Singapore Expats Forum

Withdrawal of CPF - Split from National Service Deferment Procedure in Singapore.

Discuss about the latest news & interesting topics, real life experience or other out of topic discussions with locals & expatriates in Singapore.

User avatar
JR8
Immortal
Immortal
Posts: 16514
Joined: Wed, 24 Mar 2010
Location: K. Puki Manis

Re: Withdrawal of CPF - Split from National Service Deferment Procedure in Singapore.

Postby JR8 » Mon, 21 Mar 2016 4:16 pm

BBCWatcher wrote:some very smart investors -- much smarter than any of us ... Those extremely savvy investors are currently (as I write this) willing to lock in their after-tax money, in Singapore dollars, with the AAA rated Singapore government for 10 years...
....OK, so you're an ex-PR let's suppose, and you're holding CPF funds that pay a minimum of over 4%, Singapore tax free. You haven't locked up your money for 10 years(*)
... the global financial market locks up its money for 10 years. GREAT DEAL! By definition.
... But CPF SA is a tremendously excellent deal, as the global financial markets themselves loudly demonstrate every minute as they trade Singapore government debt.
(*) Yes, you can sell a Singapore Government Security on the secondary market before maturity. So your money is not truly "locked," but you are taking some risk that bond prices will fall/bond interest rates will increase, and thus you might not get back all your principle if you sell early. That's not like CPF -- you don't have that risk with CFP.


I edited that down trying to distil the parts that underpin the position being put forward. I don’t think invoking supposed ‘very smart, extremely savvy, very rich, [‘the type who spend $200 on a glass of whisky and don’t even think about it!!!’] people has merit. What is being suggested, ‘very smart, very rich blah blah’ do such and such so you should too?
You don’t become rich by spending on $x00 whisky, never mind by not even thinking about it. That is entirely contrary to my experience of working amongst some people one might consider ‘rich’. In my experience that stuff is drunk by a) poor people pretending to be rich (the gold-Rolex brigade, incl SGn nouveau-riche) b) ‘rich people’ who are getting someone else to pay for it.

Then there seems to be a whole suggestion that these Rolexed-up people, who doubtless bathe in Crystal are locking up their money in SG for 10 years for ‘1/2 what little ol’ you and me can get in CPF. So therefore clearly CPF is a no-brainer, can’t you see, it’s so obvious!’. But then comes a p.s. that in fact buying a 10yr SGn government bond isn’t actually locking up money for 10 years, and that you can sell it. Ha – no kidding! So all the preceding ‘Rich people do, so you should too’ was based upon an entirely false construct. Amazing, just what is the point, and what is the thinking behind touting a solution when nothing relied upon as a basis makes any sense at all. Anyway, then the regurgitated but mashed class-room 1.0001 on how bond prices can rise as well as fall... ugh :o :roll:

If you buy a SGn govt bond it’s likely a small part of an investment portfolio, probably intended to reduce gross risk across all the investment assets. No one is going to enter the fabled Rolex la-la-land on the back of even a ‘super-tremendously-excellent’ 4% a year.
'Do it or do not do it: You will regret both' - Kierkegaard

BBCWatcher
Editor
Editor
Posts: 1035
Joined: Sun, 13 Sep 2015

Re: Withdrawal of CPF - Split from National Service Deferment Procedure in Singapore.

Postby BBCWatcher » Mon, 21 Mar 2016 4:35 pm

x9200 wrote:...before the medical insurance robbery I would call it ideal deal.

MediShield Life premiums have nothing whatsoever to do with a decision about whether to keep CPF funds in CPF or to withdraw them. Only citizens and PRs must pay MediShield Life premiums, and citizens and PRs cannot prematurely withdraw CPF funds (except for qualified purposes). Ex-PRs do not pay MediShield Life premiums.

For them, I could imagine CPF may not really be that attractive if somewhere else they could and earn say, 10%.

There is no such thing as a low risk investment generally available that pays 10% (assuming reasonably low rates of inflation). It's a unicorn. It doesn't exist. If it did, global investors would be rushing to grab it. Instead they're settling for 2% nominal yields, with no inflation adjustment, on 10 year Singapore government bonds.

