Of the many reasons why I moved to Singapore, the one that surprises Singaporeans the most is my desire to be a CPF member. Some Singaporeans feel that all CPF does is “rob them of their hard-earned money”. Yes, CPF is a means of forced savings. But nearly all developed nations (including the US) have such a system as the foundation of their social safety net. While nobody likes being forced into something (even for their own good), being forced while feeling cheated is far worse. In a recent report, the US Social Security system has admitted that their entire fund will be depleted by the year 2034.
Unlike most Americans, I actually read the letters I receive from Social Security. I previously wrote about how Social Security (from a letter sent to me in 2009) said they could only pay 78 cents on the dollar when my generation retires. This is worth repeating. That is a NEGATIVE 22% total return on my funds. Compare that to CPF, which gives a 2.5%/3.5% guaranteed annual return. And that annual return compounds over the years, making the total returns even greater.
Here is an excerpt from that 2009 Social Security report. (The full text can be found here).
Consider that the projections on these reports are often very optimistic. In the most recent Social Security report (2018), the US government has moved the full depletion date seven years earlier, from 2041 to 2034. The first sentence of the 6th paragraph states:
The Trustees project that the combined trust funds will be depleted in 2034.”
Why Aren’t Most Americans Outraged?
Why aren’t Americans taking to the streets like France’s Yellow Vests. Because most of them do not know about this report. And even if they were sent this report by mail, they have to read past the 5th paragraph.
But there’s another outrageous thing most Americans simply don’t know. Although they have contributed to Social Security throughout their working years, Social Security is under NO legal obligation to pay out its funds. What?!?!?! Yes, it’s true. Members of Social Security have no legal right to the funds.
As Wikipedia states, while most people think of social safety nets (like Social Security and CPF) to be like an insurance or pension, Social Security is not like this. (But CPF is.)
And unlike CPF, the funds contributed into Social Security go directly into the nation’s general budget to be spent each year on things like wars and interest on debts. This is very different from CPF, whose funds are invested into government securities. Ministry of Finance (MOF) gave the following reassuring statement on their website:
This arrangement assures that the CPF Board will be able to pay its members all their monies when due, and the interest that it commits to pay on CPF accounts. This is a solid guarantee. The Singapore Government is one of the few remaining triple-A credit-rated governments in the world.”
So if you had to choose which social safety net (a.k.a. forced savings) you had to contribute to, which one would you choose?