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.
But these funds aren't pooled like taxes. Typically the top 25% pay something like 80% of the income taxes. And the recipient of that tax revenue is typically the bottom 50% who get means-tested welfare benefits. In the Singaporean model it seems that the CPF funds of 37% are not pooled but allocated to personal accounts.
In other words it's a redistribution in-time (from early to late) and in-type (general income to housing/healthcare/retirement expenses), but to the same person.
Whereas a tax is typically a redistribution in the same time period, but to different persons, and can be earmarked to whatever.
I'd certainly prefer a 37% tax earmarked to me only (with modest ROI) + 10% income taxes + 0% cap gains, than the 40% tax I pay (west-europe) on my income which is wholly redistributed to others + 36% cap gains if I invest the remainder.
In Singapore it's 'taxed' and earmarked to you, and then generates a very modest ROI. Yes there is an opportunity cost versus a place like Dubai that has 0% tax. But not compared to a similar welfare state that puts a 40% tax and you lose that money forever.
Yeah there's even a term for it: https://en.wikipedia.org/wiki/Financial_repression
It also robs the individual's freedom to gamble with their retirement funds while expecting/demanding a bailout when shit hits the fan.
In the USA we have thoughtful policies that allow people over a certain amount of wealth invested in key industries to do that.
e.g. https://apnews.com/article/biden-business-united-states-gove...
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.
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"
I bet you also your idea of upper middle class is not statistically valid.
The thing is... no one has anything that I want to buy. I don't mean this in an elitist way, but more of a monk way. Like, I don't understand status and keeping up with people.
The mean household income for the 4th quintile is 115k a year. The mean of the middle quintile is 70k. There’s a theoretical 45k a year spread if you earn like the 4th quintile and spend like the 3rd (evidently possible since a lot of people live in the 3rd quintile).
Even ignoring compound interest, if you can hit that 4th quintile at 30 and you lose half the spread to taxes, by 55 you have 25 years of saving 22.5k/year for 562.5k in savings.
It’s probably not the most fun thing, but I do think it’s doable.
https://dqydj.com/household-income-percentiles/
The median household income doesn’t earn the median wage every year from when they started working. That’s just a snapshot and it’s highly correlated with age. I’m 51, I damn sure couldn’t afford to max out my 401K. That means I was 25 in 1999. I definitely could afford to max out my 401K - which was then $10K a year - when I was making $35K a year.
Especially when new grads are coming out now with student loan debt.
That happened to me right before the ACA went into affect. I was engaged to my now wife and we moved our marriage up early so I could get on her insurance.
Florida - especially when you live in the same county as DisneyWorld - is heavily subsidized by tourism
The first blow was when the Supreme Court killed the mandates. The second blow just happened when they killed the subsidies last year.
Let’s say you maxed out your HSA for 20 years and have $200K - that can be wiped out with one uncovered major medical incident the HSA max is relatively low.
But they can pull out for housing right? That's an enormous portion of most people's expenses. If I didn't have to worry about housing, I could be living large on less than half of my salary, I would certainly semi-retire at least.
The loans are also 75% max loan-to-value so I think until you can get 25% of the purchase price in your account you have to pay CPF and rent (or live with family).
Also, not an economist, but I suspect the forced savings has a wildly inflationary effect on housing prices. You can’t do much else with the money until you retire, so I would guess the price of housing rises up to match the forced savings rate.
Housing prices are inflationary independent of CPF, because flats in Singapore are powerful investment vehicles. For HDB flats, however, there is means-testing and rebates to the amount of ~50%, sufficient for anyone on the 30th percentile and above to afford.
And yes it does drive inflation of house prices.
There’s also an upper limit on SS taxable income. I forget what it is, but basically the entirety of the top quintile isn’t paying SS on their entire income. I want to say it’s like 90k, but it’s been a while since I looked.
That's only a difference in accounting, not in reality.
They could 'fully find' SS tomorrow, by just creating a bunch of T-bills for it.
> There’s also an upper limit on SS taxable income. I forget what it is, but basically the entirety of the top quintile isn’t paying SS on their entire income. I want to say it’s like 90k, but it’s been a while since I looked.
How's that different from CPF? See https://www.cpf.gov.sg/employer/infohub/news/cpf-related-ann...
In comparison, the US social security income limits this year is US$184,500/year.
And yeah, income over $185k isn't taxed by SS (silly law - fixing that would mostly fix the fund depletion that's likely to happen right about the time I retire).
