Currently IM$savvy is running a financial literacy quiz. By doing this quiz, you can test your know-how with a quick 10 minute quiz and discover your IMsavvy financial literacy type, Guru , Cool Due,Average Joe and Boh-chup!

I have completed the quiz and of course I scored a Guru!

My review about this quiz: great questions which really target general Singaporean. In fact, these questions are often ask or misunderstand by my clients and friends too. Therfore, I highly recommend you to take this quiz to better understand financial planning and most importantly yourself, furthermore you might be walking away with a new iPod 8GD or Asus EeePC.

If you think you have great financial planning knowledge or someone who think you don’t need an independent financial adviser and can take care of your own financial planning, you should try this quiz, if you score anywhere below Average Joe, you should seriously consider changing your belief and start getting an financial adivser (Not Insurance Agent) before is too late!

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An Annuity is a contract that provides a guaranteed income to the annuitant for life (or a shorter specific period) with income payments made annually, semi-annually quarterly or monthly.

Annuities have sometime been described as the opposite of life insurance because life insurance provides protection against someone dying too soon, annuities provide protection against someone “living too long” – living so long as to outlive one’s financial resources.

Although not strictly a life insurance product, annuities are sold by life insurers in Singapore. One can either use cash or the CPF Minimum Sum to purchase annuities.

Buying Annuity Policy For Retirement

Purchasing annuity policy is a more feasible choice than leaving the money in the bank for most people. The reasons being:

• the person may not have the discipline to not to over draw from the account for reason such as going for tours more often than planned. This will cause the principal to deplete faster.
• Annuity policies are specially designed to protect one against living too long and outliving his resources
• Depending on the type fo annuity purchased, the annuity payment may continue to be paid even though the principal sum (purchase price) used to purchase the policy has been exhausted.

Benefit of Annuities

• Annuity payout is free from income tax
• Provide guranteed income
• Provide option for annuitant to pay the purchase price over his working years
• Investment returns earned during the accumulation period is tax free
• Capital may be guaranteed depending on the types of annuity purchased

Limitation of Annuities

• Cannot be used for death protection and should be purchased only after provision for pre-mature death is in place
• cannot be used to provide for major illness protection
• Not suitable for people in poor health
• Usually does not have any feature to counter the effect of inflation

If you are looking for an annuity for yourself or your parent, feel free to contact me! Being an independent consultant, I have access to almost all the annuities available in Singapore. Because of that, I have done some comparison on each annuity so as to understand which plan is most suitable for different type of client, and which plan give better returns. CALL/SMS  97775701 or Email cj@investmentsg.com

1. Establish Goals
2. Gathering Relevant Data
3. Analysing The Data
4. Developing a Plan
5. Implementing The Plan
6. Monitoring The Plan

Let me bring you through the steps and explain how I usually use these steps to help my clients customize their retirement plan.

Step 1 – Establish Goals

Client’s goals vary significantly depending on many factors including health, age, marital status, number and age of children, different in the ages of the husband and wife and personal preferences. Also clients’ goals will vary depending on his personal definition of retirement. For some, retirement is the last day they have to work for others, it is the last day they want to work and for still others, it is the last day they can work.

As such effective retirement planning begins with identifying and prioritizing my client’s retirement goals. The goals identified must be both realistic and attainable. Example of retirement goals include:

• Maintaining pre-retirement standard of living
• Maintaining economic self -sufficiency
• Minimizing taxes
• Retiring early
• Adapting to non-economic aspects of retirement
• Passing on wealth to others
• improving lifestyle in retirement
• aring for Dependants

Maintaining their standard of living despite the loss of income from employment can mean a variety of things to clients. For some clients it may mean being able to stay where they are without dramatic loss of purchasing power. Other clients may be willing to move to a less costly house in order to maintain their purchasing power. client who are active in leisure activities such as golf will want to continues these activities.

Maintaining economic Self-Sufficiency

An objective that goes hand in hand with maintaining one’s pre-retirement standard of living is the desire to remain self-sufficient throughout. Many clients fear becoming dependent on children, charity or the government. This may be a significant reason that clients actually cut back on spending in retirement. Financial independence takes on even more importance when one considers that many other constraints may be imposed on their independence such as their ability to work drive or be physically mobile.

