Fundamentally the CPF is more a savings plan, not really an investment plan.

[Arcachon]

Genevieve Cua
The Business Times
Thursday, Nov 06, 2014
Fundamentally the CPF is more a savings plan, not really an investment plan. It pays you a fixed interest which is no doubt generous in today's environment. But it's a savings plan and relatively simple. The government didn't want to impose investment risk on the broad spectrum of members.

The main investment feature was property and remains so. Can you imagine if property prices had not gone up, how desperate the situation would be?

The CPF needs to be looked at. It may well be that we go down the road of a private industry like in Chile or Sweden. Basically, you want to find a solution along the lines of a collective DC (defined contribution) system.

If you can pool the money together, it gives you economies of scale and helps to bring down the cost of investment. With interest rates so low and returns so low, a good part of returns will be eroded by costs.

So the challenge is to find a model which creates enough scale to lower costs, pool the risk and offer life cycle solutions for people of different demographic profiles.

It's quite clear that given that future rates on investment products will be lower than in the past, if you look for the same amount of retirement benefits in the future, you will need to save more.

This is basic arithmetic and not rocket science. But it needs to be explained to people because the tendency is to look to the past and believe that it's representative of the future.

Interest rates are so low that the real rate of interest is negative. If you put your money in case, it's as good as saying you're not able to protect your savings against inflation. I'm not saying this will be a permanent state of affairs but it does indicate that we need to look into retirement security more carefully.

People should not be misled into thinking they have enough when they don't. The current debate in Singapore about retirement security is welcome because it heightens people's consciousness. Understanding the problem is the beginning of finding a solution.

http://business.asiaone.com/news/cpf...nding-solution

[Arcachon]

Most Singaporeans wearily envision their lives as a never ending period of working, working, working from the cradle to the grave. Yippee. But people often lose sight of the fact that there are actually people in our midst who have retired and lived to tell the tale.


However, not all the retirees in Singapore are living off generous nest eggs and spending their days having high tea or playing mahjong with fellow retirees. In fact, quite the opposite.

We quizzed some retirees on their biggest retirement regrets in hopes that we might learn from them when reaching for that seemingly unattainable goal of retirement before death in Singapore.

1. Not saving and investing in their twenties
Amongst retirees not just in Singapore but all over the world, there seems to be a general consensus that their twenties offered the greatest chances to save and invest, and many regret not having realised it until it was too late.

Most people overlook the fact that saving $10,000 in your twenties goes a much longer way than saving $10,000 twenty or thirty years later. Because of the power of compounding interest, the longer your keep money invested, the more you’ll get out of it.

In addition, when you grow up, life has a habit of catching up with you. While in your twenties your most pressing financial obligations might be “entertainment”, things change if/when you start a family, purchase property or start to get health problems. Saving money gets a lot harder.

Mr Yeo, 62, who has been retired for almost 5 years and partially financed his retirement by selling his landed property and moving his family into a 4 room HDB flat, recalls his twenties, which were spent at actual discos (not clubs, discos!), consulting fortune tellers and playing mahjong.

2. Making lousy investments
Back in the day, obtaining finance-related information was a lot harder. Without the Internet, people relied on books, newspapers and word of mouth. And of the three, word of mouth has proven to be one of the most dangerous places to get your investment information.

Dr Tan, 65, started dabbling in the stock market in his 30s, and lost a significant amount of money because he didn’t fully understand how to choose and handle stocks. These days, he still invests in stocks but takes a risk-averse approach, holding blue chip stocks long-term.

Mrs Loh, a 60-year-old semi-retired accountant, used her son’s education fund to experiment with stock investing and ended up losing it all. “I came clean and told my son that I had lost all his education money. Fortunately, my husband and I were able to make it up in other areas like real estate.”

While lots of older Singaporeans cite the stock market as one of the key culprits of big losses, some retirees I know have sunk their savings in even more bizarre “investment schemes”, like buying a plot of land in the middle of the Indonesian jungle or contributing to dodgy religious organisations (true stories).

3. Spending too much on the kids
Many parents these days swear by the credo of sparing no expense when it comes to their kids. That’s why you see kids going to preschools that charge more than local universities do.

But surprise, surprise—many old folks cite spending too much on their kids as one of their more stinging regrets.

Mdm Ang, who is in her sixties and has two daughters and a son aged 32, 29 and 26 respectively, is often heard complaining about her children and wishes she hadn’t “spent so much on their university education”.

“I didn’t want them to have to take loans to pay for their education, so my husband and I paid for them out of our own pockets. Now they are working, but they waste so much money. My younger daughter pays $150 every month for a gym even though I always tell her the one near my place only costs a few dollars. They have taken everything for granted. I should have used the money for my own retirement. My children don’t even appreciate the sacrifices we made for them,” she laments.

This is a sentiment Mrs Tan, 60, shares. She and her husband went a little overboard and spent a lot of money on their daughter, now 23, when she was a child, sending her to all types of classes, from ballet to abacus to piano. Today, the family doesn’t even have a piano anymore, and their daughter’s ballet training is a distant memory.

“She was my first daughter, and at the time I just wanted the best for her. We used to spend almost $1,000 every month on various types of lessons for her,” says Mrs Tan. “But on hindsight there was no need to have spent so much. We might have gotten a bit carried away. If we had invested the money instead, we would be able to give her more financial support today.”

[Kelonguni]

Some 15 to 20 years ago for the enrichment on kids. How much is that $1000 today?

My budget is probably $1200 per kid at max in today's terms for enrichment and childcare.

[minority]

Good article. !

[Jem]

I never agree with spending too much on kids. Spending over 1K on tuition and enrichment is madness IMO but I know many who do that. I also see others who tell me if she buys something for 1st kid she has to buy something else for 2nd kid cuz she needs to be fair. Life isn't fair. So what lesson does this practice teach the kids? I spend more on myself than on my kid. Simply cuz I earn the money not her. Then again I have no expectations at all to depend on her in any way.

[richwang]

CPF is a pension plan. And a pension plan MUST be invested. And it needs to earn LONG TERM investment return.

The biggest challenge is capital return is coming down. Earning a 4-5% return will be very hard toe get in future.
Labor Income will be even worse, a stable increase of 1-2% will be hard to get.

Majority of Americans believe their children will be worse off. How about in Singapore?