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Solace is a regular guest blogger here at ASSI and he has shared generously, without any agenda, his thoughts on personal finance and investment matters. He is sharing with us a conversation he had with a friend recently:
I had a conversation with a friend recently about FD, Singapore Saving Bonds (SSB), OCBC 360 and CPF.
Friend: u know hor, now got SSB, very good, very stupid to put money in FD.
Me: if u aim 10yrs, then it is better than FD, but if gt saving targets of 1-4 yrs, yearly renewal in FD for 1.X% is higher.
Friend: Then like that, isn't OCBC 360 better than FD. But I think I looking for long term risk free like 10 yrs.
Me: ocbc 360 can be better than FD only if u meet all their criteria plus they could change their terms and conditions anytime. since u want to look at risk free rate for long term time frame, why not consider your CPF SA risk free rate 4%?
Friend: erm, I don't trust or like CPF system, I might not even get my money back. I think Singapore bonds more "Reliable" than CPF
Me (internal thoughts): wah Lao aey, Singapore bonds more reliable than CPF? CPF is used mainly to buy govt bonds. Their nature is the same......
I gave up without speaking further. Cos need to spend too much time to explain further. Plus my friend might not listen to it as I sense that he is fixed in his views......
We need to do a very common sense when treating topping up SA
U know ppl in their 30s and 40s easily earn mid 4 figure pay. I am sure they hit the 7% tax bracket one of the year. U know what I talking abt right.
A 7% tax saving and a 4% interest, combine together, isn't it like 11% return in a year!
Sth we can't even get in equities market!
Or I shld say, majority cannot achieve 11% return in a yr....
Count it as my short version of guest blog haha
Count it as my short version of guest blog haha
This is my version of "common sense investing" LOL
"Starting 2016, members 55 and above will enjoy an additional 1% extra interest on the first $30,000 of their combined balances. This is on top of the current 1% extra interest earned on the first $60,000 of their combined balances." CPF Board.
It seems that many more CPF members are warming up to the idea of topping up their CPF-SA and RA. This, I believe, is a good thing.
We should make full use of the CPF and make it a cornerstone in our plan for retirement adequacy. It is, quite simply, the sensible thing to do.
In investments, we go for low hanging fruits first. Why should it be different when it comes to planning for retirement adequacy?
Some blog posts in which CPF-SA was discussed:
1. Do you want to be richer? (2010)
2. Build a bigger retirement fund with CPF-SA. (2012)
3. Don't see money, won't spend money. (2013)
4. Upsize $100K to $225K in 20 years. (2014)
5. AK reveals his CPF-SA numbers. (2015)
Related posts:
1. Singapore Savings Bonds: Good or not?
2. Why fixed deposits over structured deposits?
3. UOB ONE Account or OCBC 360 Account?
Get ready for investment with Solace: here.
Bloggy Award
15 comments:
FD in Malaysia has better rate ever.
Hi Thiam Hooi,
And the Ringgit is worth lesser than ever.
I wonder if it would become another Rupiah. -.-"
I think we need to diversify and have many baskets to put our eggs. Some risk free and some riskier according to own appetite. And various tenors.
I have a friend who has cash 30 or 50k lying around. Guess what? He is an easy target for his friends to "reach out to in times of need". Can u imagine giving interest free loan of such amount with no tenor?
I rather keep my money in cpf.
Hi AK,
Can you please explain this part?
"I am sure they hit the 7% tax bracket one of the year. U know what I talking abt right.
A 7% tax saving and a 4% interest, combine together, isn't it like 11% return in a year!"
I dunno what he's talking about. What 7% tax bracket??
I am assuming that the 4% is from SA. Right?
G
Nice post but AK, it's been a while since you last analyzed a stock, I miss your stock analyses! What do you think of Sembcorp Ind at the current price? Has its latest results affected your view of it?
Hi pf,
There are always some people who are more generous than others when it comes to money. :)
Neither a lender nor a borrower be. I think it is good to remember this. ;)
Hi ED,
Solace was referring to the income tax bracket, I believe.
So, for someone who has to pay a 7% income tax, by doing a MS Top Up of $7K to our CPF-SA, he will be saving on that 7% tax (on the $7K contribution) and, of course, he will get 4% interest yearly too. So, within the first year after doing the top up, he would be receiving an 11% return (7% tax savings + 4% interest). Remember, a dollar saved is a dollar earned. ;)
Hi talesteller,
I have been sticking to personal finance topics lately, I know. Safer stuff to blog about, if you know what I mean. ;p
SembCorp Industries? I still like it. I think you might have missed my reply to another reader's comment or you could look at some of my older blog posts on the counter. The comment is probably there. Long term picture is still good. I cannot imagine a world that can do without electricity, water or crude oil. Well, not in my lifetime. ;)
Wah QAF suddenly jumped more than 10c...what happened!!
Hi imdna,
I have absolutely no idea but that is bad news for people who have been waiting for the share price to drift lower before buying. -.-"
Hi AK, mathematically, if someone should hit a higher tax bracket beyond 7%, say 11.5%, then the tax savings would be 11.5% on the $7k contribution? I think I need to go back to primary school again for Mathematics haha.
And how does doing this voluntary contribution compares to contributing to SRS? I only know SRS can use to buy stocks.
Cheers!
Hi Kyran,
You might be interested in this:
Should I top up my CPF-SA, CPF-MA or SRS? ;)
Contributing to the CPF-SA, it is like getting a long term investment grade bond. Contributing to the SRS is contributing to a tax deferred account with very low returns. We need to put the money in our SRS account to work. Some do it better than others. ;)
Interesting perspectives! Thanks AK:)
Hi Ak, currently the ceiling for medisave account is $48,500. Once I hit $48,500, any further contribution will auto go to my special account. For special account, if I top up to the full retirement sum, will any further contribution auto go to my ordinary account? Or will it continue to go to my special account now that there is enhance retirement sum?
Hi SODIS,
If our CPF-SA has hit the MS, then, no MS Top-Up nor OA to SA transfer is allowed.
However, a percentage of mandatory contributions from active employment will still go to the CPF-SA even if the MS has been hit. This has been my experience. :)
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