When not to do voluntary contribution (VC) to CPF?

Reader says...
It's the first time I did a VC to my CPF as I have already hit my FRS.

I was surprised to see that part of my VC actually went into my SA account.

I thought all of it will go into my OA.






I am still employed and I will be getting Mandatory Contribution to my OA and SA.

But after going through my last year's CPF statement, I realised that I am very close to the $37,740 annual limit.

I know that any excess will be returned to me interest free next year.






My questions are,

What happens when my MC reaches $37,740?

How is the interest in my OA and SA affected?

This $2,378.20 will be earning 4% compounded interest in my SA for the next 12 months.

How will this interest be affected when I hit $37,740?

Do they stop paying interest?





Let's say, for easy calculation my yearly MC is exactly $37,740. And in this case, I did a VC of $11,000 in Jan.

I know that they will return to me $11,000 next year. But what about the compounding interest of $2,378.20?

From your experience when you were working, what happened to your CPF interest when you did VC?

If the compounding effect of a VC in January is not affected.

A working person can earn more interest by doing a VC of $37,740 every January and get the VC back the next year, only to do it all over again.

AK says...
In the past, having met the CPF minimum sum, I would wait for closer to year end to see how much my year to date MC was and I would then do a VC to hit the CPF annual limit for the year if possible and if I had the spare cash.

Some years, I would estimate my MC for the year and do a VC earlier in the year.






In such cases, usually, I ended up overdoing it and CPFB would refund the excess contribution and also deduct any interest earned by the excess.

This is also something I have blogged about before.

Related posts:
1. CPF is a PONZI scheme!
2. Know how to grow our CPF.

Largest investments updated (Early 2018).

My last blog on this subject was published in October 2017.

If you don't remember, see the related post at the end of this blog.






After making some changes in 4Q 2017, with the addition of two new members, this is the new A-list of my investment portfolio:

From $350,000 to $499,999:
AIMS AMP Cap. Ind. REIT
SingTel
ComfortDelgro

I certainly look forward to the dividends from SingTel and ComfortDelgro in 2018 which would hopefully make my primarily income focused portfolio more robust and less dependent on S-REITs.

Next up are the smaller but still rather significant investments in my portfolio. 

They are members of the $100K to $350K club:

From $200,000 to $349,999:
FIRST REIT

From $100,000 to $199,999:
ASCENDAS H-Trust
WILMAR Int'l
Centurion Corporation Ltd
ACCORDIA Golf Trust
Development Bank of Singapore







Some might notice that there is a new member in this club.

DBS was a business I kept buying into at around $15 a share and bought more of when its share price sank below $14 a share.

As its share price recovered over time, in several transactions, I reduced my investment to the point where my remaining investment became "free of cost". 







Of course, one could say that if I did not sell any of my investment in DBS, I would be sitting on a much bigger paper gain now. 

Ouch.

Well, I always say that hindsight is perfect and seller's remorse is pretty pointless.

I reduced my investment in DBS because it was no longer the undervalued proposition that it was when I bought its stock.

I had a plan and I stuck to it.







Having said that, doing something I often do with businesses which I have good reasons to like, I held on to my remaining investment in DBS which had become "free of cost".

Some regular readers might remember I have described this as trading around a core position before.

Mr. Market could be quite irrational and high could, of course, go higher.

How long could Mr. Market stay irrational for?

Your guess is as good as mine.

Meanwhile, as the share price has almost doubled from my lowest purchase price, my remaining investment in DBS is now one of the largest investments in my portfolio.








I am pretty comfortable with my portfolio now and, all else remaining equal, it is unlikely that I would be making any changes anytime soon.

If lazy AK does not change anything in his investment portfolio this year, the above investments are most probably going to contribute the bulk of his passive income in 2018.






As I have rationalized the moves made in 4Q 2017 when I shared my full year passive income in  blogs published towards the end of last year, I shall not repeat myself.

You might want to read those blogs if you have not done so (or to refresh your memory if you have read them before), starting from Part 1: HERE.






I know some might be tempted to shadow my moves but please do your own due diligence.

Even after doing your due diligence, remember you are not me and I am not you.

Remember the importance of position sizing, taking your own financial situation into consideration.





It is rarely a good idea to throw everything including the kitchen sink into investments no matter how attractive they might look.





Related posts:
1. Largest investments in my portfolio.
2. Position sizing, nibbles and gobbles.
3. AK was buying DBS shares.

Keeping friends without spending money?

Reader says...
Can I ask your opinions regarding friendship? 

I do like my small circle of friends but I am thrifty in nature. 





Given a choice, I would rather spend money in hawker center rather than places that cost more than $10 or 20 +. 

