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3.16% p.a. SSB, T-bills, CPF, fixed deposits! My plan!

Wednesday, September 6, 2023

I have been doing yearly voluntary contributions (VC) to my CPF account even though I retired from work 8 years ago.

I simply took some of the passive income I got from my investments and maxed out the yearly VC.

However, I did not do VC this year and I won't be doing VC next year either although the original plan was to do this until I hit 55 years of age.

Why?

I treat the CPF as the risk free and volatility free investment grade bond component of my portfolio.

So, I don't use it to invest in equities or to buy properties, for that matter.

This is my ultimate safety net for if everything else goes horribly wrong.




However, I did use the CPF OA funds to buy T-bills as they belong to the same basket of investments.

Risk free and volatility free.

So, I bought T-bills which paid more than the 2.5% p.a. paid by CPF OA in the last one year or so.

In fact, I have a T-bill bought with CPF OA funds maturing this week.

Must remember to transfer the money from CPF IA back into the CPF OA.

The Singapore Savings Bond (SSB) is another risk free and volatility free investment available to me.

In an earlier blog, I said that if the SSB is able to offer a higher than 3% p.a. coupon, I would buy SSB instead of doing VC to my CPF account.

This is because the average yield for VC I do is about 3% per annum.

Take note that this is for my age bracket and also the fact that my MA has already hit the Basic Healthcare Sum which means my VC goes only to my OA and SA.

I have already bought SSBs using funds which would otherwise have been used to do VC to my CPF account this year and in the next year.

That means no VC to my CPF account in my 52nd and 53rd year on planet Earth.






Now, with the latest SSB offering a 3.16% p.a 10 year average yield, I am thinking of "borrowing" money to buy some.

Borrowing?

Has AK gone to the dark side?

Well, if I were to buy this SSB, I would be using funds which would otherwise have been used to do VC to my CPF account in 2025!

That is 2 years away!

That would be the year I turn 54 years old.

As I have locked up quite a bit of cash in 8 months fixed deposits back in January when OCBC was offering 4.08% p.a. interest, I will have the funds to do this.




Some might think that continuing to do VC to my CPF account is a better idea as I could use the CPF OA funds to buy T-bills in the meantime.

Well,  if interest rates are really going down sometime in 2024 or 2025, reinvestment risk is very real for short term fixed income instruments like T-bills and fixed deposits.

So, locking in a higher 10 year average yield now doesn't seem like a horrible idea.

Buying $38,000 of SSBs yearly might seem excessive to some but, for me, it really is just moving money meant for my CPF account.

It is something in my yearly budget.

What might be considered "excessive" is "borrowing" funds from next year which would have been earmarked for CPF VC in 2025 to buy the SSB now.

I might just do it.

Reference:
CPF or SSB?

17 comments:

JanJan said...

Good day AK,

"In fact, I have a T-bill bought with CPF OA funds maturing this week."
Are you going to reinvest the above fund into the upcoming T-bills on 07/09/23?

If yes will it be competitive or non-competitive and what is the interest rate for competitive?

Please talk to yourself.

AK71 said...

Hi JanJan,

I blogged about this back in March on how I determined the bid which I used in competitive bidding for T-bill using CPF-OA money.

See:
T-bills 3.98% p.a. yield and my strategy.

It has to be a bid higher than the alternatives available.

Currently, OCBC is offering 2.7% p.a. for a 6 months fixed deposit using CPF money.

I don't think anyone with even only half a brain would take that offer. ;p

A bid of at least 3.33% p.a. is sensible to compensate for a possible 8 months worth of interest income lost from CPF-OA.

I wouldn't do non-competitive bids with CPF-OA money just in case the unthinkable happens.

Smeedee said...

Hi AK, We can look at it as "borrowing" from next year's allocation to CPF, or we can look at it as spending part of your war chest for the next six months. If market opportunities show up in the next six months, the funds will be tied up until the T-bill matures in six months and you would not be able to take advantage of it. Unless of course, there are still funds in the war chest, of course! ;)

AK71 said...

Hi Smeedee,

It won't be 6 months because I am not looking at getting T-bills to replace CPF VC.

That would be a huge mismatch as CPF is supposed to be longer term in nature.

You might have misread the blog post.

It would be 10 years because I am replacing CPF VC with SSBs.

I always have funds in my war chest because a big portion of my war chest is in UOB ONE account which is the most liquid near money I have.

Then, I have fixed deposits and my T-bill ladder.

If I do buy some SSB this month, it wouldn't be $38,000.

It would likely be just 25% to 30% of that sum which was what I did in the past as well when SSBs were offering higher than 3% p.a.

So, it wouldn't be too demanding.

