Many Singaporeans aspire to get $3,000 a month after retirement. Singapore’s median gross monthly income, as of 2016, is $4,056.  So $3,000 a month represents, more or less, an income replacement level just above 70 per cent. This is ambitious, but not impossible. Here is how much you may need to invest, to get this amount:

Before we understand how to get $3,000 a month at retirement, we need to look at a common rule of thumb.

The four percent rule is a guideline, often used to plan retirement. This guideline states that your retirement fund should last to the end of your life, if you withdraw no more than four per cent from it every year.

This is based on a study by financial adviser William Bengen in 1994, in which portfolios of stocks and bonds were studied over a 50-year period. This 50-year period was between 1926 and 1976, and were especially disruptive years (many stock market crashes and rallies happened in this time, as well as World War II).

The study concluded that, if only four per cent of the retirement fund is withdrawn every year, then the retirement fund will not fail to last at least 30 years.

As such, let’s assume that the $3,000 you get every month ($36,000 a year) will have to constitute four per cent of your total retirement fund.

We are aware that not every financial adviser considers the four per cent rule accurate. We have listed some contingencies below. Each person’s financial needs differ, and as such no rule of thumb can be 100 percent accurate. The four percent rule should be taken as a guideline only, and not as a fixed rule.

For more precise financial planning, you can speak to one of our retirement experts at RAY ALLIANCE Financial Advisers. Alternatively, check out our financial planning wizard at FinAlly.sg, which will can also identify insurance policies that can help you reach your financial goals.

Assuming $36,000 a year is four per cent of your total retirement fund, you will need $900,000 in total by the time you retire. However, things get a bit more complicated due to inflation.

In 20 or 30 years, the value of $900,000 today will be much less. This is because the cost of living increases every year, as the economy grows. In Singapore, and most developed countries, you can count on the rate of inflation being about three per cent per annum.

Let’s say you are 35 years old this year, and will retire at age 65. In 30 years, the value of $900,000 today is just around $370,788*.

In order to have the same purchasing power as $900,000 today, in 30 years time, the amount you will need is actually closer to a whopping $2.18 million.

Now again, this is not exact – it will depend heavily on the make-up of your portfolio, and on the state of the economy in 30 years (which no one can predict).

*Amount / (1+inflation rate)^number years

** Amount x (1+inflation rate)^number years

Some assumptions are also being made regarding your portfolio. For example, it’s assumed that you will have a mix of assets that provide a constant stream of income; examples can range from perpetual income bonds to a house that you rent out.

If your assets that don’t provide any steady income (e.g. gold bars), then you will have to sell them off for money. This will mean you need even more at retirement, as your assets do not generate any income to slow the rate at which you deplete them.

Speak to a wealth manager or financial adviser for more details on what to put in your retirement portfolio, or follow us on Facebook.

It is not impossible to have $2.18 million in assets at retirement (remember, you don’t necessarily need all this in cash – renting out the flat you have, or downsizing your home, can all contribute to your retirement fund). However, it isn’t easy either – you’ll have to be a disciplined saver.

For example, if you can save 30 percent of your monthly paycheck (say you make around $4,000), and grow it at five per cent per annum, you will get just over a million dollars over 29 years. Remember that your CPF Special Account (CPF SA) already gives an absolute return of  4 percent per annum.

However, you will also need to supplement your CPF with other financial products, and even a little bit of side-income can help. There are insurance policies that can further grow your wealth (in some instances with returns as high as seven to nine per cent), as well as various funds you can consider.

For more details, you can contact one of our experts to customise a financial solution for you. Alternatively, use our online wizard to browse for more options.

Not everyone has the privilege to start saving for retirement in their 20s. Various circumstances, such as limited income or medical issues, can mean some people will only start  to save and invest significant amounts in their 40s. However, it is not impossible to build a comfortable retirement, just because you had a late start.

Starting late to save for retirement is very common. There are many people who can only start to think about retirement in their 40s, or even in their 50s. Various obstacles may have prevented them from starting earlier.

But starting late to save for your retirement is better than not starting at all. There are financial plans and products that may be able to help build a retirement fund for those who start late. The most important thing is to start as soon as possible.

Here are the key steps to take:

Based on your risk profile, take up the appropriate savings or investment plan and save as much as you can. This is to make up for the time you have lost and to accumulate as fast as possible to meet your retirement goal.

Another important point will be that of staying within your risk profile when investing. Do not take on risks that are above your risk appetite hoping to get higher returns. This is because plans with higher returns usually comes with higher risks. And you may lose your capital if the market goes against you.

Of course, the next question is “how can I save or contribute more to my retirement planning?”

The most obvious way would be to spend less. However, there is an limit to how much you can budget your spending. At some point, you will be reduced to your basic needs (food, water, and shelter), and cannot cut costs any further. There may be, however, no theoretical limit to how much more you can earn.

To illustrate this point:

Let’s say you want to contribute an extra $500 a month to your retirement fund. What happens if you try to reduce your expenses?

