Some clarifications on some of my CPF videos and articles

 

For the past week, we've been working hard to fact-check some of the materials being put up on the Dr Wealth blog. As you may notice, some numbers differ between my article and another Dr Wealth shareholder. 

• Louis Koay's article can be found here.
• My article is here.
• I also have a video here.

There has been feedback that my article contradicts Louis' as we project a different payout for CPF-Life.

I need to write an article to clarify my numbers as they are part of a thought experiment to project the amount of money needed today in our CPF-RA to lead a comfortable lifestyle based on 2021 figures from the Lee Kuan Yew School of Public Policy. In 2021, that number is $1,421; that amount today, assuming 3% inflation, is close to $1,560 in today's dollars.

Now I've got a severe problem because most of the tables from the press will start with a multiple of BRS today, then allow the amounts to compound for ten years, then use the CPF Life Estimator to project monthly payouts many years later when the member reaches 65 years old. The narrative is that you will have a nice payout when you hit 65 if you let your money compound in the CPF-RA until you can start paying annuity premiums to get a monthly payout. 

There are too many degrees of unpredictability when we do this because we need to know how much annuity premiums cost in the far future, how much annuity costs depend on interest rates in the far end, and the average life span of a Singaporean. If humanity finds a cure for cancer, everyone's lifespan will extend by 3 years, and annuities will become more expensive per dollar of payout. On top of that, we will have problems projecting the basic expenses of a 65-year-old ten years in the future. A more significant proportion of 65-year-olds is spent on medication, and medication has an inflation rate higher than our reported amounts. I have evidence of this - my evidence comes from the Medisave BHS, which grows faster than 4% yearly. 

So when I use the CPF Life Estimator to figure out how much I need in CPF-RA today, I can't work the 10-year 4+% compounding into my figures from age 55-65. I have to input the amounts a 65-year-old member has today. Then, I used the CPF Life estimator to calculate my payout immediately in 2024. This extremely theoretical exercise will result in a monthly payout much lower than the Louis Koay article or mainstream media. 

We need to know how much is adequate to cover today's expenses. i.e. In 2024 dollars.

My conclusion remains that we need at least 3 x BRS in our CPF-RA when we hit 65 for payouts, which may be $3k+ as written in other articles, to barely meet the basic expenses of a 65-year-old. Another conclusion is that it may be unproductive to put the full 4xBRS into CPF Life as there is a risk of over-insurance as payouts, even with the Escalating Plan, don't seem to mitigate inflation completely, which means that members still need to pick up investing skills and take on market risk to succeed in retiring conventionally. 

The private sector carries a heavy burden when we write articles about CPF. I can lose credibility if I am wrong.

We have been combing through some of the comments raised in our videos and using the CPF website to fact-check our materials against the statements made. The CPF website needs to make this a more straightforward process for us. 

Please be patient and understanding if you find factual inaccuracies in my material. 

I intend to come clean if these can be found,

Make Polytechnics Great Again !

If we go beyond CPF reforms, the biggest game-changers are the ones for mid-career changers over 40 who can go back to a Polytechnic to study for a diploma and draw a monthly allowance of up to $3,000 a month. 

I do not have any policy details right now, but I want to share some thoughts on this important game-changer that will create a massive seismic shift in the way we look at educational institutions today, which will upend any of my previous posts on polytechnic education.

At first glance, this looks like a welfare scheme that will give unemployed mature workers a two-year reprieve while they retrain for a new career with no guarantee of an actual job at the end of the course, but if you look carefully at the policy, it would be hard to abuse. Folks who have been unemployed longer than a year do not have a salary track record to get payouts from the scheme. The scheme is also keyed to half your original salary, so it barely covers all living expenses for most mature workers. At first glance, this may not be a successful policy as it benefits the few and may not result in re-employment.

Now, if you are willing to go beyond looking at the scheme as a welfare program for folks who are on the verge of unemployability, I think the genius of the program stands out.