Minimising Taxes

An important goal common to all clients is their desire to be tax wise regarding their retirement funds. Paying the least amount of taxes on their retirement distributions investing for the best after tax yield and maximizing tax-shelter opportunities with their retirement capital are special priorities that my clients will have.

Retiring Early

A characteristic of modern times is that many peopl want to get out of the rat race as soon as possible. Early retirement is popular for several reasons:

• Health problem that client is currently facing
• fear of future health problems
  (the get out now while I still can enjoy it philosophy)
• care giving concerns due to health problems of loved ones
• corporate downsizing
• retirement of a spouse
• death of a spouse

If my client seeks early retirement, it is even more important to start retirement planning at a young age and to accurately estimate the retirement need. These extra precautions are necessary because the lengthened retirement period is subject to compounded increases in inflation. Furthermore the shortened pre-retirement period is subject to increased drain on current cash in order to fund the extended retirement period and for medical protection.

Adapting to Non-economic Aspects of Retirement

In addition to relevant economic objectives my clients will have to meet, they will also have non-economic objects such as:

• using leisure time more effectively
• adapting to a nonworking environment
• coping with deteriorating health
• coping with care giving responsibilities
• adapting to a fixed income relocating after retirement

These and other non-economic factors also have impostant economic implications. For example, replocating after retirement can affect the overall pool of retirement assets because the sa;es of the home may provide surplus assets.

Improving Lifestyle In RetirementClients with the objective of improving their life-style in the retirement years are willing to make extra sacrifices prior to retirement in order to enjoy some luxuries, such as travel, during retirement. another set of planning problems is created if the person’s objective is to plan for a more costly life-style during retirement. These individuals will need extra resources in order to fulfill their dreams.

Caring for Dependants

Another retirement objective for some people is to have the ability to support a dependent. This typically occurs when a dependent needs frequent physical or medical care. Special and distinct planning considerations are required depending on whether the dependent is a child, sibling or parent. In addition to the normal living expenses during the dependent’s life expectancy, you must also consider whether there will be medical bills, additional living expenses, and any other financial drain on the client’s retirement income.

Other Goals

In additional to the general retirement goals discussed above, my client may have one or more of the following specific retirement goals:

• Providing for secure investments-investing assets to minimise potential losses and make the client feel secure about his investment.
• coping with health care costs– purchasing a Major Medical expenses policy may be required to cover health care costs no covered by group health insurance, basic medical expenses insurance as well as CPF approved medical insurance schemes.
• staying as healthy as possible — ensuring adequate funding for health clubs and other leisure activities

Very often, I will find my clients’ goals conflict with each other as well as with the demands and reality of their daily lifestyle. For example, a client may say that his goal is to retire early and he wants to maintain economic self sufficiency. However, based on his financial standing, he will not be able to achieve self-sufficiency if he were to retire early. In fact, if he wants to have self-sufficiency after retirement, he should retire later. Such clients will have difficulties setiing aside enough money from their current incomes to meet their retirement goals. Thus, you have a duty to help your clients set the right goals so that they are both realistic and attainable.

Having determined the goals, I will move on to step 2

Step 2 — Gather Relevant Data

In this step, I will be doing a fact find to gather more information from my client. The information which I need to obtain include:

• an inventory of assets and liabilities
• annual income
• estate planning information
• any existing insurance coverages
• amount of CPF saving
• information about employer-sponsored retirements plan
• information regarding the client’s risk tolerance
• his current desired retirement age
• his marital statues
• his employment status
• which life cycle he is in
• any dependants
• any health problems

Step 3 — Analyse The Data

This third step requires myself to analyse the date and to quantify the needs uncovered. The data gathered earlier will enable me to determine where my client stand financially for his retirement purpose. It will also enable me to assess my client wants to be financially during retirement as well as his ability to reach his goal.

To compute the client’s retirement needs, I have to add up my client’s existing resources. These may include:

• bank deposits
• investment
• CPF saving
• supplementary retirement scheme
• endownment insurance policies
• annuities
• property rental income
• reverse mortgage
• proceeds from downgrading to a smaller residential property

Once a financial inventory of possible sources of retirement income has been taken, the next step is to determine how much annual income will be needed in the first year of retirement to achieve the client’s goals.

Step 4 — Develop A Plan

In this step I will road map the way for my client to achieve his goals. To begin with I have to determine the type of products that can be used to fund the client’s retirement needs that I have arrived in step 3

When recommending products for my client’s retirement, I always bear in mind the 2 basic principle

1. Only recommend products if my client needs them, and
2. Only recommend products which are the most suitable for my client given his circumstances.

