By Leong Sze Hian
Going into involuntary retirement?
I have been a volunteer doing financial counselling for about a decade now. One of the most common cases that we come across, are people who have lost their jobs, their business has to be discontinued for reasons other than business financial failure that may typically consume most of their assets, or people who may feel that they are tired of working and need a long break.
A real life case study in Singapore
I shall share one typical case as a case study.
Ms Lee, age 50 was retrenched about 2 years ago. She has not been able to find a job that is acceptable to her, and is becoming rather anxious as to her future. Her 4-room HDB flat is fully paid for.
Her monthly expenses are about $1,500.
Her assets are as follows:

  • CPF: $200,000
  • Insurance cash values: $100,000
  • Bank balance: $100,000

That is a total of $400,000.
Apart from her savings, she has a CPF approved medical insurance plan and a rider to cover the deductible and co-insurance, in the event of hospitalisation.
Assuming an average rate of return of 6 per cent on her total assets and 2 per cent inflation, she needs a capital of $355,403 to generate $1,500 monthly income for her expenses, increasing at 2 per cent per annum (indexed for inflation) for 38 years. from age 50 to 88.
While the life expectancy of females in Singapore is age 83. Most studies indicate that as one advances in age beyond the 70s, the monthly expenses tend to decline in real terms by about 15 per cent per every 10 years or so.
So, she has an excess capital or buffer of $44,597 ($400,000 assets minus $355,403 capital required to generate the monthly retirement income).
To plan for her retirement,  she sets up a portfolio of approximately 30% equity, 30% bonds, 20% commodities and 20% property – comprising 7 funds for her CPF Ordinary Account (OA) balance and the balance of her cash. All this after keeping about 6 months of her expenses in the bank – $10,000.
(Note: the first $20,000 cannot be invested under the CPFIS (CPF Investment Scheme) and the first $40,000 under the CPFIS (Special Account))
The portfolio for her funds are as follows:

  • Global Property fund – 20%
  • Global Commodities fund – 20%
  • Global Bond fund – 15%
  • Asian Bond fund – 15%
  • Global Technology fund – 10%
  • Emerging Markets Equity fund – 10%
  • Asian Equity fund – 10%

Monthly drawdown from portfolio
So within about 3 to 6 months  – she will start to withdraw about $1,500 monthly from her portfolio for her monthly expenses by selling the fund (out of the 7 funds) that has increased the most. Why sell the fund that increased the most? Because historical trends will tell you what funds go up for a long period will come down and vice versa, therefore by selling the highest earning fund, the investor is able to cash out the “earnings” of the investment before it goes down.
Ms Lee has in effect, set up her own pension fund.
Some have highlighted on the management fees for the funds. The measure of the total costs associated with managing and operating an investment fund such as a mutual fund is referred to as the total expense ratio (TER). In Singapore, the cost comes to an average of 1% – 5 %.
It is recommended that one should choose the funds that has the expense ratio to be around 1 % so that TER in all for the portfolio is only 1%.
But how do you ensure that the funds are 1%, given that the funds are not that transparent in the management fees?
An easy way is to look out for funds that are approved by Central Provident Funds (CPF), as CPF conducts auto check of the TER for the funds and would take the funds out if they exceed a certain amount.
A fee that one could avoid paying is the advisory fees that is charged by the fund advisor if one is to be engaged. Normally the fees are about  1%  to 1.5%.
[spacer style=”1″ icon=”none”] View Mr Leong’s seminar on investing in the video below.

Mr Leong Sze Hian was the past president of the Society of Financial Service Professionals, An alumnus of Harvard University, Member on the CIFA International Advisory Board, served as Honorary Consul of Jamaica and founding advisor to the Financial Planning Associations of Brunei and Indonesia.

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments
You May Also Like

涉泄艾滋病患个资费雷拉面审 母亲称曾被要求助下载资料

根据《海峡时报》报导,日前涉泄露艾滋带原者名单的美国籍嫌犯费雷拉( Mikhy Farrera-Brochez)母亲作供,嫌犯在2016年请求她用新加坡伺服器协助下载艾滋帶原者資料庫(HIV Registry)中的名单。 嫌犯如今在美国面临三项指控,被指从新加坡盗取病患个资。另外,他也被指于今年1月22日及2月18日,对新加坡政府发出恐吓信件及即知情下盗取个资,意图违背联邦法律,实施犯罪行为。 嫌犯母亲特蕾莎(Teresa King)于昨日(3日)在美国肯塔基(Kentucky)接受审讯,透露她并没有看到名单资料的内容,因为嫌犯不让他看。 “他说这攸关生死,他请求我务必下载资料,也对我非常生气。”嫌犯母亲表示。 特蕾莎复述嫌犯于2018年因涉嫌诈骗与毒品相关的罪行,被逐出新加坡。最后他与特蕾莎在菲律宾联系上。 而费雷拉对母亲大声呵斥,恶语相向,最终母亲同意将下载文件电邮给他。 审讯期间,特蕾莎与费雷拉零交流,并没有正眼看过对方。 费雷拉对母亲进行一些列的电话、邮件以及短信骚扰,要求母亲将已下载完毕的文件传给他,但她声称并没有找到文件,也没有传送成功。 卫生部:对个资被入侵感惊讶、担忧…

Aviva Singapore set to reach double-digit growth for third consecutive year

Aviva Singapore (Aviva), one of the largest providers of healthcare and employee…

Letter of complaint against TOC on Today

LATEST: TOC replies to allegations.

Hearing to determine by-election in Marsiling Yew Tee GRC set to be held on 15 Jan 2018

Singapore Democratic Party (SDP) has announced that the hearing for the legal action…