The first effect is that folks are not forced to become gig workers, so they have better options for at least the next few years, which can reduce chronic underemployment. 

The second is the amount of entrepreneurial fervour it can generate. 

Many MNC executives need a risk-controlled option to transform themselves into SME owners. This can become a pipeline for the transformation to take place. 

Imagine I am a successful, mature executive who has a few colleagues who are concerned about restructuring and predict that our careers will be over soon. I can hatch a plot to start a business, but before I can create a minimally viable product and get funding, I need time to pick up the latest skills for running a new business. A few partners can enrol in a Polytechnic to pick up some missing skills and spend the next two years preparing the ship for launch while drawing a small allowance. If the business plan does not work out, I can still get re-employed as a plan B, which is all about optionality - the government is using tax dollars to give you a call option on your human capital. As Polytechnics provides me with access to young classmates and many ITEs grads fresh from NS, I can even build a labour pool from my classmates and provide jobs for them.   

There are a couple of things I hope to see from details in 2025:

a) First of all, bureaucrats will try to plug all loopholes. The path should not be closed to successful executives who are NOT involuntarily unemployed and can generate plenty of income while being a student. I'm selfishly putting this on the table because I foresee a lot of temptation to do this.

b) There should be a decent drop-out provision where someone can drop out of Poly when they find a job or launch a business. This person should be able to suspend welfare payments and still be entitled to a future remaining stream at a later date. Dropping out should be viewed as a success and normalised in a Polytechnic.  

c) As it stands, the core curriculum in most Polys just meets the needs of O-level graduates. Mature students need core subjects that are more relevant to them, like basic business operations and planning, online marketing, prompt engineering, and, of course, personal finance. Significant reforms need to happen here because I'm not inspired by the current Poly core syllabus. I'm taking into account this work as Polys now needs to cope with an O level, ITE, and mature professionals' intake. 

d) In addition to internships, students can work with VCs and Incubators as a subject. They can try their hand at business 

e) Some mature students should be allowed to teach a specialised to get credits.

Anyway, after speaking to a few friends with no problems generating income from their own businesses, everybody seems interested in attending a Polytechnic in 2025 to pick up some AI skills. 

I have even started combing the Poly websites.

This is because I'm confident of earning a decent income from my businesses even as a Poly student, but I am worried that some clause will stop me from enrolling in an institution. I can farm the $3,000 into my CPF or SRS, which I will need to do to hit the new ERS.  

Finally, we now have a credible plan to end the comparison of Polytechnics against JCs. In 2025, Polytechnics will become a new beast, a very strange institution that brings different Singaporeans together to carve out some kind of new entrepreneurial ecosystem in the country.

Or I'm just a dreamer. 

CPF investing is "dangerous"

[ Kyith of Investments Moats has pointed out an interesting point I was unaware of. While I know that RSTU up to FRS into CPF-SA exists, I was unaware that after age 55, you can RSTU up to ERS!

He also sought clarification on what I mean by the uncertainty of annuity payouts at age 65 when annuities are designed to provide fixed lifetime payouts. What I meant was that the uncertainty comes from not being able to predict annuity pricing before payouts begin. The CPF Life estimator is just a rough guide.]

What a historic day! What a landmark Budget!

I'm focusing on one significant CPF policy change: to make everybody's CPF Special Account disappear after age 55. The first effect is that CPF Shielding will no longer work, so folks trying to juice an extra 1.5% from retirement savings can no longer get assistance from a financial advisor. The second effect is that the compounding effect of 4% in the CPF-SA will render some of the 1M65 strategy useless.

You can refer to some of my previous posts and judge whether my articles are prescient on such matters.

• CPF Shielding
• Critique of 1M65

A more detailed treatment of the available financial mitigations for someone over 55 years old will be posted on the Dr Wealth blog later, I just want to share some random thoughts on these changes.

a) What is the political cost of making CPF-SA vanish at age 55

The first thought I have in mind is the political cost of this move. I think the CPFB really wanted to replace the 4% with a variable rate tied to the 10-year bond many years ago but probably refused to make this move because they were concerned about angry voters. 

