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Hi BBCW,

reading this post, I had a strange thought ...How about I contribute say 37K to my CPF at the beginning of the year. That is possible since at the beginning of the year, there is no compulsory contribution yet. However, with subsequent compulsory contribution from employer and employees, the annual limit will surely be exceeded. What happens in this case?

Thank you.

You can still voluntarily top up your Special Account since there's no CPF Annual Limit on that. If your SA has not yet reached the Full Retirement Sum.

Also, while you can reasonably forecast you'll hit the CPF Annual Limit, it hasn't happened yet. If you're fired or must quit your job before the end of the year, and if you have a gap in your employment income, then you probably won't hit the Annual Limit.
 

maple96

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Thanks BBCW and Maple for pointing this out... The numbers are legitimate although I do agree that it's a bit weird. The numbers I originally posted were from the month before. I just did a fresh check with her ytd night. The balance on top of her OA ($5k) and SA accounts were dividend payouts from the CPFIS. You are right that most of her RA was transferred into CPF life deferred annuity. She is 59 this year and about 4 years ago, she (unknowingly) bought into CPF life Std plan giving a payout of approx $621-$677/mth. The current bal in her accounts are:

OA: $5k/-
SA: $0/-
MA: $22514.41/-
RA: $4537.73/-

CPF Life annuity paid to date: $73250.32/-

You are right that she was quite desperate. Very timely, a few years back, a UOB banker approached her to buy unit trust from him and she did. As for the stocks, she purchased them many years ago when she was till working.. They were all penny stocks like freightlink, thaibev, lifebranz, mostly penny stocks and are quite worthless now, sadly...

I believe her FRS is $155k. Henrylbh is quite right that the $500/mth is for her personal expenses, to pay the bills and household expenses... It helps to complement her income of about $300/mth for helping my uncle to run his food stall without CPF contributions since she started in 2005.

Her home is a 5 room unit and not eligible for e lease buy back scheme. It is fully paid but she refuses to sell for sentimental reasons.

Is there a way we can fine tune her retirement plan based on e above? Thanks BBCW for your detailed inputs as always!
Before u take any action to adopt whatever the others are suggesting that u squeeze her dry of her "emergency and survival" funds, pls answer the following questions and do the following:

1. How much are u prepared to support ($) her other than the $500 mthly allowance?
2. She only has the basic medishield life, are u going to help her pay for medicals which cannot use medisave?
3. Are u going to topup her RA with your own funds?
4. U should arrange a meeting with CPF to discuss and confirm her CPF LIfe scheme since no one here understands/knows the old scheme, I have some info, if u google u should be able to find it, but better to find out from CPFB, Below is how it works based on old info I have:
5. She is under the old CPF Standard Plan where at 55 only 50% of "FRS" is transferred to CPF life pool, the other 50% will be transferred when she start her payout at 65.
6. Why she only has 5k in OA - my guess is CPFB left it there for her since everyone is entitled to withdraw the first 5k.
7. Check her CPF account online, retrieve the statements from the year she join CPF Life at 55, u should see that 73k+ transferred to RA. Why 73K which is less than 75K (50%)? U shld know by now roughly cos 5k is kept in OA.
8. Check her CPF statements for the past years how her RA increased to the current balance?
9. She has 10k in CPFIS - check her statements how much she withdrew from OA, is that 10k after net loss? If she liquidates, this money is likely reserved for transfer to RA/CPF Life
10.. If CPF requires her to transfer the remaining 50% from OA/SA/RA, are u prepared to topup for her?
11. If she is not required to makeup the remaining 50% for CPF life, what would u do?


That's all for now.

ps if u had been more active earlier in 2015/2016, u would be able to help her salvage her funds so she can join the current CPF life schemes and not "lose" 4% on her RA of 73K
 
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Hi BBCW,

fully agree with your rationale. However, I am struggling to balance below 2 factors:

1. Get SA as high as possible as fast as possible to max out the impact of the 4% + bonus interest
2. Obtain the highest possible tax relief.

You can consider that I do not need OA for housing ever, lets say ;)'

I tried to do up a simple/rough model and it seems that top-up 7K each year will put me at the FRS around the time I want to retire. Transferring to SA from OA will kind of make me lose the tax relief in the last few years of my career. And if my salary increases, the number of years will increase as well.

