CPF and Singapore Savings Bond - Risk Free Component of Portfolio

Have been making regular voluntary contributions or top-ups to my CPF ever since I started working.  This is on top of the "mandatory" contributions and it has been tough at times to force myself to top-up especially when cashflow might be tight and there are so many other investment opportunities out there that are screaming a "Buy!".

However, the CPF really forms a solid foundation for anyone's retirement plan.  Having been inspired by other blogs in my younger days, I stuck to the habit of making regular contributions to my CPF Special Account and Medisave Account since this was earning an interest rate of 4%.  This was much higher than any fixed deposit rates out there in the past 10 years (ignoring this year of course where fixed deposit rates have climbed up).

At times, I will also refund my CPF housing loan component which I had utilised to buy my home.  This has not been the priority recently since there are other instruments such as the Singapore Savings Bonds which now provides an interest rate or return of more than 2.6%.  Thus, it makes sense to buy into these instruments using my spare cash instead of returning money to my CPF OA which only earns 2.5%.

The CPF now forms a significant amount of my portfolio as it is equivalent to the risk free or "bond-like" component of my portfolio.  I am essentially investing in a risk free asset and this should form the base of my retirement portfolio.

How Much is CPF Retirement Sum

CPF Retirement Sum.  Easy yet complicated.

Fact #1 - For your retirement needs

Firstly, to withdraw money from your CPF at age 55, you are required to meet the CPF retirement sum.  At the age of 55, one's money in the Ordinary Account and Special Account are swept into the Retirement Account.

Budget 2017 - Housing Grants for HDB

A good snapshot of the housing grant changes announced in Budget 2017 by Finance Minister Heng Swee Keat.

(Source: HDB)

Just Contributed More Money To SRS Account

I just contributed another lump sum of monies to my SRS account. There are good reasons for me to do so since I get to enjoy tax reliefs and will end up paying less taxes for the next year.

I figure that I have contributed about $10000 and upwards so far this year to my SRS account. There is a cap to how much relief I can claim so I will probably max that out by end this year ( which really does not give me much time!).

I have also maxed out my CPF minimum sum top up by contributing $7000.

Good tax reliefs so why not?

How Much CPF is Deducted from Salary

Ask around and you will be surprised that not many people actually know how much money is deducted from their salary for contribution to their CPF account.

The CPF salary ceiling in 2016 is $6000. This means that only the first $6000 you earn in a month attracts CPF contributions. For an employee below age 55, it will mean a total of 20% of $6000 is deducted from his gross salary for CPF. The amount deducted is therefore $1200.

Employers contribute 17% and that translates to $1020.

So the CPF deducted from one's gross salary is $1200 while the employer contributes $1020 (assuming one earns $6000 or more a month).

Time to Top Up CPF and SRS

Cannot believe that the year is almost coming to a close. Anyway, it is the time of the year to stay putting my finances in order again. And one of those tasks is taking what available spare cash I have to top up my CPF Special Account under the retirement sum top up scheme. Just maxed it out to $7000 since that is the max I can claim tax relief for.

The next step will be to top up my own SRS account as well as my wife's CPF account. All these helps to reduce the taxes that I need to pay. If you all me, I think it is almost a no-brainer that this should be one of the basic steps in retirement planning in Singapore.

Building Up Retirement Funds - Two Easy Ways?

There are many ways to build up your retirement funds in Singapore. You can choose to just keep it in the bank or find other ways to make your savings grow. Well, there are actually 2 easy ways to do so that probably helps you beat the low interest paid on bank deposits.

The first way is the Singapore Savings Bond. This is basically government issued debt sold to the public every month. Minimum investment amount is $500 with a cap of $50,000. There is no penalty for cashing out early and the principal is paid at the end of 10 years. The interest paid out increases each year. Holding it to the max of 10 years will give annual average returns of 2.6%. Totally risk free since they are backed by Singapore government

The second method I can think of is to top up your CPF account or even your spouse CPF account. You can claim tax relief ( up to $7000) and you can enjoy 4 to 5% interest depending on how much you have in your CPF. Problem is that you will only be able to touch it many years later at your drawdown age when CPF Life kicks in for you.

