Comment by ecshafer
4 days ago
The CPF sounds pretty clever. It covers a major individual cost and need (retirement, medical, housing) instead of just throwing it into a tax. It makes the government money. This sounds like a win win kind of policy.
4 days ago
The CPF sounds pretty clever. It covers a major individual cost and need (retirement, medical, housing) instead of just throwing it into a tax. It makes the government money. This sounds like a win win kind of policy.
To me it sounds like a tax structured in a strange way so it doesn't obviously read as a tax.
It's essentially a forced loan to the government at subpar rates. The "tax" is the delta between what the government pays out for the bonds vs what a bond of equivalent risk in the free market would have paid.
The magnitude of the investment also probably makes it impractical for anyone but the very wealthy to retire before that starts paying out. Most other countries have lower rates on their retirement schemes, which makes it feasible for more people to live on their savings for a few years before the government retirement scheme kicks in. E.g. in the US it's pretty feasible for the upper middle/lower upper classes to retire a few years before Social Security kicks in, especially if they're willing to live frugally.
That's partially true. 37% contribution of pay, earmarked for personal welfare expenses (housing/healthcare/retirement), basically covers 60% of a typical state budget.
But these funds aren't pooled like taxes. Typically the top 25% pay something like 80% of the income taxes. And the recipient of that tax revenue is typically the bottom 50% who get means-tested welfare benefits. In the Singaporean model it seems that the CPF funds of 37% are not pooled but allocated to personal accounts.
In other words it's a redistribution in-time (from early to late) and in-type (general income to housing/healthcare/retirement expenses), but to the same person.
Whereas a tax is typically a redistribution in the same time period, but to different persons, and can be earmarked to whatever.
I'd certainly prefer a 37% tax earmarked to me only (with modest ROI) + 10% income taxes + 0% cap gains, than the 40% tax I pay (west-europe) on my income which is wholly redistributed to others + 36% cap gains if I invest the remainder.
That does not count the missing opportunity cost, which is the actual tax from the savings
>It's essentially a forced loan to the government at subpar rates. The "tax" is the delta between what the government pays out for the bonds vs what a bond of equivalent risk in the free market would have paid.
Yeah there's even a term for it: https://en.wikipedia.org/wiki/Financial_repression
> The "tax" is the delta between what the government pays out for the bonds vs what a bond of equivalent risk in the free market would have paid.
It also robs the individual's freedom to gamble with their retirement funds while expecting/demanding a bailout when shit hits the fan.
In the USA we have thoughtful policies that allow people over a certain amount of wealth invested in key industries to do that.
The vast bulk of this “freedom” is exercised by public and union pension funds, not individuals.
e.g. https://apnews.com/article/biden-business-united-states-gove...
It’s almost impossible for an upper middle class couple to retire in the US before their 65 unless they have some type of government provided or private company provided health insurance like teachers, police officers, military etc.
It’s about $25K a year for a decent plan which is doable. But you have to hope that Republicans - and yes this is a political issue - don’t successfully kill the ACA and make it impossible to get insurance at any cost if you have a pre-existing condition. If you are old - you will develop a pre-existing condition.
My parents are 83 and 81 and retired at 57/55. But my mom was a teacher who still gets benefits through the government and my dad gets benefits from the one factory that didn’t shut down in our hometown.
I’m 51 and even if I could retire early financially, I wouldn’t do it and stay in the US. Play the smallest fiddle for us. I “retired my wife” at 44 in 2020 8 years into our marriage when I did a slight transition to an industry where remote work with travel is the norm (cloud consulting + app dev) and we have traveled a lot including doing stints as “digital nomads”.
We are staying in one of the countries that we might retire to as a Plan B for six weeks starting next week.
Even now that we moved to state tax free Florida and my wife hasn’t had to work in six years, she keeps a current CDL because she can get a job as a school bus driver easily for the benefits and someone will pay me for independent consulting if I lose my job.
The FIRE community and my own personal situation prove you very, very wrong. It's absolutely possible for a upper middle class family to retire in their 50s, even in their 40s, if they live frugally.
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Without digging into this too far, I do think it’s possible but it does require starting early and sticking to the plan. I’m not one of those people, but I know people who are.
The mean household income for the 4th quintile is 115k a year. The mean of the middle quintile is 70k. There’s a theoretical 45k a year spread if you earn like the 4th quintile and spend like the 3rd (evidently possible since a lot of people live in the 3rd quintile).
