Sunday, January 4, 2015

Retirement: AK is buying a 12 year tenor AAA rated bond.

Reader:Hi AK, can i do volunteer top up to OA and SA if i hit the 170k ?

AK:If you are talking about doing voluntary contributions to OA, SA and MA when your SA has already hit the prevailing FRS, you can if your yearly mandatory contributions do not hit the annual contribution cap. I know because this is something I do. 


It is the first Sunday of a brand new year and there are only 12 years left (including this year) before I turn 55 in 2026. 

I will soon be considered a senior citizen and I am rather looking forward to it. 

I have no fear of retiring because planning for retirement is something I have been doing for years.

I am going to do something else that will help to make my retirement 12 years later more comfortable. 

I am going to buy a 12 year term AAA rated bond with an attractive coupon tomorrow. 

Which bond am I going to talk about? 

I think some of you can tell what I am going to say next but it is going to be delivered with a twist.

Before I reveal what I am going to "buy", I think I won't be wrong to say that one of the biggest complaints people have about the CPF is that their money is stuck and they cannot touch it when they turn 55.

Of course, they should know that this is only the case when they cannot hit the minimum sum by then and I have blogged (many times) about how we could let the government and time help us hit the minimum sum required by age 55. 

So, I am not going to talk about that again in this blog post.

In this blog post, I am going to talk about people who have hit the minimum sum required or who are planning to hit the minimum sum pretty soon and are in their 40s like I am. 

For us, planning for retirement doesn't stop once we have hit the minimum sum. 

The retirement tool that is the CPF should not be stored away once we have hit the minimum sum. 

The tool is still useful and for people in their 40s (and early 50s), it is even more attractive than ever.

Do you feel the twist coming? Here it comes:

As we have hit the minimum sum and because we are closer to 55, we can consider voluntary contributions to our CPF to be purchases of government bonds with maturity dates. 

They will "mature" when we are 55. 

As with regular bonds, upon maturity, we are returned our money and, in this case, with interest accumulated over the years.

So, if you are my age, these "bonds" will "mature" 12 years from now. 

If you are 49, they will "mature" 6 years from now. 53? 2 years from now. 

The closer you are to 55, the shorter the time to maturity and the better the deal because we are all getting the same "coupons".

The idea is to max out the contribution limit of $31,450 in 2015 and the contribution limits in all the following years until we reach 54. 

So, if our mandatory contributions for 2015 is estimated to be $20,000, for example, we can make a voluntary contribution of $11,450 this year.

This voluntary contribution is like buying a AAA rated sovereign bond with a tenor of 1 to 12 years (depending on whether we are 54 or 43 years of age at the time of "purchase") that pays a coupon of 2.5% to 4% as some of the money goes into the OA while the rest goes into the SA and maybe the MA.

Print form: here.

Some have described the CPF as a cake that we can see but cannot eat. Well, it is possible to have our cake and eat it too. 

In fact, the twist in this blog post shows how the CPF can be like a high quality durian. 

It too can be "bao jiak" (Hokkien for "definitely good to eat").

CPF Contribution and Allocation Rates.

"From 2016, the CPF Annual Limit will be increased correspondingly from $31,450 to $37,740 (equivalent to 17 months x CPF salary ceiling of $6,000 x 37%)."
Updated blog post on changes to CPF: here.

Related posts:
1. A lot of money in my CPF-SA is ...
2. Buy a bond fund that pays 7% a year?
3. Nobody cares more about our money than we do.


  1. Hi AK,

    That's indeed a very refreshing way to look at it. The yield is even better than if we buy the SGS bonds directly. And the coupons are even reinvested automatically.

  2. Hi owq,

    Glad you like my perspective on this. :)

    This is a great product to have in our investment portfolio, isn't it? We always need some bonds, some financial advisers would tell us. ;)

    I have written out the cheque, filled up the form, put everything in an envelope and I am mailing it out tomorrow. :)

  3. Hi AK,

    I would like some advise from you. If I am under 30 and I just got a flat which will be completed only 4yrs later. In this case, how should I go about achieving this?
    How do I transfer the money from OA to SA? I'm confused here.
    Also, do I pay off the housing loans before I start voluntary contribution to the SA?
    Or would it be better if I transfer what I can from the OA into the SA, leaving the minimum for paying off the housing loan? Does it work this way? Which is actually better?

