Tag: t_liquidity

[25]build up150k]wife’s greenPortion

Posted on by tiger40490

 

  • $10k self top-up by cash .. excluded from green_portion of cpfRA. “Only meant for CpfLife monthly payout”. No way to withdraw at 55 or any time after.
  • $10k within-family cash top-up, includes my annual 8k .. excluded
  • $10k within-family cpf transfer .. excluded
  • .. In my dashboard there is an amount displayed.
  • $10k self transfer from her own OA (including VCon).. will go into green_portion 🙂
  • $38k VCon -> 3-way split .. about 27k will go into green_portion 🙂
  • .. salary contribution .. similar. Let’s wait for that to kick in.

The green_portion of wifeRA is f4w by “pledging”. As of Feb 2025, 24k is red_portion. Green_portion is about 60k.

It’s crucial to build up a big SA balance before she turns 55, so that when cpfRA is created, it will have a sizeable green_portion.

The timeline and process:

  1. at 55, FRS amount (say 250k) is auto-transferred from OA/SA into my new RA. (There may be an excess balance in OA/SA.)
  2. IFF we pledge my portion of the flat as “collateral” then we can take out the green_portion of cpfRA. We should test this channel after 55, a little bit.
  3. The OA/SA excess balance can be withdrawn 100% any time. We should exhaust this channel beffore touching the green_portion.
  4. After 55 (by 65), I will top up cpfRA to the ERS watermark.
  5. Before wife turns 55, self-transfer OA balance to SA.

lock up100k]cpf if no liquidity need

Posted on by tiger40490

See also

— The worries .. Given 300k [1] idle cash in your bank account, this sitting suck is exposed to (ranked by my worry)

  1. scams … growing threat as we age and lose some of our judgement
  2. splurge .. by anyone in the family
  3. [a] adult children 啃老 .. relying on me
  4. [a] adult children’s housing needs .. their problem, not my duty. I want to help out within my means. Having most of my fund locked into cpfLife obviates these tricky, heavy, stressful decisions.
  5. [a] start-up .. by my adult children or someone else. A good cause. However, beyond my 60s I won’t have big (above 100k) appetite for start-ups.
  6. [a] donations .. Large donation is safer in my will, not an impulsive decision. In contrast, regular contribution can be adjusted at any time.

[a] Some may call me an elderly hoarder but I want to protect my wife and my own retirement.

[1] You may have more idle cash, but let’s focus on a slice of it.

——————————-

If you are between 55 and 65, and foresee no “liquidity needs” after 65, then better lock it away in cpfRA. Time your action to some time close to 65.

If you don’t need this amount of idle cash after 55, then better lock it away in cpfRA. Note you still can withdraw the snap55_FRS_minus_BRS amount (the green portion). See %%big-ticket outlays: 55-65 – dTanbinvest

Q: how much locked up is too_much_locked_up?
A: an amount (like 1000k locked up) that affects my big-ticket purchases.
A: no amount is “too_much_locked_up”, if I have no big-tickets in my old age

— Q: Considering long-term inflation (60~90), but assuming no liquidty needs, should I lock up this huge[1] amount in cpfLife?

  • optimist .. I will have work income into my 70s. Part of it, if in Singapore, will go into cpfOA and f4w
  • optimist .. Assuming no liquity needs, my everyday living expensese will Not experience inflation as high as in housing, medical, education,,,
  • if I lock away this huge[1] amount of idle cash, then my monthly payout would be increased by some $x amount. I could invest this $x into inflation-hedging asset such as stocks or FixD
  • Outside cpfLife, I will have other productive assets such as rental prop, dividend stocks

[25]CPF: 2channels: withdraw{55

Posted on by tiger40490

This bpost provides simple binary framework. It is applicable to my and wife’s cpf withdrawals after 55.

Green_portion channel is irreversible, so use it as a last resort.

— channel: from OA

Right after RA creation, “excess” amount flows into OA. Any OA balance is 100% withdrawable any time, including subsequent salary contributions. OA becomes something like a bank account. No restriction like ‘SA top-up amount is not withdrawable’.

