CPF SA shielding ( right before age 55 )

When we talk about CPF SA shielding, it is to be executed right before age 55 and complete the shielding immediately after RA (retirement account) is formed at 55th birthday.

Why?

Year 2021 Full Retirement Sum (FRS) is S$186,000.

When you reach 55th this year, CPF will automatically deduct your SA amount first, e.g. S$186,000 to form RA account. As SA account draws 1.5% interest higher than OA account, you want CPF to deduct the big bulk of money from OA account instead of SA account. Hence, you are doing the CPF SA shielding by leaving minimum requirement of S$40,000 in SA account and move out all the remaining SA balance to buy short term bond (e.g. NIKKO AM SHENTON SHORT TERM BOND FUND). Then, CPF board can only deduct S$40,000 in SA and the remaining balance to be deducted from OA account instead. Once the RA account is formed with S$186,000 (year 2021 FRS figure), you shall immediately sell the bond fund and bring back the cash to SA account and enjoy the 4% interest.

Many people will quote the news article below whenever we talk about CPF SA shielding.

NIKKO AM SHENTON SHORT TERM BOND FUND

During the last year COVID19 pandemic, you can see the short term bond fund actually dropped 2.5% in February 2020 and since then, it had gone up by 4.3%.

For the past 10 years, the short term bond fund only encountered 2 major correction, once in September 2013 and once in Feb 2020. 

Generally, it is still safe if you just park the SA balance in the short term bond fund in less than 1 week time.

6 months before your 55th birthday, CPF will send you a birthday letter (as shown below). That's the letter everyone is waiting for at age of 54 ! :)

It's one good example from my "friend".

For the above example, if you continue to work until age 65, without CPF SA shielding, the projected CPF balance shall be the following:

If you continue to work until age 65, with CPF SA shielding, the projected CPF balance will be:

In this real life example, with CPF SA shielding, you actually can get:

S$12,445 more at the age of 60 or 

S$29,223 more at the age of 65.

Is it worth it? Why not? Free money!

For my own case 14 years later at age 55, with CPF SA shielding, I can get:

S$20,629 more at the age of 60 or 

S$48,438 more at the age of 65.