Tuesday, February 12, 2008

Can we really retire comfortably? (1)

Let me first analyse this Retirement Issue from the CPF perspective in this posting.

Many Singaporeans thought that they can depend on CPF savings for retirement. It is true if the money was not used for anything else, like a single who never purchase a property. However for most, a lot of CPF funds are used before the retirement fund really start accumulating.

I had identified 2 major barriers that restrict Singaporeans saving sufficiently via CPF.

1) High Property Prices and heavy reliance of funds from CPF
* Property Prices in Singapore is high and a major portion of the funds comes from CPF. With current rising property prices, the problem intensified.
* A young couple buying a property have to take a larger loan with probably longer term. A 30 yr old couple with 30 years repayment period means that they stop the repayment only at the age of 60.
* Worst of all, many Singaporeans have a tendency of buying a larger property near their 50s when children are in their teens. It wipe out their CPF and burden themselves with new loan into their 50s.

2) Mis-management of CPF Investments
* Singaporeans are generally lousy investors. When funds come from CPF, they are worst off. Its because they view their money lightly when the funds comes to CPF. They thought they can take higher risk because they feel that they cannot see the money anyway till age 65.
* Statistically, most Singaporeans had make lower returns compared to the 2.5% CPF guaranteed rate. Many of them even made a loss even under current economic boom.
* The problem is that Singaporeans view investment as Gambling. We are living in a world of Toto, 4Ds, soccer betting and now the Casino. They cannot guage the relation between Risk and Returns. They Overestimate Returns, Underestimate Risk.
* Example, we cannot stand the temptation when someone close to us gained 100% on their China Fund, so we blindly follow suit even after the fund rosed 100%. Eventually, the fund probably dropped 50% in the next year. No one knows when the fund will rose that 50% back. Probably 10 years later. (Imagine the interest lost over the 10 years)

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