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. 
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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").

Reference:
CPF Contribution and Allocation Rates.

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"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.