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Voted for WP but will vote for PAP in the next election. (Changes to the CPF system are reasonable and necessary.)

Wednesday, March 18, 2015

AK is a pragmatist.

AK does not believe in being overly optimistic or pessimistic.

AK is non-partisan.

AK gives credit where credit is due.

AK is not a PAP supporter hor.

AK just thinks that the PAP government is doing mostly the right things when it comes to the CPF.

I know what people say about the shifting of goal posts but if the initial measurements were off the mark (and are no longer effective today), the goal posts must be shifted. 

It is about staying relevant.

I always say if changes are reasonable, I will accept them.

The changes made to the CPF system over the years have been reasonable and also necessary.

Related posts:
1. A lot of the money in my CPF-SA is...
2. Achieving Level 1 financial security.
3. Proposed changes to the CPF system.


Unknown said...

Do you think of PAP allowing CPF to be use for property purchase as a good decision? I do not agree as CPF was set up for retirement purpose and I feel that PAP has deviated from that and did the more popular thing which is to allow CPF funds for properties

AK71 said...

Hi Wei Xiong,

I think you know what I mean when I said the PAP government has done "mostly" the right things with the CPF. ;)

We will have to take some personal responsibility: How did AK amass so much money in his CPF-OA?

I am not saying that everyone should do what I did but to different degrees, everyone can try to leave more in their CPF-OA to compound at a risk free rate in preparation for retirement. :)

SMK said...

I agree and I regret they took too long to realize.

Sometimes precursors can leave too sacred a cow.

unluckid said...

I think the biggest problem is, whilst shifting the goalposts, are there any ways that they are helping those who are not as well off to reach that? If not, endlessly shifting the goalposts serve only to lock up money inside, and does not help in amassing retirement funds at all. High housing prices due to the ill advised Asset Enhancement policy that was implemented compounds the problem. My two cents worth.

Blue Willow said...

Hi AK71,

I entirely agree that we have to take some personal responsibility.

But on the question of whether the govt has done 'mostly' the right things with CPF, Wei Xiong's point is not a minor one. CPF is supposed to be a retirement fund but allows for pre-retirement withdrawal. Crazy isn't it? And as I said, this is not a minor fault - for the 1997-2011 period, withdrawals averaged 75% of contributions.

The other thing is the implicit tax on CPF wealth is large. If the GIC manages CPF funds on behalf of CPF members and they claim to have made an annualized rolling 20-year (1981-2009) rate of return of 2.6% in real terms compared with CPF's 1.4% real rate of return, then the difference is implicit tax on CPF members. This tax is not just large (46% of the real returns), but regressive as relatively lower income households are likely to have larger proportion of their wealth in the form of CPF Balances.

So I will have to disagree with you on this one. My conclusion is they have done 'mostly' the wrong things with the CPF.

Ray said...

Some people say wp will gain more seats but to that I say dream on. With the severe lack of teeth showed in parliament for the part 4 years many voters in aljunied told me they are going to vote back pap. Though I must say pap can still improve so best to keep them anxious so they will roll out more casting policies.

AK71 said...

Hi unluckid,

When they shifted the goal posts, it was to give our retirement funds a better chance to grow.

When funds are locked up and allowed to compound at a rate of 4% to 5% (now 4% to 6% with the recommended changes), they will grow meaningfully.

Ironically, it will be those who have lesser in their CPF who will benefit the most from the shifting of the goal posts but often, they are the ones who want all their money back at age 55.

Unfortunately, most people are rather short sighted especially when it comes to money matters.

AK71 said...

Hi Blue Willow,

It depends on the angle we take, I guess. :)

I look at my CPF savings as the long term bond component of my portfolio. It is volatility free and as risk free as risk free could be.

As with any bond, if the borrower should use the money and make more money for themselves (in this case, for the country too), good for them.

Using the CPF savings to fund housing purchases is an issue that is rather grey. Some say it is a bad thing but there are some who say that they have made more money because they used their CPF savings to buy properties.

Theoretically, the idea is not sound but, on the ground, many have benefitted from this. A bit of a hot potato, this. Hmmm...

AK71 said...

Hi Ray,

It only makes sense to get people who can do the job properly into Parliament. I am non-partisan. Show me you can do the job by delivering on your promises and you get to keep the job.