What is your thoughts on that? Thank you.


I'm not sure why people don't understand this one. It's pretty basic, or so I thought.

Let's start with this basic fact: for a saver/investor, 4% compounded interest is better than 2.5% compounded interest. Your money will double in approximately 18 years at 4% and in approximately 29 years at 2.5%. (And that's not counting bonus interest, which is skewed toward MA/SA.)

OK, now let's suppose your (or your family's) net worth is $100 million, you're working and have compulsory CPF contributions at least, and you're going to buy a HDB BTO about 5 years from now. Got all that? So, what should you do? Well, duh! You transfer every penny of OA to SA, every month. You zoom up SA as fast as you can; you go for the yield. Making a down payment on a HDB BTO is like buying a kaya toast breakfast for you and your family, so it's absolutely absurd to deny yourself the higher interest for even one month. Wealth has its privileges, and this is one of them.

....So some people are in this fortunate position, namely that they don't need and never could plausibly need OA as OA, for housing. OA is fundamentally a middle class construction. That's not to say it's bad; not at all. It helps so many Singaporeans save for housing. But some people don't need it, and for them, it's OA to SA transfers every month, in full.

Now, what's the cut-off? How much personal and/or family wealth do you need to adopt this CPF optimization strategy? "It depends." If you're not interested in buying housing in Singapore -- for example, you're working overseas for a Singaporean company and contributing to CPF, but you are pretty sure you're going to stay overseas -- then no matter what your wealth you'd rationally, prudently slam OA funds into SA every month. Those dollars have to stay in CPF -- that isn't a choice -- so they might as well work as hard as possible for you.

Why is this CPF optimization concept so difficult to grasp? It makes perfect sense, and I think it's pretty basic.
 

BBCWatcher

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I could not understand why people would want to go for SGS. A good deposit account, like DBS multiplier or UOB one, can give interest higher than 1.8% and that is flexible, meaning you can get the money out the minute you want to do it.
Here are some reasons:

1. The rules can change at any time for interest promotion accounts, including tomorrow. Government bonds offer a government guaranteed nominal outcome, for years.

2. Deposit insurance is limited to $50,000 per depositor ($75,000 from April 1, 2019). SGSes are fully government guaranteed, without limit.

3. Bonds can be sold on the secondary market. If market interest rates fall, the price that bond fetches on the secondary market goes up.

4. You can use Supplementary Retirement Scheme (SRS) funds to buy SGSes. You cannot get promotion/bonus interest from a bank with your SRS funds.

There are other reasons, but those are some.

reading this post, I had a strange thought ...How about I contribute say 37K to my CPF at the beginning of the year. That is possible since at the beginning of the year, there is no compulsory contribution yet. However, with subsequent compulsory contribution from employer and employees, the annual limit will surely be exceeded. What happens in this case?
The excess is returned to you about a year later, and without interest.

I tried to do up a simple/rough model and it seems that top-up 7K each year will put me at the FRS around the time I want to retire. Transferring to SA from OA will kind of make me lose the tax relief in the last few years of my career. And if my salary increases, the number of years will increase as well.
Yes, but the 4+% interest compounded is quite valuable. Tax relief is nice, and it's worth grabbing, but it comes after the higher yield in importance. And other tax relief opportunities may be both available and worthwhile after you've exhausted CPF tax reliefs, notably the Supplementary Retirement Scheme (SRS).
 
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BBCWatcher

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Before u take any action to adopt whatever the others are suggesting that u squeeze her dry of her "emergency and survival" funds....
Could we start with agreeing that a 59 year old should not be holding a high cost stock unit trust and other stocks while in this situation -- that those funds should be plowed into the RA?

Nobody is talking about a "squeeze her dry" approach. Please go back and re-read what the suggestions were; they are not that.

1. How much are u prepared to support ($) her other than the $500 mthly allowance?
Interesting question, but the answer doesn't matter much in terms of her getting some safe altitude.

2. She only has the basic medishield life, are u going to help her pay for medicals which cannot use medisave?
Also an interesting question, but she's got bigger problems right now than upgrading from public hospital C ward plus >$22K in her Medisave. That's actually not too bad. I sketched out the one possible semi-realistic upgrade from there, but it's not the priority.

