Charming Women and Rich Retirees

By TAN Kee Wee

(MediaCorp 938LIVE’s Money Talks, Thursday, 30 August 2007, 7.45 am and 7.20 pm)

Singapore men are in high demand, especially by foreign women. Last week, we read of one Vietnamese woman who liked Singapore men so much that she married three of them, committing bigamy in the process.

A year ago, there was this Chinese woman. She also liked three Singapore men. But she was law-abiding. She married one and made the other two her lovers. One of her lovers was a celebrated university professor.

Actually, these examples are not the exceptions. Everyday, this courtship is played out in Geylang and in our HDB heartlands.

On one side, we have more than 40 Singapore men who turn 55 every day, and who can withdraw part of their CPF savings. On the other side, we have charming foreign women who are bent on befriending them.

The outcome is expected. Based on anecdotal evidence, many bonds are formed and then broken. Soon, these retirees run out of money, and are impoverished.

It is always assumed that we manage our money better as we grow older. Apparently not. Studies in the field of behavioural finance, which is a branch of economics, tells us that we are not always rational, especially when it comes to saving for our old age.

There is this tendency to seek immediate gratification where possible, even when we know it is better to delay it. On the other hand, we make good decisions when we have no choice but to delay our gratification.

For instance, if we put a person in Situation A, whereby he has to choose $1,000 now or $1,200 next year, he will take the money now. But if you put the person in Situation B, whereby he has to choose $1,000 in twenty years’ time or $1,200 in twenty one years’ time, he will choose twenty one years.

Behavioural finance suggests that when we put people in Situation B, where immediate gratification is not possible, they will make better choices and all will benefit.

Before I say another word, let’s refresh ourselves on what is an annuity. Basically, it is an insurance product in which a person pays a premium in return for monthly payouts till death.

In Singapore, the latest proposal is to make it compulsory for younger CPF members to buy annuities using a portion of their CPF Minimum Sum at age 55. In return, we will get a monthly payout from age 85 till death. Since this proposal puts us in Situation B, all will benefit.

Compare this with current CPF rules, which basically put us in Situation A. At age 55, we have the choice of a monthly payout of about $800 for 20 years, starting from age 62. The other choice is to buy an annuity, and get a lower monthly payout of about $500, but for life. Given these two choices, people choose the higher payouts. Perhaps, this explains why so few CPF members sign up for annuities.

If behavioural finance is any guide to what is best for our pensions, perhaps we should make buying regular annuities compulsory, and early on in our careers. Our CPF Special Accounts could be used for this purpose. This will put us in Situation B, and all will benefit.

Some Singapore men might welcome these compulsory annuities. This is because, with perpetual payouts, foreign women would find them attractive much longer. And it would be in the interest of these women to keep these men, up and about.