I think this policy is much milder because it largely impacts richer folks who have over $426,000 in the CPF system who are milking the 4% risk free. If the CPFB no longer owes 4% to many millionaires, they might be able to enact more generous policies for lower-income voters. 

b) CPF-Life is now a cognitive strain on financial decision-making

CPF Life is now very central to retirement planning.

As the 4% is now gone, folks have to decide whether to commit funds into the OA account that gives a measly 2.5% or park monies in the RA which converts to an annuity. I suspect this will engender a lot of anger in the future because CPF-Life payouts can change over time depending on when you use the Life estimator or reach age 65, and folks don't really know when they will die. I think this cognitive burden levied on the populace, while good intentioned, will cause a lot of unhappiness in the future. 

In a future Dr Wealth article, I will provide a framework about how much to put into the CPF-RA after age 55. I will also talk about investing to minimise the market risk whilst retaining at least a 4% dividend yield for a locally focused portfolio. The days of getting 4% risk-free are over.   

c) If you raise ERS to four times BRS, maybe you add a few new policies to make it easier to reach it.

The raising of ERS to 4x BRS is what baffles me. Many features that can speed up the accumulation of retirement funds switch off after you hit FRS. These features include the OA->SA transfer, and the Retirement Sum Top-Up scheme ceases to function once you hit FRS. The central problem of conventional retirement is that if I accumulated just the FRS, CPF-Life payouts would not be able to match the $1,421 in 2021 dollars required for a 65-year-old to live a dignified existence. There will be a $400 shortfall.

Extending the OA->SA transfer and RSTU to 3x BRS would help greatly for folks who want to attain retirement adequacy earlier in life, given that CPF is no longer burdened by the millionaire's CPF-SA accounts. 

The collective effect of this seismic change in CPF policy is that CPF investing is now highly "dangerous". You no longer have a risk-free 4% CPF-SA account after age 55. 

• You still have a risk-free 2.5% account in the form of CPF-OA.
• You can move the funds into CPF-RA but you take on the risk of uncertainty of CPF-Life payouts at age 65 which can be based on annuity pricing. You also don't know when you will die so you struggle with deciding which plan to choose. 
• Finally you can invest in the equity markets and take on some market risk.

I'm actually pleased with these policy changes because it is going to be much harder to ignore our local stock markets if you want a source of returns denominated in SGD. This may actually provide a longer boost to SGX equity markets.

Happy Valentine's Day ! How can we stop the Enshittification of relationships in Singapore.

 

The word of 2023 is enshittification. 

Enshittification is a term invented by Cory Doctorow that describes the degradation in the quality of online platforms that function as two-sided markets. While the details are pretty specific about how it happens, the main culprit is Amazon, which operates by trapping customers into decent services like Amazon Prime, then raising prices and lowering standards in a bid to monetise for shareholders. 

I can stretch the definition by saying that dating platforms are two-sided markets (men and women), and young folks are very used to finding love on platforms like Tinder and Coffee Meets Bagels. 

Has enshittification occurred in these dating platforms yet? That's up to you to judge, but the stories of meeting weird guys who talk non-stop about crypto investing and fuck boys may point to a longer-term decline of such matching platforms. I also think such platforms are disadvantageous to charming talkers who may be charismatic but not visually appealing. 

So, in today's thought experiment, I will be speculating on what I would do to find a mate if I were in my 20s and single today.

a) Use dating platforms as a practice arena

I have described that dating is best done using the Secretary's Problem. Approximately 37% of the time is spent dating casually to determine your preferences. Dating platforms speed up the process of determining your preferences, I can cycle through multiple dates just to understand my preferences. 