Unknown said...

Going to vote PAP because he now understand the CPF system? I thought voting should be based on more than just CPF...

I agreed on giving credit where it is due. PAP did very well from growing a small port village to such a wonderful city that we have now. We definitely have one of the best education/healthcare/security level in the region. This must be acknowledge and given credit.

But the cracks seems to show in the recent 10 years and city planning seems to take a step backwards. The lagging of our transport infrastructure, hospital beds, basic housing shows a lapse in planning. In fact I only see mostly fire-fighting measures now. (ramping up of HDB, expanding of transport infrastructure, building of more hospitals, etc) The supply is clearly unable to keep up with the demand. They have all the information in their system and it is also them who managed the inflow/outflow through various policies. So why is the infrastructure not build before the increase in demand? I wonder why...

For me, whom I'm going to vote is more than just CPF. I also need to consider the future of my children...

As for CPF, there is just too many changes in these few years. For greater good or bad, everyone have their own ideas. But one thing for sure, numerous changes just breed distrust and the complicated system is not really helping it. Go ask the common people in the streets if they know how truly the CPF works and how it will affect their retirement planning. I doubt many do not know. At least not my circle of friends. They should try making it more simple...

For you, the system might have work very well but unfortunately it might not be so for others. Can they replicate your success? Maybe yes but also maybe no, due to everyone salaries and family commitment is different. It is impossible to have a system that accommodates all but certainly we can have a system that helps or benefits the lower income population more. Especially when it is the lower income families that will rely more on the CPF compared to the middle and upper income tier. We must give credit for them for giving extra 1% for the first 30,000. That I believed is a step in the right direction. Continue to delay payout age? Some families just may not have that luxury...

Overall is CPF policies more right or wrong, I'm not really sure. How will it evolve for the next 20 years, I seriously do not know. I certainly do not count CPF as part of my retirement plan and anything I got out of it will be just bonus. I will just try to make full use of the system to maximise the number in that OA/SA/MA and hope that 20 years later, I can really cash out...

Why such distrust? I believed many know the reasons... Too lazy to explain...

AK71 said...

Hi LS,

Your comment has provided a window into many things which people talk about when it comes to PAP's track record and I am sure that they have done good as well as made mistakes in government.

If they correct their mistakes, I am good with that. If they don't, then, I know which way my vote will go in the next election (although the lack of a credible alternative is worrying).

As for the CPF, I am just a CPF member who has made the system work for me. All I can do is to share how the CPF has worked for me and, hopefully, some readers will see how it could work for them too. :)

Rokawa said...


If cpf is mostly done right, pls correct my mistake.

Recently i heard a at present 2k income diploma holder is able to hit the present minimum sum with compounding interest help. But for this diploma holder, he would need to hit a minimum sum that is set ard 35 years later. Shouldnt the educatorial feature shows thjs guy hitting a future minimum sum.
I have no qualms about inflation not factor in as salary increase is not factor in too as well as snowballs in life.

Reading this kind of thing make me distrustful as wat was said is true but a wool has been placed over the eyes to hide theactual reality.

Unknown said...

"Past performance is no guarantee of future results".

I believed all financial savvy people will know of this phrase. While PAP do have a good track record in the past, it is not indicative of its future performance. My confidence on them is further eroded by the past 10 years performance which is not totally bad but definitely not stellar. The lack of planning which I mentioned in the previous post is one of my pet peeve as actually I actually seen it affecting my family and friends (not some hearsay stories).

Also recent past performance should hold more weightage when making a decision as compared to achievement of distant past. So while they have did us good during the 60s-90s, we need to focus more on the recent performance.

Lastly, agreed on the lack of credible alternative. Hopefully this will change in the near future and we have more choices. As long as any alternative present us with a sound plan, I will most definitely be willing to give them my vote.

P.S. My feel is that PAP had just squandered the trust they had build up over the decades when they start to view Singapore as a corporation... The focus on GDP as their KPI and the lame justification of the need to get paid highly to retain talents (not going to talk about the dignity comment that MP Dr. Lim made since he apologise and withdraw his statement. :p) is just making them losing connection with the ground. Also I do not see how their claim of high pay will prevent corruption with the recent corruption scandals involving very high ranks... Enough of the ranting... lol

P.S.S. I guess the politicians in other countries are not talents as they are not as highly paid. So is Warren Buffet since he is paying himself so lowly... Maybe he is corrupted?. :p

AK71 said...

