Which CPF Life Plan To Choose - Part 2 of 2

Its easier to score distinctions in Science and Math subjects as the answers are more binary - you are either right, or wrong. Precision. It's either black or white. Simple! 

But for Arts subjects like Literature, there's no such thing as right or wrong answers - you are marked according to how well you've argued out your case. Its grey, murky, and fuzzy, but we can see all 7 colours of the rainbow!

(History can score distinction that's because you have memorised the version that's told by the victor; if you ask the subjugated, they'll have another version - hence the many revisionist attempts. Its grey.)

If you tell me you are confused when faced with different, alternative, and opposing viewpoints, as a people reader, I can bet you're not from the Arts stream!

Its very comforting to know big daddy is moving away from the 10 year series rote learning style of education. The earlier children start to think for themselves, the better!

What's the point of financial literacy if we can't think for ourselves? (Don't encourage your child to drop Literature?)

A financially literate parrot is still a parrot...

You OK; I OK

When someone chooses a CPF Life Plan different from us, that does not mean you right, they wrong.

Ask how and why they have made the choice they made. Maybe you're the one having second thoughts now!

If a person tells you he based his decison making on precision math and logic, and you discovered its based on bad math and poor logic, walk away...  What's the point right?

There's such a thing called the Distribution Curve.

I'm frequently turned on by intellectually brilliant and elegant debates, even though we have totally opposite viewpoints. Its definitely not the purpose of this 2 part post to change anyone's mind. I'm not a bleeding heart, remember? You die your problem!

You are not aligned

In Zen and coaching, we like to use these questioning techniques to help others figure things out for themselves without telling them the solutions or what to do. 

Let's have some fun now!


1.  CPF Life is an annuity plan. Tell me what you know about the Good, the Bad, and Ugly aspects about annuity plans in general? 

Eh? You've made a decision without knowing what's an annuity? 

2.  You like to parrot, "Buy Term and invest the rest".  Now, is an annuity plan closer to Term, Wholelife, or Endowment policy in reverse?  

3.  The initial introduction of CPF Life Plans only include up to max the Full Retirement Sum (FRS) contribution - which means around $1,400 per month for life from age 65 onwards.

Is your paycheck at age 55 or 65 around $1,400 per month? 

Whatever happened to the rule of thumb to retire at 70% of our last drawn paycheck?

Do you think you were the target group for CPF Life?

4.  OK, crash got sound. Thanks to overwhelming "demand", now we can contribute more to CPF Life through Enhanced Retirement Scheme (ERS) - increase the monthly payouts to around $2,000 per month for life, if we so wishes.

Now tell me. Is this the reason you studied hard (to get to the right schools), and worked hard (to outrun the other hamsters) - so that at age 65 and beyond, you get $2,000 per month for life?

5.  You always try to frighten and shock your love ones they must invest for their retirement early or else! Money shrinks through inflation and rots in the bank! Cannot rely on savings alone! Must invest!

How do you square the circle now that you are OK with receiving the same $2,000 per month for the next 30 years?

I remember 30 years ago, new graduates earn around $1,000 per month. Can you accept no pay raises for the past 30 years?

By the way, what are you investing for again?

6.  Is $100K mickey mouse money to you?

I mean if you 100% sure you'll live up to 90 and beyond, there's really not much different between the different CPF Life plans. OK, if you insist to split hairs, the new Escalating Plan will win out.

But if you compare the bequest differences between Basic and Standard Plans on ERS  when you visit the la la land between age 80 and 85 (acturial science betting BIG on you here), that's a cool $100K plus!

Even if you chose to contribute less to CPF Life under FRS or BRS, its still tens of thousands you are leaving on the table...

All this for that measly $100 to $300 more per month? 

Do you hate your children or siblings that much?

Are you a rock?

Are you an island?

You hate math, do you?

I am not you; you not me

Its not a secret. I've shared elsewhere that I'll go for the Basic Plan even though I'm single and childless.

The idea of me subsidising anonymous people I don't know does not appeal to me.

I rather leave my money to my siblings. (Keep it all in the family, I cheena or what?)

One is richer than me; the other likes to spend a lot. 

If they don't need my money, they can jolly donate it to their favourite charity or church. That's their decision!

I know. I throw my problem to them. What are siblings for? LOL!

If you ask me today, and since I can't opt out of CPF Life, I would choose the Basic Retire Sum since that's the least demage for I never wanted an annuity plan in the first place.  

Hello! I'm a full time trader and investor remember? 

It makes as much sense otherwise as someone who quits work to invest full time using a low cost passive indexing strategy... Wait. What!?

Having said that, from now till my age 65 is still a good 15 years away...

If I blew up my trading account and my investment account has been decimated by a prolonged bear market that lasted 10 years or more... 

I can't be certain I won't capitulate....

If I did, I'll probably choose ERS and swore off investing and trading for good... Chop fingers!

Then I'll claw back to my cage like a domesticated animal that has been let loose to freedom in the wild, but found freedom on my own too daunting...

I'll stop pretending to be a cat.

Woof, woof!

I'll be a good obedient dog.

Look! I'll even wag my tail for you!

Woof, woof!