For the portion of your long-term savings allocated to low risk vehicles, CPF is a fantastic deal, truly. The world agrees with me, literally. If you want to allocate some or even much of your long-term savings in much riskier assets, that's often perfectly fine, especially when you're young and expect to have a long time horizon. But in my view such holdings shouldn't be 100% of your assets either, especially when CPF SA is paying yields that are comparable to far riskier investments.

Look, long-term saving for retirement really isn't complicated. University of Chicago professor Harold Pollack managed to put all the financial advice you really need on a postcard. His advice is geared to U.S. savers, but it can be applied elsewhere. CPF relates at least to points #1, #4, #6, #7, and #8 on his card. CPF is highly Singapore tax advantaged (#1, #6), steady enforced savings (#4), extremely low cost (#7), and looked after by a boring (that's good!) AAA rated government agency that isn't paid to peddle you crap investments (#8). There's a lot to love about CPF SA and its over 4% minimum yield. Most people just aren't that good, even with much riskier assets.

JR8, sorry, you're just crazy at this point. Yes, you can sell a Singapore government bond on the secondary market as I pointed out. But you're trying to argue that that then means CPF's over 4% minimum yield isn't attractive. WTF? There are also one year Singapore government bonds. You know what they pay? Just over 1%, also without inflation adjustment. (On average you lose money on a one year bond because inflation probably whacks all of that and a bit more away.) I picked the 10 year bond because I was trying to be really generous to those trying to argue that CPF isn't a great deal. For ex-PRs (except the Malaysian ones), CPF SA funds are paying over 4% minimum, adjusted for inflation, and instantly available for withdrawal with zero risk to principle. The closest match to that particular offer, still with some principle risk, is a Singapore government bond of the shortest term possible, and that's paying less than 1% nominal....

....But you think ex-PRs should routinely yank their funds from CPF? WTF? I don't get it. CPF is yielding 2 to 4 times what the general global public is willing to settle for when buying Singapore government debt, more than those multiples in real terms. I picked 2 times to be overly generous in my comparison, but by your own logic it's 4 times. Damn, that's a FANTASTIC DEAL. Clearly. It's like genuine Apple iPhones at half (or a quarter) the normal price, direct from Apple, with full warranties -- it's that good. Why on earth would your first instinct be to pull out of that deal? It makes no sense. It's just flat out financial malpractice if practiced generally.

Yes, portfolio diversification is important. Yes, if you need a kidney transplant to stay alive, and you have to pull out CPF funds to pay for it, do it. Yes, if you're a young person you should have some well diversified assets in riskier and potentially higher yielding vehicles. But, Good Lord, CPF SA is quite superb, and the world -- voting with their yen, euro, U.S. dollars, rupees, francs, and pounds -- agrees with me.

User avatar
JR8
Immortal
Immortal
Posts: 16514
Joined: Wed, 24 Mar 2010
Location: K. Puki Manis

Re: Withdrawal of CPF - Split from National Service Deferment Procedure in Singapore.

Postby JR8 » Mon, 21 Mar 2016 5:06 pm

Can you repeat the bits about how bond prices can go up and down, and about how CPF is really really REALLY good? :lol:
'Do it or do not do it: You will regret both' - Kierkegaard

User avatar
sundaymorningstaple
Moderator
Moderator
Posts: 34456
Joined: Thu, 11 Nov 2004
Location: Still Fishing!
Contact:

Re: Withdrawal of CPF - Split from National Service Deferment Procedure in Singapore.

Postby sundaymorningstaple » Mon, 21 Mar 2016 5:14 pm

Aren't SG Bonds a different kettle of fish than CPF? That's my understanding anyway.

BBCWatcher
Editor
Editor
Posts: 1035
Joined: Sun, 13 Sep 2015

Re: Withdrawal of CPF - Split from National Service Deferment Procedure in Singapore.

Postby BBCWatcher » Mon, 21 Mar 2016 8:09 pm

sundaymorningstaple wrote:Aren't SG Bonds a different kettle of fish than CPF?

Singapore Government Securities (government bonds) are available to the general public with no particular limits. However, what they tell you is how the global financial markets value Singapore dollar-denominated debt instruments, and that's very useful information to compare against CPF SA yields. That comparison clearly demonstrates that CPF SA yields are extraordinary, that the government is paying CPF fundholders well above the market rates on its general debt obligations. Ergo, CPF funds are definitely worthy of some respect in your long-term savings portfolio.

