Despite having one of the highest saving rates in the world, 45% of Singaporean who turned 62 last year were unable to meet the minimum sum amount of $60,000. This sum of $60,000 is by no means a large amount. It can only provide you with $500 a month for 10 years. One of the major reasons why Singapore Peasants cannot retire after slogging away for half a life-time is this: The CPF + HDB combo
At the very heart of the CPF + HDB combo is this little known effect: Living in a home that you own is exactly the same as paying rent for one.
The more expensive your home is, the more rent you pay.
To illustrate this point, let's consider person X, who has $1 million to buy a home. X can buy a $1 million dollar home and live in it. This will leave X will $1 million less in his bank account with a cash flow position of $0.
Alternatively, X can buy a $1 million home and lease it out for a yield of 5% per annum, which is $50,000. Then with that $50,000, he can rent a $1 million home and live in it this time, paying $50,000 a year. In this scenario, X will also have $1 million less in his bank account, with a cash flow position of $0 again.
I know still sounds rather counter-intuitive or strange even. But think of it this way. If X had acted like a cheapskate and decided to sponge on his parents by staying in his parent's home without paying rent, purchased a $1 million home and leased it out, he would have a positive cash flow of $50,000 a year instead.
By virtue of purchasing a house and living in it, you are missing out on the chance to collect rent. The more expensive your home, the greater the opportunity cost. Therefore, it would be beneficial to your finances if you had purchased 2 $500,000 houses instead of $1 million one, live in one of them and lease the other out. Doing so will give you a positive cash flow of $25,000 a year (assuming a rental return of 5% pa). Over a period of say 3 decades, the effects can make a difference of a life-time. Assuming rental yield and property prices keep pace with the rate of inflation, staying in a $500,000 house will earn/save you $750,000 in real terms. The cheaper your home, the better it is for you financially.
So how does CPF comes into the picture? By locking peasants' sweat blood money for what seems to be an eternity, CPF systematically skews a person's decision towards buying a home. Most peasants will rather buy a home with their CPF money than let it rot in the ordinary account that used to give 2.5% interest, resulting in artificially inflated prices of property. This means that you are in effect paying more rent, and the effect of this over half a life-time is poverty.
Showing posts with label CPF. Show all posts
Showing posts with label CPF. Show all posts
Friday, October 5, 2007
Wednesday, September 19, 2007
Vote for me peasants, and stand to get a payout of $1111 forever!
TODAY reported the following exchange between Opposition MP, Low Thia Khiang, and Minister of Manpower, Dr Ng Eng Hen, apparantly during a parliamentary debate.
MR LOW THIA KHIANG (LEFT): Does the
Government of Singapore Investment Corporation
(GIC) use money derived from CPF to invest?
DR NG ENG HEN (RIGHT): The relationship is not
so simple. Let me give an example: You put money
in a bank and you agree that you’ll get
2 per cent. The bank publishes a report and says
that it earned 8 per cent. You go to the bank and
say, you want 8 per cent. It doesn’t work.
But the Government takes over the liability of
the CPF Board and promises a risk-free rate to
members. The market test is, if anybody
else thinks he can take on that liability, please
line up.
MR LOW: Is the Government short-changing
Singaporeans by giving CPF members a
3.5-per-cent interest rate, while the GIC makes
9 per cent and pockets the balance of 5.5 per
cent? Is the motive of delaying the draw-down
age to enable the GIC to have a readily available,
cheap source of fund to invest?
DR NG: If it was that cheap, we would have a line
of suitors waiting for the money. There are none.
See Singapore Peasants, here's what you get after paying millions for a minister. This is the kind of nonsensical reply you get.
"The relationship is not so simple. Let me give an example: You put money in a bank and you agree that you’ll get 2 per cent. The bank publishes a report and saysthat it earned 8 per cent. You go to the bank and say, you want 8 per cent. It doesn’t work.But the Government takes over the liability ofthe CPF Board and promises a risk-free rate to members. The market test is, if anybody else thinks he can take on that liability, please line up."
Classic bullshit indeed. Firstly, a bank does not force you to deposit your money with it. You have the choice of not putting your money in the bank!!! Secondly, CPF is not a bank. It is a tool to help poor peasants save up sufficient funds for retirement purposes. CPF is not created to allow GICs to have access to cheap loans so that they can generate huge profits. Or is it? And just because CPF promises a risk-free rate to members doesn't mean it has the right to stash away the extra profits. Peasants are forced to put money inside CPF. If CPF loses money, it should jolly well fork out the risk-free rate to members. If it generates sulplus profits, peasants have every right to demand that the money goes back to them. As for Dr Ng's "market test", i would be delighted to be able to borrow money at 2.5% interest rate. I'm sure everyone else would too. The freaking line will stretch from JB to KL and back to SG.
I think peasants should just vote for me to be their prime minister lah. I'll hire Warren Buffett, the legendary investor, to manage Temesek's and GICs' assets. With Singapore's reserves standing at around $300 BILLION, according to opposition politician Mr Goh Meng Seng, Warren just needs to achieve an annual return of investment of about 20%. That will give us $60 billion. Then we'll share this $60 billion amongst the 4.5million people living on our tiny island. That works out to be $1111.11 a month for each person! Even Foreign Talents are included in this calculation. That's how rich we are!
And here's the best part of the deal.Hehe. I'll just ask for a salary of 500k a month ok? Value for money don't you think? Everyone gets 400 plates of Char Kway Teow a month for free instead of having to FORGO plates of Char Kway Teow!
MR LOW THIA KHIANG (LEFT): Does the
Government of Singapore Investment Corporation
(GIC) use money derived from CPF to invest?