And also, things like drinks, movie ticket during peak hours, Sing K and etc can be costly. 

As such, I have to reject quite a few outings which are not good for friendship-wise. 





If there are free activities, I am more than willing to go out. Haha. 

How do you cope with it? And also, for work-wise how did you maintain working relationship with your colleagues even though you brought your own food from home?

AK says...
Unfortunately, no man is an island and as long as we are out in society making a living, we have to make an effort to socialize or else life could become difficult in many ways.

Having said this, we cannot choose our family but we can certainly choose our friends. ;)





If these are people who matter to you, explain your situation to them. 

If you are someone who matters to them, they will understand and accept you for who you are. :)




Related post:
Are you forced to be extravagant?

"When can I quit my full time job?" (Keep your needs simple and wants few.)

Reader says...
I am thinking of quitting my job when i am 40 years and do freelance work. 

I am pretty sure my freelance and dividends can cover my living expenses of about $8,000 pa. 

By 40 years old I will have a fully paid flat, about $120,000 stocks and bonds, $200,000 savings, CPF Oa $100,000, sa $70,000 and MA $52,000. 

Do you think i can retire from full time work given my financial status? 

Is my net worth good enough for a 40 years old





AK says...
If you are not a big spender, I think you can 🙂

And $8,000 expenses a year definitely not big spender to me 😀

Especially if your part time job is able to generate $8,000 or more a year. 😉





Reader says...
Do you think my finance is on the low end? 

Should I reach a more secure level?

AK says...
It depends on whether you feel insecure. 

If you do, work for a few more years to build a bigger buffer. 

Peace of mind is priceless.





Reader says...
I dunno what is a comfortable level.

As in how much I should have lol

AK says...
I would say that a comfortable level is when your passive income is able to cover your $8,000 a year expenses.

Then, whatever you earn in your part time job in future is extra money. 

You don't need the earned income then. 

It is just nice to have 😉




If we keep our needs simple and our wants few, we can achieve financial freedom more easily, for sure. 🙂

Related posts:
The best insurance in life!

Have your (CPF) pie and eat it (eventually)! .......................... (AK is showing off his CPF numbers graphically!)

I really like the colorful yearly statements generated by the CPF Board.

It adds a dash of color to what is usually a very boring black and white sheet of numbers.










I find the colorful statement really pretty and makes my pretty CPF numbers prettier!

You like pies?

I like pies.

Pie chart that shows how much I have in my CPF account, I like even more!

For newly minted readers of ASSI, do I hear "Oooh", "Ahhh" and the more local "Waah"?

How old am I?

Clue?

Read this blog: 8 years AAA bond.






It is about making the CPF a cornerstone in our retirement funding strategy.

If you have not read my recent blogs on the subject, read:

1. Funding my retirement.

2. CPF savings grew almost $200K in 3 years.






Remember, if AK can do it, so can you! Believe it!

Related post:
AK is showing off his CPF again.

Merger of ESR-REIT and VIVA Industrial Trust.

I have more than a handful of relatively small investments (i.e. anything smaller than $100,000 and usually smaller than $50,000 in size).

Some of them are legacy investments (i.e. leftovers from many years ago after selling off most of the investments) and ESR-REIT (formerly Cambridge Industrial Trust) was one of them.








The last time I blogged about this REIT was in June 2016.

Back then, I added to my investment in the REIT at 52.5 cents a piece.

After adding to my investment, still, it remained a smallish investment and I explained why in related post #1 at the end of this blog.








Well, I have decided to let go of my investment in the REIT.

Why?

Regular readers know that I have concerns about VIVA Industrial REIT. See related post #2 at the end of this blog.

I am uncomfortable that ESR-REIT and VIVA Industrial REIT are talking about merging.

I have enjoyed many years of income distributions and I will also enjoy a capital gain from the divestment.

So, everything taken into consideration, it is not a bad outcome.








This reminds me of the time when I let go of K-Green Trust (KGT) in 2014 when it was decided that they would merge with CitySpring Infrastructure Trust.

I didn't like CitySpring. 

What to do?

I cut KGT loose. See related post #3 at the end of this blog.






With this move, my total investment in REITs shrinks again and, everything else being equal, so will the income distributions I will be receiving from REITs this year.

Read:
ESR-REIT and VIVA in merger talks.

Related posts:
1. Cambridge Industrial Trust (June 2016).
2. VIVA Industrial REIT's short land leases.
3. KGT and CitySprings' unequal marriage.

Spent money and now will spend more time.

If you are a regular reader of my blog, you must have noticed that I have not been blogging as much as before.

If you regularly send me emails, you must have noticed that I do not reply to emails as promptly as before.

