America vs. Singapore: You Can't Save Your Way Out of Economic Shocks
governance.fyi154 points by guardianbob 5 hours ago
154 points by guardianbob 5 hours ago
Singapore's economic policies are complicated and often misdirecting. I'll break down the misconceptions.
The primary purpose of CPF is not a pension scheme. It is structured as a massive forced bond purchase scheme by citizens. Financially what happens is the 37% of citizen income buys a long term bond (till retirement age, on average decades) at rock bottom interest rates (it's pegged to the overnight rate or a minimum of 2.6%). The returns are specifically decoupled from the real long term returns. This has historical roots in the government needing vast capital financing. They make enormous amounts of the delta between the short term interest rate and long term capital gains. Singapore has no oil or natural resources, but it's sovereign wealth fund has AUM in the regions of countries like Norway which do for this reason. It is not a shock absorber like the article suggests. The withdrawal terms are strict - housing, a significant medical expense and retirement are the only real ways to get money out of it.
"Trying to keep people employed" is a goal, not a policy. In fact the Singapore government maintains a large worker supply through immigration. The foreign worker population, ~30%. The main goal of the government is to maximize the absolute number of people working.
The reason it raising the retirement age is effective in workforce participation is because most people have no choice. Retirement only pays out after the age. The working life of an average Singaporean has seen 37% gone to CPF, maybe another 10% to income taxes, another 5% to GST, road tax, property tax, etc. After all this there's the astronomical cost of living. This is also intentional, to raise the number of employees.
> Singapore's economic policies are complicated and often misdirecting. [...] it's sovereign wealth
Tangentially, I've had a similar gripe around how some US folks discuss Singapore's old rival Hong Kong. I see advocacy that "Hong Kong shows X works, we should do X here here", while ignoring the other half of the system required to make things work, aspects that they would not support adopting.
For example, celebrating its "tax freedom" while glossing over public/subsidized housing, and the revenues of its large [0] sovereign-wealth fund.
[0] Not nearly as large as Singapore or Norway, but significant. To put it in context (and per-capita)... if the US is 1x, then HK=80x, Singapore=356x, Norway=379x.
The CPF sounds pretty clever. It covers a major individual cost and need (retirement, medical, housing) instead of just throwing it into a tax. It makes the government money. This sounds like a win win kind of policy.
To me it sounds like a tax structured in a strange way so it doesn't obviously read as a tax.
It's essentially a forced loan to the government at subpar rates. The "tax" is the delta between what the government pays out for the bonds vs what a bond of equivalent risk in the free market would have paid.
The magnitude of the investment also probably makes it impractical for anyone but the very wealthy to retire before that starts paying out. Most other countries have lower rates on their retirement schemes, which makes it feasible for more people to live on their savings for a few years before the government retirement scheme kicks in. E.g. in the US it's pretty feasible for the upper middle/lower upper classes to retire a few years before Social Security kicks in, especially if they're willing to live frugally.
It’s almost impossible for an upper middle class couple to retire in the US before their 65 unless they have some type of government provided or private company provided health insurance like teachers, police officers, military etc.
It’s about $25K a year for a decent plan which is doable. But you have to hope that Republicans - and yes this is a political issue - don’t successfully kill the ACA and make it impossible to get insurance at any cost if you have a pre-existing condition. If you are old - you will develop a pre-existing condition.
My parents are 83 and 81 and retired at 57/55. But my mom was a teacher who still gets benefits through the government and my dad gets benefits from the one factory that didn’t shut down in our hometown.
I’m 51 and even if I could retire early financially, I wouldn’t do it and stay in the US. Play the smallest fiddle for us. I “retired my wife” at 44 in 2020 8 years into our marriage when I did a slight transition to an industry where remote work with travel is the norm (cloud consulting + app dev) and we have traveled a lot including doing stints as “digital nomads”.
We are staying in one of the countries that we might retire to as a Plan B for six weeks starting next week.
Even now that we moved to state tax free Florida and my wife hasn’t had to work in six years, she keeps a current CDL because she can get a job as a school bus driver easily for the benefits and someone will pay me for independent consulting if I lose my job.
The FIRE community and my own personal situation prove you very, very wrong. It's absolutely possible for a upper middle class family to retire in their 50s, even in their 40s, if they live frugally.
"Live frugally" , "FIRE" , "work in tech"
All incompatible with 99% of the upper class, neither do they want to eat ramen to retire early.
You're also one medical disaster away from being "very very wrong"
FIRE doesn't depend on having a tech job. Its all about income to expense ratio. Planning for medical events is something that gets talked to death in these communities.
How do you plan for a potential quarter million dollar medical bills over a couple of years?
The same way that an employed person would plan for this. Catastrophic insurance plans put a cap on how much your medical bills can be.
90%+ chance the person you are replying to has health insurance that will cover them in case of medical disaster.
I absolutely have health insurance, the most expensive available on my state. That doesn't protect me 100%, but what health insurance (including the ones available at most companies) does?
People who have poor money management skills believe that FIRE=Ramen and no health insurance... In fact, it's about getting a 30K car (the one I bought new 3 years ago) instead a 70K car despite having the money.
And what happens when the Republican Party gut the ACA and you have a pre-existing condition. Do you know what life was like trying to get insurance with a pre-existing condition before 2012?
99% of people have poor money management skills? It's statements like this that makes FIRE a fringe scene.
And health insurance as soon as the ACA is gutted and you have a pre existing condition? Sure I could retire to Costa Rica or Panama. One of those are a plan B and we will be in CR for six weeks and we are both learning Spanish - I am. decent at it.
I bet you also your idea of upper middle class is not statistically valid.
Costa Rica is on my retirement shortlist. I really like it there and have taken the family for vacation a couple times. I've driven the whole country pretty much North to South. Puerto Jimenez is one of my favorite places but it's very rural. There's some nice areas an hour or two North of San Jose as well. I've met a handful of US families that, when the pandemic hit, just sold everything they owned and moved to Costa Rica. As far as central america goes Costa Rica is a bright spot of stability and like a functioning government. I live in Dallas so pretty much have to know a little Spanish but there isn't much of a language barrier at all. You could do a lot worse than Costa Rica.
I didn't get where I am by taking random bets, but I'll say you'd lose your money here.
Were you around and trying to get health insurance before 2012? I was. The startup I worked for shut down and while I had a well paying contract lined up literally the next week, I couldn’t get health insurance at any price because of a pre-existing condition even though at the time, I was a part time fitness instructor and I had just gotten through running my first (and last) two half marathons.
If you are betting on the stability of the US health care system outside of employer funded health care, that is a monumentally stupid bet with one party actively trying to kill the ACA.
So what did you do? Clearly you didn't die. Did you just have no insurance for the week before the new job started, or what?
This also happened to you while you were working and slightly between jobs. So it's not really a FIRE concern if the concern is the US messing up the health care system even more in that it would effect everyone whether working or not. Generally speaking, an answer to mitigating a lot of types of risk with a FIRE model is: you just go back to work for a while. This is easier the younger you are.
Edit: Also I thought COBRA would have been a more recent thing but it was Regan era. So did you not have employer-sponsored coverage with the startup?