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DBS, T-bill and CPF. Dragon shatters shield!

Friday, February 16, 2024

Hope everybody is having a great start to the Year of the Dragon!

I am enjoying myself.

Maybe, I am enjoying myself a bit too much.

Too much Chinese New Year goodies.

Sore throat!


My investments are mostly doing well and I am contented.

DBS is making me smile a lot more than usual, of course.

The latest 6 months T-bill had a cut-off yield of 3.66% p.a.

My application using $675K of CPF OA money is probably filled since I placed a competitive bid of 3.5% p.a. like I said I would.

This means I would get paid some $2.5K more than what the CPF OA would have paid me.

Anyway, this is the latest from Budget 2024:

1. Members who are 55 years old and older will longer have a CPF SA from 2025.

2. Money in CPF SA will be transferred to the CPF OA once the newly created RA gets filled to the FRS.

So, CPF SA shielding strategy is down the drain.

Remember, back in 2021, I blogged about how it would probably be a matter of time before CPFB did something about the loophole.

It has finally happened.

No more "shielding" of CPF SA."

It was never intended for the CPF to work that way.

It was a loophole that benefitted the financially more able while the financially less able would never be able to exploit it.

The CPF system is meant to help the masses and not the rich.

I have said this often enough and this latest move is further confirmation.

Those who are financially more able would have to find other ways to put excess funds to work.

We should pull our own weight and not rely on the government too much.

I like the idea that help is targeted and people who need it more should have more help.

Well, that's all for now.

If AK can talk to himself, so can you!

A river called "CPF" and the horses.


AK71 said...

Budget 2024: No more Special Account for CPF members aged 55 and above...
Read news article.

keng said...

Wa AK immediately blogging about this after the news came out. So what happens to those still working beyond age 55? Contribution flows to MA and OA? Seems like a major nerf. Why never wait until after I hit 55 in 14 years time? :(

ted said...

Will love to hear your thoughts on your OA plans, once things settle down.
I suppose TBills will be less attractive going forwards, and with the ability to withdraw your OA in the horizon. What plans do you have for these soliders?

Will you be doing the new (4x) ERS for RA?

I'm nowhere near 55, but just interested to hear the change of plans. Now that the SA shield have been absolutely shattered.

Happy Lunar New Year!

KW said...

I think those who are 55 and older and still working will be disadvantaged as the contributions would only be added to MA and OA, less annual interests earned eventually

AK71 said...

Hi keng,

Having been playing MMORPGs full time, I am used to nerfs. ;p

What members 55 and older can do is to take some money from their OA and put in their RA since the ERS is getting a buff. :)

This way, we still get 4% p.a.

We would also have a larger CPF LIFE monthly payout later on.

AK71 said...

Hi ted,

I blogged about this recently.

You might have missed this blog post:
Updated plan as yield plunged.

I didn't want to opt for the ERS because the SA and RA both pay the same interest.

CPF Full or Enhanced Retirement Sum for AK?
Sunday, April 18, 2021

Now that the SA is going to be abolished at age 55, I will give ERS serious consideration.

Happy CNY!

AK71 said...

Hi ted,

Here is the link.
Updated plan as yield plunged.

AK71 said...

Hi KW,

Keng said the same thing earlier.

My reply to him:

"What members 55 and older can do is to take some money from their OA and put in their RA since the ERS is getting a buff."

KW said...

Hi AK,
There's a rule that amount used to top up to ERS cannot be withdraw. Would you think ERS top up is good idea?

Betta man said...

How about taking the money from OA and buy into STI ETF ?

lim said...

hi ak,

noted that your competitive bid for 6 months T bill was 3.5%, what will be your competitive bid for 1 yr T bill?



AK71 said...

Hi KW,

If our aim is to have more predictable monthly income, having more money in an annuity is a great idea.

Having ERS in our RA helps to ensure this.

If we want the option of a lump sum withdrawal, then, we are probably thinking of an emergency fund and annuities are not instruments to park such money.

It depends on what we want to achieve.

AK71 said...

Hi Betta man,

If we have a long term horizon, the STI ETF is probably a good place to park some money.

This means we do not foresee any need for the money in the near future.

The ETF is neither risk free nor volatility free unlike the CPF.

So, depending on our time horizon and what we are able to stomach, one would make more sense than the other.

AK71 said...

Hi lim,

As long as it is a competitive bid, for me, it would be 3.5% p.a.

This is because I only do competitive bidding when I use CPF OA money.

To breakeven, we need a cut-off yield of 2.92% to 3.33% p.a.

So, 3.5% p.a. is what I find to be an acceptable floor.

HH said...

Hi AK, saw your latest YouTube video on DBS and UOB. If I am not mistaken, you mentioned that DBS payout ratio is about 60%. May I know where u get this information? I tot the payout ratio is about 50%. Thanks a lot.

AK71 said...

Hi HH,

It was reported in the news.

Cannot remember if it was The Business Times or The Straits Times.

HH said...

Hi AK, thanks. Oops never read news. I always tot 50%. Then UOB dividend suddenly don look that bad. Now just waiting for OCBC results :p

kehyi said...

Somewhere in the CPF Budget 2024 FAQ, it says this:
With the closure of the Special Account for CPF members aged 55 and above, which account will my CPF contributions be allocated to?
With the closure of Special Account (SA), CPF contributions that go to the SA currently, as well as any increase in CPF contributions allocated to SA from 1 January 2025, will be fully allocated to the member’s Retirement Account (RA) instead, up to the Full Retirement Sum (FRS), to boost retirement payouts. For members who have set aside the FRS in the RA, these contributions will be channelled to the Ordinary Account (OA).

AK71 said...

Hi HH,

UOB is a pretty solid investment. :)

Well, that goes for DBS and OCBC too. ;)

AK71 said...

Hi kehyi,

Good to hear from you. :)

Thanks for sharing this. :D

Yes, for those of us who already have the FRS in the SA, we would have to actively push more funds into the RA from age 55 if we wish for the CPF to play a bigger part in funding our retirement.

4x BRS instead of 3x BRS will make the ERS more viable towards this end but it is probably not enough to make people with a lot of money in their CPF SA feel any better.

We have to remind ourselves that the CPF is meant to help the masses and if we have a lot more money than most people, we shouldn't rely too much on the CPF.

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