Yeah, hello and welcome. It's a trend seen in survey after survey Singaporeans worry about whether they'll have enough money for retirement and this uncertainty has been made even worse by the covid 19 pandemic. But what is certain is that starting today is better than putting it off to tomorrow.
I'm Jonathan peers from the money mine team and we're talking about the five things you need to know about retirement planning, joining me today, we have with us Vincent chan from Fullerton Fund Management and Carlos lee of the Insurance and Financial Practitioners Association of Singapore. Gentlemen, welcome to the show. Thank you Jonathan,
thank you for having us.
So Vincent question for you. First retirement basically means no more steady employment income. So does that also mean that we should aim to be debt free by the time we retire. What would you say is the one way to go about doing that.
Let me address this by giving an energy every one of us, whether we are already retired or we just joined the labor force we have in front of us a balance sheet. So the balance sheet has inflows and outflows inflows for most of us will be employment income on top of that. Some of us may have investment income. So these are the two main sources of influence outflows. Since we're on the topic of retirement, we need to fund the retirement lifestyle. So there's a form of outflow.
Other forms of outflow would include home mortgages, car loans, All these are form of outflows when a person enters into retirement, employment income for most of us would no longer be there. So the inflow has been reduced significantly. But if the debt outstanding is not painfully, then this outflow will continue. For majority of us, it is true when you're into retirement with a much smaller inflow and the steady outflow, it is important to
keep as debt free as possible. But if we can manage the inflow to a city outflow, having some level of debt actually works for them. This applies only to people who have assessed inflow above outflow and can actually make use of leveraging or debt to manage their financial balances more effectively.
So there's a difference between bad and good debt. Right.
One form of assets that's grown and outpace us and accompany many of us into retirement is the value of our home property. Many of us would depend on leverage borrowing to acquire the asset, but the asset value has been growing at a pace that is much faster than the debt repayment needed. So that is a clear case in which it is a form of good debt. But the assumption here is very important. It must be in a period where the economy is doing well and
the country is stable. So if those elements are still with us going forward, then we should consider in that context, especially now when interest rates are so low,
Carlos, let's bring you in at this point, the mortgage is the single biggest expense, how can we plan? So that our mortgage expenses are manageable and we can get to that debt free goal housing is actually the largest and the most important expenditure for a lot of us. So I think a lot of them are actually using CPF in cash to do the repayment. Typically this that our loans to a certain extent is considered good loans, but they still need to manage the housing costing.
So typically we'll advise consumers not to over leverage into all this kind of depth. Try to keep within 30, of their income, especially when those who are pre retirement age or going to retirement period. They should pay off as much as they can. If not, there's some of them may even look at right sizing their home because some of the family members have moved out. They don't need such a big space. And during retirement here, we also do not forget the daughter cost of home
ownership because there's no more income coming in. I still go out flow like what VINce said to share. So my outflow is electric debut, internet broadband home insurance property tax. If I'm still having any loans or rental income from properties as well as maintaining cause so I believe we still
need to juggle the best. Is that free. If not that we should scale down of course, you know, when you go into retirement, another major expenses, hospitalization costs, All it takes is one major or chronic illness and it can wipe out your retirement savings. We may even end up possibly disabled and that will eat into savings as well. Carlos in your opinion, how can insurance help guard against this? Yes, coming to retirement. Yes, we will go into a stage of ill health,
Especially the last 10 years of our life span. So typically a lot of people when you plan for retirement we've been planning and saving for many years but however our retirees forgot or mentally not prepared financially, not prepared for the high cost in terms of medical expenses in their retirement years. If we don't have a proper insurance coverage. Typically when human come we force it or we get injured or worse case we become disabled. It would drain away our retirement as a
Therefore having a good plan. A good health insurance is very important. If a person is down with disability it can wreck the percent down for the next five years, 10 years or to limit where nobody knows how long this Pacific will live on and give a lot of stress to the caregivers and people around them. So in fact more money is needed. So we have to look
into this area as well. Vincent do you agree? Why is it important to have adequate insurance coverage and what kinds of insurance would you recommend?
