Sunday, March 17, 2024

Three improvements I hope to see for the CPF system

 


Now that the chatter about the CPF changes has died down, it's time for me to develop a wish list for the CPF Board. I have tried to make it as reasonable for the CPF Board to do this, given that the disappearance of the CPF-SA after age 55 would free up some fiscal room to give more for CPF members.

Here's my wish list :

a) Make CPF-Life scale linearly with premiums.

There is a progressive element to CPF-Life payouts that discourages folks from putting more money into the CPF-RA. The CPF-Life payouts per unit premium paid are higher for lower sums committed to the program. This is to provide more retirement assistance to those with less savings.

This policy will no longer be necessary if we provide more top-ups to lower-income groups. ITE graduates who enter Poly already get increased amounts in their accounts. 

The middle-income groups need to feel they are getting a fair amount from participating in CPF Life; otherwise, they will think they are subsidising other citizens when they engage in risk-pooling.

b) End the hypocrisy around the Retirement Sum Top-Up Scheme. Give us something we can use.

The RSTU is a powerful avenue to reduce personal income taxes for high-earning professionals. However, the government will disable RSTU once the member accumulates the FRS to curb too many advantages to the wealthy. But that's not the end of the story; at age 55, RSTU makes a comeback, and you can do it until your CPF-RA reaches the ERS. 

This whole system is dumb because the significant earning years do not entitle most professionals to benefit from RSTU. Thanks to completing CPF-OA transfers every year, I personally reached FRS in my CPF-SA in my early 30s. For the folks who can use RSTU again at age 55, they may no longer have a career that can benefit from tax benefits anymore. CPFB folks seem real niggardly to enact a policy like this. 

With such a high bar to reach 4xBRS, the CPFB may throw a dog a bone and allow RSTU to keep accumulating until ERS. A maximum contribution of $8,000 is a little every year, and CPFB should also have a policy that benefits PMETs, given that we're throwing money at ITE grads to enter Polytechnics. 

c) Have a CPF-Life scheme that pays married couples until both pass away.
 
With so much emphasis on marriage, starting families and having children, it's ludicrous that the CPF-Life scheme does not have an annuity program that continues paying to support the other spouse after the member spouse passes away. 

Of course, if an annuity is designed to pay until both spouses die, the monthly payouts can be calculated to be much smaller by design. Still, I would undoubtedly prefer a fixed payout, at least for my wife, after I pass away. 

Do note that folks with young spouses will get tiny payouts in such a case. This is all set by actuarial tables anyway. 

I want this so much that I'd happily sacrifice that stupid political compromise, the Basic Plan, to make it happen. An alternative would be to allow CPF-RA transfers between spouses. 

Anyway, these are my suggestions to the policymakers. 

Feel free to discuss how feasible they are. 



Tuesday, March 12, 2024

Update on my crypto positions

 


I have written several crypto articles on this blog over the past year. You can find them here and here.

This morning, as ETH hit over $4,000, I decided to exit all positions in ETH as I've managed to derive a significant amount of returns since I have a leveraged position in ETH in Compound V2. I clumsily closed my leveraged positions since I owed some DAI, then moved the ETH off-ramp on the Gemini exchange and converted the money to SGD. The losses from transaction fees were high, and I lost about $1k in the process, but the money is safely back in my bank account in SGD, and I made some excess funds for my trouble.

When the Terra Luna ecosystem broke down, I could round up some spare change to buy LUNC when it was selling for around $0.000027. You can find a historical record of my thought processes then here. While LUNC is now trading at about 7x my original value, I have previously farmed my LUNC and UST into the Mirror protocol and took in as much spare LUNC and USTC that it could spin off. I currently have about $8,000+ in the Terra ecosystem, but my money is not mobile, as I need 21 days to unstake most of my LUNC.

As far as I was concerned, while I was now sitting on some gains, the most enormous damage I suffered at that time was the effort lost in designing a cryptocurrency course. I can now escape with my course fees and some extra pocket money for the March holidays while keeping my millions of LUNA classics as funny money in the improbable event of a re-pegging of USTC.

As for where the funds are now, I've farmed it into the portfolio I manage under the All-Weather Portfolio, where just 8% is put into GBTC and ETHE. ETFs will be how I will take a position in crypto. There is now a more systemic approach to shift the funds out of crypto when the momentum slows down and becomes overtaken by another asset class. 

Here are some of the thoughts I have about cryptocurrency investing:

  • I still think I left ETH early, but I am uncomfortable about some Dua Kang Cryptobros returning on the forums. They can have all the fun getting rich. 
  • The gas fees in the ETH ecosystem are brutal in a bull market. This will force many investors to trade ETFs as trading fees are lower, and there is no need to manage wallets. 
  • The regulatory regime is also tighter, and I can't withdraw my funds from Coinbase as DBS keeps flagging an error when I try depositing $1 to link it to the exchange. I off-ramped my funds in Geminii and lost a lot to transaction fees. 
  • There's plenty of money to be made from regulatory arbitrage. As crypto ETFs slowly get approved, you can take positions to exploit the upswing. There's no real need to buy crypto and store it in your wallet anymore. A brokerage will do, but you must be an AI and enable complex leveraged products.