Throw me a bone?




Which CPF Life Plans To Choose? Part 1 of 2

Which CPF Life Plans To Choose? Part 1 of 2

Its amazing isn't it?

One would expect questions on CPF Life Plans to come from financially illiterate people or those not very into DIY investing or trading - not those from our community of financial freedom seekers...

I mean if one can't make an independent decision ourselves, it sort of brings into question our abilities to practice active DIY retail investing and trading, doesn't it?



Half the readers will leave in a huff now.



Good. Now that I've filtered out the freeloaders, lets move on...

I come with foreplay; I'm the man with the slow hands.



Its all our fault

Remember a time when seniors before us can withdraw their CPF savings at age 55 pronto without ifs and buts?

That worked well for the majority of seniors at that time were quite "obedient" in selling salted eggs at around age 65 - more or less exactly as what the actuarial science has predicted.

Then something went horrifying not according to plan...

People started living longer than "forecasted".  

CPF savings that were "enough" suddenly became woefully inadequate... 

Make a wild guess who is the party most concerned with everyone doing an Oliver Twist act and begged, "Sir, can I have more?"

Hence, the start of the "crash got sound" era of constantly moving goal posts.

But that came at a political cost...

Surely we can't move the goal posts indefinitely!?



Solidarity 

I do like our CPF system. 

When I were in Athens, Greece, I had the opportunity to witness how the pension system can be ponzi scheme like - those who collected the pension benefits early are better off than those who collect much later.

The Greek senior who retired 20 years earlier had the consolation he got 20 years of full pension benefits in contrast to that poor soul who just retired when the Greek economy blew up - and found out his "promised" pension is now cut by half...

Similarly, some cities and states in the US are near bankrupt... Would you like to be the young working adult contributing to social services to fund the generous pensions promised to seniors ahead of you? And knowing the kitty is pretty much empty when its your turn to collect? 

How about those rapidly aging countries like Japan, China (due to the one child policy), and Western Europe? I suspect when their pension systems were designed, it has 5 working adults (or more) supporting 1 retiree; not 1 working adult supporting 5 retirees...

No. I like our CPF system much better!

Our monies are clearly compartmentalised. My money is my money; its not mixed with my neighbour's. If my neighbour blew his money on wine, women, and song, that's his business! I'm not subsidising his indulgences!



Spreading the Risk

I ask you. Can you figure it out why CPF Life was introduced?

I stop my foreplay now. You finish off yourself.

Can read, can write, can count

No serious! You do it yourself! 

That's the purpose of our 10 years of primary and secondary education.

If you can't read, can't write, can't count, then you may want to jio me out for coffee. It will cost you though! 

For those who can, here's an excellent website from a professional fee-based financial advisor:

Which CPF Life Plan is Better?

I'll guide you a bit - especially those who tend to miss the forest for the trees...

For those who have read other blogs or websites on the same topic, you may noticed there's a lot of discrepancies in IRR calculation between everyone!? Can you spot where's the frequent mistake made?

I'm not surprised. I've poked enough financial bloggers on their "home-made" versions of XIRR calculation! LOL!

Here's another thing to look out for. 

Beyond the numbers, see if you can spot which CPF Life Plan is murky and grey where your money is mixed with your neighbour's in a dark pool pretty much like those pension schemes.

And which plan is more or less like our current CPF system where my money is my money, and your money is your money? Only the tail end is pension scheme like.

You show me yours; and I show you mine

If you game enough, it would be fun to hear what's your chosen plan, or what you intend to choose when you reach age 65.

Do add in a few short sentences your reasons why.

Those who have already made their choices but have regrets now, it would be most appreciated if you can also share with us why you have changed your mind too.

Of course I'll show my choice and reveal my reasons why in my part 2 post. 

Buy and Hold - Who sold you that idea?

Nope. Not going to tell you what to believe.

If you game for a simple exercise to test your conviction on Buy and Hold, do read on...



Have you bought an Investment Linked Policy before?

Your conviction on the suitability of the product for you must be strong, if not you would not have bought it, wouldn't you?

Fast forward to today when you are more financially literate. 

How?

Almost all the hobbyist bloggers honest enough to admit they were dumb enough to buy ILPs have cancelled their policies. Even at a loss. 

Yes, ILPs are that toxic...


What?

You have not bought ILPs before? Cannot relate? 

I try again.

Think of something you were so damn sure before. Anything. 

Then you had a big epiphany that you were taken for a fool all along... That epiphany "maciam" like believing the Sun revolves round the Earth and finding out it isn't so!


Now I ask you.

Your belief and conviction on Buy and Hold, was it based on your own track record?

Or was it based on your own research and self discovery?

Not likely right?

Can you remember who sold that idea to you?

Go back and ask that person whether he willing to sign a written guarantee to make you whole again if Buy and Hold results in a financial loss for you after 30 years?

He wouldn't dare, would he? Unless he is 70 years old. Wink.

Ask yourself why you so confident about Buy and Hold will make money in the long run when the person who sold you that idea isn't so convinced himself?






P.S.  Special thanks to Keith of Investment Moats for allowing me to "steal with pride" the above picture from his post at BIGS World where he is also the admin.