  4. Can a 30 year old do this as well? Is it worth it? :) thanks AK,for sharing with us.

  5. Great idea, thanks for sharing.

    The only problem is for people still keeps the full time job, you cant do too much voluntary contribution. The compulsory part could be quite close to the limit already. 5000*0.37*13=24k. plus the variable bonus, it is almost reaching 31k..

  6. Hi AK,

    I saw that you had defined 55 years old as Senior Citizen. On the other hand, the EZ-Link team defines it as age 60 and above. So, do remember to apply for the heavily subsidized EZ-Link card around two weeks before you turn 60. :D

  7. The MS increase so fast, real concern that how much we can draw out at the end.

  8. Hi AK,
    Thanks again for the reminder & post as I am your targeted audience. You are simply brilliant(looking for cpf loop holes).

    Some questions I need to ask:
    What's the max VC for each of the OA,SA & MA?
    What if the govt changes/tilts the withdrawal rules at 55 later? How much are you prepared to be locked inside RA?

  9. Hi Xiao_di,

    You might want to see my reply to BP:
    Reply to BP.

    If you give more time to the funds in your SA to grow, it would reward you well in a risk free and stress free manner. Compound interest is most magical when given time. :)

    However, if there are competing uses for the funds in the OA, then, you have to weigh the pros and cons carefully. See if my reply to BP makes sense to you. ;)

  10. Hi
    What happen if we max both SA and MA? All our vc will go to OA. 2.5% only leh.. Worth it?

  11. Hi Happy_heart,

    An important assumption of this blog post is that the CPF member has met the MS requirement.

    Now, if a 30 year old CPF member has met the MS requirement, he or she could of course benefit from the strategy I blogged about here.

    However, it would be a 25 year tenor and not 10 to 12 years. Although 25 years is 2.5x longer than 10 years, the "coupons" would still be 2.5% to 4.0%. So, on this basis, it is less attractive for a 30 year old to pursue this strategy. ;)

  12. Hi MaoMao,

    Thanks for the reminder. I will be sure to apply for this special EZ-Link card when the time comes. ;)

  13. Hi Ah John,

    At the National Day Rally last year, PM Lee said that the MS increase to $161,000 will be the last significant increase required.

    If we look at the table I provided in the blog post before this one, we see that the aim is to see all CPF members have $120,000 in 2003 dollars when they retire. This is the year this number is reached.

    The MS is $161,000 (and not $120,000) because inflation has been taken into consideration. I suspect that the MS will just be adjusted for inflation annually from now on. The long term annual inflation average is about 3%.

    I believe that the interest paid on the funds in the SA for members who have met the MS will be more than enough to meet such increases. :)

  14. Hi iwimsasl,

    The annual contribution cap this year is $31,450.

    If your MA is maxed out, any contribution, mandatory or voluntary, will be split between the OA and SA. There is no ceiling for contribution to the OA and SA.

    The max amount of money to be locked up in the RA at age 55 is the MS stipulated for our cohort. So, the question on how much I am prepared to have locked up in the RA is a non-issue. ;)

    I don't see any reason why the withdrawal age of 55 should be changed. If this should be changed, there must be a very good reason. I will examine the explanation if it happens before passing judgement.

  15. Hi Jimmy,

    The MA can be maxed out but not the SA.

    You might want to see my reply to another reader on this issue:HERE.

  16. Hi AK,

    I read from the paper sometimes back that they are studying the possibility of pushing back the withdrawal age of 55 for younger generation of cpf members. Quite likely that we will not be affected if they should implement it but not for those at age 20s to 30s. So your AAA rated bond may not be suitable for those looking at longer term.

  17. Hi iwimsasl,

    I don't know what will happen in future but this blog post is about a strategy that is for people my age or older (till age 54).

    So, yes, it is not as attractive an option for younger people but I suspect that for them, it might not be even feasible unless they have already hit the MS which is the first assumption made in this blog post.