So what do you think about the two ways I have outlined? Leave your comments below!

Why Topping Up Your CPF Might Actually Make Sense

Topping up one's CPF might actually make sense. I am talking about the act of actually making voluntary contributions over and above what you are ordinarily required to contribute either as an employed person or self-employed person. Here are some reasons why it might just be worthwhile.

1. You get tax breaks

Okay, this might not be a big deal to most people. But one actually gets a certain amount of tax relief (capped at a certain limit each year). So if your income is just slightly over a certain tax bracket, it might actually be worthwhile to make a voluntary top-up to pay less in income taxes. Yeah, it is nothing exciting. But if you have spare cash lying around, it might be something worth considering.

2. Higher Returns

For those who are not too savvy with investments, the CPF accounts might actually provide a higher interest than your normal savings account. Yes, some banks are now offering promotional interest rates of slightly above 2% but that is still lower than the 2.5% and 4% interest rate for the Ordinary.Account and Special/Medisave Account respectively. In addition, the first $60,000 in your CPF earns an additional 1% interest. So do the math and it might actually be attractive compared to the paltry interest rates of a normal bank account. Of course, there is no guarantee that the rates will stay that way since these might be subject to changes in the future.

Considering that some people might not be confident of getting a 2.5% or 4% returns on their investment, it might be worth allocating some of that to top up one's account.

Of course, there are some drawbacks in making voluntary contributions. Firstly, the money is locked up until you are allowed to withdraw your money at a certain age. So you need to be very certain that you will not need this money till retirement. Secondly, if you are topping up under the minimum sum scheme, it means you cannot get apply for future exemptions. All these disclaimers can be found on the CPF website.

I know this post is likely to draw some controversy since most people will never think about making voluntary contributions to their CPF. For others though, it might just be one idea that might make their retirement planning a whole lot easier.

Disclaimer: This post is not an investment advice. The author neither encourages or discourages his readers to make top ups to their accounts.

How to Check if I Have Medishield

To check if you are covered under Medishield, it is really quite simple.  There are basically 3 ways:

1. Look at your yearly CPF Statement of Account (the yearly statement will also tell you whether you are paying for a dependent)
2. Log in to my cpf online services and go to My Messages (this is located at the menu on the left hand bar).  Under Insurance, you should be able to see your medishield coverage
3. Call CPF Board at 1800-227-1188 to check.

The CPF FAQ also states it quite clearly as follows:

Your yearly CPF Statement of Account and “My Messages” (under "my cpf Online Services ", which you have to log in to with your CPF Account Number and SingPass) will indicate the status of your/your dependant(s)’ coverage. Alternatively, you can also call CPF Board at 1800-227 1188 to check.

Portfolio Additions and Dividends Received

Wow!  We are already half a month into the new year and I have yet to make any new year resolutions (not that they matter, I break most of my resolutions anyway).  Have also been making some additions to my portfolio.

I bought more of The Coca Cola Company (NYSE: KO) and Cross Timbers Royalty Trust (NYSE: CRT).  Warren Buffet owns shares in Coca Cola so I guess it is a pretty safe bet.  After all, Coke is a product that is probably not going to disappear in the next few years.  The business is stable and of course, Warren Buffet owns it.  So have added a bit more of the stock into my portfolio.

Also added Cross Timbers Royalty Trust which pays a monthly dividend.  This is a bit like tabasco to one's portfolio.  Not for the faint hearted.  But the price has gone up quite a fair bit since I bought it so I am happy with the results.

Dividends I have received this month and last month include:

• $48.41 from Armour Residential REIT (another tabasco addition to my portfolio)
• $45.74 from GAMCO Gold & Natural Resources
• $4.36 from The Coca Cola Company.

Have also made some voluntary contributions into my spouse's CPF Special Account.  The CPF-SA pays a 4% interest.  The first $60,000 combined in the various CPF accounts also earns 1% additional interest. Much better than the interest rates one gets from the bank.  Of course, you are not allowed to withdraw it like a bank account.  But for the long term, it is good enough for me.