The only difference is that I will set low standards, cast a wide net on these platforms, and reject women directly using WhatsApp instead of ghosting them. In return, every date should be pleasant, and I will read up online on what not to do during dates - like eat at Saizeriya, wear Decathlon from head to toe, or talk non-stop about shitcoins.

b) Focus on activities as a more serious arena for meeting good dates

Serious research into married couples shows a high correlation between couples on educational levels and political affiliation. With that insight, it may be wiser to ask questions about where folks with the same qualifications hang out other than work. I found my wife in a Japanese language school, but LLMs have made multilingualism less useful, so I need to think about alternatives if I am in my 20s and single again. I might have to join a book club or learn singing as a first move. 

I may also educate myself in BDSM - Business Development, Sales and Marketing courses because they have a more balanced gender mix. My usual coding and finance classes are not a place to find women. 

I might also seriously consider grass-roots work. I'm quite anti-woke, so hanging around in the community centre to hit on grassroots PAP women should work better than hooking up with a woman from opposition groups who might not be too sure which pronouns she uses.

If I date some woke-redistributive chick who is a fan of Teo You Yenn, and she knows the dating budget comes from dividends stocks, I'm not sure how she will react. 

c) Join a cult or some kind of religious group

If you think about it, religious groups are captive audiences where affiliation makes you a lot more attractive as a mate. Suppose I can get someone rated 6 in mainstream society; maybe joining a cult can get me someone rated 7 because she really has no other option except fellow cultists.

There was a stage in my life when I tried joining a fundamentalist Christian organization to meet women. The women are very single and very hot, but I baulked because I could not see myself in permanent bondage with a Christian cult for the rest of my life. 

I think if I can replay the script, I might go with a more mainstream group like the Roman Catholics or some kind of Buddhist organization. If I pick Buddhism, which is my most appealing option, I will pair it with my interest in Transcendental meditation, so I won't really struggle with a woman who is too devout. 

Now, all this assumes that I'm financially ok to start dating in the first place. I've always been quite strict about my dating life, prioritising financial freedom first. 

Girls should find me safe. I'm happy to pay for any date with money from my investment instruments.

The Year of the Dragon ! Huat ah !

 

I get three opportunities to think about my life every year. The first opportunity was on my birthday, Christmas Day. The second opportunity arises when considering the new year after the holiday season. Finally, about a month later, I got to use some Chinese metaphysics to think about my year ahead. I don't just contemplate my Tiger Horoscope; I'm born on the day and month of the Rat, so I need to think about that, too. The year of the Dragon would be, at best, so-so, but it is a year of change. I must proactively deal with some of my problems and grab each opportunity for 2024 to be good. 

This means that, for Tigers, financially, I can expect little gain. My real estate valuation will be meagre, as most capital gains have already been earned in 2023. While REITs will do well when interest rates start to fall later, this will happen quite late, and I'm not sure US Office REITs would have capitulated by then. I made bold moves on Keppel Pacific Oak REIT, and then they delayed their results until the end of February. This will hurt the value of my portfolio. 

Business-wise, it looks better for us. I'm stabilising my cash flow with more side gigs to deal with even lower revenue on my training business. The final result is fewer work hours than a full-time worker but more cash flow predictability. This arrangement also allows my health to get better. There should be some positive news and collaborations with new partners soon. 

I'm glad I have fought off any temptation to take on vanity mega projects; as I reach 50, I'm putting more time into simplifying my life. From my examination of the literature, pursuing a Simpler Life is complicated because it requires a deep analysis of our lives and priorities.

The School of Life series has something quite profound to say about friendship. Why do we need friends, and what should we expect from them? 

There are three answers to this:

• Friends understand what we go through and give us a sense of normality despite our struggles and idiosyncrasies. 
• Friends help us clarify our vagueness and help us understand ourselves better.
• Friends ease us out of our defensiveness and point to a way out in a non-humiliating way. 

My problem with this framework is that if I apply it to my life, I may have no friends at all, and I would not be a particularly good friend to others either, so I can't complain.

This may reflect the metaphysical struggles of a Tiger facing massive changes this year. You have to put in more effort for the folks who can meet this high bar, but then you need to try to meet this bar yourself. It takes a lot of effort and personal development to do this. Doubly hard for ENTJs.

