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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.
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