You could spend $20 less on transport every week, by walking under the hot sun everywhere. You could skip your favourite plate of chicken rice once a week, to save $3.50. You could avoid going out with friends, thus saving another $50 a week. We could go and on, but the quality of your lifestyle deteriorates significantly.

Instead of going through all that, you can try to grow your income. You could do someone’s accounts, help someone to polish up their sales presentations slides, help to design a website, and so forth, depending on the skills and knowledge you have. You can try to make an extra $500 through these efforts, than through making painful sacrifices whichyou are most likely to give up before the year is up.

So, for a start, adopt a mentality where your first reaction is no longer just to cut costs. When you need to get the money, focus on who will pay you to do something. You only use budgeting when there absolutely is no other way to make a few hundred extra dollars.

By the way, even a small amount like $500 makes a big difference to your retirement fund. $500 a month is $6,000 a year. Compounded at five per cent over 20 years, the the total amount is $207,550. For more on getting five per cent per annum, speak to one of our expert retirement planners at RAY ALLIANCE Financial Advisers.

If you have a home, you may have to seriously consider the possibilities of downsizing. This might mean moving from a private property to a HDB unit, or moving from a five-room flat to a smaller one.

The sooner you prepare yourself mentally, and the sooner you work out the finances involved, the smoother the transition will be. Remember that, in your twilight years, a larger house can be difficult to maintain. Not only does it take more cleaning, you will pay higher conservancy charges, which can eat into your retirement fund.

Note that it is inadvisable to sell off your home and plan to move in with your children. Things may not work out, so always plan to have enough for your own home even if you downsize.

If you have an insurance plan, it’s time to review it and see if it will suffice. If you haven’t had a chance to get one, now is the time to seriously look into it. You cannot properly plan retirement goals without insurance – all it takes is a single accident, critical illness or crisis to derail your plan.

Visit FinAlly and let our online wizard work out the best assets for you. You’ll also save money this way, as you’ll receive a 50 per cent rebate on agent commissions. It’s more money for a comfortable retirement.

If you have any outstanding debts – particularly credit card debts – take immediate steps to pay them down. It is impossible to out-invest credit card debt (the interest rate is around 24 per cent per annum), so it has to be paid down as quickly as possible.

Remember you can use a lower interest rate loan to pay off your more expensive ones. For example, you could take a fixed instalment loan at lower interest rates, and then use the money to pay off your credit card debt.

Nothing kills your retirement fund faster than higher interest loans, so focus on paying them off and closing your credit lines.

by Abdul Basheer Syed Ibrahim

In Singapore, insurance nomination works differently for the Muslim community.
When Muslims pass away, their distribution of assets (including insurance policy) follows Muslim Intestate Law (also known as Faraid Law). This is different from the Intestate Succession Act which applies to non-Muslims.

It is important for Muslims to understand how this impacts their insurance proceeds and to make their nominations accordingly. There are three common pitfalls that seem to occur and they are as follows:

After purchasing an insurance policy, some clients did not do any nomination.

This means that the insurer is unaware of the rightful beneficiaries, when the policy owner passes on. The claim proceed will be classified under the “Deceased’s Estate”.

This is where things become complicated.

Family members need to obtain an Inheritance Certificate from the Syariah Court, which facilitates the distribution of the deceased’s estate according to Faraid law.

In an undisputed claim, insurance companies are allowed to pay up to $150,000 to the “Proper Claimant” (legally defined as the executor, spouse, parent, child, sibling, nephew or niece of the deceased).

The rest of the amount is withheld until a Grant of Probate (GoP) or Grant of Letter of Administration (GLA) is issued by the Family Justice Courts. These legal proceedings can take several months and possibly thousands of dollars in legal fees.

For example, if the deceased had $1 million in insurance coverage, the balance of $850,000 will only be paid out after the GoP or GLA are submitted.

As Muslims are allowed to make a revocable nomination (under the Majlis Ugama Islam Singapura ruling), some chooses to nominate their young children. However, if a nominee is below 18 years, the insurer will pay the minor’s share on behalf to the parent or legal guardian who are the trustee.

The benefit of this nomination is that the policy owner retains full control / ownership of the policy and can make changes without consulting the nominees. This feature is similar to CPF nomination. So, besides your loved ones, you can also nominate your neighbour, an organisation or even your boss!

However, a revocable trust creates an exposed estate that leaves the possibility that beneficiaries will end up with nothing. So in the event of bankruptcy, the policy proceeds may be exposed to creditors.

An irrevocable nomination means the policyholder surrenders all ownership and rights of the policy. Only the spouse and/or children can be nominees. The main benefit is that the policy is ironclad protected from creditors in even of bankruptcy.

However, this is where you need to be aware of the pitfall.

Once the nomination is made, the policyholder cannot amend it without the written consent of all the nominees. For example, if the policyholder had an accident, and he becomes total and permanently disabled, he will not receive any insurance payout as the proceeds are solely for nominees.

Thus, think twice before rushing to make a irrevocable (trust) nomination so that it does not jeopardise you in the future.

Therefore, after getting an insurance policy, make sure that you nominate your beneficiaries. This does not cost you anything. There is also no reason to delay taking this important step.

