Category: retire

old retirement, not “retire young”

##[25]cpfLife adv over private annuity

Posted on by tiger40490

See also

— advantage: fineprints are well-documented
CPF Life product feature is probably more stable, and better understood. Fewer hidden surprises.

Same (no such thing in private annuities) policy for everyone. Easy to find answers online.

As a auth UI, Singapass shares this advantage.

CPF Life is designed for the less educated. The CPF board is not out to take advantage of its own citizens.

policy fineprints stay the same for decades. (Some private annuities evolve with market, or go out of market.) As a result, I invested dozens of hours to document CPF fineprints in 30+ bposts.

— advantage: hotline + service centers .. CPF customer service is excellent — onsite, prompt help, similar to a local police or WalMart. The information provides is simpler to understand.

As a auth UI, Singapass shares this advantage.

— advantage: expRatio
CPF is not run for profit. If the commercial insurer charges 3% fee a year or has average 5% surplus return from investment, or pays the salesman a commission,  then with CPF Life, these sums would go back into the pool, enhancing the payouts.

Compare a bookstore run by a church vs a commercial bookstore.

— advantage: non-profit .. The insurer is CPF board which I trust more.

If the economy takes a down turn for CPF members, and the CPF Life becomes insufficient as a retirement plan, then I trust CPF would consider adjustments (bending over backward) to help the members. Retirement is the #1 objective of CPF board of a nanny state. In contrast, Allianz is a commercial operator and not a nanny state.

— advantage: (standard plan) stable payout .. monthly payout amount stays constant in the Standard plan, provided cpf int rate and mortality rate stay constant.  I heard this promise in a Feb 2025 hotline conversation, and I trust this “promise”.

In constrast my private annuities have weaker “promises” on payout rate.

The rest are questionable “advantages”, but often cited as advantages

— higher payout_rate .. becuase

  • descending death benefit .. “selling blood to prop up payout_rate”. CpfLife is a “descending annuity”.
  • .. I prefer the words “descending/descent” for its neutral connotation
  • 10Y accumulation at 4 ppa. Many private annuities have 10Y or 20Y but I bought three annuties with 3Y accumu phase.
  • low expRatio

— liquidity (double-edged) .. private annuities have surrender value, an exposure to scams and adult children’s (unwanted) plea for help

As discusssed in lock up100k]cpf, if you don’t need some 100k idle cash for the rest of your life, then why not lock it away in cpfRA permanently to prevent those issues?

FWD-specific #preexisting

Posted on by tiger40490

 

— FWD pre-existing condition as exclusion for death benefit
From: Silvester Chua Wen Hao <silvesterwh.chua@cimb.com>
Date: Fri, Nov 8, 2024 at 6:56 PM
To: Bin TAN (Victor) <tiger40490@gmail.com>
Cc: Isaiah Lim Yi En <isaiah.lim@cimb.com>

“Suppose a customer buys the policy with a $300k single premium at age 60, having a pre-existing heart diagnosis like stents or CABG. At age 80 this customer suffers a fatal heart attack. Based on Section 7, FWD would pay out $0 death benefit, while the family expects $315k i.e. 105% payout.”

I have shared 3 scenarios (1st scenario is not relevant to your current application as FWD did not ask about your pre-existing medical condition):

  1. If the customer was asked about their pre-existing medical condition but did not disclose it:

In the event of the customer’s death, they will receive at least 100% of the premiums paid. The policy will then be considered null and void.

  1. If the customer was not asked about their pre-existing medical condition and death occurs within the first policy year:
    In this case, upon the customer’s death, they will receive at least 100% of the premiums paid. This measure is in place to prevent any misuse of the death benefit.
  2. If the customer was not asked about their medical condition and death occurs in the second policy year or later:
    Under these circumstances, upon the customer’s death, they will receive 105% of the premiums paid, as outlined in the benefit illustration.

