Most reputable authors from U.S., China (and other countries) present CPI inflation risk as one of the most serious risks for retirees. SG CPI trec is much much better. (However, my friend TJ.Lin disagrees…)

Even U.S. CPI inflation is not so bad in the short term. https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-history-suggests-otherwise.html says that The Federal Reserve tries to keep CPI inflation around 2% per year.

— The DBS seminar
On 30 Jan 2021 After the presentation, I confronted the presenter “Your 3% inflation over-estimate (DBS official estimate) seems to discourage people from saving and encourage people to spend more”. I still believe it. The presenter (Adeline?) replied “We are encouraging people to save and invest.” Ok the difference is saving-n-investing vs saving.

Look at the average people without enough Earn/Save/Invest capabilities. If the average people believes inflation is well-controlled for the long term, to average 1%, then they would be motivated to save more. If they are led to believe inflation is fluctuating beyond control, and higher than they feel comfortable, then they would feel discouraged from saving.

The presenter’s answer seemed to imply “The ordinary Singaporean retiree will need a huge retirement nest egg, but even if you save like hell your savings will be decimated by inflation, so the ONLY solution is investment in growth assets.” I disagree on multiple fronts.

Key issue 1: 3% compound inflation rate is an overestimate in the Singapore context. I discussed in numerous blogposts. She used a refrigerator for illustration — $1000 fridge today will cost $2000+ in 25Y. Well, I would predict there will be smaller fridges mass-produced in cheaper locations, costing far less. This globalization effect (discussed in this blog) is visible in clothing, electronics, toys, bicycle etc.  Instead of fancy merchandise, retirees need reliable, durable or low-cost designs. Retire-in-style is lifestyle creep, not necessary or admirable.

Key issue 2: the proposed nest egg size (around 1M, identical to Pauline’s) is too large for most people. It is not mandatory and it’s too hard to achieve, so most people would get by with less to spend, and it will be fine, not unacceptable.

Issue 3: CPF-life is a bedrock that DBS tends to downplay as insufficient due to inflation. All annuities have limitations, but I am convinced that CPF-life is the most reliable insurer with probably the highest payout rate.

Now if you ask ordinary folks to save like hell and invest large amounts, they would have no confidence, because all the investments “fast enough to beat inflation” are risky. That’s propaganda. I think even 2% compound return can beat the inflation I experienced. Therefore, if you lower the target return to 2%, then there are many safe-n-easy investments such as CPF and money-market funds.

So for most ordinary folks with up to 200k long-term risk capital[1], I agree with DBS that mufu is easier, but not really safer[2]. (Personally I would prefer stock-picking for 20k.) Mufu can cover equities and bonds. Obviously DBS wants to promote mufu since DBS makes money mostly from mufu and endowments.

[1] There is likely some other cash piles, but they could be earmarked for education, housing etc or they get depleted.
[2] equity mufu is subject to the same market risks as stock-picking. Liquidity is inferior due to management fee and longer trough.