    For younger CPF members, they could archive this idea for future consideration when their time comes, making adjustments to the strategy as required. ;)

  18. Interesting perspective AK. Thanks for sharing this, definitely worth considering but can you post this in December and not in Jan? You will be in a better position to top up the "difference" between the mandatory and the voluntary limit leh. :)

  19. Hi AK,

    First of all, Happy New Year to you and all readers!

    Just like to share my take on this contentious issue.

    Part 1:
    If I had the ability to go back in time and choose again, I would definitely pump up my CPF SA every month (as in, transfer all OA contributions to SA until it hits ceiling)

    I finally started doing that when I hit 30s, as my job stability improved and had some savings, I was willing and able to dig into savings to service the HDB loan in the event that I'm in between jobs. (and I read AK's article :P)

    The result is nothing short of astounding. Now I am quite sure by the time I hit 55, I should have no problem meeting the minimum sum (S$161k as of 2015), as the bonus interest helps heaps.

    Part 2:
    That being said, I did not have the crystal ball at that point in time. My considerations at that time (in my 20s) was the need for CPF to supplement HDB purchase. When your salary is limited, every cent counts.

    For those who are starting families, I think it would be prudent to leave the money in the OA instead of transferring to SA.

    As for voluntary cash contributions, I have done that but only for my parents who have drained their CPF for the roof over our heads. Again, think again if you are starting a family as cash will be very tight especially at the start.

    Part 3:
    All in all, I think the scheme works something like this:

    People who are still young tend to be quite sceptical about the viability of the scheme.

    Those who are retired and have started collecting from the scheme will be hopeful that the scheme continues to function well, as they are now able to see the fruits from the trees planted years ago.

    Part 4:
    I would think that apart from our personal decisions, it might be a good time for us to re-visit the wisdom of tying CPF to housing. Most retirement schemes over the world do not allow usage of retirement funds for housing. Singapore should be no different. Emptying CPF for housing resulted in the problems we are facing now... many seniors are unable to continue to stay in their flats as they need to downgrade to monetise their flat for retirement. The lease buyback scheme and senior studio apartment schemes are supposed to address that but they have their own problems (like, what happens after 30 years and the senior is still alive)

    Could we untie CPF from housing so that it can truely become a retirement fund?

    If we take greater ownership of our own retirement, I think there will be less angst on the CPF scheme, which is probably implemented because people are not taking steps to take care of themselves.


  20. Hi AK

    I have some questions. what will happen to the balances in cpf if by age 55, there is still a outstanding mortgage loan say 200k for condo and one fails to meet the minimum sum by then? Say there is only 60,000 from OA and SA as an example. Does it mean this 60k will be transferred to RA and hence not allowed any withdrawal at age 60 as it fails to meet the minimum sum? what happens between age 55-60?Thanks.

  21. For very young CPF members I am seriously considering to bequeath whatever I have to my children's SA account. They would have a good headstart. Monies stay locked up to prevent frivilous spending gained from a windfall. However, they may turn over my grave upon my death and thank me when they reach 55 seeing the power of compound interest at work ;-p

  22. Hi Mr. IPO,

    I usually send the CPF Board a cheque in the first quarter of the year after estimating what my mandatory contributions for the year is going to be. If my estimates are a bit off and if the contributions later in the year should exceed the contribution cap, the CPF Board will refund the excess to me. No issues.

    Contributing at the beginning of the year makes sense to me because I get a bit more in interest payment. ;p

  23. Hi Tree,

    I like what you said about taking greater ownership of our own retirement. :)

    Actually, one of the issues discussed at the IPS Forum was whether to let CPF members have unbridled use of their CPF-OA money for housing purposes. Many do over consume when it comes to housing in Singapore, leaving nothing left in their OA.

    Well, that is what the CPF-SA is for. Money in the SA is locked up for retirement funding. CPF members have to appreciate this.

    Thanks for the point by point sharing. I enjoyed it very much. :)

  24. Hi LC,

    As this is not something I am totally conversant with, I am going to direct you to a video by the CPF:
    CPF: Reaching 55.