For those of you familiar with U.S. analogies, try to imagine an FDIC insured savings account that pays 4.5% interest at the same time a one year U.S. Treasury bill yields 1.1%. That's a pretty close analogy. Of course that federally insured savings account would be a fantastic deal, even if you're living in South Africa (for example), and it certainly wouldn't be the first place from which you'd be withdrawing funds. You'd at least want to keep a major part of your "emergency fund" in that lovely account. That's CPF SA to the ex-PR, a hell of a good deal.

User avatar
Strong Eagle
Moderator
Moderator
Posts: 10561
Joined: Sat, 10 Jul 2004
Location: Off The Red Dot
Contact:

Re: Withdrawal of CPF - Split from National Service Deferment Procedure in Singapore.

Postby Strong Eagle » Mon, 21 Mar 2016 10:32 pm

JR8 wrote:Can you repeat the bits about how bond prices can go up and down, and about how CPF is really really REALLY good? :lol:


https://www.youtube.com/watch?v=bOnRHAyXqYY

BBCWatcher
Editor
Editor
Posts: 1035
Joined: Sun, 13 Sep 2015

Re: Withdrawal of CPF - Split from National Service Deferment Procedure in Singapore.

Postby BBCWatcher » Tue, 22 Mar 2016 11:37 am

What might be misleading to readers from and/or familiar with India, as an example, is what you might call "headline rate bias." If you're getting a nominal 4.5% yield on your Singapore dollar-denominated CPF SA funds, for example, at first glance that doesn't seem like such a great deal when there are funds in India paying 8%, say.

Of course that difference in headline numbers is true. 8% is a bigger number than 4.5%. But that's not the whole story, not by a longshot. According to official statistics, India's inflation rate is over 5%. In February, 2016, it was 5.18%. It has been averaging about 5% over the past year. In contrast, Singapore's inflation rate has been negative at least for the past year. In January, 2016 (most recent I can find), it was -0.6%. These are all annual rates.

So what does that all mean? Well, as an approximation you can subtract the inflation rate from the nominal yield in order to get a pre-tax real yield. (At least in Singapore's case it's also post-tax, although in all cases foreign tax might apply.) If you do that in India then a 8% yielding savings vehicle would have a real pre-tax yield of about 3%. That Singapore vehicle paying 4.5% is actually yielding about 5.1% on a real basis. 5.1% is much better than 3%. On top of that, an 8% yielding Indian asset is much riskier than CPF. CPF has AAA principle risk, meaning basically zero principle risk. You certainly can't say that about ~8% nominal yielding Indian assets.

If these inflation rates persist -- if India's inflation rate continues to run 5+% above Singapore's rate -- then what will automatically and naturally happen is that the Indian rupee will fall in value relative to the Singapore dollar. The exchange rate won't move in lockstep every hour, every day like that, but over time it surely will adjust if that inflation rate discrepancy persists. The Singapore dollar is currently holding its purchasing power -- even gaining purchasing power -- while the Indian rupee is losing its purchasing power. So that difference will get reflected in the exchange rate.

All that said, and to repeat, I don't think you should only hold CPF or only hold Indian assets. You should have diversification in your savings. However, you have to adjust the "headline" rates to understand what's really going on, what you're really getting. And all signs point to your getting a globally fantastic deal holding CPF SA assets. The whole financial market is shouting loudly and clearly it's a great deal. Even on much riskier Indian assets you're not getting 5+% real yields like you are on CPF SA assets.

I understand the psychology. It's very natural to look only at the "headline" numbers. If you look at Japan, for example, their savings yields seem very poor indeed if you're coming from practically any other country. Many of them are indeed poor yields, but they're not that poor. There are so many consumer prices in Japan that haven't changed in 20+ years -- it's really quite amazing. That's not like India. India has moderate inflation. Singapore and Japan don't, and they even have some deflation. That's very important to understand.


  • Similar Topics
    Replies
    Views
    Last post

Return to “General Discussions”

Who is online

Users browsing this forum: No registered users and 3 guests