60% higher interest income from age 55?

Reader:
Would you leave your money in CPF-OA (beyond 55)? 

I can understand CPF-SA @ 4%. 

Wouldnt it be better to move into CPF Life for better returns? 

Noted that leaving it in CPF-OA will provide more flexibility. Thanks.

AK:
We have the option of moving more funds into the CPF-RA up to the prevailing ERS (1.5x the prevailing FRS) at age 55. Is it better? 

If what you want is a higher payout from CPF Life, yes.

However, do note that you will be required to move funds from your CPF-SA first and not from your CPF-OA. 

Only when the CPF-SA has insufficient funds, then, the CPF-OA is tapped.





So, let us say we have quite a bit of money remaining in our CPF-SA after our CPF-RA is created and FRS requirement met at age 55, it is not all that more beneficial for us to move more funds into the CPF-RA because we are not getting a higher interest. 

It is the same 4%, assuming things were to remain unchanged.

However, for someone whose CPF-SA is depleted after the creation of his CPF-RA, if he wants to have the ERS in his RA, he would be moving funds from his CPF-OA and the funds would then be receiving 4% instead of 2.5% interest. 

That is 60% more in interest income!





Like you said, flexibility is sacrificed but, in my opinion, the loss is well compensated.

Sweet but not available for everyone.

I have the happy problem of having much more in my CPF-SA than the prevailing FRS. 




So, will I move more money into my CPF-RA at age 55 to meet ERS? 

I will decide when I turn 55.





To anyone who just dropped in, another blog on the CPF was published earlier today. 

See:
CPF Life Escalating Plan.

CPF Life Escalating Plan.

Reader:
(On CPF Life)
Is 70 the max age to leave the money there?
Can continue to leave it there, and then bequeath everything?

AK:
We can choose our CPF Life payout start age to be any age between 65 to 70 years old.
If we did not make a choice, the payout will start automatically under the CPF Life Standard plan at age 70.





We must remember that CPF Life is an annuity and not a legacy planning tool. It is meant to help fund our retirement.

If we would like to use the CPF as a legacy planning tool, we could choose to leave some or all of the remaining money in our CPF-OA and CPF-SA untouched from age 55 instead.

On the subject of CPF Life, there is another plan which will be available from 2018. 





In addition to the Standard and Basic Plans, we will have the option of the Escalating Plan.

*Available from January 2018.

I feel that the Escalating Plan will appeal to people who would like to have a later payout start age, later than age 70, because they want a bigger monthly payout to address the issue of inflation.

How is this achieved?

The payouts under the Escalating Plan will be smaller than even the Basic Plan's payouts in the initial years but will grow at 2% a year.





Since the latest payout start age for CPF Life is age 70 which already allows for another 5 years of accumulation from age 65, the Escalating Plan helps to address the desire for larger payouts when members are older by allowing some of the funds to continue accumulating instead of being paid out from the payout start age.

I feel that the Escalating Plan is a prudent one and if we believe that an annuity is a good retirement funding tool in case one should be blessed with longevity, then, the Escalating Plan is the obvious choice for anyone with this belief.
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UPDATE (23 Oct 17):
Which CPF Life Plan for me?
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Related post:
CPF Life estimator.

Options with CPF Life and SRS in retirement.

Reader:
Just wondering if you have given any thoughts on when you will start your CPF LIFE payout? Do you mind blogging about it?

I have been building up my SRS savings. By the time I hit the Official Retirement age of 62 (for now), if I start withdrawing my SRS at 62 to 72, the annual sum will be equivalent to CPF LIFE.




Now the question is, should I start my CPF LIFE payout at 65 or delay till 70 to gain more interest and thus a slightly higher monthly payout?

According to the picture you posted on 17th July 2017, at FRS: age 65 = $1,380 mthly. At age 70 = $1,840.

What will you do? A bird in hand is better than a slightly bigger bird in the bush?



AK:
With CPF Life, it depends on whether I need the money. At 65, if I need the money, then, I will start drawing from the annuity. 

If I don't need the money, I will leave it to grow, earning a risk free and, hopefully, meaningful interest rate by then.

With SRS money, once I start the withdrawal process, I would have to empty the account within 10 years unless I use the money to buy an annuity. I have some investments in my SRS account and I would probably have to liquidate these. 

So, I would probably consider withdrawing money from my SRS account in a bull market sometime after I turn 62.

So, depending on the situation when the time comes, I could tap either the SRS or CPF Life first or not at all.
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Liu Jiayi says:
From Jul 2015, SRS members will be able to apply to their SRS operators to withdraw an SRS investment by transferring the investment out of their SRS accounts (e.g. into their personal Central Depository (CDP) account), without having to liquidate their SRS investments.

(Please see comments section below for the full comment.)

Related posts:
1. CPF Life Payout Estimator.
2. CPF Mobile Service Centre.
3. Lifelong income with SRS.

QAF's 2Q17 profit after tax fell 72%.

Part of QAF's large decline in earnings should not come as a surprise since, one year ago, in 2Q 2016, QAF recorded an exceptional gain of $9.7 million from reducing its stake in Gardenia Malaysia (GBKL) to 50%. 

If we were to exclude that exceptional gain, however, profit after tax still reduced by 58%, year on year. Not as bad as 72% but still rather attention grabbing.

Singapore and Malaysia

QAF's share of profits in Malaysia is reduced because of its smaller stake in GBKL. However, the reduction is bigger this quarter compared to the last quarter.

It was revealed that QAF experienced issues in its Johor production plant. This affected sales volume not only in Malaysia but also in Singapore. 

Otherwise, QAF would probably have done better in both countries. There were also some one off cost items due to problems at the said plant.

Philippines

The bakery business in the Philippines is doing well but incurred higher marketing and distribution costs. It was revealed that although costs are heightened, the bakery business achieved higher sales and increased market penetration in the country. 

Looking at the Income Statement, Other Operating Expenses saw the biggest increase of 23% and it was revealed that most of this big increase is due to higher marketing costs in the Philippines. This is also a market in which QAF is planning to expand its footprint.

China

The bakery business in China is still losing money but losing less money. Narrowing losses is good news but if it continues to bleed, it might be a good idea to shut it down. QAF will decide by end of the year if it should continue its business in China.

Australia

QAF's pork business in Australia saw a 20% reduction in selling price due to an over supply situation which led to downward pricing pressure. 

The demand for pork is still healthy but the over supply will take time to resolve. It is hard to say how long the situation might persist but I doubt that it is enduring. 

The situation is probably more cyclical than structural.

One quarter does not make a year. It is reasonable to wait and see if QAF is able to recover earnings in the coming quarters as it pursues growth.

To be realistic, however, any recovery could take some time to materialize as new production plants are built. Also, it is my guess that many of the increases in costs and expenses are going to be sticky.

Having said this, note that QAF is meeting the challenges from a position of strength as its balance sheet remains strong. 

Cash and cash equivalents also increased year on year from $97 million to almost $126 million. 

QAF has a good track record and I like to think that the managerial competence is more enduring than the challenges being faced.

Even with reduced earnings in 2Q 2017, QAF is capable of maintaining a 5c DPS but it is harder to say if a reduction will happen or not. With this in mind, while waiting for improvement in performance, I look forward to being paid.

If Mr. Market were to send QAF's share price tumbling, it would be an opportunity for me to accumulate a larger position in a competently run and financially sound company which is likely to do better again in future.





If there should be a decline in share price, I hope it is a big one of, say, 10% or 20% and not just another dip.

See announcement: HERE.

Related post:
Wondering about QAF Limited.