    Let me know if it helps. :)

  25. Hi Siew Mun,

    All things are clearer on hindsight. I am sure your children will thank you in their golden years. You are a good parent. :)

  26. Hi AK,

    U mentioned "As we have hit the minimum sum and because we are closer to 55, we can consider voluntary contributions to our CPF to be purchases of government bonds with maturity dates."

    Don't think u can do anymore voluntary contribution after hitting MS.

    According to the CPF form,
    The top-up limit is the maximum top-up ... is computed
    based on the recipient’s CPF savings.

    Recipient below age 55
    Current Minimum Sum (MS) less the sum of SA savings and SA withdrawn under
    CPF Investment Scheme

    Recipient age 55 and above Current MS less RA savings

  27. Hi Jimmy,

    This blog post is not about contributing to meet the minimum sum (MS). It is not about top ups to the MS.

    I think you are referring to MS Top Ups. :)

    Having said this, even if someone is 55 or older, he can still do voluntary contributions (VCs) to his CPF up to the contribution cap in any one year. My parents are in their 60s and still working. They are still contributing to their CPF accounts.

    This blog post is, however, trying to show how we could think of the money in the CPF-OA and CPF-SA in excess of the MS as bonds in our portfolio, bonds that will mature when we are 55 because that is when we are allowed to withdraw funds in excess of the MS if we wish to do so.

  28. I think the AAA rating is kind of subjective..

  29. Hi ak
    I would like to buy some bond. But i do not how to buy.
    Can share more?

  30. Hi Yeh,

    Er... I am not really buying a bond here. ;p

    But if you are interested in buying bonds, there is good news:

    Making it easier for retail investors to buy bonds.

    Wait for it. :)

  31. Hi Phileas,

    I know what you mean. :)

    It is a grade given by a rating agency but are there more credible alternatives?

  32. Do take note that the SA 4% is not guarantee. It is subjected to annual review.

    Savings in the Special Account and Medisave Accounts (SMA) are invested in Special Singapore Government Securities (SSGS) which currently earn either 4% per annum or the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, whichever is the higher, adjusted quarterly.

    It range from 2.5 ~ 6.5%. See

    Is our CPF money safe?

    So, unless G bankrupt, our money is guarantee.

    The question is will G bankrupt? We can't rule out this possibility but the chance is very remote (IMO).

  33. Hi AK

    Thanks for your interesting perspective. The contribution limit of $31450 is actually quite close to the mandatory contribution of working members earning >$5000 and getting an average bonus. E.g. for someone aged 50, the mandatory contribution is already $5000*0.35*17 = $29750.

    But I do agree that this is helpful for people who who earn less to build up their savings.

  34. Hi Ray,

    Thanks for weighing in on this. :)

    In a recent video by the CPF, the presenter said that the 4% interest in the CPF-SA is guaranteed. I wonder if things have changed.

    The video is found here:
    Videos on reaching 55 and CPF Life.

  35. Hi Christopher,

    Thanks for sharing this. For people who are highly paid, the idea I blogged about here might not be very useful but that is a good problem to have. ;p

    My pay is not very high anymore and I don't really get any bonus these days. So, this is a strategy for me to employ. -.-"

  36. Hi AK71,

    The CPF interest rate is not guarantee. I think the video is misleading.


    "Interest Rate for Special and Medisave Account

    The interest rate on Special and Medisave Account (SMA) monies is adjusted quarterly. SMA monies earn either the current floor interest rate of 4% per annum or the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, whichever is higher.

    The SMA interest rate will be maintained at 4% per annum from 1 January 2015 to 31 March 2015, as the computed rate of 3.4% is lower than the current floor interest rate."

  37. Hi Ray,

    Yup, I know that the rates are reviewed quarterly. :)

    My experience is that there has not been any change in almost 2 decades. So, I was just wondering at the video and what I know to be the case with the CPF interest rates.

    I believe that the real floor that is immutable for interest rates in the OA, SA and MA is 2.5%. That cannot change as it is protected by law.

  38. Hi AK,

    Aiyo... not correct leh. CPF rate does change.

