Tuesday, 20 April 2021

Salary In Big Lump Sum Better!


Let's continue the discussion from my last post whether its  better to sell candies at $0,50 each, or offer them at $1 but "buy-one-get-one free"?

When I started work at 16, I often envied those who worked at banks where they get 3 months of annual wage supplements...

We at retail "only" get 1 month AWS, like most everyone else in most industries.

It was much later that I realised we got the better deal. Wink.

Let's talk about the rank-and-file workers first. 

Those of you who have worked at F&B outlets, hotels, or factories during your school vacations may remember this bitter/sweet jog down memory lane. 

You may earn $2K per month gross, but your base salary could only be $1.2K.... The rest of the $800 is broken up into shift allowance, punctuality allowance, transport allowance, and even laundry allowance! 

I'm not making this up! Yes, there's such a thing called laundry allowance!


So landowners can pay you less when you work overtime mah!

1.5 times or 2 times (public holidays) $1.2K base salary is less than over $2K. Simple math.

Furthermore, those of us who are hard up for money like to "sell" our annual leave back to the company. Pro-rated, your annual leave is worth a lot less now... Company smart or what?

And of course, if you get a 5% raise... You get the picture!

For those of you who never worked as rank-and-file ever, first job already executive or management, don't be too smug. 

But you are definitely better off! 

The offset is you don't get paid for overtime. Landowners will be landowners.

Once you rise high enough or lucky to be sent overseas, you'll get the same "3 bananas in the morning; 4 bananas in the evening" treatment too.

But first you'll be elated with the "free" housing. "Free" company car. "Free" country club/gym memberships. "Free" international school allowance for your kids. Who doesn't like "free"? 

That's until you realised you'll be better off financially, if everything "free" is bundled into your annual salary instead!!!

You tell yourself next contract you'll negotiate away all the "free" stuffs and add it into one big lump sum annual package. One ring to rule them all. 

You smart; company not stupid.

If they need to retrench you, and the compensation is 1 month for every year worked... Don't even dream about it!

And of course the elephant in the room is still - if you get a 5% raise...



  1. Smol,

    Dunno how other countries handle it, but in S'pore all perks (and non-medical claims e.g. transport & meals) are priced & reported to IRAS for income tax. So might as well get them as upfront cash as part of salary.

    In some high tax countries, may still be beneficial to get perks as off-salary items.

    (S'pore govt realised too many people were playing this game & leaking state revenue ... while companies could claim the costs as deductibles against corporate income tax ... So govt plugged the loophole 25 yrs ago)

    Regarding lump-sum versus annuitized / amortized ... this is a headache that plaques big lottery winners overseas, as well as pioneer civil servants in S'pore.

    I remember my parents thinking long & hard over this. Finally my mum chose the lifetime annuitized pension, while dad opted for lump-sum pension payout. Go back to first principles ... matching personality & regret minimization.

    1. Spur,

      You think why Rich Dad Poor Dad exhorts the benefits of being a Business Owner? (Don't know how most other readers read it as promoting passive income...)

      There are lots more creative ways to avoid taxes legally when you can decide HOW and WHAT to pay yourself ;)

      In Singapore big daddy whiter than white. They are "bersih".

      So the trick of paying yourself $1 per annum and charging everything to "ah kong" will not work over here :(

      That "headache" option your parents experienced, big daddy has kindly removed it once and for all for later generations.

      Daddy knows best. (What matching personality and regret minimization?)

      Big daddy probably don't trust the majority of us to handle our finances responsibly when it comes to a big lump sum of money.

      If you bitch a lot about it, big daddy will give us $5K at age 55.

      "Here, suck on it."

      When we are sucking, we can't shout and complain. LOL!

      Then at age 65, anything above BRS or FRS we can withdraw out finally as full lump sum. But the balance under Full Retirement Sum (FRS) or Basic Retirement Sum (BRS) can only get bit by bit until we go sell salted eggs.

      If we get everything out at age 65, would we still let big daddy hold us by the bxlls?

    2. Spur,

      Your real people; real story sharing on your parents is the exact situation in our community.

      I'm more with your dad. We don't need big daddy's hand on our you know what anymore... LOL!

      Then there are those in our community who will not even dare dream of taking money in excess of FRS out... Don't let go your hand daddy!

      I no study. I see thing better with everyday analogies.

      There are cat people; there are dog people.


    3. Smol,

      Boy am I glad my parents resisted the exhortation to convert to full-CPF in the early 1970s (many don't realise that those on pension scheme also needed to put a small % into CPF).

      While my parents' careers were basically black-listed in the 1970s ... loss of lifetime A-class healthcare is something that a generation of Sinkies who converted regretted badly later.

      Oh, regarding lump-sum pension versus monthly disbursement ... quite a big present value discount is applied.

      E.g. a lifetime monthly stream of $3K (with regular small increments for inflation) often results in just $400K lump-sum.

      Besides being risk averse, if they don't have large extra cash savings set aside, most will just opt for lifetime payments.

      I have asked my parents before whether they regretted their choice. Mum is obviously happy without having to worry about seemingly guaranteed money tree. Dad is happy about greater control & generating greater yield than the discounted rate (so far!).

      But dad also confided that if he didn't already have a large investment portfolio, he'd most likely have gone for the monthly scheme.

    4. Spur,

      If it works well, why would big daddy change anything?

      From pension to CPF, from withdrawal at age 55 to minimum sum, from minimum sum to CPF Life, and of course the constant moving of goal posts ;)

      People forget big daddy got loads of scholars crunching the numbers far far into the future.

      Glad your parents can think and count for themselves!

      Then again, changing to CPF is a poorer choice for the individual, but better for the nation as a whole.

      Can you imagine everyone of us are on full pensions after age 55 like the Greeks before their crisis?

      Its not a problem if we live only to our late 60s or early 70s. But if everyone lives to our 90s like Dr Mahatir...

      Imagine the hole to big daddy's annual budgets!!! And how much our grandchildren will have to subsidise us :(

      Exactly. That's why its better that our CPF is a smaller portion of our networth.

      If one can yield 8% more through investments in properties, stocks, bonds, etc; and is sitting on unrealised gains that can withstand a -50% drawdown, why would anyone want to voluntarily contribute or keep money in CPF after age 65?

      But if one is a Charlie Brown when it comes to investing, or is clueless as we've focused on SAVE MORE all our working lives, of course one would follow your mom's "risk free" route - just a long there's no regime change.

      But no free lunch. There goes your "FREE WILL" at election time ;)


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