Hi Rokawa,

Well, it is easy to show forecasts on slides. So, it is not surprising that people should frown upon the system and the claims by the powers that be that the system works or should work.

This is one reason why I decided to share my experience and also share private and confidential numbers to show that the system has worked for me and how it could possibly work for other CPF members. :)

AK71 said...

From my FB wall:

Kelvin Tan Tuan Wei:
I always wish people who talk about implicit tax explained more why they think so. 2.6% annualized return over 20 years and 1.4% risk free return of CPF is more than just saying that, "Oh, 2.6 is higher than 1.4."

Without talking and understanding what exactly risk means, it is meaningless to compare just the numbers. There is a reason for this term called risk premium.

Think of it this way, would you accept a game where I flip a coin where heads come up, I pay $2 to you, and tails come up you pay me $1, versus I pay you $0.50 no matter what happens?

One has a risk free return of $0.5, the other have an expected return of also $0.5. You may think the game is trivial, but what if I increase the numbers proportionally? Can you see why the risk free return can be superior even when it is lower than expected return?

Solace said...

Allowing OA to be utilize for housing enable many young couples to have a chance of owning their own property.

However, the severe drawback of this scheme is lack of money to meet the minimum sum when 55 years comes about. TO add on, it troubles many people when they know they have to pay accrued interest when they sell their property.

To solve this tricky scenario, i suggest topping up your SA every year whenever possible. OA has helped to fund your property, any extra cash one could come with, should contribute back to the SA. Additional benefits is the tax-exemption part.

In calculating compound interest in CPF, Do take note that the compounding period per year is 12. This is attractive.

Do it early and be consistent, one should be able to reach MS and any excess can be withdrawn when age 55 comes.

I have been mocked as crazy be my peers before, but looking from the angle of mathematics, it makes lots of sense.

AK71 said...

Prof Lum spoke on the subject of CPF and its use for housing at the IPS Forum on CPF last year:

Housing and the CPF.

"Prof Lum said that, in effect, many are using housing as their pension funds and this is, in part, due to the lack of alternative investment vehicles."

Betta man said...

I agree with Solace on topping up SA. It is good to max out the SA as early as possible and let the effect of compounding do the work to meet future minimum sum. Even after reaching the min sum in the SA, monthly CPF contribution from employment will still be allocated to the SA.

Then at 55, after setting aside the BRS, there would still be a substantial amount left in the SA earning at least 4% p.a. Withdraw the 4% every year and you have designed an annuity for life for yourself at age 55.

Casey said...

Hi Ak,

After reading those comments, the following is my thought.

Singapore was compared with countries like Malaysia, Thailand and Indonesia in 1960s and 70s, it was then compared with Hong Kong, Taiwan, South Korea in 1980s and 90s. Now, we are comparing Singapore with Switzerland and Denmark. If it is not a stellar progress then what is that?

Well, if the past success was not because of the good governance from this government, then credit must be given to the super hard working pioneer generation. How is our current generation compared to the pioneers? How is our future generations compared with the current's? This will determine the future success.

Too much effort has been put in complaining this and that. Our pioneers success is built on their attitude, hardworking and resilience. I am not sure if the future success could be built on complaining and blaming alone. Complaining that a fresh poly graduate can not meet the CPF minimum sum!

CPF is just a retirement scheme, if you cannot even plan to achieve the minimum sum, and start complaining before you workout a plan to meet it, seriously, you are in deep trouble. Not financially but your attitude on how you handle challenges. What will be the rest of your life? Your goal is to meet the CPF minimum sum? If you think that CPF is not suppose to be used in for housing then don't use it, nobody ask you or force you to use it for housing. It is kind of split personality that you benefited the convenience and yet complaining about why you allow me to use it!