    1977-86 : 5.38 ~ 6.50%
    1987-91 : 2.96 ~ 4.54%
    1992-94 : 2.50 ~ 3.31%
    1995-99 : 4.73 ~ 5.91%
    1999-14 : 4% consecutive

    Hope that it maintain min 4% for many years to come.

  39. Hi Ray,

    Oops. I started life as a working adult in 1996. Almost 2 decades liao. I don't remember the higher rates from 1995 to 1999. Cham. Brain no good liao. -.-"

    Thanks for this. :D

  40. Hi AK, can I clarify if the voluntary contribution subject to the $31,450 maximum contribution, and the CPF top up scheme of up to $7,000 for myself and my loved ones are different? Can I still do a CPF top up if I have reached the maximum contribution amount for the year? Thanks!

  41. Hi Gary,

    Yes, they are different. :)

    So, even if you have hit the contribution cap of $31,450 in 2015, you are still allowed to do MS Top Up of up to $7,000 to the CPF-SA which is tax deductible as long as you have yet to hit the MS which is $161,000 this year.

  42. Hi AK,

    Thanks for sharing this.
    I am currently 41 and have reached the minimum sum. For the past 3 years, i have been using cash $7000 to top up my MS to reduce tax.
    It's good to know that i can still do VC if my mandatory contribution is <31K. I think i can still do VC of 3-4K depending on how much bonus i get ;-)

  43. Hi EW,

    You have a strong cornerstone to help fund your retirement. Congratulations! :)

    Maxing the annual contribution cap will be the icing on the cake for you. $3K a year for 13 years will give you a tidy sum in addition to what you would already be allowed to withdraw at age 55. ;)

  44. Hi AK

    Have been following your blog for a few weeks now and I like what I see and the values/lifestyle you lead.

    I'm 41 this year and far from reaching the MS unlike a few people here. Looks like I need to re-strategize my CPF plans.

    Some questions for your enlightened inputs:

    1) I just paid off my 5 room HDB and have about 30k left in my OA. You reckon I should dump all into SA?

    2) When we do a top-up of 7k for own self and family, is the tax deductibles only applicable to the family top up or both myself and family?

    3) The max contribution is 31,450 for 2015. Should the top up be down in December 2015 after knowing how much of 31,450 has been contributed?

    Appreciate you response!


  45. Hi AK!

    For some reason, my previous comments disappeared (or i'm just bad with blog commenting!)

    I'm 41 this year and far from the 161k MS this year (only slightly more than half of that). Have just fully paid off my 5 room HDB though.

    Some questions for your enlightened response:

    1) I have about 30k left in my OA. Is it wise to transfer all into SA or leave 20k in there (to enjoy the extra 1%?) Could be used for a 2nd property if I so choose to buy (looking at the current situation, I can't afford anyway)

    2) If I do a 7k top up for myself and another 7k for a family member (is that the max?), is the tax deductibles just for the family member or for me as well?

    3) The maximum cpf contribution is 31,450 for 2015. I understand it does not factor in the 7k top ups. Does it then make sense to wait till Dec 2015 to do the top up since we dont know for sure how much has been contributed to CPF till Dec 2015?

    4) I reckon (not sure) that CPF uses the lowest amount for all 3 accounts (OA,SA and MA) to calculate the interest for the year? Is that correct?


  46. Hi Vicster,

    I shall respond to your questions in the next blog post because I think some other readers might be interested in the answers as well. :)

  47. Hi,
    The interest is computed monthly, based on minimum balance for the month. Example,
    your OA is 10,000 on 1st Jan 2015, 1.000 is deduucted on 5th Jan 15 as housing loan, 1,000 is contributed on 18th Jan 15.
    Interest for Jan 2015 is based on 9,000 as the minimum balance, and it is 9,000 x 0.025 / 12 = 18.75 as interest for jan 2015.
    Since CPF members contribute roughly 2billions every month by 18th of each month, CPF do save a sizeable amount of interest payment to member.

  48. Hi AK,

    This is an interesting topic that got me thinking and calculating!

    As shared by many before me, if you earn more than $5k monthly and if your bonus is more than $25k, you will be very close to the contribution limit of $31,450. In fact, you only can do a voluntary contribution of $850, which I plan to do.

