malcontent wrote: ↑
Thu, 30 Jun 2022 12:44 am
Don’t get me wrong, CPF is a valuable scheme. However, there are some real shortcomings. The US schemes are not without shortcomings either; you pointed out a few important ones.
In my case, my spouse has CPF and I have a combination of SS+IRA+SRS. Since I’ve spent virtually all of my working career in SG, I have no 401(k) or HSA.
Assuming my spouse maxes out to ERS for CPF LIFE, her future payment (estimated to be around US$2k per month) will be about half of my SS payment when we reach retirement age. It isn’t nothing… but it’s not great.
Here are some other thoughts.
#1. If your wife has contributed the max to CPF for decades, she should have well in excess of the ERS. I.e. again not apples to apples to compare CPF Life from ERS (a portion of CPF) to all of SS.
#2. Things like disability and survivor benefits are really some form of catastrophe insurance, the cost of which is born by society. Not necessarily a bad thing. But this is really a separate issue from individual retirement savings. Either way, catastrophe benefits are not free either and they have to be funded from collections/contributions too.
#3. SS sounds good to you because you paid in at X% and want to be cashed out by someone else paying in at (X+Y)%. Not blaming you and it is possible to bridge the gap. But this highlights the major difference in the two schemes; enforced savings in one's own name or enforced savings that go into some magic black box with someone determining what comes out the other side years later.
A sustainable system is one where what one receives is proportional to what one pays in. No system can promise more and more benefits without collecting the money from somewhere. The fact that the system requires more workers or higher tax rates on the next guy to sustain stated benefits is the issue.
#4. You are correct that the system will not fail. The options are:
a) Cut benefits by 20% across the board
b) Raise payroll taxes by about 25%, which is about a 3% higher rate on the wage base
c) Raise payroll taxes by less than 3% on everyone and increase the rate on some (by removing the cap but not increasing benefits for high earners).
d) Cut benefits for some
a) is not politically feasible so the real fight will be over b), c), or d).
I would also suggest you do some more reading on the "Trust Fund." Depleting the Trust Fund is just a bunch of book entries. Truth is the system currently collects less than it pays out and this differential is about to explode. The actual cash sent to people every month has to come from either other government collections or borrowings. There is no magic trigger about the Trust Fund balance crossing $0. Instead, the real constraint is how to solve the collection vs. payments deficit and send people money every month.