But a slight tilt in this direction will result in massive changes in your social life that will pay dividends for the rest of your life because loneliness is an epidemic in modern societies. 

I will be headed to Malaysia this CNY, I will resume blogging when I come back next week.

Huat ah !

Discussing the hypocrisy around inherited money

 

For a meaningful discussion, I'd point you to this lovely comic strip by the Woke Salaryman on inheriting nothing. While I do not fully agree with this strip, I am a loyal fan and want to put in some additional points of my own on the issue of inherited wealth.

Before I begin, I want to remind readers that Vicki Robin, who invented FIRE, was heir to great wealth and was somewhat of a hippie.

a) You will always inherit something, whether you like it or not.

One major problem with modern society today is the non-recognition of non-financial capital. Some folks think it's uncool to inherit wealth from their parents. Still, it's ok to inherit conscientiousness and high intellect from professional parents who engaged in assortative mating. In some other cases, folks who inherited the social and cultural capital from their parents still have the gall to call themselves self-made men.   

I don't think you can ever disentangle yourself from your parents. In my case, I've prepared myself to manage my family's money since I was a kid - it was obvious, I had no siblings and lived in landed property. 

But I don't feel bad because I inherited diabetes as well and need all the help I can get. 

b) Wealth itself can change a person's mindset, and it's not always for the worse.

When I was an undergrad, as an only child, my parents let me use $600 every month. That was a princely sum 25 years ago and my dad kinda made sure I knew it. In those days, I was quite bad with my money, but  I always spent it to make myself more competitive. I bought all my engineering textbooks first-hand and I was too lazy to zap the books in the NUS library. I paid excess cash for certification exams and got my MCSE and various Toastmasters awards in my final year of Engineering school, which was helpful in those days and this discipline made it easier to tackle the CFA a year later. 

But truth be told I had no savings then. 

Here's the thing about the magical $600 my mom would give me every month. I felt comfortable spending all of it and knew I was spoilt. So when I started work, I felt no inclination to spend above $600, so I lived like a spoilt undergrad rather than an insecure status-conscious young professional. In fact, when I discovered my personal version of FIRE in my mid-20s, all I needed was $120,000 to get me $600 a month on 6% dividends. And if I just spent $600 a month, it would be super easy to get there with a few increments. 

Then, becoming a millionaire would be easily achieved if I saved every cent I earned at work. 

c) Wealth paradigms upgrade with every added digit to your portfolio

I'm clearly not for disinheriting my kids. I intend to do the opposite and give them a reasonable-sized portfolio to play with when they are still young and dynamic. 

This is because I'm well aware of the kind of mindset when dealing with sums of money and don't want my kids to start a "low level" in this MMORPG called Singapore Life. 

• Until you hit $10,000, you tend to think more like a gambler; some of you make momentum trades to make a decent amount to buy maybe a better meal, or you keep your cash in a fixed deposit. A lot of crypto bros start at this level. 
• At $100,000, a 4-6% dividend flow becomes meaningful enough for you to commit to a proper stock portfolio to at least get a dividend income. $400 a month is consequential. This is why I believe that a $100,000 "bribe" to get kids to pass the CFA III exams is something every parent should consider if they can afford it. 
• At $1,000,000, you will gain enough incentive to operate using different asset classes and may become more interested in volatility and standard deviation. At least because it's painful to lose your millionaire status.
• I suppose beyond $10,000,000, you will expand your horizons towards more private equity or look into wealth preservation through fixed income. Philanthropy probably also starts here. 

All this being said, I can still sympathise with folks who glorify their lack of a financial inheritance. 

I grew up in a landed property estate and spent my childhood being bullied and shot at using plastic air rifle pellets by ACS boys. I suspect the animosity against inherited wealth comes from meeting assholes who stand to inherit plenty of money. In my case, my bully had a wealthy newscaster/publisher, Doyenne's mum, who could buy him a foreign degree.   

But also, like the Woke Salaryman, I guess bullying from ACS boys has also made me more resilient.