In this case either the 2nd or 3rd scenario will apply to your question & scenario.

cpfVCon>SA #IRAS #Rule37740

Posted on by tiger40490

— Wife cpfSA..
First housing-refund to cpfOa. After full (housing) refund to cpfOA, we can consider voluntary cash top-up to cpf split 3-way, then cpfOA -> cpfSA

Sooner or later, by her age 55 I want to give her enough red_packet for FRS, so shall we do it now? See answer in https://tanbinvest.dreamhosters.com/17194/age-50-asset-allocation-aggressive/

— rules governing the VCon 3-way split
Rule: no limit on SA. Any contribution (by employer or voluntary) will go into SA. In contrast, top up to SA-only .. won’t be allowed after you hit FRS.

Rule: the 3-way split is computed first. If MA has reached 66k, then the MA share will overflow to OA. This is very likely to happen, so SA would end up receiving about 21% of the total contribution, and OA receiving the remainder.

Rule 1: if 5k of your contribution exceeds the annual limit $37740, that 5k will be refunded to you without interest [Rule 1b] and without penalty.

Any OA amount you contributed can be used for housing.

tax exemption (and liquidity restriction) doesn’t cover VCon

— Risk: cpfSA IRF(interest rate floor) is subject to change. No guarantee like cpfOA IRF of 2.5%.

cpfSA rate has been above 4% since 1995.

— Q1: How about housing-refund to my cpfOA by 50-100k.

(necessity)big-ticket items pre55: CPF top-up has a conclusion.

— Q2: shall we transfer some amount from OA to SA?
Is this transfer safe for wife’s account? I think 1k is ok but she may not understand the implications.

— All CPF accounts are illiquid to varying degrees. Some amounts in OA and SA can be invested. Some amounts in OA/SA can be withdrawn at 55. Some amounts in RA can be withdrawn at 65. CPF-life is the most illiquid.

A cash Top-up transfers liquid cash from bank account into illiquid CPF accounts. Top-up is usually irreversible — You can’t withdraw anything into liquid cash, with certain exceptions.

Lock-in/lock-up means no withdrawal, and is the main drawback of top-up. As to the benefits of top-up, there are two

  • top up 33k to SA and this 33k would earn interest (around 4%) in SA, but this interest is not usable as cash
  • top up 88k to CPF-life and this 88k would produce monthly payout in cash 🙂 and the return rate is rather high.

— At age 65, RA will be used to pay annuity premium, and monthly payout will start.
Any excess across CPF accounts would probably be liquid.

— After age 55, there’s a limited level of liquidity, perhaps incompatible with my plan
— At some time before 55, when I pay down a mortgage, this is the best level of liquidity in CPF-OA
— Here I discuss four forms of top-up.
B1) IFF at 65 you don’t have ERS (Enhanced retired sum) in RA, and decide to top up 100k into RA (not to exceed the ERS), this 100k will be locked in and generating compound 4%. This 100k starts producing monthly payout at 65.

The earlier you top up, the more interest you earn, at the cost of liquidity. For example (I described at Sep 2022 CPF appointment), If you set aside 100k 6M in advance, then you can top up 100k 6M before 65th birthday. Waiting period is 6M. During the waiting period, your 100k earns 4% in RA.

B2) You can also top up, say, 50k to RA at, say, age 58 (after 55), and this 50k would be locked in for a lengthy 7 years until it transfers into cpf-life and starts “producing”.

CC) If you (VCon) top up before age 55, then it (partially) hits SA. You can withdraw it at 55 or any time

CPF confirmed that $2k transferred from OA to SA will earn $30 (1.5%) more every year.

DD) if you top up to OA (up to the housing-refund limit), it pays down the housing portion. This is an interesting option. — discussed in depth at (necessity)big-ticket outlays now till 55

— decision to make at age 65, not 55!
At 65, CPF members choose how much money to committed to CPF-life. The amount will be locked in.

No real minimum participation amount — Even if you have only 20k in RA, it can still transfer to the annuity account.

— Rule 37740 .. Not a separate rule, but a consequence of the 6k rule on OW and 30k rule on AW.