3. Are u going to topup her RA with your own funds?
That would be advisable for tax relief, even if she hands him the funds to do it. As I've already mentioned.

9. She has 10k in CPFIS - check her statements how much she withdrew from OA, is that 10k after net loss? If she liquidates, this money is likely reserved for transfer to RA/CPF Life
And that would be terrific. That part of her asset base is very inappropriately positioned for her age and level of wealth.
 

brfish

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BBCW, what is your view of the new Nikko AM corporate bond ETF? Do you suggest to invest in that in conjunction with SBS, SGS bonds, and A35?
 

BBCWatcher

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BBCW, what is your view of the new Nikko AM corporate bond ETF?
I despise its name, because its name is not an accurate description of its holdings.

That problem aside, I view it as a reasonable, lower priority addition to SSBs and CPF, especially for those at least getting near-ish retirement in Singapore.
 

Shiny Things

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I despise its name, because its name is not an accurate description of its holdings.

That problem aside, I view it as a reasonable, lower priority addition to SSBs and CPF, especially for those at least getting near-ish retirement in Singapore.

Do they have a list somewhere of the bonds that are in the index? I saw your thread earlier about the name being really iffy, and I'm curious whether the unrated bonds are good or whether they're Hyflux-grade trash.
 

BBCWatcher

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Do they have a list somewhere of the bonds that are in the index?
No, not yet. They argue that they're trying to combat front running as they bring the fund to market, and that makes sense since the bond market in Singapore is quite thin.

....But I don't care. Call it the "Quality Bond Fund" if they're high quality according to some definition they publish. But "investment grade" and "corporate" they ain't. They're going to hold lots of unrated bonds, and they're going to hold lots of government agency bonds. That's b.s.
 

cheongmanz

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Hi BBCW,

I could not understand why people would want to go for SGS. A good deposit account, like DBS multiplier or UOB one, can give interest higher than 1.8% and that is flexible, meaning you can get the money out the minute you want to do it. And if people have more cash than the limit offered by the bank account, shouldnt they be investing in staff with higher returns, such as stock, as the limit is more than enough for emergency fund?

Am I missing something here? or I am just plain stupid ;)

Thank you

My understanding of DBS multiplier is that you can only enjoy the high interest up to 50k. I doubt there is a cap for SGS except for SSB which is 100k.
 

bobobob

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Do they have a list somewhere of the bonds that are in the index? I saw your thread earlier about the name being really iffy, and I'm curious whether the unrated bonds are good or whether they're Hyflux-grade trash.

I posted this in other thread.

Top 10 Issuers:

Housing & Development Board (20.0%)
Temasek Financial (9.4%)
United Overseas Bank (6.2%)
Land Transport Authority (5.0%)
DBS Bank (4.0%)
Singapore Airlines (3.9%)
Huarong Finance (3.0%)
Manulife Financial (3.0%)
CapitaLand (2.5%)
Keppel Corp (2.3%)

Of these 10, the unrated ones are LTA, SQ & Keppel. Added up, the 3 issuer's bonds make up 11.2% of the fund, half of the fund's unrated bonds. Of which there are 22%.

Technically, Capitaland isn't rated either, but many of its subsidiaries are, so I'm not sure where this 2.5% falls.
 
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Looking at the SGS Bond N517100F, with a YTM of around 3.48%, does it make sense to use CPF OA funds to buy?

Or would it be better to use SRS funds instead?

I'm new to bonds and would welcome any views.

Thanks. :o
 

BBCWatcher

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Looking at the SGS Bond N517100F, with a YTM of around 3.48%, does it make sense to use CPF OA funds to buy?
If only N517100F had a yield to maturity that high, but it doesn't. (I'm not sure where you found that data.) According to MAS, the secondary market's yield to maturity for that bond is more like 2.1% (as of August 3, 2018), excluding commission. It matures on April 1, 2022.

Or would it be better to use SRS funds instead?
SRS. CPF OA is obviously beating 2.1%.
 
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If only N517100F had a yield to maturity that high, but it doesn't. (I'm not sure where you found that data.) According to MAS, the secondary market's yield to maturity for that bond is more like 2.1% (as of August 3, 2018), excluding commission. It matures on April 1, 2022.