This has been going on for many months.








What have I been doing?

I have been spending more time on my other hobbies and the one that is taking the lion's share of my time is online gaming.

Specifically, MMORPG.

I have blogged about this before but things are about to get more intense.








After almost a year of online gaming, I decided to get a dedicated gaming laptop.

A beauty, it is.

Serious gamers would probably scoff at this entry level machine but it is a big deal for me at $1,348.

The keys glow red.

So cool, right?

I won't be pressing the wrong keys anymore when I play at night with the lights off.








The fact that I only went ahead with the purchase after so many months of online gaming means that I enjoy online gaming enough to part with some real money to get the hardware to at least satisfy the recommended requirements of the game.

The PC I was gaming on didn't even meet the minimum requirements and labored excessively under an IT challenged task master.

Who?

Who IT challenged?

I blur.










Logically, this new purchase also means that I want to spend more time gaming.

When a friend found out that I read only the Money section of the newspapers many years ago, he joked that I had no life because I didn't read the Life section.

When he found out about my latest purchase, he gave me the thumbs up.









No more choppy movement and low resolution images for me. 

Example of a low resolution image,

Not very nice, it was.

Yes, for the last 10 months, in game, I was like a character exploring a new world while suffering from cataracts and palsy.









My Celeron processor driven PC has huffed and puffed enough.

No more demanding online gaming for it.

I think I hear it sighing in relief.

I could be spending a lot more time gaming than before as I revisit many places in the game world now that I can move and see a lot better.









You could say that I am going to be spending more time travelling.

Well, at least I won't be spending money travelling.

OK, I know.

Bad AK! Bad AK!

I got an atas mouse too.

A fellow blogger suggested that I blog about this purchase and what it means so that readers could manage their expectations.

Mission accomplished, I hope.





Related posts:
1. Freedom in retirement.
2. AK is playing Neverwinter!

Generous monetary legacy for children good or bad?

This chat happened after I shared again a blog on a reader's intention to top up his new born's CPF SA account (see related post #1 at the end of this blog).

Reader says...
Imagine if it works... put 171k at age 0, get 2.18mil at 65, that's 2 mil from the government.

AK says...
Haha... it is very amazing. I know





Reader says...
The figure makes me think that there's something wrong with my calculation.

AK says...
If you have money to spare, i think it is ok to do it.

It is legacy planning.

I dunno about the hazards related to character building tho...

Reader says...
I think a graduate can easily earn 5mil in their lifetime. 

But if their habit isn't as strong by the time they found out abt their SA account, I'm afraid they have no desire to work hard. 

And when they meet obstacles, they might say "ohh I will just quit, I have enough for the future anyways." 

That's my biggest fear, snatching away their burning desire and drive.






AK says...
Yes, I know. I feel that way too... 

I mean I didn't like the idea of having to work for money but I had to do it. 

If I had a lot of money in my younger days, I might have stopped working even before I started. 😛

Reader says...
Ohh gosh so that's normal right, we humans won't work hard if we know we have enough! 

Hiez how ahh I want the government's 2 mil but I don't want to steal his drive?





AK says...
Hahaha... 

I am glad I don't have that hot potato in my hand. 😜

Reader says...
How uncle AK? 

How how how? 

What should my mommy do?

AK says...
Mommy should ask daddy. 

I blur... 😛





When my niece was still in primary school, we transferred money in her savings account to her CPF account. 

That is her own money (i.e. savings from ang baos and pocket money).

I think that is OK.

Teach children the importance of saving money and also explain to them how the CPF works.

儿孙自有儿孙福, 莫为儿孙作马牛.





You might also want to read a blog I published earlier today:
Pay home loan and HDB grant fast.

Related posts:
1. Leaving a $1.4 m legacy?
2. Retire by age 45.

Pay home loan and HDB housing grant fast?

Reader says...
I hope you bear with me while I share the info about it - resale flat was purchased at 480k and I got a hdb housing grant of 50k for 1st timer.

My fiancee and myself went for a bank loan instead of hdb loan.

The loan principle I have to service is 384k.






I would really appreciate your advice/guidance to my following questions:

a. I thought of repaying my housing loan using cash instead of cpf.

I think this is still manageable from my side from a cash liquidity perspective since I could save on the chargeable accrued interest (at the point of future flat sale) and at the same time continue to earn the 2.5% int.

What do you think about this approach in terms of pros/cons?






b. I took the housing grant of 50k which I know will be charged accrued interest.

I'm not sure how accrued interest is charged on this 50k but is it considered wise if I try to repay this?