A completely healthy diet will attract many criticisms that it is boring, and some might insist of having some indulgence in the diet and that is why we have this deep fried dish in the healthy diet. But someone come out and say no no no you are not suppose to have this deep fried stuff in the healthy meal. Well, now we have the buffet, you like it you take, don't like it don't take, but be cautioned, you are responsible for your health, don't blame the chef! Stop complaining other, start complaing yourself, put in more pressure to yourself to coax out a life that you want. You cannot meet the CPF minimum sum now? Sure, you are not alone, by end of the life, there will be some of you be the millionaires or even billionaires and some continue to complain the shifting post of minimum sum, the difference is due to your attitude not the government.


AK71 said...

Hi Solace, betta man and Casey,

Thanks very much for weighing in on the matter. I think there is a common thread in all your comments which is that we have to take personal responsibility for our financial health now and in the future. The CPF is a tool that we should fully utilise to help meet retirement adequacy.

How we use any tool will determine if we get the results we desire. :)

RayNg said...

The SA min sum increasing every year. Some predicted in 20 years time, the min sum will be ~$290K in 20 years.

How can we meet this MS target?

Beside cash top up to accelerate the compounding effect, I think G should review current CPF rate credit to PA/SA/MA.

For example, the credit rate for <30 year old is 23/37 (OA), 6/37 (SA) and 8/37 (MA).

The SA rate is way too low compare to OA and MA.

We should build up the net eggs (SA) in earlier working life to max the compounding effect. May be G should increase the SA credit rate from 6/37 to 9/37 so that more money is channel to retirement fund.


AK71 said...

Hi RayNg,

I like the idea but I think there will be a problem. The majority of the population might then complain that there is not enough in their OA to buy their dream home etc.

I think a problem is that the OA is simply being allowed to fund too many things (and not just housing). When we let people have the option of using the "virtual" money for so many purposes, they are going to use it because many do think that money in their OA is imaginary.

How is this problem to be fixed? With a lot of difficulty, I would imagine.

Unknown said...

Taking responsibility about their personal finance is definitely a must. The is a saying, "Nobody cares more your money than yourself". If you yourself do not take charge of your finance, don't expect others to help you.

While we are trying to discuss the pro and cons of certain policies (extra interest or delay of DDA), we prefer constructive feedbacks or pointing out of facts/observations. Putting down others by saying some did not even try or are just put too much effort in complains are a sure-fire way to offend the other party and cut short of any meaningful discussion. Did anyone try to understand that particular person circumstances before generalising that person as having lousy attitude or did not bother to try?

While some are merely stating the policy of allowing CPF for home purchase might had unknowingly causing an unintended inflation of housing pricing, we have comments like "nobody ask you or force you to use it for housing". What we are discussing is the macro effect of certain policy towards the general population but such remarks is simply personal attacks...

Anyway, good discussion here. See some good points on how to compound more efficiently by having a bigger capital base in SA(transfer from OA to SA or topping up) and adjusting on contribution ratios. Just hope the discussion can going on in a positive way...

P.S. Please think for others and their circumstances before making comments... Thanks

Unknown said...

I do agree that it is a problem that the OA is being allowed to fund too many things. I also agree that we ought to take personal responsibility in our own finances. However in certain situation, government policies are forcing us to behave in a certain way. In allowing CPF to be use for housing, housing prices are so inflated so high that it would not be sensible/sustainable to fund it with just cash for the young generation who have just entered the working class. Our government had opened the flood gate of "housing currency" into the market. It is quite similar to printing new currency only for hosing purchases which will fuel a housing bubble. Hope this clarifies.

AK71 said...

Things could change in future.

If they have to change for good reasons, then, it would be reasonable to accept them.

Listen to the voice of reason and ignore fear mongering.

AK71 said...

Reader says...
Hi, started reading your blog recently.

Like to seek your permission to share your blog post on my Facebook whenever I find it make sense for me.

You changed my view on CPF.

I used to think CPF is evil.

Locked up my money.

I need to plan properly.

AK says...
As long as you do not harbor any ulterior motives for sharing my blogs, ok. 😛

AK71 said...

Peter Somtam says...
AK, you had help many people to open their mind and understand the goodness of CPF.
Thank and keep it up

Ben said...

Hi all,

Whether one vote for the incumbent PAP or the opposition, is his/her decision. I have learnt one rationale from this aspect. One will have the option of voting either parties depending on the circumstance. Election comes once almost every five years.

The power is in the hand of ordinary peasants. This is likewise the same in the route to financial freedom. Having options is great and peace of mind in my prespective.


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