For a max-earner, the contribution “engine” would self-stop (like a self-driving car) at $37740. By design, the engine would never break the 37740 rule and lead to refund from cpf. (If a payroll software system doesn’t use this engine, it could break 6k rule or 30k rule, resulting in refunds from cpf.)

Let’s illustrate with real eg. In my 2021 (and likely 2022),

  • AW [additional wage] contribution by employer+employee was capped at 37% x 30k = $11,100
  • .. If your bonus exceeds 30k, the surplus bonus is ignored by the engine
  • OW [ordinary wage] contribution was capped at 37% x 6k x 12M = 37% x 72k = $26640
  • ^^ add up to 37% x 102k = $37740, also equal to 17M of 6k/M x 37%. As a breakdown
  • employer’s contribution was actually capped at 17% x $10,200/Y = $17,340
  • employee’s contribution was actually capped at 20% x $10,200/Y = $20,400

Deciding factor for the “max-earner” is …. 30k bonus!  If AW hits 30k and OW hits 6k,  then you are (regarded by CPF system) a max-earner and should not make a VCon [voluntary contribution]. Here’s why.

VCon is designed for non-max-earners. Max-earners’ accounts  already receive sufficient OW/AW contributions, so CPF board probably don’t want to pay such high interests on additional amounts contributed by these max-earners. Any VCon would be 100% refunded at end of year, without interest. You would be lending that amount to CPF board at zero interest.

[22]targeted top-up to wifeSA

Posted on by tiger40490
  • j4: yield
  • J4: lock down free cash against missteps or hackers
  • limitation — very poor liquidity.

See also

Rule 1: every $1k I top up to wifeSA is locked up forever. I wrote this in 2022. See wife’s geen portion

Rule 2 (Self-transfer): in my own case, any time after 55, I can apply to withdraw any excess amount from RA as long as remaining RA balance exceeds the BRS watermark. So in 2021, any self-transfer from OA to SA is “unrestricted”… can take out after 55.

— tax benefit .. comes with a severe restriction — any targeted top-up amount can’t be withdrawn at any time, not even after 55 or 65.
* MA account can’t be withdrawn except medical

Rule: Suppose I want to top up 8k in 2024 to enjoy tax benefit:
wife’s 2023 (pervious year) income must be < 8k including dividend, interest etc

Rule: only applies to targeted cash top-up to SA or targeted top-up to MA, including to family member’s accounts.
.. Rule: OA -> SA is unrelated to “income” and ignored by IRAS.
Rule: only the first $8k is recognized by IRAS for each tax year.

VCon amount of 37k (unlike targeted top-up) is NOT tax-exempt even though part of this 37k goes into SA/MA. (As confirmed at cpf appointment), the amount can be used for housing or withdrawn after 55.

In essence — Tax ^ Liquidity are 2 sides of a coin:

  • with tax benefit, you sacrifice liquidity .. Look at targeted top-up
  • without tax benefit, you have some liquidity .. Look at VCon.

Temasek^MAS_OFR^GIC

Posted on by tiger40490

Q: given Singapore’s oversized reserve, does Singapore’s investment/asset-mgmt talent pool have adequate calibre?
A: I think MAS and GIC allocte large portions to external managers with specific expertise, and manage the allocation with control, periodic reviews and rebalancing. I feel China government is less likely to do that. (On a footnote, Temasek is somewhat differnet. It owns stakes in many government-linked companies.)

In contrast, Private money AUM in Singapore was about SGD 5T as in Singapore assets under management up 10% to $5.4 trillion in 2023; new debt issues rise 21% | The Straits Times

— based on Ravi Menon: How Singapore manages its reserves (bis.org)

Singapore’s reserves are held and managed in three distinct pots: the MAS, GIC, and Temasek.

MAS manages the OFR [official foreign reserve, SGD 500b as of mid 2024]. MAS is the most conservative of the three investment entities, with the OFR invested mainly in safe and liquid assets. Probably low-return. Out of the 3 pots, I guess only MAS fund can help defend the Singapore dollar, due to liquidity.