CPF Board's Are You Ready? Instagram Contest

CPF Board started the Are You Ready? Initiative to get Singaporeans thinking about these important decisions in their lives. They are

-          Manage your cash flow;

-          Buy a house within your means;

-          Take charge of your healthcare costs; and

-          Secure your retirement.

The AYR concept revolves around using four simple checklists to measure your financial readiness. This year, CPF improved the checklists to include more resources.

In addition, CPF is running an Are You Ready? Instagram contest with an iPhone 5 and more than $2,000 shopping vouchers up for grabs.

It’s simple to join. Simply take photos of what best relates to ‘Cash Flow’, ‘Housing’, ‘Healthcare’ and ‘Retirement’, and tag them with your caption! The hashtags are

-           #AYRcash

-           #AYRhouse

-          #AYRhealth

-          #AYRretire  

Click here to go to the campaign

CPF Minimum Sum Revised from $123,000 to $131,000

I read with interest the news about the revision to the CPF Minimum Sum. From 1 July 2011, the CPF Minimum Sum will be revised upwards from $123,000t to $131,000. This was announced by the CPF Board recently. The new Minimum Sum applies to CPF members who turn age 55 from 1 July 2011 to 30 Jun 2012. In fact, the Minimum Sum scheme was set at $80,000 in 2003 and has been revised upwards yearly, taking into account adjustments for inflation.

The Minimum Sum scheme is meant to help CPF members prepare for retirement where they can potentially have lifelong income for the rest of their lives.

Surprisingly, I noticed that many young people seemed to be unaware about the minimum sum scheme and how it applies to them. These people often have the misconception that retirement is something that they should worry about later on in their working lives and thus cannot be bothered about such schemes that will only affect them later on in life.

Please refer to the following link for more details on the CPF Minimum Sum

http://ask-us.cpf.gov.sg/Home/Hybrid/themes/CPF/Uploads/RSD_WDL/CPF_Minimum_Sum_Scheme.pdf

Paying Housing Installments With CPF

I visited one of the branches of HDB's office today to start paying a greater percentage of my housing installments using my CPF monies instead of using cash.

I have been paying close to $500 cash with the rest of the housing installments paid by my CPF. However, I decided to use more of my CPF monies to pay for my housing installment so that the amount of cash that I will pay is really nominal now (less than $100). This should free up some cash and provide a little more flexibility for me.

I was surprised at how efficient and how fast the service was. I spent less than 15 minutes there to settle everything even though it was a Saturday morning where one would expect things to be working a little slower.

So now I am paying $1000 per month from my CPF monies for my HDB flat. I don't think I will have much CPF money for the next few years.

For those of you who are unacquainted with Singapore and acronyms like HDB and CPF here is a brief explanation:

1. HDB - Housing Development Board. One of the first few statutory boards established by the Government under the Ministry of National Development to take care of the housing needs of Singaporeans. The high rise apartments or flats that are built by HDB are called HDB flats. Most Singaporeans (around 80%) live in these HDB flats which vary in shapes and sizes, and are distributed across various town centres in Singapore.

2. CPF - Central Provident Fund. Another stat board formed. CPF is a social security savings plan for Singaporean's retirement. Over the years, it has been expanded to allow Singaporeans to purchase their HDB flats and pay for medical bills too. When people refer to CPF in Singapore, they commonly refer to their CPF monies which are kept in this account.

SMRA 4% Interest

So the news has reported that the SMRA interest rate will remain at 4% for another year till Dec 2011. That is good news for all to hear!

After pegging it to the SGS yield plus 1 per cent, interest rates seemed to have drop significantly such that the Government has to keep extending the 4% interest rate. The last time I blog about this was almost a year back! That is how fast time flies.

Now a new year is almost upon us.

Recently, I conducted a survey on how much money people have in their CPF Ordinary Account. Only 27% of the respondents had more than $100,000. Considering that the readers of this blogs span a wide age range, it is certainly not surprising that some people have accumulated more than $100,000 in their Ordinary Accounts.

For me, I belong to those who have hardly any money in my CPF-OA. Afterall, most of my contributions to CPF OA goes to paying off my monthly housing installments. Considering that there are more than 20 years of payment left, I wonder when my CPF OA will start to rise to that kind of amount.

