Retire with an investment grade bond and an annuity (UPDATED).

The CPF is a risk free and volatility free retirement funding tool that Singaporeans should learn to take advantage of.

However, depending on what we want it to do for us, the way we use it would be different.






Reader says...
Hi AK! Can I ask u for some advice.. or rather ask u to talk to urself! 

My wife and I r both self employed, and I want to boost our CPF SA account, but I'm not sure whether we should boost just one or both accounts.


My SA has Xk and i'm XX, she has Xk and XX, and I'm thinking if we both contribute to her account, its quicker to reach the minimum sum and exceed that, so we can draw out a lot in excess of the MS when she reaches 55.





Whereas if we contribute to both i have to work harder to reach the MS and we may just slightly exceed the MS when we reach 55 in our respective accounts, and can't withdraw as much.


I'm contributing 2k a month, and she 800 a month to our SA atm. If you are faced with this, what is the more sensible choice?






I sidestepped the question about whether it is better to contribute to only one account or work harder to contribute to both accounts. I think the reader has the answer somewhere in his head. 

It really is a matter to be decided by him and his wife. 





I don't want them to scold me for some reason when they hit 55.

However, I had this to say:


AK says...
I think you might also want to consider maxing out the annual contribution limit for the CPF. 

The limit this year is $31,450 (mandatory and voluntary contributions combined).

{CPF annual limit in 2018 is $37,740.}





The money voluntarily contributed gets apportioned into your OA, SA and MA. 



You could then do an OA to SA transfer as long as your SA has not hit the ceiling (which is the prevailing MS). 

Note that there is no income tax relief for OA to SA transfer unlike MS Top Up to the SA (for the first $7K per year).







CPF savings has a bond like feature which allows us a larger lump sum withdrawal (i.e. anything above the prevailing MS) at age 55 but it is also an annuity component (i.e. CPF Life) that pays us a monthly income for life in our golden years.

 

Note:
Whether we are able to withdraw Top Ups and the accrued interest would depend on the age at which the Top Ups are done.






"Top-up monies are set aside specifically for retirement needs and will be used to increase the recipient’s payout level and/or payout duration. 

"Hence it cannot be used for other purposes such as education, investment, insurance premium payments, housing, pledging and/or exemption.





"If you had received top-ups before age 55, the top-ups and accrued interest in your Special Account (SA) will be transferred to your Retirement Account (RA) when you turn 55.


"Any excess, above the Full Retirement Sum applicable to you, can be withdrawn when you apply for withdrawal at age 55."






Source: CPF FAQ.

Related posts:
1. How to upsize $100K to $225K in 20 years?
2. Another step towards retirement adequacy.
3. What happens to our CPF money at age 55?

Marco Polo Marine: Termination of rig construction contract.

It has been more than a year since I blogged about how I managed my exposure to Marco Polo Marine. 

I believe that it is a good example of how we could size our investments not only based on our motivations and whether the investments meet those motivations. It is also a good example of what we could do if the investments' ability to meet our motivations should change over time.

Marco Polo Marine had a very good track record even through the Global Financial Crisis a few years ago. I was also impressed by their foresight to move into the business of OSVs and not just stick to tugs and barges. Things were looking good and they started paying dividends. 

To me, as an investment, Marco Polo Marine provided a nice combination of growth and income.

Without a working crystal ball, I definitely did not see an order for a jack up rig coming. It was a huge commitment and this is probably putting it rather mildly. Of course, if things were to pan out nicely, Marco Polo Marine would probably do even better to have an asset like a modern jack up rig which would bring their business to the next level.

However, I decided that the deal introduced a certain amount of speculation. I also decided that it would be difficult for Marco Polo Marine to continue paying a meaningful dividend with a heightened borrowing level. So, based on the way I allocate my resources, it would require that I thin my exposure to Marco Polo Marine and I did.

Of course, for a while now, we know that things did not pan out nicely, with the price of crude oil having plunged quite suddenly and plunged badly too. 

It does not look like things are going to improve until global demand rises enough to address the current oversupply of crude oil. Although the Cabotage Law in Indonesia will expand to cover jack-up rigs as well in the new year, there is no guarantee that Marco Polo Marine would benefit from it in such an environment. 

I still have a position in Marco Polo Marine and I actually added to this position in recent months as the stock price declined but only to a level at which I feel comfortable with a more speculative position. 

Now, with the news that Marco Polo Marine has terminated the contract with PPL Shipyard for the construction of the jack-up rig, what do I think?

The reason given for the termination is PPL Shipyard's "failure to comply with certain of its material contractual obligations". I believe it had to do with some quality issues found with the rig that is still under construction.

Apart from terminating the contract, Marco Polo Marine is also going to try and take back the 10% deposit it paid for the rig. Will they be successful? I don't know.

I do know that without the rig in the picture, Marco Polo Marine's balance sheet would be stronger. Their profit would also be higher. Yes, despite what some might think, Marco Polo Marine is still a profitable company.

In an environment of prolonged low crude oil prices, the rig order cancellation is probably more of a good thing, realistically. Of course, with the speculative overhang removed, how is Mr. Market going to treat Marco Polo Marine's stock? 

Sell? Buy? Hold? You tell me.

Marco Polo Marine's NAV per share is 52.8c and their EPS (9M FY2015) is 3.42c. 

4Q FY2015's results should be out soon and if we were to assume zero earnings in that quarter, at 19c a share, we have a PE ratio of 5.56x.

With the rig order cancelled and if there are no severe ramifications because of this, I think that Marco Polo Marine should eventually shake off the more speculative air that surrounds it as an investment.

See announcement: here.

Related post:
Managing exposure in investment portfolio.