The GIC (well over USD 100b, possibly many times bigger) is a sovereign fund manager, managing the government’s foreign assets.  These assets are separate from the OFR. At GIC’s inception, part of the OFR was transferred from MAS to GIC, which was tasked to invest the reserves in a globally diversified portfolio of asset classes with a higher risk profile to deliver good long-term returns. GIC’s annual (dividend?) return contributes to the revenue of the government.

Temasek (SGD 400b in Nov 2022) is another state-owned equity investor. More than a quarter of Temasek’s portfolio is invested in Singapore, with the rest invested in 1) Asia and 2) global markets.  Compared to MAS and GIC, Temasek is further out on the risk-return spectrum. I suspect that Temasek doesn’t have a statutory duty to pay annual dividends to share holder (i.e. the SG government). Such an obligation would limit the level of risk capital in the fund.

— Temasek 2022 .. based on https://www.channelnewsasia.com/business/temasek-holdings-net-portfolio-value-crosses-400-billion-first-time-annual-review-2803921

  • 63% in Asia
  • 27% in SG
  • 22% in China .. #2 country allocation
  • — by sector
  • #1 sector: 23% financial services
  • #2 sector: 18% telecommunications, media and technology
  • #3 sector is transportation and industrials (energy and resources)

Unlisted securities (52%) registered 16% IRR over 20Y. These are often the most risky, unestablished businesses.

— CPF money and GIC.. demystified and clarified in every S’pore dollar is backed by hard asset #ownership.

[23]class reunion: why salary still relevant2frree

Posted on by tiger40490

When I told Stephen.Y and YY.T that I can retire based on my savings + NNIA, what they don’t know is my salary now and in the foreseeable future. This is the invisible elephant in the room.

Q: Mathematically, my current salary is an irrelevant term in the retirement equation, in which the income side consists solely of NNIA. So why is current salary relevant, and highly relevant.

A: my current salary remains a huge factor affecting my motivation to continue working  — hardworking vs semi-retired vs fully retired. This decision is very relevant to my ex-classmates and cohort until we turn 60.

A: If they come to know that my income is 3k vs 30k, then this data immediately anchors their perceptions of my current burn rate and “quality of life”. They would have some idea about my “retirement equation” amounts.

A: As I told each audience, my ffree is mathematically barebones, based on a conserver lifestyle. Therefore, each month when I get a pay cheque, it /strengthens/ my nest egg and elevates my ffree “high ground”.

Attachment to salary? Impermanence? Indeed as we age, we would gradually lose income (similar to losing libido, erection, flexibility,,,) so income is not something to cling on to. In contrast, I think it’s more strategic to cling on to exployability, devTill70, family bonding, guaranteed NNIA,,,

PPP, Int$ #Sgp^PEK

Posted on by tiger40490

k_PPP

This bpost is about PPP and cross-border comparison, based on https://en.wikipedia.org/wiki/Gross_domestic_product#Cross-border_comparison_and_purchasing_power_parity

Intuitively, we compare two countries’ GNI by converting both amounts to USD. This is the standard comparison but ignores regional price differences. For example,

  • SG is expensive for car owners than most countries.
  • U.S. medical and medical insurance (“services”) costs are higher than most countries.  Tristate rent is expensive. Suppose your basket is dominated by rent and medical, then using FX rate to compare U.S. vs SG incomes will ignore the high-cost of the U.S. Suppose your U.S. after-tax income of 120k is 20% higher than SG (S$133k=USD100k). The lightly (i.e. 20%) higher income in the U.S. looks like 20% higher quality_of_life.

There’s an alternative exchange rate .. the ppp-fx. Using ppp-fx, the slightly higher income in the U.S. may translate to lower quality_of_life than the S$133k in SG.

Specifically, if  someday ppp-fx of Int$/SGD becomes 1.0, then S$133k salary in Sgp has equal purchasing power to USD 133k in US. It would provide (or buy) you a richer quality_of_life than the USD 120k salary mentioned earlier.

