Wishing You A Long, Long Life : A Bond and CPF Perspective
I had the idea of the reverse mortgage over a decade ago.
It is similar to the Sale and Leaseback scheme of the government’s that takes over properties and leases it back to the former owner till their deaths.
My idea differed in that the pool of properties would be sold as a hedge to young families looking to secure housing for their children and they make monthly contributions at present prices and the proceeds would go towards the monthly payments made to the property owners.
It would be a transparent pool and buyers would know exactly which properties are in stock and I really thought it was a fantastic idea, disregarding the morality behind it and that some would be bereft of their legacies.
Yet I also considered the event of premature death. My belief is that some form of restitution be made, according to formula, to nominated beneficiaries.
The idea is taking off now, in the good hands of the government who can be trusted to sell the flats back at subsidised rates to the new generation.
From the CPF website, the first thing you will read is this.
Among Singapore residents aged 65 in 2006, 67% can expect to be alive at age 80 and 47% at age 85. This rising life expectancy means a change in the way we support ourselves.
Like it or not, the facts and figures are very real:
Number of Singapore residents aged 65 or older…
Supporting and caring for a rapidly aging population will be an increasing strain on Singapore’s younger generations. Today, 8.5 economically active persons are supporting one elderly. By 2030, only 3.5 persons will be supporting one elderly! Therefore, it is important that you plan early for a secure retirement.
Source : http://mycpf.cpf.gov.sg/CPF/About-Us/Intro/Intro
The number of people over the age of 60 (older persons) is set to exceed the number of children for the first time, by 2047 (source : Business Insider).
This is not a unexpected as new reports continue on the same rhetoric with a latest opinion piece by UK’s former chairman of the FSA, Adair Turner, that in prosperous countries, we can expect children to live over a hundred years in age.
That is also not unnecessarily bad according to him.
1. it is a sign of medical and economic progress
2. additional years of active and healthy living
3. a probable result of the empowerment of women
4. reduced costs of child upbringing = increased investment in education
5. less competition, less pollution and more value add eg. China’s declining fertility led to its economic breakthrough
Then why is the UK and gang in a hurry to boost immigration ?
Because it is beneficial to the citizens through income redistribution, according to a World Economic Forum study. http://forumblog.org/2014/08/immigration-benefits-natives-despite-labour-market-imperfections-income-redistribution-2/?utm_content=bufferaa8f7&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
In addition, the migration policies of the US, UK, NZ, Spain and rest, to encourage wealthy immigrants lead to almost instant gains for the country’s housing and GDP numbers.
Savvy citizens of South Korea are making plans for their retirements as the country prepares to be world’s oldest nation in 20 years with life expectancies of 95.
The government intends to introduce longevity bonds pegged to life expectancies to help insurance companies tread the unknown waters of unprecedented longevity while citizens are stocking up on long end retail papers.
Singaporeans are content to leave it in the good hands of the government and the government is doing its utmost in balancing expectations and raising the minimum sum in CPF again to SGD 161,000 in last night’s National Day Rally speech. http://news.asiaone.com/news/singapore/ndr-2014-minimum-sum-rises-161000-next-year-no-more-major-increases-afterwards
The reason that our government may be more concerned than the rest is…. probably because it is one of the longest lasting ones around whereas Obama, Cameron, Merkel and gang are leaving their offices soon. Long before the retirement crisis strikes.
Does Obama have to prioritise that 1/3 of Americans have less than $1,000 in savings and retirement funds (source : USA Today) ? which is no wonder that only 52% of Americans are vested in the stock market with the rest missing out on the current longest bull run (source : Business Insider) ?
The answer is no. Leave that to the next President and let the San Diego pension fund run up the risk ( source : WSJ) which will explode years down the road.
Knowing that I will not die is a scary thought after my mother’s short and snappy life which ended on a high note (indeed, at 5,000 m above sea level).
And since I have to plan to 95 ? which is a long way ahead, and still 4 years short of my grandma at 99 this year, I better relook at those bonds and my living arrangements.
First, I would want to be stuck in a country that has money or resources. Singapore passes. Malaysia and Australia too, because they have resources.
Second, the country should have decent geriatric care and aged activities and not send the old and infirm off to the gas chamber yet I struggle with the idea of feeding tubes in Japan.
“one old man who wanted to commit suicide but feared that his children would not bury him, so he dug a hole, lowered himself into it, and drank pesticide while burying himself.” Source : China.org http://www.china.org.cn/china/2014-08/05/content_33148303.htm
Third, I need a powerful portfolio to support me which means ANNUITIES DO NOT WORK, medical insurance (hopefully from an offshore insurer) and a universal life policy for legacy because by then, normal mom and pop local life insurance would be loaded with too many clauses to protect profits that they would be quite worthless (just an opinion).
We have no where to turn but stocks and bonds and that odd property in Africa because by 2050, Nigeria will account for almost 1 in 10 births worldwide (source : BBC).
Now the big question is – do we need to put aside more for retirement if we expect to live longer ?
My answer is not necessarily and this applies to people who already have retirement funds set aside, the idea would be to beat inflation with your current retirement amount to ensure the capital does not erode besides generating a return to support your lifestyle.
Because needs of the elderly are different as shown in this Goldman Sachs diagram in the context of the US.