Finally, I currently have about $8,000+ in LUNC and USTC, but I am already sitting on fairly substantial gains. If the price remains high in 21 days, I might liquidate and farm the funds into the next LUNA-like investment. 

The closest trading idea I have is Keppel Pacific Oak REIT. It stopped paying dividends but still has a high tenancy rate. This could be a multi-bagger, but you must be patient and hold it until 2026. The odds of dividends returning from KORE are higher than USTC pegging. 

Saturday, March 09, 2024

From Languishing to Flourishing

 


In this second part of my series on languishing, I focus on some of the remedies that can turn someone who is languishing into someone who is flourishing. 

First of all, I'd like to talk about two possible paths to flourishing :
  • The external path is where we keep score and become good at something, like our jobs. We take the external approach when we do something to improve our social status. The external pathway is objectively rewarding, but you get diminishing returns as you age. 
  • The internal path is all about meaningful personal change and ethics. As you get older, there are more opportunities to follow it, at least because the nosy relatives who judge you during the New Year family gatherings begin to disappear one by one.
I find the internal path harder to walk than the external one because I can keep score and compare with other people. But I am also aware that post-FIRE, there is now lower-hanging fruit for the internal path.

After that, the steps to flourish all seem like another self-help guide. I wish that future research could dive into more granular detail, but readers can look at the following for now.
  • Learn something new - This is too easy thanks to Skills Futures, but my emphasis is to teach something new because the Feynman Techniques shows us that we can reach much higher levels of mastery when we teach something.
  • Building Relationships - While the book says that quality matters more than quantity, I wish different personality types could use different strategies. As folks get older, they become better at ending relationships. If only there was more direction on how to do this. 
  • Spiritual Practices - Another valuable opportunity, but this world is full of cults and scams. The question for non-religious folks like me is whether we can come up with ideas that go beyond meditation or yoga. 
  • Finding Purpose in Life - Philosophy has relatively good answers to address the problem of finding meaning in life. 
  • Play—The funniest thing I realised about this section is that play is supposed to allow a person to practice their imagination and break away from an obsession with achievement. But I've been gaming for so many years that I see long-time gamers flouting this rule continuously because competitive games give them that feeling of success that has eluded them in real life. 
I'm incredibly interested in learning new things for folks who read my blog. I'm also okay at building relationships and finding a purpose in life. I suck at Spiritual practices as I lack patience and have attempted meditation and yoga with almost no results in many stages of my life. I've reduced the amount of Play in my life as many gamers find inauthentic means of Flow and building fake achievements. 

Of course, the whole point of this self-audit is to open my mind again to previous failed attempts and try to do better, but with a different approach.

Finally, you can observe how every single point about flourishing does not involve much money at all, but FIRE can be an enabler as it gives folks time to figure out how to flourish. 

Thursday, March 07, 2024

On the issue of languishing

 


I'm still on my journey of figuring out what life will be like for me post-50, so right now, I'm trying to understand the state of languishing that a lot of folks I know might be going through. I'm going to dedicate a few articles to this topic over the next few days, as it's useful as a reference as I hit the big 5-0.

Languishing is a state of low-grade mental weariness that counts indifference as one of its symptoms. The checklist of someone languishing is extensive and covers things like feeling that your job no longer matters in the grander scheme of things or losing the motivation to catch up with friends and family. 

The symptom that affects me the most is that more and more things seem irrelevant, superficial, and uninteresting. Last week, I mustered some time to spend $30 on one hour of vinyl record listening and found the experience a significant waste of my time. In fact, the album I picked, Adele's 21, sounded exactly like the one I listen to on Spotify, with some static sound in the background. 

So much about hipsters' claims that analogue music is superior to digital music. 

There are three aspects of well-being that can be used to fight languishing. 
  • Emotional well-being measures how happy and satisfied you are with life.
  • Social well-being measures how well-integrated you are into society, 
  • Psychological well-being measures how much you like about your own personality.
While languishing is very mild and does not require medication, if we do not have a system to cope with this, it can lead to delinquent behaviours and even suicide. It even increases inflammation and decreases antibody production. 

Finally, FIRE can both be a cause and a cure for languishing. 

If you retire just because you can live on your passive income cash flow, you might shut yourself away and stop growing from the day you complete the buildup of your fuck you money. The person being fucked is ultimately yourself. 

But if you are languishing because of a ho-hum job, financial independence can give you the power to reinvent your career or find your calling. 

In the following article, I will discuss some preventive measures that you can take to prevent languishing in life. 




Wednesday, February 28, 2024

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,

Saturday, February 24, 2024

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. 


Friday, February 16, 2024

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.
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.