Even ignoring compound interest, if you can hit that 4th quintile at 30 and you lose half the spread to taxes, by 55 you have 25 years of saving 22.5k/year for 562.5k in savings.
It’s probably not the most fun thing, but I do think it’s doable.
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https://mrmoneymustache.com/blog/ Read this story and more in the fire community, it's not impossible
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Is it possible to get insurance as an expat living in a foreign country, yet spend time in the states? Would that be a good coverage for retirees that want to split time between US and other countries?
So Texas also doesn’t have income tax but my siblings house (assessed at a lower value than mine) is assessed property tax almost triple wha mine is, dwarfing my state income tax plus property tax. Not sure about Florida - YMMV.
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For curiosity's sake, what exactly do you think Republicans will do to "kill the ACA"? I doubt they're going to introduce a bill that revokes the ACA in its entirety. They killed the mandate almost a decade ago and the marketplace healthcare plans have continued to limp along, depending on the state. What's next?
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With health marketplace you can get insurance, or you can get a PPA service, or save money into a HSA, like there is multiple ways to do it.
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The other way to avoid a pre-existing condition is to just avoid medical care entirely.
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> The magnitude of the investment also probably makes it impractical for anyone but the very wealthy to retire before that starts paying out...
But they can pull out for housing right? That's an enormous portion of most people's expenses. If I didn't have to worry about housing, I could be living large on less than half of my salary, I would certainly semi-retire at least.
Sort of. So far as I can tell, you can withdraw to buy housing but I don’t think you can pay rent out of it.
The loans are also 75% max loan-to-value so I think until you can get 25% of the purchase price in your account you have to pay CPF and rent (or live with family).
Also, not an economist, but I suspect the forced savings has a wildly inflationary effect on housing prices. You can’t do much else with the money until you retire, so I would guess the price of housing rises up to match the forced savings rate.
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That's not all that different than US Social Security. SS has a much lower required contribution/tax rate, but the overall scheme seems similar (lower than market returns, etc) and naming (despite SS actually being called a tax, many residents think of it as a required personal retirement savings account).
SS is different mostly in that you’re not really loaning money to the government. The money coming in today mostly goes right back out as payments.
There’s also an upper limit on SS taxable income. I forget what it is, but basically the entirety of the top quintile isn’t paying SS on their entire income. I want to say it’s like 90k, but it’s been a while since I looked.
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The rates aren't all that subpar, if you adjust for risk. You can take your CPF out and invest yourself (within limits), and most people do worse.
Not true. Importantly, a majority of the cpf can be used for participating in stock market.
This is what all forced savings programs are. The name is a euphemism.
It’s not a win win policy. The citizens lose massive amount of their money to government on the bond yield delta. It preys on people not knowing the effect of long term compound interest.
Edit: in fact interest delta is how banks make their huge profits except the government here does it by force.
What's your source on the yield delta? In fact if you bought regular Singapore government t bills you will actually get a lower rate than the CPF rate. And neither do banks and saving plans give higher rates.
The average person does not make meaningful interest or investment income, its not practical to on individual small salaries.
In this case the citizens are forced to save, but the interest they're given is less than what they would have earned by saving the same amount on their own.
Also, the average person in the United States does have meaningful investments toward retirement age.
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There's another clever bit:
In times of economic distress the government lowers the employer contribution part of CPF. That effectively gives everyone a wage cut to help employment, but without people complaining too much about it. The government is disciplined enough to raise the rate again later.
No, it's a total loss for the citizen because even if they can use that money for "(retirement, medical, housing)" the interest paid is much too low.
Forced savings programs aren't actually "savings" for the people on whom the programs are forced!! "Forced savings" is a euphemism for "we're taking your money and calling it savings based on the idea that we're going to invest it well, though you won't see much of any gains, and there might not be any gains to speak of".
> instead of just throwing it into a tax. It makes the government money
It is a tax, but with extra steps.
The reason it makes the government money is because they’re collecting the extra interest that citizens would have earned if they were free to invest it on their own.
The CPF funds actually remain in your account, and the interest goes back to you. 1. The interest is guaranteed unlike a regular investment, and 2. I'm interested to know what to invest in to get better interest than CPF, because that's a very legit benchmark here, so please tell me if you find something that has guaranteed returns + higher interest.
Alas, actually not: you can actually invest your CPF by yourself, and most people lose money compared to leaving it with the Gahmen.
It’s analogous to the US, where you put money into social security and then withdraw later.
The only question is whether the fund is running at a surplus or not.