And if you are in the 35-55 age group, cutting back on unnecessary expenditure would go a long, long way towards retirement goals.
The entire idea is to generate returns and it will be more about bonds which is why I am writing everyday – a terrible tragedy with interest rates at such low levels.
And it looks like interest rates will continue to be lower than normal to cope with the aging problem. (Do you think CPF would like to pay more than 2.5% ? – just a thought)
Attitudes are unfortunately not in the favour amongst the majority with even middle aged folks succumbing to the YOLO (You Only Live Once) mindset and living life on a precarious edge.
Suicide amongst the old also throws a spanner into the works of those insurance policy clauses (except those that specifically allows suicide like mine) . As unofficial suicide stats climb in China and the huge cohort of retirees join the throng (350 million Chinese — one in four of the population — will be aged 60 or older by 2030, almost twice as many as now : source Japan Times).
I personally anticipate euthanasia and assisted dying and all the right to die laws to start emerging globally, taking the lead from Scandinavia and Switzerland.
The government is taking big steps to plan for the future, but we cannot leave it all in their hands. The CPF rules are useful in protecting the next generation from over burden and leave remnants of a legacy for them too.
The man has spoken. CPF is stuffing that news down our throats whether we like it or not. Unless you up and leave, there is only 1 thing left to do – to get ready for that long, long life.
There is a different way to look at all this. Extensive research has shown a consistent relationship between our age and level of happiness and optimism.
We are happiest and most optimistic in our 20’s, most unhappy in our mid 50’s, which is the middle aged low point and then back to the happiness of our 20’s by the time we get to 70.
Just think, if you are 30 now you have forty years of relative misery ahead! But if you are one of those miserable, angry, unpleasant gits in their mid 50’s there is one silver lining…just wait a few years and you should start to gradually feel better again. But once we’ve hit 70 it’s all downhill again.
So why not live it up till 75 or so, one big long party, having enjoyed the high for a few years, then dig that hole, lower ourselves in…and slip off our mortal coils.
This approach would greatly simplify the uncertainty over finances as we would know exactly how long to plan for. Not just that, but it would maximize our life happiness average as we would cut off that miserable tail at the end.
But wait, there is more. We would also feel satisfied from knowing we were going to reduce the burden on the younger generation. Life insurance companies could even tailor policies to this strategy by boosting annuity rates provided the beneficiary accepts they will be payable only until age 75. So a healthy person would be paid at the same rate as a smoker or heavy drinker. Of course, the one fly in the ointment is from the perspective of the central banks…less demand for long dated bonds.
Not sure what school of thought that theorem belongs to but it idea is certainly appealing if one is not religious.
And I am sure the system would applaud selfless acts of folks who had worked their entire lives to pay off their mortgages, send their kids to school and support their aged parents, and then deciding to party and kill themselves shortly afterwards.
Reminds me of Aldous Huxley’s Brave New World or even Logan’s Run, one memorable movie for me.
my 2 cents would be that this system started off based on Confucian values of government morality where in a small self sufficient economy has to make provisions for the future retirement to relieve the social burden in their later years. we are victims of our own success in that the minimum sum has risen in tandem with incomes of some but far too high in relation to others. Will be challenging to alter this prescriptive 1 size fits all approach given how much the wealth gap has widened in years past
I think the minimum sum is the base case scenario for basic survival. Those who fail to make it better move to Iskandar or further out.
The wealthy do not need the minimum sum.
I do note a beauty in the CPF.
Apparently descendents will only get a balance transfer and not cash. So it will just keep rolling and rolling and rolling.
Ignore averages: Your money has to last for 30 years after retiring
Actually, if I am going to be precise, you as an individual shouldn’t worry about how long you’ll live. At age 65 just buy an annuity. The annuity provider does the assuming and statistics, you can live forever and they will still keep paying out. The risk isn’t yours if you do that. The risk is that if everyone else realises the same as you do and they live forever then we are all back to square one…old age poverty. It is in our interests that we are healthier than the average and healthier than the annuity man belives, which means less healthy than the average, thats the only average that counts. And more than that, we need to hope that our peers are actually unhealthy, but that they appear healthy, so we have even less competition. But whether the rest are or not and do so or not, just buy an annuity as soon as rates normalise. And to boost your rate, make sure you smoke and drink heavily when you apply. My plan is to turn into a chain smoking alcoholic at 63, become obese or underweight, get my bad cholesterol levels up, boost my blood pressuere, develop at least pre diabetes, get the annuity at 65, and be back to healthy living again at 65 and a half. Then, live forever.
I just saw into a future of insurance hired hitmen, to bump off people who over-live their annuities.
From a nation full of corruption, what do you expect?
Singapore is in dire hands.
No, no thanks.
What’s the point of raising min sums?
Who need it? For show to the rest of the world that there is such a scheme using your money and paying you back bit by bit?
This should be an instruction to the authorities themselves, not to retirees.
Why are returns so miserable?
Incapable of doing a proper job?
Trying to cheat?
Don’t disturb the nation.
It’s more important, like you said, to have better returns.
That is what is needed.
No more scams.
Singapore is rather safe going ahead and will leave a considerable nest egg for the next generation !
Have more kids !