In the plan development process, I must consider how to use CPF saving , insurance policies annuities, unit trusts, shares and the net inflow/saving to maximisie the overall investment returns and meet the retirement funding need.

Once the plan has been developed, my next job is to present it to my client.

Step 5 — Implement The Plan

It is my duty to help implement every aspect of the financial plan which I have proposed and accepted by the client.

Step 6 — Monitor The Plan

The process of identifying and satisfying a client’s needs does not stop with the implementation of the plan. My client’s circumstances may change or there may be external developments which may affect my client. As such, it is important that I conduct an least yearly review with my client regularly.

CALL/SMS  97775701 or Email cj@investmentsg.com

Qualitative Assumptions

Qualitative assumptions refer to the type of lifestyle that a client wishes to have upon his retirement. The common assumptions include:

• whether to continue working
• whether to downgrade to a smaller house or to sell the current house and rent one instead
• whether to pursues expensive hobbies such as golf
• whether to migrate to another country

Notice that the answers to each of the above questions will affect the amount of funds required to support the client after his retirement.Quantitative Assumptions

Quantitative assumptions are just as important and no easy to make. It is thus important that you understand their impact on the financial plan as your client may need your advice. The common quantitative assumptions include:

• inflation rate
• investment rate of return
• income tax rate
• replacement ratio percentage
• expected retirement age
• years to retirement
• life expectancy

Inflation Rate

Inflation erodes the client’s purchasing power. As such, under-estimating the inflation rate will result in the client being unable to maintain economic self-sufficiency during retirement. In retirement planning, you must understand the impact of inflation on your financial plan, for example using a 4% inflation rate and compare to a 6% inflation rate, the amount of funds needed for retiremement can actually increases by 20%.

Investment Rate Of Return

As with inflation rate, hisotrical data should be used to estimate the annualised investment rate of return. Inflation-adjusted returns should be used and depending on the tax aspects, either before tax or after tax rates of return should be used. Therefore, you have to estimate different rates for the different asset classes. You may use an average rate for the various classes of assets if it alright with your client.

Income Tax Rate 

Tax rates are subject to revision. Since it is impossible to predict what the tax rates will be in the future, one solution is to use your current year effective rate for both the pre-retirement and retirement years. As chargeable income is likely to decrease after one’s retirement, such a funding method will over-state the tax impact and thus provide a cushion for the you.  Alternative, you may base on the before-tax inflation adjusted returns.

The Replacement Ration Percentage 

The replacement ratio percentage is used to determine how much my client will require on the first year of retirement. The usual estimate used is 70%  (80-85% for lower income) on their last drawn pay.

Expected Retirement Age 

As the current statutory retirement age is 65, most people will think that they will contiune to work until they reach the official retirement age. However, circumstances may force them to retire early. For example, if my client with poor health may decide to retire earlier and this will disrupt the financial plan as the accumulation period for building up the fund for retirement is shortened.

Years To Retirement

This period is derived by subtracting your current age from the desired retirement age. It is the period during which the you could accumulate the necessary funds for your retirement.

 Life Expectancy

According to the Ministry of Health’s Statistics, the life expectancy for a male is 78 years whilst that for a female is 80 years. As a rule of thumb, I wyould add another 8 years to them. Thus a man is presumed to live to age 86 whilst a woman is presumed to live to age 88, using this age to minus the desired retirement age will give the number of years that a person will live after he have retired.

For my clients who have poor family histories, I will base on their parents, grandparents, aunt and uncles’ age death to determine how long my client will live after their retirement. This is because medical studies have shown a strong correlation between genetics and life expectancy.

If you are doing your own retirement planning, please take note of these assumptions as a slight change in it will affect the accuracy of your retirement planning. If you will like us to assist you in your retirement planning, feel free to contact us and arrange for an appointment. E-Mail myself at jack@investmentsg.com

Good Luck!

Dear Sir/Madam,

Be careful! Do not invest based on promises of quick and attractive returns alone.

You are advised to ignore advertisements which tout conversion of CPF into cash. You should invest prudently and consider the suitability of the products according to your own risk appetite and investment objectives. Investments should not be made based on promotional gifts and rebates. Click here to get some tips before investing your CPF savings.