— channel: from the green portion of cpfRA. See [21]cpfRA for liquid parking@4% – dTanbinvest

cpfVCon>SA #IRAS #Rule37740

Posted on by tiger40490

— Wife cpfSA..
First housing-refund to cpfOa. After full (housing) refund to cpfOA, we can consider voluntary cash top-up to cpf split 3-way, then cpfOA -> cpfSA

Sooner or later, by her age 55 I want to give her enough red_packet for FRS, so shall we do it now? See answer in https://tanbinvest.dreamhosters.com/17194/age-50-asset-allocation-aggressive/

— rules governing the VCon 3-way split
Rule: no limit on SA. Any contribution (by employer or voluntary) will go into SA. In contrast, top up to SA-only .. won’t be allowed after you hit FRS.

Rule: the 3-way split is computed first. If MA has reached 66k, then the MA share will overflow to OA. This is very likely to happen, so SA would end up receiving about 21% of the total contribution, and OA receiving the remainder.

Rule 1: if 5k of your contribution exceeds the annual limit $37740, that 5k will be refunded to you without interest [Rule 1b] and without penalty.

Any OA amount you contributed can be used for housing.

tax exemption (and liquidity restriction) doesn’t cover VCon

— Risk: cpfSA IRF(interest rate floor) is subject to change. No guarantee like cpfOA IRF of 2.5%.

cpfSA rate has been above 4% since 1995.

— Q1: How about housing-refund to my cpfOA by 50-100k.

(necessity)big-ticket items pre55: CPF top-up has a conclusion.

— Q2: shall we transfer some amount from OA to SA?
Is this transfer safe for wife’s account? I think 1k is ok but she may not understand the implications.

— All CPF accounts are illiquid to varying degrees. Some amounts in OA and SA can be invested. Some amounts in OA/SA can be withdrawn at 55. Some amounts in RA can be withdrawn at 65. CPF-life is the most illiquid.

A cash Top-up transfers liquid cash from bank account into illiquid CPF accounts. Top-up is usually irreversible — You can’t withdraw anything into liquid cash, with certain exceptions.

Lock-in/lock-up means no withdrawal, and is the main drawback of top-up. As to the benefits of top-up, there are two

  • top up 33k to SA and this 33k would earn interest (around 4%) in SA, but this interest is not usable as cash
  • top up 88k to CPF-life and this 88k would produce monthly payout in cash 🙂 and the return rate is rather high.

— At age 65, RA will be used to pay annuity premium, and monthly payout will start.
Any excess across CPF accounts would probably be liquid.

— After age 55, there’s a limited level of liquidity, perhaps incompatible with my plan
— At some time before 55, when I pay down a mortgage, this is the best level of liquidity in CPF-OA
— Here I discuss four forms of top-up.
B1) IFF at 65 you don’t have ERS (Enhanced retired sum) in RA, and decide to top up 100k into RA (not to exceed the ERS), this 100k will be locked in and generating compound 4%. This 100k starts producing monthly payout at 65.

The earlier you top up, the more interest you earn, at the cost of liquidity. For example (I described at Sep 2022 CPF appointment), If you set aside 100k 6M in advance, then you can top up 100k 6M before 65th birthday. Waiting period is 6M. During the waiting period, your 100k earns 4% in RA.

B2) You can also top up, say, 50k to RA at, say, age 58 (after 55), and this 50k would be locked in for a lengthy 7 years until it transfers into cpf-life and starts “producing”.

CC) If you (VCon) top up before age 55, then it (partially) hits SA. You can withdraw it at 55 or any time

CPF confirmed that $2k transferred from OA to SA will earn $30 (1.5%) more every year.

DD) if you top up to OA (up to the housing-refund limit), it pays down the housing portion. This is an interesting option. — discussed in depth at (necessity)big-ticket outlays now till 55

— decision to make at age 65, not 55!
At 65, CPF members choose how much money to committed to CPF-life. The amount will be locked in.

No real minimum participation amount — Even if you have only 20k in RA, it can still transfer to the annuity account.

— Rule 37740 .. Not a separate rule, but a consequence of the 6k rule on OW and 30k rule on AW.

For a max-earner, the contribution “engine” would self-stop (like a self-driving car) at $37740. By design, the engine would never break the 37740 rule and lead to refund from cpf. (If a payroll software system doesn’t use this engine, it could break 6k rule or 30k rule, resulting in refunds from cpf.)