Or in actual fact, it doesn't make a difference because it will net off from the interest that I earned for the OA that continues to reside in my cpf account?






c. If at any point in time I thought of partial loan repayment to my bank, say a sum of 30k in cash every beginning of the year so that principal amount will reduce and I look to repay the full loan in 7 to 10 years.

What do you think about this approach and possibly the risks that go with it?

Many thanks in advance, and I really appreciate your feedback and suggestions.

AK says...
As long as your home loan attracts an interest rate of less than 2.5%, it makes sense to pay your loan with cash instead of using money in your OA.

(I would also add that as long as money in your savings account is paid less interest than the interest paid by the OA, it makes sense to pay your loan with cash.)

If you have no intention of ever selling your HDB flat, you can worry less about accrued interest on OA money used or the grant as long as you hit the prevailing full retirement sum (FRS) by the time you are 55.






By 55, you can withdraw all money from your OA and SA in excess of the FRS.

So, if you were to sell the HDB flat after you turn 55, you could take out all the money which includes the accrued interest you owe your CPF account.

It would be like asking you to put in money only to immediately take it out again.






Partial capital repayment makes sense when interest rate goes much higher.

When exactly to do that?

It is up to you as it should also partially depend on what you feel you could get if you were to invest the money instead.

I remember when I paid the housing loan for my previous home in full, the interest rate on the loan went from 4.1% to 5.1%.

Ouch.






Congratulations on your new home.

Related posts:
1. How to stop accrued interest from growing?
2. Almost 55 and worried about CPF.

How to get a 12% dividend yield?

We should know but do we know what to look out for as income investors?

Here are the basics.





Reader says...

Recently, my friend intro my to allianz income n growth.

He mentioned that the growth is not a lot but dividend is relatively attractive around 12%..

omg.

But i better ask shifu level like u

AK says...

You should ask 2 very basic and important questions:

1. How is the income being generated by the proposed investment?

2. Is the income generated sustainable?

Asking these questions would very likely help us avoid investment scams and also products which are highly risky.







You might also want to read these:
1. Invest in high yield bond fund.
2. Get 14% return per year on investment.

Retirement money made to last longer without risk.

Reader says...

My mom is now 71 and she has $200k retirement money.

She is not on the CPF life scheme but on the past retirement sum scheme.





I am trying hard to help her get some passive income.

She has parked this money in short term duration funds but the returns has been really peanuts.

I am trying to see how to help her.

Do you have any suggestions?

AK says...

I would say that at her age, it is more about capital preservation and she should not take any risk with her savings.

The CPF is a good risk free tool in helping to fund her retirement and topping up her CPF-RA will ensure that her retirement money earns 4% to 6% per annum.

I would say that for any investor, 4% to 6% returns per year is difficult to achieve without taking any risk at all.





So, she should take full advantage of her CPF membership and max out her CPF-RA.

Doing so would most probably help to make her retirement money last quite a bit longer.

If her MA is maxed out, she could also consider doing voluntary contribution to her CPF to max out the CPF Annual Limit.

To her, then, the CPF is like a savings account that earns 2.5% interest per annum in her OA.






Related posts:
1. Elderly to use CPF as a savings account.
2. Insure against longevity risk but...

Sensible to do CPF OA to SA transfer?

Reader said...

Currently working, 31 years old.

Quick question - My current SA sits at $40k and MA sits at $40K.

Based on current MA limit = $54,500, remaining money will go to my SA account.

I have started contributing $7000 yearly into my SA account for tax relief.




Based on my calculation and projected increase of limit yield of 4.4% per annum on MA, my MA contribution will flow into my SA account in 3-4 years time.

When that happens, my monthly contribution to MA and SA will be around $15K/year (Including VC of $7K), taking into consideration of the 4.4% increase limit of MA per year.

With that projection again, I will hit the current FRS of $171K in 7-8 years time.

Does it still make sense to transfer my CPF OA account money to my SA account?

AK said...

Once you CPF-SA hits the prevailing Full Retirement Sum (FRS), you will no longer be able to do Top Ups to your CPF-SA to enjoy income tax relief.

So, if getting income tax relief is hugely beneficial to you (i.e. you are in a high tax bracket), you might not want to do OA to SA transfer.

However, this option of topping up the SA is also only viable if you have the free cash flow to do top ups each year.





If income tax relief is less important to you or if you do not have the free cash flow to do top ups, doing OA to SA transfer would be less demanding as it is simply moving money that is already in your CPF account. 

Bigger OA to SA transfers will also, of course, help to give your SA a bigger base faster for compound interest to work its magic.

Make sure that you do not need your OA money for any other purposes before doing this.






Related posts:
1. Know how to grow our CPF savings.
2. Purpose of CPF is to make rich richer.