Out of My Comfort Zone

Today, I did something which I never imagined I would actually do in my entire life.

There are alot of things that I have been doing lately which I never thought I would have done but this single step really brings me out of my comfort zone.

For the longest time, blogging has always been something which I have done anonymously. I have never met any of my readers or met up with any of those from the online community.

Today, I took the first step and met someone from CPF regarding the possibility of me contributing as a guest blogger at IM$avvy. It was a scary thought for me as this was the first time I was actually meeting someone regarding my blog.

The feeling was actually like me going for a job interview except that the interviewer had lots of personal information about me!

Most of you will know that I feel that this blog is certainly not like a masterpiece. I would actually be embarrassed to showcase it to anyone. Afterall, my writing has at best been incoherent and at its worst, totally incomprehensible. I don't spend much time editing my work so it is really not amazing that I feel inadequate.

Yet, I came across this quote recently that really inspired me to step out of my comfort zone and to embrace myself for who I really am. I share with all of you this quote:

Our deepest fear is not that we are inadequate.

Our deepest fear is that we are powerful beyond measure.

It is our light not our darkness that most frightens us.

We ask ourselves, who am I to be brilliant, gorgeous,
talented and fabulous?

Actually, who are you not to be?

You are a child of God.

Your playing small does not serve the world.

There's nothing enlightened about shrinking so that other

people won't feel insecure around you.

We were born to make manifest the glory of
God that is within us.

It's not just in some of us; it's in everyone.

And as we let our own light shine,
we unconsciously give other people
permission to do the same.

As we are liberated from our own fear,
Our presence automatically liberates others.

—Marianne Williamson


Well, I am glad that I actually took this step out of my comfort zone.

Invitation to blog@IM$avvy

Dear friends,

I have been quite amazed at what this blog has achieved in such a short period of time. I have gotten countless of offers for help from readers. I have gotten lots of encouragement from strangers. And now I even got an offer to blog at CPF's IM$avvy.

I have been considering about the option and was wondering whether it would be too heavy a committment to commit to. Besides, I don't get paid. But nevertheless, I think it would be good exposure for me.

The email that was sent to me earlier this month is attached below (I have omitted certain sensitive information):
_______________________________________

Hi FF,

We will like to invite you onboard as IM$avvy Blog Corner Financial blogger.

IM$avvy is an initiative by CPF Board to provide an interesting and interactive portal for working and young adults to get information on financial matters such as financial planning, retirement, property and investment. One of our main goals is to increase awareness of our younger generation on the importance of financial planning so that they can start planning early and enjoy a secure retirement. In addition to having a blog on our website, we also host a forum, an info hub, webcasts and many more. To better connect with our target audience, we have established our presense on social networking platforms like Facebook, Twitter and FriendFeed! You can visit our website: www.imsavvy.sg to find out more.

Currently, we have 8 resident bloggers and we are looking for more talented writers and subject matter experts like yourself to join us. We will prefer bloggers contributing new posts at regular intervals e.g. once or twice a week and committing to do so for a period of one year. Alternatively, do let us know what is a comfortable arrangement for you. We can also look into publishing your current and past blog entries on IM$avvy Blog Corner instead of limiting to only submitting new posts. You can refer to the file attached in this email for more general information for IM$avvy bloggers.

On the average, each post has about 2,500 page views. IM$avvy Blog Corner will be a good channel to raise the profile of your blog. At the same time, you can take this opportunity to interact with our members. Participation of our bloggers are on a voluntary basis and there is no fee paid to them.

Do let me know your interest and we can discuss this further. Feel free to contact me at tel: XXXXXXXX for any enquiry.

Look forward to hearing favourable news from you.


Best Regards,
XXXXX

____________________________

10 Things to Do With Your CPF (Part 2)

So I started a post on ten things you could do with your CPF. And I listed down one of the things that you could do was to buy your own housing.

