Investing in 2.96% p.a AAA Bond
Ops !! sorry, clickbait
... :D
Not investing in any
corporates or government issued Bond but Mrs. STE and I just doing the
voluntary contribution to our CPF accounts recently. We can't do the RSTU( Retirement Sum Top
Up) since our SA
(special account) already exceeded the FRS ( and BHS for MA already above $63K)
but we still can do the VC3C ( Voluntary Contribution to 3 accounts ). The
amount will be split into SA and OA with average interest rate of around 2.96%.
For us, this is like 4 years bond with 2.96% coupon rate p.a since we still
have 4 years to reach 55 years old.
This might not be a good
option for those who are still young and have many years to reach 55 since the
top up is "irreversible” not like investing in bond where you still can
sell it in secondary market when you need the money. Alternatively, you
may consider to top up your SA or MA if both account still not reaching the FRS
or BHS since you can enjoy the higher interest rate (4% for MA/SA) and also
having tax relief from IRAS.
CPF Cash Top-up Relief <source: IRAS.gov.sg>
6ways to optimize your CPF for retirement <source : DBS FinancialPlanning NAV>
The road for economic
recovery will not be even for all country, depending on the progress of
vaccination and how soon they could open up the economy after achieving herd
immunity like the case of Israel.
"JERUSALEM — Israel is partying like it's
2019. With most adults now vaccinated against the coronavirus and restrictions
falling away — including the lifting this week of outdoor mask requirements —
Israelis are joyously resuming routines that were disrupted more than a year
ago and providing a glimpse of what the future could hold for other countries.
Restaurants are booming outside and in.
Concerts, bars and hotels are open to those who can flash their vaccine
certificates. Classrooms are back to pre-covid capacity.
The rate of new infections has plummeted —
from a peak of almost 10,000 a day to about 140 — and the number of
serious coronavirus cases in many hospitals is down to
single digits. The emergency covid-19 ward at Sheba Medical Center near Tel
Aviv resumed duty as a parking garage, and waiting rooms are suddenly flooded
with non-covid patients coming for long-deferred treatments." Source: The
WashingtonPost.com
Since market had gone up much and the probability of
wining the market no longer as high as investing during March 2020, instead of
keeping the cash in bank with super low interest rate, topping up your CPF to enhance your retirement fund might be a good idea, of course depending on your
investment horizon and stage of wealth accumulation.
Topping up CPF is a tricky issue especially for
younger generation since the money would be “locking up” for awfully long time
if you are at 20 or 30+ years old. As I mentioned before, I treat the CPF as long-term
AAA bond with 3+% of coupon rate p.a. Since most of my fund is invested in
equity market with extremely high volatility, having higher CPF balance allow
me to “sleep better” regardless of what happen to equity market.
Asset-Rich , Cash CPF-Poor
As I blogged about it before, CPF is not a “ Super-Hero “ ,
we have to strike a balance between housing and retirement requirement in using
CPF to buy property. I know many are using CPF up to max to upgrade to bigger
house or landed property and some might think to monetize their property and downgrade
it to smaller house once they need the money for retirement.
*Regrossed
balances include amounts withdrawn under Investment, Education, Residential
Properties, Non-Residential Properties and Public Housing Schemes as at end of
year.
Based on above data, still we have around 47% of CPF members in 45-60 years old are having less
than $200K in their CPF “regrossed balance” *. Since this group is approaching
retirement or already in retirement like those in 60 years old, having such low
CPF balance is quite worrisome as I would assume that $200K is bare minimum to
cover the basic expenses if we would have to take the CPF life payout as
benchmark.
Hench, under current super-low interest rate environment,
doing the RSTU to enjoy the 4% interest rate at least up to the FRS for those
above 45 years old could be a good option.
More detail can be found from the annual report from
CPF Board : here
Do We Need $4.3 Mil To Retire In Singapore ?
‘Financial
freedom’ costs US$4 million in Hong Kong, second only to London, data from
property portal Juwai shows
<source: sg.yahoo.new.com>
Ok, $200 K may be is just a bare minimum for
retirement, but do we really need $4.3 Mil to achieve financial freedom in
Singapore?
Well, it depend on your desired lifestyle for
retirement or so called “Fat F.I.R.E “ or “Lean F.I.R.E “.
Our friend (Kyith from <Investmentmoats.com>)
had a great article about this and done some calculation base on different circumstances
and assumptions.
Does Your Desired Financial Freedom Lifestyle Cost
SG$4.3 million? I break down the numbers realistically. <source:Investmentmoats.com>
As I mentioned earlier, topping up CPF is a very
tricky issue and CPF is like “durian”, either you like it (believe in the
system) or hate it (Return My CPF Money @ Hong Lim Park ) and by the way ,
retirement planning is also very personal, up to individual to choose which
path to follow.
For us ( Mrs STE and I ) , we choose to “believe” and enjoy the ‘8th
wonder of the world “ , getting close to $30K p.a of interest and dividend (CPFIS) from CPF and we
will continue to “believe “ the system by doing the VC to our CPF in next 4 years until we reach 55 years old.
Do you like to eat durian ?
<Image credit to : StraitsTimes.com> |
Do let me know.
Cheers ! :D
STE
PS:
Please take note that % CPF Contribution allocation (
to each accounts) differ by age group.
The average 2.96% only apply to my age group < 50-55
Years Old> , you may refer to below table from CPF board to calculate the
average interest rate base on your age.
We will begin to like CPF when we enter into our 50s; especially under current low interest rate environment.
ReplyDeleteYes !! Indeed... the bond maturity is also getting shorter! :D
DeleteJust curious, how do age 20-30 reach half a million dollars in CPF.
ReplyDeleteMay be start working since 13 and max out each years CPF limit plus insane returns on investments ?
Hi PPPP,
DeleteYah, this is the "talking points" among bloggers and investment community now !
The "magical #10" , I think could be contribution from "parents" since young ( or born) . Parents can do the SA or MA top up for their child ( to get higher interest rate ) or doing the voluntary contribution to 3 accounts (VC3ACs ), is doable if they put in $25K /per year with compounding interest of say 3.5% average, their kid's account would have close to $1 mil by age of 25.
But I think is a "tricky issue ", highly controversial and not advisable and that's why not many people will do that.
Please do let me know if anyone have better explanation on this.
Cheers ! :D
I know people who don't invest put everything in there. No diversification. Trying to recall if I got 5%+ SA and 3% OA long ago. 😇 a good tool but use moderately.
ReplyDeleteHi Henry,
DeleteYes, although let $ compounding in CPF is good in the long run but as you said , is better to have some diversification, not "all in" into CPF , same like building a portfolio.
Cheers ! :D