Four Insurance Plans are All you need (25-Oct-09)

In this article, they highlighted the key coverages that an average person should have to have a comprehensive array of protection. Unless u are the invincible Wolverine or Superman, maybe then you do not need it.

Insurance is typically a form of risk transfer. If you happen NOT to claim from it, good for you. These premiums will serve as a form of savings in the long run (depending on which kind of policies). If you happen to claim from it, also good for you, meaning that u are using a small sum of money to 'exchange' for a bigger sum of money. No matter how I look at it, it's a win-win situation.

As a professional IFA, the priorities I would offer to my clients would be:

1) Medical Coverage

- Medical costs in Singapore have been rising more rapidly that the inflation rate. If you think your basic Medishield or company H&S plans are sufficient, think again. There are better plans out there to ensure your bill is controlled to a certain level.

2) Death / Total & Permanent Disability cover

- Nothing can compensate for the death of a loved one, but if the financial aspect is well taken care of, it makes things a little more bearable. This is especially true for people with alot of dependents like a non-working spouse, small children, or even elderly parents.

3) Critical Illness cover

- If you think u are not the unlucky one, think again, and again. From statistics, I think the chances are higher that tio-ing your weekly Toto. No doubt the H&S plans are covered majority of the "in-hospital" expenses, there are other expenses that would not be taken care of... e.g. specialized drugs, well-chair, maid, etc. And critically, it is supposed to replace your income for a reasonable span if well planned.

4) Disability cover

- This is meant to ensure a monthly income payout if you cannot perform your primary occupation because of an injury, accident or any illness. A very simple illustration would be say... an engineer who lost the use of his legs in a car accident. He would be unable to claim from the Critical Illness coverage, but would be entitled to a disability cover (+ perhaps an accident plan).

Do not undermine the importance of insurance. You perhaps just need a good adviser to explain to you the objectives behind each coverage. With proper protection, then you would be well on your way to your other aspects of wealth management.

Retire With S$1 Million – even if you haven’t started to save (22-Oct 09)

By Stephanie Thng, Funds Supermart

Start saving early and it could make a world of difference to your retirement plans. Time is your best friend as you will find in this story. Here, we assume five individuals at different stages of their life, from those earning at entry-level, to those close to retirement age. All aim to achieve a monthly income of S$2,500 during their retirement years from age 62 to 82. We also taken into account that the inflation rate stands at 3% per annum, meaning that the general cost of goods and services rises by that amount each year.

Further, we assume that whatever the investors save during their pre-retirement days will earn 8% annually. After they hit the age of 62, we assume that the return on their savings drops to 4% per annum as they take less risk in their investments. This simple illustration does not take into account your other financial needs, such as whether you have planned for your insurance needs (life or term insurance, mortgage insurance, health and hospitalization plans).

If You're 25
Savings: S$0
Monthly Salary: S$2,500
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: Not Required
What You Need to Save per Month for the next 37 years: S$158.30

Planning for your retirement when you are 25 years old may seem a bit far-fetched. But the benefits of starting early cannot be underestimated. Assuming that a person starts working at 25 with a salary of S$2,500, you would need to save S$158.30 per month to ensure that your retirement income can stand at S$2,500 per month during your retirement days, which we assume will run from the age of 62 all the way to 82. Even with no savings to start with, having a regular savings plan (RSP) may be a good way to start planning. An RSP would ensure that you have the discipline to force yourself to invest – there is little room for excuses! Very often, we may be tempted to use up our savings for a travel trip or to purchase that dream car. And even for those who believe in the merits of investing, they may not have the discipline of investing regularly because they feel it is not the "right" time to invest. This could be especially true when markets are going through a bull run and some may feel that it is too expensive to go into markets. An RSP is a disciplined way to ensure that you will invest no matter markets are up, down or sideways.

If You're 35
Scenario 1
Savings: S$0
Monthly Salary: S$6,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 30 years
What You Need to Save per Month for the next 27 years: S$666.57

Scenario 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$6,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 30 years
What You Need to Save per Month for the next 27 years: S$620.73

At the age of 35, the monthly salary is assumed to have risen to S$6,000. But being able to afford an expensive lifestyle has meant that there are no savings in the bank account, and now you have a housing loan to deal with. While things do not look very bright, it is not too late. Save S$666.57 per month and you could ensure that you have S$2,500 every month during your retirement days.

If You're 45
Scenario 1
Savings: S$0
Monthly Salary: S$8,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 20 years
What You Need to Save per Month for the next 17 years: S$1692.34

Scenerio 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$8,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 20 years
What You Need to Save per Month for the next 17 years: S$1582.63

At the age of 45, things will get tougher if no plans have been made yet for retirement. After all, the time horizon till the retirement age of 62 is less than 20 years. Assuming that there are no savings in the savings account, you would need to save S$1692.34 per month. And even with savings of S$40,000, you would still need to save S$1,582.63 per month.

If You're 55
Scenario 1
Savings: S$0
Monthly Salary: S$10,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
What You Need to Save per Month for the next 7 years: S$5319.54

Scenario 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$10,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
What You Need to Save per Month for the next 7 years: S$4937.02

The lesson is to start early. The later you drag your retirement planning, the higher the cost. You would need to save over S$5,000 per month (over half your salary) from the age of 55 to 62 to ensure that you have S$2,500 per month during your retirement days.

POSB Invest SingGrowth Account

Today I was queuing up at POSB settling some stuff, then just happily flipped through their pamphlets that were within my reach.

First one, one telling people how to manage their money. Very good, very in line with what I am doing at the moment, helping pple to ensure that they are well insured and putting their money hard at work.