The US has raided its fund to finance other government programs, and then will have to pay it back via tax revenues.
Why does the government get to decide when we retire?
You can retire whenever you want. The government decides when to start funding it.
As for why - the same reason why they get to decide what side of the road you drive on and what laws you follow. They rule the patch of land you were born on, and if you don't like it you can either participate in the system (assuming it's a democracy) or leave.
The real question is not why the government gets to set the retirement age. Of course it gets to set it IF it's involved in paying for people's retirements!
The real question is why governments insist on euphemistic names ("forced savings") that imply the opposite of the reality of the programs. And why people put up with such financial repression schemes. The answer to the first question is to keep people from being too upset too suddenly, too many all at once. The answer to the latter is that the people usually don't get a say in these things.
For Singapore this program probably makes a great deal of sense since Singapore is singularly vulnerable given its location in the world. To build what they did they probably needed these sorts of policies. I suspect most Singaporeans don't mind all that much, though I don't know. We would very much mind this sort of thing here in the U.S. though!
This boils down to a "Might makes right" claim. It doesn't answer the question why. Only how.
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It doesn't (you can retire early), but it does decide part of what you will need to be saving and how.
And the reason it decides that, apart from "because it can", is because many societies have seen what happens when it's left to individuals to take care of this, and they fuck it up in massive numbers, and the outcome of that then fucks up society.
It is really easy to "Fuck it up" when greedy assholes jack up the price of necessities like food, shelter, and medical care. 66% of bankruptcies are due to medical costs. We should just socialize necessities like food, shelter, and medical care so there is no chance of "Fucking it up." That would cover the possibility of disability as well.
It sounds to me like we have built a system to exploit people as much as possible. Treating them like farm animals.
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The government decides when we can retire and they help us out. You can stop working today if you want, Government shouldn't pay you for it for no reason. Your duty as a citizen is to work and build your nation, eventually the government pays back that service with benefits.
This isn't something the government gives you. It is something they have confiscated and held on to.
> Your duty as a citizen is to work and build your nation
What about the duty of the trust fund babies and idle wealthy? What about the duty of the capital owners? Why is the retirement age going up instead of down as productivity increases?
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These days I wonder about that duty I have. It sure felt obligatory some time ago. I thought of myself as a patriot and that the rule of law was something we we should be proud of. A country whose own anthem spoke of "liberty and justice for all".
The current trajectory makes my question a lot of things, including this whole "government pays back that service with benefits" as it will be some time before I ever see a penny of SSI.
A lot of our taxes in this country seem like a giant waste or are grossly inefficient at best.
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This question cannot be asked in good faith on a user board. It requires an 800 pages book on politics, history, philosophy, economics to be properly answerered and it would barely scratch the surface.
You might as well ask similar questions about most basic laws and concepts behind how western societies work.
Yes, you should be asking similar questions about most basic laws and concepts behind how western society works.
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The government doesn't decide when you retire. The government decides when it is willing to pay you to be retired.
Social security is an entitlement. They have taken money from your paycheck to fund it. In fact, they have taken more from your paycheck than they will pay back to you in order to pay for an aging population. The extra goes to bonds which the government then uses to reduce inflation when they decide to invade random countries or bail out a bank.
Now, why does the government get to decide when I retire with my own money?
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> It covers a major individual cost and need (retirement, medical, housing) instead of just throwing it into a tax.
Forced saving makes it a tax. It's essentially no different than payroll taxes in the U.S. that fund Social Security. Buying government bonds is still marginally better accounting than a complete Ponzi scam like Social Security in the U.S., but even that ultimately amounts to the same thing - the government is paying itself, so it's a wash.
The social security trust fund does buy government bonds.
Social security is not a savings account and is currently underfunded.
Except for the part where citizens get low returns and are forced to work their whole lives accruing minimal benefit.
How is being a serf win win?
Singapore is one of the last countries one will be a 'serf' in.
The parent contributor has conveniently left out the fact that the 37% of CPF contributions is split 20-17 in terms of employee-employer contributions[1], and has a ceiling of S$8000[2], so if one earns more than that, every additional dollar goes entirely to them, which is also taxed at globally low income tax rates[3]. One can put all one's post-tax money into any stocks/bonds/funds, and there is also no capital gains tax[4].
[1]: https://www.cpf.gov.sg/employer/employer-obligations/how-muc...
[2]: https://www.cpf.gov.sg/employer/infohub/news/cpf-related-ann...
