Asked 3w ago
Dad just sold condo and downgraded to HDB, have about 500k sales proceed remaining. As he has already reached FRS in his CPF, CPF Board told him that he can choose to take the sales proceeds in cash. Alternatively, he can put it in his OA- however, if he wishes to withdraw it in the future, he needs to fully deplete the amount in his SA before I can withdraw from OA. Any advice what to do with the money- withdraw or put in OA?
A few points to consider here:
Does he want to increase his CPF life payout? ERS is an option that he can consider as there is nothing better than guaranteed income for life. He has to be aware of the fact that the monies once put in RA, can't be withdrawn.
Does he want to withdraw in cash? If he wishes to withdraw in cash, the shielding strategy will still work if he has sufficient funds (anything in excess of $40K in SA), as I have done this for a client who was age 63
If he withdraws in cash; what will he do with the money? Other than immediate liquidity (if he needs it), he should aim to achieve 2.5% returns with the funds that are not used. This can be achieved in various ways, for example, dividend paying stocks, dividend paying UTs, a private annuity to provide more guaranteed income, etc. The allocation should be skewed more towards safer instruments as it is important for him to have predictable and reliable income sources.
In the context of his entire financial portfolio, what other income producing assets does he have? If he has sufficient assets (even with inflation factored in), then there might not be a need for him to fully withdraw all $500K from OA as some money can always be left there to earn 2.5% risk free
The permutations are plenty and it is really not possible to detail all of them here, but I have outlined some important things that he might want to think about. I highly recommend him to view this $500K in tandem with his overall strategy for retirement, including all his assets. A discussion with an independent financial advisor would provide him clarity on his options so that he can have an idea of what he can do.
Have a discussion with him and understand what is his long term intention.
If he needs the money today, then take it out.
If he does not need the money today, then consider putting it back with CPF for the guaranteed rate of return. Alternatively, he can consider a step-up annuity that pays a guaranteed rate of coupon that increases every few years.
Through the latter, he can combine it with CPF Life for a decent lifetime payout without much worry.
Moreover, he can also use the money for legacy planning. In any case, it will be good to know his intention so that we can give you more specific advice.
By the way, if he hasn't done so, I will strongly recommend him to start estate planning. At the basic level, complete a CPF Nomination and draft a Will. Through this process, it ensures that his money will reach the intended beneficiaries.
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Hi Anon, since your dad can withdraw from his OA and SA accounts, it means he is at least 55 years old.
This means he should be focusing on building guaranteed streams of income and preservation of capital at this age.
Using a combination of annuities and other fixed income instruments will allow him to do both.
I would avoid too much equity holdings and especially REITs as he may not have too long of a holding power and shouldn't be exposed to volatility.
I suggest speaking to an independent financial advisor to help plan this for him.