SRS. CPF OA is obviously beating 2.1%.

Oh, then I must have made a mistake.

I used the SGS website's bond calculator and must have keyed in something incorrectly.

Thanks for pointing out the error in YTM!

:o
 

revhappy

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Bbcwatcher, since mentioned about Japanese markets couple of times, what is your view about the BoJ propping up Japanese equities? Should a country actively prop up its equity markets?

Sent from Xiaomi REDMI NOTE 4 using GAGT
 

BBCWatcher

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Bbcwatcher, since mentioned about Japanese markets couple of times, what is your view about the BoJ propping up Japanese equities? Should a country actively prop up its equity markets?
Let’s consider this policy action in neutral terms, which is that the central bank is buying ownership stakes in publicly traded private companies.

That’s not unheard of. The British government still owns a big chunk of the Royal Bank of Scotland, for example. If it’s done it’s usually done when there’s a financial crisis. Japan is in persistent financial crisis. I would probably be in favor of anything that can pull the Japanese economy up and out of negative interest rates. If this policy works, great.
 

Maeda_Toshiie

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Let’s consider this policy action in neutral terms, which is that the central bank is buying ownership stakes in publicly traded private companies.

That’s not unheard of. The British government still owns a big chunk of the Royal Bank of Scotland, for example. If it’s done it’s usually done when there’s a financial crisis. Japan is in persistent financial crisis. I would probably be in favor of anything that can pull the Japanese economy up and out of negative interest rates. If this policy works, great.

Propping up stock prices isn't going solve structural economic issues. BOJ is not going to save Japan from itself; it will only prop up a country that will continue to sag low and lower. At least Japan will die rich.
 

Defying_Gravity

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Hi BBCW and Maple96,

I've looked into the questions you have raised..
With the suggestions I have gathered from the both of u, we went to CPF board on Saturday. I am willing to support her as much as necessarily possible, for she is my mom... So at CPF board, we did the following:

1) I topped up 20k into her RA account.
2) the 4.3k out of the 5k inside her OA was also used to top up her RA account.

Very fortunately, along with the property pledge, she no longer has to worry about the meeting the requirements of fulfilling the FRS. CPF life will be remuneration about s$640/mth and she is comfortable with that (as I will also maintain the s$500/mth).

From here, we will proceed with these 3 steps:
1) As suggested, she is going to liquidate her stock holdings (too risky for her age) and they will return back into her OA and SA account. But she doesn't want to use the funds to top up for she prefers the flexibility of withdrawing the money for the OA/SA..
2) She is going to do a VC to her accounts with whatever she has left at the end of the month.
3) Purchase the NTUC income B+ward as suggested by BBCW

I hope the above 3 steps should suffice for a comfortable retirement...

PS I wish I had been more active too... Sadly, I didn't manage to come across money mind forum until recently. :sad:
 

BBCWatcher

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It sounds like your mother is on firmer footing, Defying_Gravity. Just a couple quick comments....

3) Purchase the NTUC income B+ward as suggested by BBCW
That’s NTUC Income’s Enhanced Income Shield Plan C, plus optional Assist Rider if budget allows. (Don’t get the Plus Rider.) To net it out, that’ll mean she can check into KK Hospital B2+ ward, which is air conditioned. I’m assuming she does not have any pre-existing conditions such that the insurer would deny her claim.

Be careful about the Standard Plan, and do take some time this year (2018) to consider whether the Escalating Plan is better. It very well might be since CPF LIFE is going to be her sole source of retirement income, evidently.

When she starts payouts at age 65, the Standard Plan will be essentially flat. (I say “essentially” because there’s a slight possibility CPF might have to adjust the payout amount marginally, if life expectancies are better than forecast.) Now imagine she’s age 85, and there has been 20 years of inflation. That monthly payout amount won’t have the purchasing power that it did when she was age 65.

The Escalating Plan fixes this problem pretty well by starting out with a lower amount then escalating at 2%/year for the rest of her life.

Now, if you’re prepared to increase that $500/month that you’re kicking in at about +4%/year, the inflation problem is pretty well solved. But it is important to think in these terms. She’s trying to protect her real standard of living at a basic level.

Make sense?
 
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