[3]: https://www.iras.gov.sg/taxes/individual-income-tax/basics-o...
[4]: https://www.iras.gov.sg/taxes/individual-income-tax/basics-o...
>The parent contributor has conveniently left out the fact that the 37% of CPF contributions is split 20-17 in terms of employee-employer contributions[1]
This point is a shell game, because the employer's share is still effectively being taken from the employee. It's equivalent of "tariffs are paid by foreigners!" that's trotted out for supporting tariffs.
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$8000 is considerably above median income, no?
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You mean the US, right? Especially with the part 2?
I know this may sound like a shock because you are privileged but 7% yoy return on capital is NOT the norm for the rest of the world. Just look at any other index not called the S&P or the Dow. Look up US exceptionalism.
The US policy for retirement savings shackles the younger generation with a ticking time bomb. Forcing your own citizens to save money for themselves is a lot better than forcing your own citizens to pay for others. Which one is more morally cruel?
HK has a similar forced savings, but that ROI is like 1 or 2% and the options to invest are paltry.
Some perspective is necessary. Yes it’s not great but compared to the rest of the world it’s stellar.
> I know this may sound like a shock because you are privileged but 7% yoy return on capital is NOT the norm for the rest of the world. Just look at any other index not called the S&P or the Dow. Look up US exceptionalism.
I have sympathy for your general position, but this particular one is a bit silly: I live outside the US (in Singapore, in fact), and I can invest in US equity just fine.
If ROI is lower than inflation then what’s the point of saving? So you can have an even worse standard of living after you retire?
Forced investment in low ROI vehicles is just a tax by another name.
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I can’t speak for Singaporeans and every government has their detractors but the Singaporeans I’ve known loved their system and hated the western systems they were exposed to. They would laugh if you tried to describe their life as serfdom when compared to a life in the U.S. or Europe.
I'll be blunt and say most Singaporeans have a very poor idea of how these policies work. Another major one - virtually all Singaporeans believe they own their houses, and it is a point of pride and financial security. Most houses are on 99 year leases, but the idea that is deeply lodged is that this is longer than you can live so this is inconsequential. While this is true if they only cared about living in it, houses have huge financial/investment value to Singaporeans. Despite the iron mathematical law that these houses must depreciate their lease value, most Singaporeans believe house prices will continue to rise based on historical trends. The math just doesn't work out.
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People don’t believe me when I tell them that there’s a large portion of even the American population that will happily accept the simplicity and safety of serfdom.
Unless we scale back our lives significantly, and are fine with a lot less stuff and vacations and devices and modernized living (houses and transit today are vastly more complex systems than a few decades ago), there simply is no way to let a large number of people live like rich people.
I grew up in East Germany, and while it was a total failure, they got at least one idea correct in the workers paradise: We need to work. (Never mind the implementation, I already said it was a total failure, okay? It's about problem recognition, not about the quality of the solution.)
And you know what? I'm actually like my grandfather, who without any need whatsoever continued to work well past retirement, privately, painting a house here, doing some paint shop there, designing and installing a sun dial somewhere. He only got off the scaffolding on a house's paint job a week before he died.
I too would hate to just laze around. I LOVE doing useful stuff. I worked and made money many times as a child already, and it was always fun!
What stopped the fun was the coming of The West (which I too went to the streets for and wanted, still, "side effects may apply"). While I studied CS I took a job in a chocolate factory, not because I needed the money, but because that's what I always did and was used to. Being in the production of stuff is actually FUN! Except then came some western management idiot to make it clear fun is over. I had just setup a machine to work as efficiently and as well as possible (because that's fun!), so now I had to wait a few minutes for it to finish. Just a few minutes, no time to start something else. So I briefly sat next to it and waited for it to finish. In comes the management idiot, immediately jumping on me, why am I lazing around??? That's not what they pay me for!
Just an anecdote, and of course it is much better in knowledge jobs, but that, and the fact that the money accumulates towards the top is what I think is a HUGE problem in today's capitalism. No wonder they have to make live as miserable as possible for the working majority, because there is no fun. The managers and owners think we don't want to work, and treat us accordingly. But it is THEM who are responsible for much of that.
Coincidentally, I was born in East Germany and now live in Singapore.
Even in unified Germany you can have fun. I think actually a lot more. You can run your own independent cooperatives etc.
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Working as a painter for lack of imagination of what else to do is not fun. It reminds me of being “institutionalized” from Shawshank’s redemption.
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You get lots of vacations? And fancy transit systems? Where do you live and work?