Let’s illustrate with real eg. In my 2021 (and likely 2022),

  • AW [additional wage] contribution by employer+employee was capped at 37% x 30k = $11,100
  • .. If your bonus exceeds 30k, the surplus bonus is ignored by the engine
  • OW [ordinary wage] contribution was capped at 37% x 6k x 12M = 37% x 72k = $26640
  • ^^ add up to 37% x 102k = $37740, also equal to 17M of 6k/M x 37%. As a breakdown
  • employer’s contribution was actually capped at 17% x $10,200/Y = $17,340
  • employee’s contribution was actually capped at 20% x $10,200/Y = $20,400

Deciding factor for the “max-earner” is …. 30k bonus!  If AW hits 30k and OW hits 6k,  then you are (regarded by CPF system) a max-earner and should not make a VCon [voluntary contribution]. Here’s why.

VCon is designed for non-max-earners. Max-earners’ accounts  already receive sufficient OW/AW contributions, so CPF board probably don’t want to pay such high interests on additional amounts contributed by these max-earners. Any VCon would be 100% refunded at end of year, without interest. You would be lending that amount to CPF board at zero interest.

liquidity[def]: how I gauge ILLiquid products

Posted on by tiger40490

I define liquidity as the expected number (possibly zero) of waiting months to fully recover my capital [1]. If I must incur a financial cost to access my cash, I consider it inferior liquidity. It feels like mis-calculation and mis-planning.

As defined, liquidity is a top 3 consideration in my investment decision.  I often think of liquidity more than (the vague concept of) risk. Therefore, liquidity is a dominant feature of my risk appetite and risk profile.

[1] Here is a fake example to illustrate some fine points. Say you incrementally buy one share of BRK.A and wait for X months to get near BrE. Presently, you only need to access the earliest 22% of that amount, but you have to liquidate the whole share, at a 3% loss. Still a big loss. So at the current price, the investment is not yet “free”, not at ABE, i.e. not_yet_liquid. However, suppose I also bought one share same way as you. If I’m able to select which fractional lot to liquidate, and able to liquidate the first 22%, then I am at ABE, i.e. breakeven on that 22% of capital. In such a scenario, the investment is already-liquid. In this illustration, fractional sell improves liquidity.

  • term insurance? liquidity is moot. Not an investment.
  • annuity? liquidity is moot. Not an investment.
  • cash-like? most liquid and low-risk

— ABE = actionable breakeven = a situation where I can liquidate a given position to achieve breakeven. Whether this breakeven includes various costs (like commission, FX) is unspecified. I usually include all costs.

BrE = breakeven. Half the times, the BrE situation is theoretical not actionable.

— With risk capital investments (rEstate, equities, HY/PE, gold …) there’s a pdf bell curve. I might have to wait for 10 years to breakeven and be free to liquidate (partially) to access part of my initial capital, or the wait could be 2Y.

I am used to this type of risk-capital liquidity. I have learned to embraced this type of risk-capital investments.

Mufu …. is generally less liquid than holding equivalent stocks because the wait is lengthened by erosive expensive ratio + upfront fees

Note dividend payout often improves risk-capital liquidity. Some risk-capital investments have no dividend — gold; SIA;  growth stocks

— My common objection to endowment products is super-safe illiquidity. No matter how lucky things turn out to be, I am likely to wait a long time before I can break-even via policy surrender.

CPF-OA/SA features horrible super-safe illiquidity, so I only accept CPF involuntarily.

— How relevant are bid-ask spread, upfront fees, and depth@market? Relevant.
Large transaction costs hurt liquidity as I defined.

(necessity)big-tickets pre55 #boy20.5@2029

Posted on by tiger40490

Before 55, I can housing refund 150k to cpfOA. This amount will lose liquidity.

Q: … but if there’s nothing to require the $150k, then who cares? This blogpost is mostly about the necessity outlays, rather than discretionary items, that I may need before 55.

Note Any time after 55, I can withdraw everything else after committing BRS to RA.

Note on my 55th birthday in 2029, boy is aged 20.5.

Conclusion — to gain 2.5% interest I give up a few year’s liquidity. Not worth it.