Second one, ah-huh, the famous 'POSB Invest SingGrowth Account' that was published quite prominently in the newspaper. I always wanted to find out more about this plan, thinking how is it possible that it can give so good interest rates. After reading, then I realized how difficult it was to achieve the kind of interest rate they were promoting.

Features:
1. Guaranteed return of full principal at maturity or upon Specified Redemption Event (unless banks totally collapsed)
2. The minimum interest over 5 yrs would be 2.78+1.08+1.18++1.28+1.38 = 7.70%. Over 5 yrs, it will work out to be 1.54%

Here comes the interesting part:
3. The Specified Redemption Event occurs when the Return of each Share is at or above 15% on a Fixing Date. What a clause??!!! Why do I say that? It simply means for the Bonus Payout to occur,

ALL 4 of the shares (Singapore Telecom, UOB, SPH, SembCorp) MUST achieve more than 15% ROR. If any one of them fails to do so, NO bonus payout!

Mathematically speaking, assuming these variables are independently related, the probability of the equation would be:
P(Share X achieveing >15% ROR) = 0.5 (to put it very optimistic)
P(ALL shares achieving >15% ROR) = 0.5 x 0.5 x 0.5 x 0.5 = 0.0625!

It would be far off to put your money in a simple short term endownment plan which generates more than 1.54%/annum. Or if you are interested to know more about instruments to make your money grow harder, contact me anytime.

Lessons from Get-Rich Courses (05-Oct-09)

As you flipped through the papers everyday, without fail, you will find some 'gurus' claiming to be able to help you make LOTS of money with little knowledge or NO knowledge to start with. Either with options, forex, eBay, courses, etc.

How true is that? Personally I attended a Wealth Mentors seminar and an eBay seminar before, simply just to satisfy my curiousity on what these 'gurus' are claiming. Blah blah blah.. they say this good lar.. that one se-bei-ho lar... at the end of the day, ask you to sign up for their 4-digit figure course, then throw a little gimmick by saying give you $X discount off lar...

It was interesting to hear what they have to offer, but too difficult to part with my precious money. Perhaps that if you are diligent enough to follow their 'guidance', you can make big, JUST like them. But being a typical skeptical Singaporean, we still do not believe money can be made so easily. So back to our daily lives and jobs....

As an IFA, we believe in another concept. Working hard for your money is the right thing to do, but making your money work harder for you, is even the 'right-ter' thing to do! Make sure that whatever insurance policies you had bought, whatever investment you had made, are done systematically and with the correct objectives in mind.

If you have doubts on what is your current financial status, do gimme a ring. I will be there to guide you with my professional knowledge in financial planning.

Property agents to be regulated (05-Oct-09)

THE Government is moving quickly on a plan to regulate real estate agents in the wake of growing calls to improve the standards of the industry.

The Straits Times understands that an independent body will be set up and chaired by a neutral party appointed by the Government. It will also house a dispute resolution centre to mediate between agents and consumers.

Key agency bosses, industry associations and individual agents have already met with Government officials to discuss the reforms.

The proposals, which could be made public in the next month or two,will likely require that agents sit a compulsory exam and that all accredited agents be monitored through a central database run by this independent body.

This will mean that errant agents will no longer be able to switch agencies easily, as they can now. Currently, agents fired from an agency for dodgy activity can just switch to another firm.

There are also suggestions that agents will have to buy indemnity insurance protecting customers for losses resulting from negligent or unethical conduct.

While the Government has in the past maintained that the industry should self-regulate, it has decided to step in due to an increasing number of complaints against rogue agents, which has occurred in tandem with Singapore’s property market boom.

In February, for example, a couple successfully sued ERA Realty Network over its agents’ conduct. The agents, who have since resigned from ERA, had made a profit from ‘flipping’ an apartment they were supposed to sell for the couple.

The Consumers Association of Singapore (Case) received 1,100 real estate-related complaints last year, 1,113 in 2007 and 991 in 2006. This year, it received 619 complaints from January to August.

Case executive director Seah Seng Choon told The Straits Times this week that the proposed measures were long overdue.

‘There is a need to ensure a proper standard of practice so there aren’t abuses in the industry,’ he said.

Mr Seah is pleased that a central dispute resolution centre will be set up to help consumers and agents settle rows.

Although a clearer picture of the proposed reforms has emerged, two big questions remain: Are agents going to be individually licensed, and who else will be involved in running the independent body?

There are now two industry bodies – the Singapore Accredited Estate Agencies (SAEA) and the Institute of Estate Agents (IEA)- but it is not compulsory for agents to join either. While both associations are involved in the review process, discussions are ongoing as to their specific role in the independent body.

Industry observers note that some of the associations’ existing functions may become redundant in light of the new regulatory framework.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said that ideally, agency bosses, many of whom advise the current industry bodies, should not be involved in this new independent body, as they might resist the reforms or have a conflict of interest.

‘The priority now is to put in place a system that can permanently remove errant agents from the industry so they think twice about behaving unethically,’ he said.

Agency heads say they fully support the suggested reforms.

‘Even if it involves more work for agency bosses like myself, I don’t mind so long it makes our industry more professional and disciplined,’ said C&H Realty managing director Albert Lu.

Mr Lu is one of many who back the idea of licensing not just agencies but individual agents.

‘They are the ones doing the transactions, so they should be made accountable for their actions,’ he said.

Knight Frank agent Peter Tan, 40, said it was a good idea to have a compulsory exam ‘to give clients confidence that agents know their stuff’.

But it remains to be seen how effective the new accreditation will be, he said.

‘It’s the right initiative. But there are many agents who resort to unethical conduct because it’s quite a tough business. We’ll have to see if it is enough to deter such behaviour.’

Public consultation on the proposed reforms is due to begin this month with the findings due by December.

Source : Straits Times – 5 Oct 2009