Here is a list of the other 9 things you could do with your CPF

2. Purchase hospitalisation plans to enhance your basic medishield coverage

3. Purchase the home protection scheme which provides coverage for outstanding mortgage loans.

4. Transfer money from your Ordinary Account to Special Account to enjoy higher interest rates.

5. Top up your special account (SA) with cash.

6. Contribute to your retirement account (RA)

7. Invest your money in your CPF-OA and CPF-SA

8. Use CPF to pay for child's education

9. Nominate your CPF monies to your dependents

10. Sign up for CPF Life if you are age 55

10 Things to Do with Your CPF

I originally had in mind to title this post: "TEN CRAZY THINGS TO DO WITH YOUR CPF!"

But then I decided against it and thought that the things I were going to pen down were not so crazy afterall.

Singaporeans and Singapore PRs seem to have a love-hate relationship with CPF - the nation wide compulsory savings scheme that is supposed to meet their retirement needs and medical bill needs.

Of course, the number of CPF accounts have increased over the years and the things we can use them for has also increased significantly.

Nevertheless, we are a nation of complainers and we JUST LOVE to COMPLAIN. The key trait when you meet a Singaporean is to find him complaining about something. He is never satisfied. If the government were to abolish CPF this very day, I am sure huge sections of the population will also begin to complain: "Why no CPF???"


Is CPF Good Or Evil?


Almost everyone I seem to know thinks that CPF is evil. They find that their money is stuck and that they can't put full use to it. They feel that they are able to generate better returns compared to the guaranteed returns that CPF provides. Some of them feel that the paltry interest rates provided by CPF is not able to beat inflation rates. (This same people complain about the paltry interest rates provided by the banks).


On the other hand, there must be a reason why CPF was introduced. There surely must be some good to it. It has provided a means whereby Singaporeans and PRs are able to enjoy affordable housing. It forces people to set aside money for their retirement and medical needs. The best brains in the government obviously feel that CPF is a scheme that is both necessary and good for the entire society.


How can CPF possibly be good and evil at the same time? Clearly there must be something good about CPF that some people see in it. Or is CPF really bad and should be abolished altogether?


I LOVE CPF


The above debate is not for me. I love CPF and enjoy the benefits that I get. To me, it is another bank account for me. The only thing is that I cannot touch the money for sometime. Yes, the rules change here and there, but overall, it is still MY MONEY.

I know I am supposed to list 10 things You can do with your CPF...

Okay, here is my no.1 thing you can do with your CPF:

YOU CAN USE IT TO PAY FOR YOUR HOUSING!!

I have never used a single cent to pay for my HDB flat thus far. My CPF settles every single cent of it. That is one amazing thing you can do with your CPF. Use it to pay for your housing!

If I did not have CPF, I am not so sure that I would have been so disciplined to set aside that sum of money. I might very well have spent it all on a trip to Europe, bought a bigger car, or God knows what...

I also enjoy low mortgage interest rates at 2.6% which is the HDB housing loan rate.

Over the course of the next few days, I hope to continue to share on some of the things you can do with your CPF.

CPF Interest Rates Are High

It seems to me that CPF interest rates for the SMRA is very high. Currently, it stands at potentially up to 5% because of the additional 1% interest that the CPF Board is giving.

Checking my CPF statement lately, I realised that I received closed to $900 in interest for my Medisave Account alone!

That got me thinking into whether I should voluntarily top up my CPF account as this would give me a guaranteed 5% returns (at least till end of this year I hope).

The downside is that I would not be able to draw out the money should I top it up.

What do you think?

Why It Makes No Sense to Invest

Okay, the title of this posting might be a bit misleading.

It actually reads: "Why it makes no sense to invest your CPF-SA money"

As most of us know, the Special Account in our CPF or CPF-SA earns an interest of 4% per annum. Till the end of 2010, the first $60,000 in our CPF accounts also earn an additional 1% interest. For most of us, that means our money in the CPF-SA account is earning like 5% interest per year.

This is guaranteed and is entirely risk free!

As such, it makes little sense to invest your CPF-SA money unless you are able to find an investment which gives you returns at greater than 5%. Considering that one cannot invest their CPF-SA into high risk funds, it is difficult (in a certain sense) to be able to achieve returns of greater than 5%

As such, it makes a lot of sense to just keep your money in your CPF-SA for the time being unless you are able to find an investment that gives you greater than 5% per year.

Food for thought.