Yours faithfully

CPF Board

Received this e-mail from CPFB, guess recently there must be lots of complain from Singaporean about CPF investment. If you read through the newspaper, especially The New Paper, you will be able to see lots of advertisement about “Getting fast cash using CPF or Invest you CPF to get Cash” etc. These advertisement are put up by Insurance Agents who wanted to get as many CPF cases as possible before April 2008 when government will hold on all Singaporeans first $60,000 monies from CPFIS. Such acts is terrible and especially people who engage them just for the miserable 1-2 percent cash rebate.

Yes, you might get some cash rebates from such agents but what are your potential loses, your CPF monies are for retirement. Given 2 different case,1) investing with a experience financial consultant who didn’t give you any rebates but 10 years later help you increase your CPF retirement funds by 10-15% or 2)you rather get the miserable few hundreds rebates now from these irresponsible agents and end of the days lost your CPF monies due to bad investment portfolio, which do you want?

Many of my clients who had previously bought CPF investment from insurance agents or bank all have bad experiences, honestly I haven’t got some positive feedback yet. I guess we cannot blame them too since they are just train to sell what are have in their shelves and not to place clients benefits at the front. If they don’t sell, they can’t get their salaries and commission, is not their fault? How to solve this? Educate the public and restructure the front end sales force in financial products. I believe the government is putting effort in this already but it take times. Independent advisory firm should be your choice, of course there are always still bad sheep in every industries, every occupations but at least they have the extra options where banks and insurance agents don’t at all.

Writing a bit off topic but anyway do not invest your CPF just because of cash rebate and free gifts which are illegal anyway if you don’t know. You can report these agents to MAS and he/she will be out of job very soon. Be wise, be alert and think long term especially CPF investment, you don’t want your retirement funds to go down the drain because of 1-2% cash rebates or a free handphone.

If you need advise about CPF investment do CALL/SMS  97775701 or Email cj@investmentsg.com

Giving this update in Parliament during Question Time on Tuesday, Minister of State for Manpower Gan Kim Yong agreed with MP for Jurong GRC Halimah Yaacob that the numbers are low.

He added that CPF Board’s publicity efforts will be improved by having more grassroots dialogues and public roadshows.

Mr Gan also explained to the House that the Dependents’ Protection Scheme is an insurance scheme that kicks in when a family member dies or is permanently incapacitated.

He was replying to another question from MP for Ang Mo Kio GRC Lee Bee Wah.

The current qualifying age limit is 60 and Mr Gan said the Ministry of Manpower will not be raising that limit as most members’ children would be working by then.

Furthermore, he added that raising the qualifying age would also raise premiums “substantially”.

But beyond financial needs, another concern is the growing number of single elderly, said the Council for Third Age, an agency championing active ageing.

The Council said the number is set to rise as more people choose to remain single.

Gerard Ee, chairman of the Council for Third Age, said: “There will be a large number of single elderly in the future generation of older people. And even if they are married, a number of families either do not have children or they may have one child or two children.

“In a globalised world, chances are, the children are working overseas so while family network is important, we cannot undermine or neglect the promoting of social networks.”

The Council plans to hold more activities to keep the old meaningfully engaged.

The youths at the dialogue session also questioned if there would be enough opportunities for them as they get older and the cost of living in Singapore gets higher.

One of the dialogue participants, Woo Ting May, said: “Judging by the inflation, the growth rates, the expenses and taxes and everything, I’ll need to have a lot more savings than just my CPF alone.”

Goh Whye Liang, another participant, said: “It’s more than just finance, it’s your personal health at the same time. After you retire, you have to know what to do so that you can stay mentally and spiritually healthy.”

The discussion also had the youths thinking about how they should spend and invest their money.

The topic of the CPF system was also raised at the dialogue. The youths heard that while the CPF will provide some support for retirement needs, it is not the complete solution.

The CPF comprises assets in Singapore dollars, so its value and effectiveness will depend on how well Singapore fare in the global economy.

Hri Kumar, MP of Bishan-Toa Payoh GRC and Adviser to PAYM Central Youth Council, said: “Many people still do not understand the intricacies of the CPF system. I think we should educate our Singapore students about what we do have in place and what the challenges are to our CPF system, so at least they know what they are working with; they know how to deal with it when they go out to work.”

So far, 13 such forums have been organised to solicit feedback on current issues and national policies.