Would it be better if the government forced us to save 40% for retirement?
Nelson’s post about how we have a problem with financial literacy as a whole reminded me of something I had planned to blog about but never got around to.
“Maybe Singapore’s model can work in North America. The details can be found via this link, but the gist of it is that the government forces its citizens to save 40% of their wage (costs split equally between employer and employee) into their own retirement savings.
It not only creates huge amounts of capital for people to invest – hence, stimulating business – but it ensures that even if people wallow in debt their entire working lives, at least their retirement will be taken care of.
Yeah, the Singapore model is a little nuts, but there’s no doubt it has contributed to the success of the tiny country.”
After visiting Singapore, I came away with a few notes on how they live there, and in regards to what Nelson mentioned about the forced savings, their model is not perfect.
40% OF VERY LITTLE IS … VERY LITTLE
If you don’t make enough, 40% of very little = very little at the end.
This would not be a problem if it were like in Canada, and you could leave Toronto and retire to a small little town with a very low cost of living.
Singapore is an island, and as a result, unless Singaporean retirees leave and retire in another country, they’re kind of screwed because of the outrageous cost of living.
(Although some have told me they would retire in Malaysia because it’s just across the border, but have ultimately decided against it because they’re not comfortable with the Muslim rule there as sharia law is different from what they’ve been used to their entire lives, not to mention the higher crime rates, etc.)
Anyway, assuming they retire in Singapore and haven’t made a lot of money their entire lives, their retirement is not really taken care of in that sense.
A LOT OF RETIREES LIVE WITH THEIR CHILDREN.. IF THEY CAN
A lot of retirees live with their children and it is their children who take care of them. For those retirees who do not have children and/or have children but they are not able to (or don’t want to) take care of their parents, then they live on the streets.
I used to read this blog – A Singapore Taxi Driver’s diary, and although it has long been gone, the archives remain.
This one story he wrote about a Singaporean lady living on the streets really drove that point home that some retirees do not have the luxury of retiring because in her 70s, she was still collecting cardboard to recycle for money, and used to carry 50kg a day to do it until a kind soul started helping her with her load.
Not every Singaporean retires comfortably.
Some do it only by the grace of their children.
SINGAPORE IS NOT TOLERANT OF “OLD BLOOD” IN THE WORKFORCE
They also tend to fire people who are getting too old (over 40 heading towards 50 and you’re considered too old to work), so you don’t really have a choice to continue working until you croak if you don’t make a lot of money.
Many companies find ways to quietly usher you out and let in new (cheaper and hungrier) blood into the workforce, and oust you before your time, which cuts into your earning potential.
Unless you have a very good job that let you save a good chunk of 40% before you “retire” (or are forced to retire), you are kind of screwed.
IT IS NOT PERFECT BUT IT IS A BETTER SYSTEM IN GENERAL FOR THE MAJORITY OF CITIZENS
With those points in mind, this kind of Nanny State mentality is good for the majority of people.
I may have also read somewhere (or was told) that the government invests the money for you, so you don’t even have to worry about that.
I do really like that you save the money and it goes into an account linked to your social security number (?) and it is earmarked FOR YOU.
I find it a far better idea to track these kinds of savings to the individual than to just throw everyone’s government savings into one big pot and let people dip into it as they wish.
All that said, I’d rather live with the Canadian model than the Singaporean one, but that’s because I am in the minority of folks who cares about saving for retirement, and knows they can’t trust the Canadian government to take care of them.
As a side note, France has a similar sort of retirement plan but it all goes into one big unidentifiable pot; they tax you VERY heavily and then promise to take care of you when you retire, until you die.
Right now they’re saying the French government is running into a few little problems:
- Cost of living has gone up since francs converted to euros
- Retirees are living longer and therefore using up more of the money
- Not enough people are working to pay into the pot to replenish the cash
- What you contributed in the past few years has stagnated with a return of 0% which is suspicious but due to reasons #1-#3 (Have a French source on this who looks at their retirement slips)
In this respect, if you’re going to have a Nanny State, at least having savings tracked to each person a la the Singaporean model would have solved the issue.