— big-ticket: SG home upgrade. Can use OA not SA.
For the proposed OA->SA top up, This big-ticket is perhaps the only big-ticket.

— big-ticket: stocks or gold? Not necessity nor big-ticket items but yes I might want to invest and build up sizeable amounts.
— big-ticket: Medical cost? I think am taken care of in SG (see the blogpost on Cushions), and will be taken care of in the U.S.
— big-ticket: college funding? Discretionary item, as I don’t want to take it on as my job, _b_u_t_ the more spare cash I have, the more flexibility. More importantly, this expense happens mostly after I turn 55. At 55, my son is only 20.5

— big-ticket: U.S. property investment? Discretionary item _b_u_t_without it my rental cost is quite heavy.
So far, I have preferred Asia properties.

When I move to the U.S. I probably want to invest in properties using USD, not SGD.

 

%%big-ticket outlays: 55-65

Posted on by tiger40490

This analysis applies to any amount I transfer to wife’s CPF-SA.

If between 55 and 65 I were to top up $100k to RA to earn 4% interest, that amount is locked in and can’t be spent on “anything”, but is there anything to need that $100k? If nothing, then who cares? After 65 I would start receiving CPF-life payout from that $100k.

— U.S. home purchase or property investment?

— college funding?

— Medical cost?

— cumulative repair costs in U.S., which tend to be much higher than SG

beat CPI-inflation+!losing liquidity : how tough@@

Posted on by tiger40490

Context is long-term parking, such as (but I don’t want to focus on) retirement and 6M contingency reserve (typically 100k).

Q: how tough is it to beat inflation, without losing liquidity? Conventional wisdom seems to say “tough”.

Actually depends on country. In the U.S. (am slightly less familiar), CPI inflation is higher than SG, but CD interest (around 2% now) and mortgage rate are also higher than Singapore. HY/PE return is also higher than Singapore. Stocks generate higher return but beware of taxes. Non-rental properties show slower appreciation than in Singapore ! [1]

Today I want to focus on Singapore. I have first-hand experience since 1991. I also discussed with friends. Below 2% is my estimate. For simplicity, I will use 1.9%. Clearly savings and CD accounts can’t beat inflation. There are many safe-n-liquid investments such money-market funds.

— money-market mufu is my favorite and default choice
I have reason to believe MM mufu offers 2%+ compound return.
Even better, there are many competing mufu funds at different liquidity levels (they call it “risk ratings”)
— stocks and rEstate: I have discussed these elsewhere as inflation hedges. Drawback is liquidity.
— CPF : super-safe illiquidity, as defined in my post on liquidity.
Does CPF qualify as inflation-proof? Yes iFF you use my 1.9%. However, if you use the 3% as quoted by DBS seminar, then you need to consider CPF-SA with 4% interest.

Endowment plan: super-safe illiquidity. I won’ t consider them.
— gold? inflation-hedge for the long-term. Poor liquidity as defined in my blogpost.
— [1] Most things show higher price increment in U.S. than in Singapore, but a notable exception is the appreciation of non-rental property outside a few speculative regions attracting hot money.

Rental yield is much higher in the U.S.

Therefore, I plan to buy only rental properties in the U.S.

##guaranteed-return products: poor return^liquidity^credit

Posted on by tiger40490

In these products, the risk is basically credit risk i.e. default risk.

(Some of these products come with an embedded option that retail investor grants to the issuer, to give issuer the option to stop paying the guaranteed return — callable bond.)

To compare this risk, I have to assign some numbers. My own rating “system” is exclusively based on brand awareness, influenced by product marketing. I basically disregard all other factors such as

  • – credit history, on-time payment record
  • – longevity of the business
  • – leverage ratio of the business
  • – how they generate enough profit to meet this requirement

Now let’s look at the products:

  • government bonds — lowest risk.
  • bank deposits — risk is negligible
  • insurance products — risk is comparable to banks. lock-in period is much longer.
  • —– For the above debtors, I basically acknowledge but disregard the risk.
  • Lesser known regional banks and insurers, in developing countries — if they offer much higher return I would be suspicious.
  • property developers — I basically accept the higher risk.
  • unknown entities — very high risk, but I embrace the risk.