Investing | Article

The SSB Monthly Payout Strategy You Need

by Sophia | 12 Dec 2019 | 5 mins read

But want some of that elusive passive income everyone seems to be talking about? Won’t it be nice to just sit back, put your feet up, and collect that monthly paycheck?

But wait, you might say, you also don’t want to risk your money, or use your brain to suss out the market?

We got you, fam. There are some low-risk investment products, such as government-backed bonds – which you can assemble to create a bond ladder that achieves all of the above.

How a Bond Ladder Works

The idea is to stagger the dividend payments of your bond investments at regular intervals to ensure monthly payouts. But before that, the first step is to decide: how much do you have to invest?

Of course, as poor investors, we don’t have much of a choice.

So, one of the easiest options would be to use the Singapore Savings Bond (SSB), with its minimum purchase amount of $500 and a maturity period of 10 years.

The good news is that SSB pays out dividends twice-yearly, so just purchasing six SSBs will generate you a monthly income that lasts 10 years. And you get your invested amount back in the end. Nice!

So going by the minimum purchase amount of $500 per SSB, one has to commit to putting aside $3,000 every year, which is a relatively achievable monthly commitment of $250.

So down to the important stuff: how much passive income can we earn if we want to build this ladder? Let’s look at the SSB rates of the last 6 months.

If the average the total returns of the last six months of SSB issues, we get a figure of 1.89%.

So for our investment of $3,000, this roughly comes up to a grand total of $56.70 in dividend income each year.

Or, $4.73 a month in income.

Exciting stuff.

But before you resign yourself to the fate of being a poor investor, think long-term for a second.

If a person decides to consistently keep building bond ladders and invest $3,000 each year during their working years, the subsequent payouts will increase over time as the ladders stack.

In addition, if they dutifully reinvest their annual $56.70 dividend payout, after 10 years, one SSB ladder will distribute enough dividends to purchase another unit of SSBs ($500).

Also don’t forget: At the end of every 10 years, your bond will expire and your initial investment of $3,000 will be returned. You can then use it to rebuild the ladder again.

So ladders birth more ladders and each ladder can regenerate (ladder-ception!).

So what can we expect in returns at the end of, say, 34 years of investing? We did a simple projection based upon:

  • A fixed 1.67% interest rate (so a $3,000 ladder generates $50 in yearly dividends)
  • When the dividends accumulate to $3,000, we’ll purchase another SSB ladder (six units of SSBs)
  • Reinvest the capital once each bond expires, rebuilding the ladder

So we found that with investing $3,000 each year over 34 years, which is a total of $102,000 invested, you’ll finally own $138,000 worth of bonds.

This generates an average of $2,600 of annual income – or $216 in monthly income.

The results would have been even better if:

  1. We used more realistic interest rates — at 2% you would have ended with $147,000 worth of SSBs and nearer $300 a month in income.
  2. We had also reinvested immediately once $500 in dividends have accumulated

But our Google sheet was getting out of hand…

Also, because SSBs can be redeemed early and without penalty, it is worthwhile to note that returns can be optimised if one is diligent in ‘pruning’ their SSB garden — disposing of SSBs with poorer yields and replacing them with more attractive new issues.


However, in the process of projecting this strategy over the long term, we realised some drawbacks.

Firstly, it can be very difficult to track your dividend payouts for reinvestment.

One probably has to maintain a massive spreadsheet tracking the monthly income generated from each bond (each with their own interest rates) . Or perhaps you need to have a dedicated bank account to ‘store’ incoming dividends, so you simply hit the buy button when you see $500 in the account.

Secondly, while the $500 purchase price is relatively cheap, there are still cheaper options, such as a bond exchange-traded funds (ETF), allowing you to deploy and redeploy your dividends quicker. But of course, ETFs have their own drawbacks.

Lastly, if a bond ladder is part of your investment portfolio of stocks and bonds, it can be difficult to rebalance your portfolio, as you can only sell the whole SSB of $500, rather than smaller denominations if you need to do so to bring your portfolio back to target allocations.

Read more about portfolio allocations here.

But in the end, we have to admit it, the returns are not the most amazing out there. But the SSB bond ladder strategy can still be attractive to conservative investors who desire an extremely safe and liquid investment vehicle where the capital return is not just guaranteed, but the monthly payout schedule is also very predictable. It also can be a firm stabilising pillar of one’s total investment portfolio.