It is important to note that fixed income is more important to a person like me who is retired or someone who lacks an earned income as predictability should be more highly valued. :)

blazingruby60 said...

hello AK
You mentioned that a big chunk of your money goes into UOB one account and i was reading the criteria of having one.
1. spend $500 monthly on UOB card
2. need to credit $1600 of your salary into the account and
3. 3 giro transaction per month
if you are a retiree how do you 'fix' criteria no. 2?
i am really grateful for your wisdom and knowledge to us readers
thank you.

Smeedee said...

Hi AK,

Yes, you're right. I misread your blog. Purchasing SSBs makes total sense as it is a good match in tenor for CPF VC, especially since the war chest is still intact :)

Just wanted to drop a note to say thanks for sharing your thoughts in your blog, which I read with interest. I find myself in a similar situation of being gainfully unemployed and it is good to hear how like-minded people think about their portfolios. Your insights have helped to sharpen my own thinking.

Best, Smeedee

AK71 said...

Hi Ruby,

I just simply pay myself a salary each month using PayNow from another bank account.

AK employs AK. ;p

AK71 said...

Hi Smeedee,

Always good to hear from a fellow "jobless" member of society.

I hope no one has told you that you should be ashamed! ;p

See:
Financially free AK should be ashamed!

MT said...

Hi AK, can you speak to yourself on us Hampshire REIT ? Saw it has grocery and storage properties and has good div yield. Thank you

AK71 said...

Hi MT,

Someone asked the exact same question in my YouTube channel. ;p

I know nothing about United Hampshire REIT .

My plate is very full.

So, it is probably a good thing that I know nothing about it. ;p

Candy188 said...

"An ex-school mate of mine upon finding out that

I was largely Unemployed

said that I should be Ashamed of myself.

This was even after I told him that

I was not being a burden to society by being jobless

and that I was FINANCIALLY FREE."đŸĨŗđŸ’Ģ

- AK

Ex-classmate of AK: "You are still young and can still contribute to society.

You have wasted a good education which was actually partially paid for by the country."

Hi AK, somehow I can understand how you feel as was being probed when I can resume to the workforce during a family gathering since the kids are no longer young! 😓

Can't possibly share that I am a stock investor lah!

To them, it is as good as gambling (įŽŠč‚ĄįĨ¨)!

Has a male friend who becomes full-time investor when he was 42 with 2 young kids though!

Sometimes, gathering is a wastage of time, 可免则免!🧐

Candy188 said...

Thanks AK for providing a simple solution to circumvent the criteria to credit $1600 of salary into the account to seize bonus interest rate on UOB One account.👍

Huat ah! 🤑👊

"I just simply pay myself a salary each month using PayNow from another bank account.

AK employs AK. ;p"
- AK

Stated on UOB website:
salary credit transactions made via PayNow reflected as “PAYNOW SALA”

will be considered eligible for bonus interest on UOB One Account.

AK71 said...

Hi Candy,

Things don't always go our way in life.

It is what it is. (TmT)

UOB ONE huat ah! :D

Yv said...

Hi AK

I also think this month's SSB is rather decent, but have maxed out the 200k allocation. Am thinking of whether to redeem some of those which I bought at ~2.7% but I think it might be too late to redeem now for this month's bond, right?

AK71 said...

Hi Yv,

You so rich! I still have plenty of room. Free parking here (and I might drive your car away.) ;p

I would think that if the sum is not very large, it wouldn't make a big difference.

Anyway, if I remember correctly, if we make a redemption, we would only receive the money in the following month. So, you are probably right.

Www.iwannabakethistoday.wordpress.com said...

Hey Ak, I dont know who i can speak to. I have recently resigned and is trying to retire until I am bored? However, I am anxious about how to manage my money. I read alot and see alot of strategy but maybe i am paralysed by the wealth of info and opinions.

I really want to hear what will be your strategy if you were me. of cos, not financial advices, I just need help from someone who is living that life for the past decade and has went through that management of funds to live on.

I have approx 4 mio sgd with 0.8 mio as CPF in total. I do not have debt and i do not have a home. Assuming home is not an issue, how can I invest for income currently? Can you think out loud for me? I really need some help.

Currently, I am invested in FD paying 4% and tbill approx 3.7%. My monthly need is approx 10k SGD.

really really looking forward to you replying.

really love your blog!

AK71 said...

Hi iwannabake,

Sorry but you didn't leave a name or initials but I think this nick sounds delicious. ;)

Unfortunately, even if I were to "talk to myself", it is too close to giving financial advice to an individual.

I have been very careful in recent years because I don't want to get in trouble with the authorities.

I can only blog about my experience and what has worked for me, and I can only talk about stuff in general.

Of course, you will find all these in my blog. :)

For personalized advice, you really need to talk to a professional.

Maybe, get in touch with Chris at Providend, for example. :)


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