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UPDATED IN JULY 2018:
Find out more:
https://www.cpf.gov.sg/Members/Schemes/schemes/retirement/retirement-sum-scheme
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Conventional wisdom tells us that we should have some investment grade bonds in our portfolio because they help to smooth out volatility.
Investing in good quality equities is probably more rewarding in the longer term but we have to develop a stomach for the volatility that comes with the territory.
Whatever the case may be, when I turn 55, there is no way of knowing if equities would be in a rough patch or not.
So, having some money in investment grade bonds makes sense to me.
It gives me peace of mind.
The CPF is as good as a AAA rated sovereign bond and it is one that pays relatively attractive "coupons".
OK, to be fair, for a younger person, the "coupons" are less attractive than they are for an older person like me.
The closer we are to 55 years of age, the more attractive the "coupons" because the waiting time is shorter.
For anyone who has met the Full Retirement Sum (formerly known as the Minimum Sum) and who believe in having investment grade bonds, taking full advantage of the CPF Annual Limit is a good idea.
Why mention specifically people who have already met the Full Retirement Sum?
Well, at age 55, we will be able to withdraw all CPF money (from OA and SA) in excess of the Full Retirement Sum (formed by savings in our SA and OA) which would go into the newly created RA.
So, for people who have met the Full Retirement Sum, maxing out the CPF Annual Limit, we are setting the stage for a bigger "windfall" when we turn 55.
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| CPF Allocation Rates. |
The CPF Annual Limit is $37,740 for now.
If mandatory contributions (MC) fall short, we can do voluntary contributions (VC) to hit the limit.
So, what am I doing?
I am buying an 8 year tenor AAA rated sovereign bond (i.e. making voluntary contributions to my CPF accounts) with "coupons" of 2.5% (OA) and 4.0% (SA and MA).
Now, you know my age. Alamak.
Read also the blog before this one:
CPF savings grew almost $200K in 3 years.
Related post:
Buying a AAA sovereign bond.
Bloggy Award
9 comments:
PK Jan says...
What would happen to my employer's monthly compulsory contribution if i make a $37k voluntary contribution to my CPF now? i am just 1 year away to my CPF AAA bond 'maturity' 🤔 are annual interest from RA credited back to OA/SA or stuck in RA?
AK says...
If your MC already hits the annual CPF limit, don't do VC.
RA money, interest and all, stays in RA.
RA money is meant to fund CPF Life, an annuity, at age 65.
Passive Income is the new Career.
Crypto is the new Gold.
CPF is the new Bond.
ASSI is the new CPF Online.
Welcome to the New World.
Lol.
Ronnie Wan says...
Going forward 8 yrs, the annual interest earned from OA will be another annuity besides CPF LIFE.
Hi Laurence,
I certainly hope that Crypto doesn't end badly like what Warren Buffett and Charlie Munger have predicted. Although I am inclined to agree with them, I hope it doesn't happen.
More important than that, AK is lazy.
Please direct all questions regarding the CPF to CPFB. ;p
What about ERS instead of FRS? since 4% guaranteed for RA monies.
Hi Collin,
If you want a bigger monthly annuity payout and have ample CPF savings, opt for ERS when you turn 55.
This is especially useful for people who want more predictability, less volatility and less risk in retirement funding. :)
You might also be interested in this blog:
CPF Life estimator and questions.
Reader says...
How much is the FRS now? Is this FRS value is variable?
AK says...
Refer to table. It depends on your age cohort.
Jack James says...
I wonder if FRS will continue to increase at today speed , the younger generation will surely have difficulty to achieve ! My 1980s generation , FRS would be S$250,000 . I can’t imagine my kid FRS !!
Kenichi Xi says...
the job of the "law marker" is to meet inflation.
the ability to achieve is not their concern.
Jack James says...
Just checked , when I am at age of 55 , FRS will be S$261,000.
When my boy hits age of 55 , his FRS will be S$421,000.
😱😱😱
FRS now of S$176,000 is peanut!
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