( Naturally, we adjust our “basket” and avoid the locally-expensive products like cars in Sgp and medBx in US. )

Using ppp-fx, the same basket would cost the same amount of Int$ in any country. This sentence sounds concise but is unclear. If you observe real world prices and compute an aggregate “basket price” in local currency, then use ppp-fx to convert the basket price into Int$, then the Int$ basket-price would be identical across all countries. Note Int$ has parity with USD, for some theretocal reason.

https://en.wikipedia.org/wiki/International_dollar and https://data.worldbank.org/indicator/PA.NUS.PPP?locations=SG-US  tabulate the latest ppp-fx rate of every currency vs the Int$. Int$/USD = 1.0.

  • Int$/RMB = 3.64 meaning Rmb 3640 and USD 1k have equal purchasing power locally.
  • Int$/SGD = 0.8 meaning SGD 800 and USD 1k have equal purchasing power locally.
  • Int$/MYR= 1.54 meaning MYR 1540(=SGD470) and SGD 800 and USD 1k have equal purchasing power locally. Therefore, Singaporeans go to JB for shopping and entertainment.

PPP theory is all about normalizing regional price differences but PPP is inherently entangled with FX. That’s why I call it ppp-fx.

  • lower costs in Greece relative to Denmark (all in eurozone) can’t be resolved using ppp-fx. Similarly, cost difference between Shenzhen vs inland China is not resolved using ppp-fx. Instead, you need cost-of-living index.
  • PPP-fx is useful for cross-currency comparisons of two salaries.
  • PPP-fx is also useful for GNI comparison
  • Don’t use BeyondCompare as a main component of a ppp basket. Such a basket is likely to produce a ppp-fx similar to the FX rate.
  • The Big Mac exchange rate is one simple example of ppp-fx. You can find readable illustrations.

— Q: is cost level close between China and Sgp? Evidence suggests yes:

  • Int$/RMB = 3.64 meaning Rmb 3640 and USD 1k have equal purchasing power locally.
  • Int$/SGD = 0.8 meaning SGD 800 and USD 1k have equal purchasing power locally.

Therefore, SGD 800 and Rmb 3640 both have the purchasing power of USD1k (Rember Rule_1). If I convert SGD 800 to Rmb 4440 (2024 FX rate), I can buy “1.2 baskets” in China, since one basket cost Rmb 3640.

— Q: how does inflation affect ppp
A: inflation erodes purchasing power of every currency.
%%A: I think U.S. inflation doesn’t affect the Int$/USD ppp-fx. Suppose this inflation is stable. If China inlation far exceeds U.S. inflation, then Rmb purchasing power would progressively drop against USD

==== some fundamental but non-trivial concepts

Rule_1: “Purchasing power of 1000 units of a currency” is not a vague concept but a number, and always measured in local market.

It’s safe and realistic to assume a consumer has a USD denominated expense account.

Note the PPP-basket is an international standard basket, and distinct from each government’s CPI basket.

— personal quality_of_life (and national standards of living ) .. depends not only on your income but also the actual cost level. Abstract 🙁 Concrete example: Your after tax income, converted to USD, is identical between Sgp, Beijing, NY and Miami, but the same basket of “products” cost more in NY and less in Sgp. Therefore, your quality_of_life is higher in Sgp.

— Most products have location-specific prices. Beijing and Hebei are different locations.

Commodities like cude oil have no loction-specific prices. However, I’m more interested in consumer goods, which indirectly depend on commodity prices.

If your basket is mostly high-tech products like softwarer gadgets, then there’s no location-specific price. Indeed you can use FX  because iPhones, BeyondCompare etc are sold at the same USD price regardless of location.

However, in most people’s “basket”, high-tech products are a small portion. A big component of your basket can have a highly location-specific price.

Services as a type of “product” have location-specific prices. The BigMac is a famous example. Converted to USD, it is expensive in Switzerland and cheaper in SE.Asia.

bposts@cpf^annuity

Posted on by tiger40490

Problem: too many overlapping bposts about cpf
tip: use sharp, memorable titles
tip: use alias bposts

Sugg: more tags and categories?

— category
except this one , most bposts should not show both “annuity” and “t_cpf”, though they “deserve” to.