    The reason this topic interested me was because I have hit the minimum sum and I can't make any cash contribution to reduce reduce my tax liability. I only can make a cash contribution to my wife's Special Account as she is not working and have not hit the minimum sum yet.

    The next idea I'm toying with is to make a voluntary contribution to my wife's OA as well to invest in a AAA-rated 13 year bond.

  49. Hi Papa Bear,

    As I have entered semi-retirement and have less in mandatory contributions, I am allowed to make bigger VCs.

    The idea I have shared in this blog post will become even more useful when I am fully retired from active employment before I hit 55 years of age.

    Having more money in AAA rated bonds as I grow older is an appealing idea to me. AAA rated bonds with a 2.5% to 4% coupon? I like them even more. ;)

    Mama Bear is lucky to have a Papa Bear like you. ;)

  50. The Republic's Budget for Financial Year 2015 "shows the strength of the government’s institutional and governance effectiveness", and would keep Singapore's credit strong despite its ageing population, Standard & Poor’s Rating Services (S&P) said in a media release on Tuesday (Feb 24).

    A day after the Budget was announced by Deputy Prime Minister Tharman Shanmugaratnam, the ratings agency issued a top AAA unsolicited rating on Singapore. The unsolicited rating should not be interpreted as a change to the country's Credit Rating or Rating, said S&P.


  51. how would i know how much can I contribute as bonus is variable?
    I guess too late to contribute back to 2016 after dec bonus is known?

    given the revision to #37,740 probably can still put some $ in

  52. Hi Resistor,

    Oh, with some difficulty. I could never get it right totally when I was still holding a job.

    CPF is really a national PONZI scheme.

    It's OK. I got my money back. ;p

  53. Hi AK,

    I am deciding when to do the Voluntary Contribution to my CPF. Any advantages to do it at the beginning or wait until the end of the year? (I do not hold a permanent job). I am thinking the earlier I contribute in the year, the more interest I will get.


  54. Hi K,

    You have the answer in your comment.

    "...the earlier I contribute in the year, the more interest I will get."


  55. Alamak. Short paid myself $6,290 this year. :(

    Over a period of 4 days, I did online voluntary contributions to my CPF account to hit the annual contribution limit. Done! :)

    Lost a few months of interest. :_(

  56. Reader says...
    If our SA already hit the MS (and we have employment), are we still allowed to do VC to our SA up till the annual limit?

    AK says...
    You want to read this blog where I talked about people who have hit the minimum sum required or who are planning to hit the minimum sum pretty soon.

  57. Hi AK

    My age 50
    Plan to top up CPF OA by mean of returning back money use to purchase HDB.(I think I max out on annual CPF contribution).
    By doing this, I felt is a good way of gaining 2.5% of fixed deposit for the next 5 years. Btw, I already met my CPF MS for RA.
    Do u agree?

  58. Hi Kenneth,

    Sounds like you have a plan and I like the sound of it. ;)

  59. Hi all,

    Tomorrow is the first day of 2018. I will be making contribution of $2,500 into my Medisave account tomorrow. It will mean a free Hongbao money of $100 for 2018. You may want to consider adopting the likewise approach.


  60. Hi AK

    Happy New Year to you and Family.
    This will be the plan as for now and will have other plans in mind when at 54.


  61. Hi Ben,

    I like this way of thinking.

    In the last round, the ang bao was $88. ;)

  62. Hi Kenneth,

    Happy New Year!


  63. Hi AK,
    Thanks for all the very useful sharing.
    I went to CPF to ask the below scenario:
    If CPF-SA reaches FRS such that contribution of 7K to SA no longer allowed, and no tax deduction possible, can one's CPF-SA balance be transferred to spouse, parents, siblings etc to create room for further contribution?
    The answer from CPF is that can't be done.
    But somehow I would trust your judgement on this better.
    Do you think that's doable? Thanks again!

  64. Hi ZPJ,

    Er... I would say that CPFB's word on this is final.

    Don't get me in trouble. ;p

    I think you can do a 50% transfer to your spouse only when you turn 55 and only if you have met FRS.

    You can check with CPFB on this again.

    I don't trust my memory. ;)