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

LG Ng says SPH staff must disclose relationship between superior and subordinate

In the wake of 2 Straits Times’ editors being disciplined over their…

听闻女童疑患病需隔离 携女逃跑双亲机场落网

两岁女儿被检测怀疑感染了武汉肺炎,父母一听立刻找理由拒绝,并逃离医院,惟最后以失败告终,一家人在机场被逮捕。 有关事件于24日晚上,发生于马来西亚柔佛州的新山苏丹后阿米娜医院。 一对中国籍夫妇于当天晚上10时许,带着两岁的女童到私人医院求诊,但是医生建议他们到中央医院去。 夫妻俩到了新山苏丹后阿米娜医院(中央医院)后,院方发现女童出现新型冠状病毒的病症,因此要求将女童送到淡杯柏迈医院的隔离病房,以便作进一步检验。 夫妻在听到女儿要被隔离,当下就向医生表示他们将于隔日乘搭飞机回国,拒绝医生的要求。 诊治负责医生见状,就在他们离去后,向新山南区警局报案。 柔佛州总警长拿督莫哈末卡玛鲁丁证实有关事件,并表示他们在接到投报后已经采取行动,于25日晚上9时20分,在士乃机场将他们逮捕,并且送到医院隔离检测。 马国卫生总监也证实此事件,并表示虽然马国已爆发四宗武汉肺炎确诊病例,但是两岁女童并不在其中。 正等待检测结果 卫生总监诺希山于26日发文告指出,马国首三起确诊病例的患者,分别是65岁的女子,以及11岁和2岁的孩童,与我国的首宗确诊病例患者是亲属。 怀疑案例共有23起,包括14名马国公民,8名中国公民和一名约旦公民。 这23起病例也被归类为“受调查患者”(Patient…

SAF and former rigger address claims of PRC parachute rigging contractor

On Tuesday (12 January) evening, Ministry of Defence clarifies on the viral…

本地自由新闻工作者韩俐颖 囊获人权新闻英文评论组大奖

第23届人权新闻颁奖典礼于昨日(5月16日)公布得奖名单,自由新闻工作者韩俐颖夺得英文组评论大奖。 今年人权新闻颁奖典礼由香港外国记者会、香港记者协会和国际特赦组织香港分会联合组办。 韩俐颖虽未克出席,但由香港浸会大学教授施仁乔(Cherian George)代为领奖并发表感言。她提到去年在撰写评论时,新加坡政府正酝酿订立防假消息法,但遗憾的是现在已成事实,现在唯有政府可以决定何谓真假消息,并呼吁大家能够站出来支持捍卫言论自由的人。 韩俐颖于去年3月在《华盛顿邮报》发表《何以新加坡打击假新闻措施将引起反弹》,内容指政府试图借《防假消息法》以控制主流媒体、控制舆论,让原本言论受限的新加坡公民,更加无法发声。 其他两篇评论则是刊载于《外交政策》杂志的《亚洲威权主义者热爱监管脸书》以及在非营利网络媒体The Interpreter刊载的评论《新加坡:监察社交媒体》 她也曾于去年在《纽约时报》中发表一篇题为《特朗普和新加坡相互学习》的评论,含政府“独裁之说”,引来新加坡驻美大使的异议。 韩俐颖是国内知名自由新闻工作者,也是《新叙述》的总编辑与创始人,他致力于推动社会正义、公民运动、人权与民主活动。他也曾在《卫报》、《纽约时报》、《华盛顿邮报》以及《亚洲时报在线》刊登评论文章。2019年,她发行了第一本书籍《压迫的剪影》(The Silhouette of Oppression)。…