DR NG ENG HEN (RIGHT): The relationship is not
so simple. Let me give an example: You put money
in a bank and you agree that you’ll get
2 per cent. The bank publishes a report and says
that it earned 8 per cent. You go to the bank and
say, you want 8 per cent. It doesn’t work.
But the Government takes over the liability of
the CPF Board and promises a risk-free rate to
members. The market test is, if anybody
else thinks he can take on that liability, please
line up.
MR LOW: Is the Government short-changing
Singaporeans by giving CPF members a
3.5-per-cent interest rate, while the GIC makes
9 per cent and pockets the balance of 5.5 per
cent? Is the motive of delaying the draw-down
age to enable the GIC to have a readily available,
cheap source of fund to invest?
DR NG: If it was that cheap, we would have a line
of suitors waiting for the money. There are none.
See Singapore Peasants, here's what you get after paying millions for a minister. This is the kind of nonsensical reply you get.
"The relationship is not so simple. Let me give an example: You put money in a bank and you agree that you’ll get 2 per cent. The bank publishes a report and saysthat it earned 8 per cent. You go to the bank and say, you want 8 per cent. It doesn’t work.But the Government takes over the liability ofthe CPF Board and promises a risk-free rate to members. The market test is, if anybody else thinks he can take on that liability, please line up."
Classic bullshit indeed. Firstly, a bank does not force you to deposit your money with it. You have the choice of not putting your money in the bank!!! Secondly, CPF is not a bank. It is a tool to help poor peasants save up sufficient funds for retirement purposes. CPF is not created to allow GICs to have access to cheap loans so that they can generate huge profits. Or is it? And just because CPF promises a risk-free rate to members doesn't mean it has the right to stash away the extra profits. Peasants are forced to put money inside CPF. If CPF loses money, it should jolly well fork out the risk-free rate to members. If it generates sulplus profits, peasants have every right to demand that the money goes back to them. As for Dr Ng's "market test", i would be delighted to be able to borrow money at 2.5% interest rate. I'm sure everyone else would too. The freaking line will stretch from JB to KL and back to SG.
I think peasants should just vote for me to be their prime minister lah. I'll hire Warren Buffett, the legendary investor, to manage Temesek's and GICs' assets. With Singapore's reserves standing at around $300 BILLION, according to opposition politician Mr Goh Meng Seng, Warren just needs to achieve an annual return of investment of about 20%. That will give us $60 billion. Then we'll share this $60 billion amongst the 4.5million people living on our tiny island. That works out to be $1111.11 a month for each person! Even Foreign Talents are included in this calculation. That's how rich we are!
And here's the best part of the deal.Hehe. I'll just ask for a salary of 500k a month ok? Value for money don't you think? Everyone gets 400 plates of Char Kway Teow a month for free instead of having to FORGO plates of Char Kway Teow!
Thursday, June 21, 2007
CPF Minimum Sum withdrawal age may be raised to 65
After reading this piece of news on the possible upcoming changes on CPF, here's something to chew on. For those clueless on what is CPF, CPF stand for Central Provident Fund, a form of social security for Singaporeans to accumulate a retirement fund by depositing a portion of their monthly salary into an account with the government. For more details, you can read up on it at the CPF website
1) The CPF is actually a loan from the citizens to the gov at 2.5% pa; no bank in Singapore lends money at such a low rate.
2) Is the situation of insufficient retirement fund related to the influx of foreign low wage workers, which serves to depress the already low wages of the low income earner
3) If a large majority of Singaporeans are unable to have enough savings to retire and own a fully paid for flat after 40 year career (22 -62 yrs old) despite a total CPF contribution rate of 34.5% (14.5% employer rate + 20% employee rate), something is wrong
4) Can the elderly workers find employment?
5) The present $80,000 minimum sum would pay a monthly sum of $333.33 for 20 years ( 62-82) . Can one survive on that sum in Singapore? If not then what's the purpose of CPF? To lure Singaporeans in to a false sense of security?
6) To be able to reach the new minimum sum of $120,000 after working for 40 years, one would need to earn more than $725 a month. Given that some of the people working as cleaners earn less than that figure, how will they be able to reach the new $120,000 minimum sum? Here's a look at the income distribution in Singapore
7) $100 compounded at 2.5% pa over 40 years = $269
$100 compounded at 5% pa over 40 years = $704
5% investment return is easily achieved. Take a look at the S&P 500 index.
Is this why Singaporeans do not have enough money to retire?
8) So is CPF the problem or the cure?
1) The CPF is actually a loan from the citizens to the gov at 2.5% pa; no bank in Singapore lends money at such a low rate.
2) Is the situation of insufficient retirement fund related to the influx of foreign low wage workers, which serves to depress the already low wages of the low income earner
3) If a large majority of Singaporeans are unable to have enough savings to retire and own a fully paid for flat after 40 year career (22 -62 yrs old) despite a total CPF contribution rate of 34.5% (14.5% employer rate + 20% employee rate), something is wrong
4) Can the elderly workers find employment?
5) The present $80,000 minimum sum would pay a monthly sum of $333.33 for 20 years ( 62-82) . Can one survive on that sum in Singapore? If not then what's the purpose of CPF? To lure Singaporeans in to a false sense of security?
6) To be able to reach the new minimum sum of $120,000 after working for 40 years, one would need to earn more than $725 a month. Given that some of the people working as cleaners earn less than that figure, how will they be able to reach the new $120,000 minimum sum? Here's a look at the income distribution in Singapore
7) $100 compounded at 2.5% pa over 40 years = $269
$100 compounded at 5% pa over 40 years = $704
5% investment return is easily achieved. Take a look at the S&P 500 index.
Is this why Singaporeans do not have enough money to retire?
8) So is CPF the problem or the cure?
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