018

    What I personally would do is to keep in OA. Becos I use my OA funds for my property purchases and loan instalments. SA funds cannot be used for such purposes.

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  • Yixiong Chang
    Yixiong Chang
    Level 5. Genius
    Answered on 04 Nov 2018

    Have u considered topping your special account with cash, as for your retirement planning?

    You will earned a guaranteed rate of 4%. For the first $60k in your CPF combined balance (with only up to $20k max from OA), the monies will earn an extra 1%. Since you are still young, u will not be near the limit yet. Thus it is worthwhile to topup to earn effective 5% return. Risk-free, regardless of market conditions.

    In additional u will receive tax relief for the topped up amount. Eg, your taxable income is $40k, for every dollar u earn above 40k is taxed at 7%. Therefore, if u topped up $1000 into your special account, u get $1000 tax relief, u saved 7% of $1000 = $70 tax money. Effectively have gotten 7% return on your money, in additional u will earn 4%-5% interest yearly guaranteed.

    Chat with me if u want to discuss further.

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