I hope you found this article helpful. For more information, do drop me a note on LinkedIn.

For my next article in the pipeline, I will be looking at an important question: Can a Will Supersede Your Nomination ?

Stay updated by following RAY ALLIANCE Financial Advisers on Facebook and LinkedIn. You can also visit www.rayalliance.com for more interesting articles.

He is a Certified Associate Financial Consultant (AFC) with 22 years of wide spectrum insurance industry experience. His journey in the financial arena commenced from Great Eastern Life with numerous accolades and awards.

He joined RAY ALLIANCE Financial Advisers to proffer wider choices of insurance planning and wealth management to clients.

By Esther Lee

When it comes to financial planning, “single” doesn’t mean unattached. Rather, it means that you are the only person providing income for yourself. People who are unmarried, divorced, single parents, or widowed can all be considered single.

Today, the number of singles in Singapore is on the rise. Modernisation, and the rise in educational levels, are two of the main contributing factors. Some choose to remain unattached as this allows them to follow lifelong pursuits of a cause or passion.

However, there are some financial considerations for singles. Being single requires greater self-sufficiency. There may be no one to help when your finances run low or to see to your financial needs in your twilight years.

Having worked with many singles over the years, I’ve identified some priorities for singles to look into.

Unlike a married couple with working children, singles may not have anyone to fall back on during an emergency. If you get injured and are unable to work, you may be forced to take up high-interest loans to pay your bills. This may result in long term debt issues.
That’s why it’s of utmost importance that you have an emergency fund.
If you’re an employee, this fund should cover six months of expenses. If you’re self-employed, extend the size of the fund to 12 months of your income.
Your funds must be quickly accessible. Don’t place them in products like fixed deposits, where you may face penalties for early withdrawal.

Medical bills are some of the highest costs you’ll face. If you’re not well covered, a single bout of illness or one bad accident can leave you in debt for years.
Singaporeans’ basic hospitalisation needs are taken care of by MediShield Life; but this only covers hospitalisation in Class B2 or Class C wards.

Consider enhancing this with an Integrated Shield Plan (IP). This gives you the option of healthcare in a Class A and B1 ward, in government of private hospitals.

You may also need additional health insurance cover as there’s a “deductible” portion to insurance claims. This is the fixed amount that you must bear each year for your hospitalisation. On top of that, there is also a 10% co-insurance, after the deductible, that you will need to pay as well.

The approved Integrated Shield Plans payouts will only kick in after you’ve paid the deductible and co-insurance. These can be covered by additional riders to the approved Integrated Shield Plans.

Early detection of any illness can save your life. But early detection is meaningless, if you lack the money to pay for immediate medical intervention.

If you discover a critical illness in its advanced stages, you’ll probably need drastic lifestyle changes. You may need a stay-in helper if your mobility is impaired, or you may need to cover the cost of expensive medical equipment.

As such, singles must ensure that their critical illness payout covers their debt obligations over a prolonged period. The emergency fund is just a stopgap measure.

Critical illnesses are not the only thing that could affect your lifestyle. You also have to consider the impact of accidents, which stop you from working. For example, if you sustain a back injury that lasts three to six months, and if that affects your work, the condition can cause a drastic drop in your income.

Disability income insurance can provide up to 75 percent of your (averaged out) monthly income. This type of insurance will pay a monthly amount as long as you are disabled up to your stipulated retirement age. Coupled with an emergency fund, the disability plan will help to provide for your monthly expenses while you are recovering.

Don’t think of retirement as a specific age like 62 or 65 years old. The main point to retirement is that when you want to stop working, or just want to work less, you’ll be able to do so.
Having a guaranteed income that pays for life is important. Consider how much you want to live on every month once you’re ready to stop working.

Your passive retirement income should account for your basic needs, like food and healthcare, and for lifestyle choices that are important to you such as travelling, building a stamp collection or golfing.

Start planning as early as possible. When you know your desired passive retirement income, you have clear financial goals. You can decide how to get there with a balanced and well-diversified portfolio.

Having financial independence is important, but there are times you may need to depend on others. If you become incapable of managing your funds, whom do you trust to make health and financial decisions on your behalf?
Wills, lasting power of attorney, and advanced medical directives are important in this regard.
If you’re single with young children, a will lets you appoint a guardian who can care for them. Your will can state your wishes regarding asset distribution, such as allowing your children to receive their whole inheritance only when they have reached financial maturity.
Lasting Power of Attorney (LPA) lets you appoint a third party, such as a close friend, to make decisions for you when you lack the capacity.
An advanced medical directive is a legal document pertaining to your medical treatment. This compels your doctor to discontinue treatment under certain circumstances. Money allocated for your treatment can go to charities and causes you care for, or to children or friends of your choice.
These are all important considerations for singles as you may not have a family member to speak for you in such situations.
Take the above steps to be a carefree single! Live well and be free of worries!

Connect with me on LinkedIn  or visit www.rayalliance.com to learn more about financial planning.

Esther Lee has spent three decades as a successful financial adviser. She comes from a difficult background, in which she had to deal with both parents’ illnesses; Esther now uses her expertise to help others in difficult financial situations.