I'd like to share a figure which I recently came across from the Singapore Cancer Society. It talks about late stage or last stage cancer patients. So on average the amount that is spent range from 100,000 to 200,000 per annum. You translate that to a monthly number is between 8000 to 17,000 compared to the median income of an individual. They're drawing somewhere around 4005 to 5000 in the ballpark. So it's already much, much more now.
What is threatening is to bear in mind that medical cost inflation is much higher than our common basket of goods or C. P. I. Inflation rate. The medical cost inflation in Singapore in recent years have been around 8%. So what this means is that the 100-200,000 per annum Will quadruple in 20 years to 400,000 to 800,000. Why is that? 20 years figure important because many of us entered the retirement around age 60, the life expectancy is about 85.
So by the time they need this sum of money for the medical needs, they will be shocked that as much as 4,800,000 will be taken away from the N. S. A. And they are not prepared. So medical insurance hospitalization plan, I think it's important to have on top of medicine to life. The other insurance program which is integral part of retirement planning is what I call a term insurance program. This is more for legacy planning upon death. The individual
will leave behind some of money. Most of us would like to leave behind something big property or some wealth to pass on the next generation.
Well, some sobering facts. So let's just recap for now. One of the things important to know is that we should work towards being as debt free as we can by the time we retire, number two we should have hospital and long term insurance in place. Another aspect of retirement which sometimes gets under the radar is the wealth aspect. Vincent. How can we grow our wealth so that we can retire comfortably
electing of saving and investing for retirement as a journey. So at the start of the journey, it is wealth accumulation at the end of the journey when rouge retirement age, it is about income distribution. We're very familiar with the energy concept. It is when we are nasty has been built up and we can draw income from there. So from wealth accumulation to income distribution. This is one concept. The other concept is at every stage of our life. We must have two types of
assets in terms of financial investment. One is what I call the safe ss this will include bank deposit, government bonds, even your CPF savings, especially insurance products, they're very low risk products. So they fit into the category of safe assets. The safe assets will not get you the high return that you need to grow your essay so therefore you need the other part which is the growth assets. The growth assets are typically property and more commonly
investing in the stock market. Equity market for long periods. Equity market tend to give much higher return than fixed income or the safe assets in your journey from wealth discrimination to income distribution, The mix between the safe assets and the growth assets will change for someone joining the labor force fresh, he has a much longer time horizon, he has the employment income. He has a bigger risk appetite than this individual should have a larger proportion in the growth assets
And keeping some money for many days. So the proportion would be typically maybe 80% in growth assets, 20% in safe assets. This ratio reversed by the time the person reaches retirement age, His capacity to take on race is much smaller. He's no longer fully employed. Therefore his sources of income. The
inflows has been reduced. So with a lower capacity to take on financial race, he should flip it the other way round, have 80% of it in stable income ready for the income distribution, but not neglecting still having some allocation to growth assets, say 20%. And with this combination, he can still allow his nest egg to grow in excess of inflation rate.
We always hear it said that it's important to start young because of this compounding effect. But Carlos, you know, I speak for all my generation now, what advice do you have for those of us who are not so young or those who have started a bit later, it's never too late to start because right now inflation is catching up and bank interest rates very low.
So those people who were yet to stop or thinking to start, in fact they should start doing something like that being said have shared depending on your age group, then either you do a safe to support growth and support the distribution according to the risk appetite because there's more than one instrument to grow the wealth growth assets. But by living too much money in the bank. Also, there's an issue because of inflation. So we need to
make sure that our money keeping pace. So there's a lot of instrument out there from the insurance company or in the investment area. I've been starting chess ivy bonds also reads these are the different areas that individuals should look at. It should look at the proper financial advice. Don't just jump into it without knowing the reason Carlos, once we've managed to build up this nesting, how can
we protect it so that we won't run out? I mean, there's a lot of factors that played as protecting it from inflation that's protecting it from bad investments. So what's your best advice looking at the portfolio that they have if they are able to lock in, some of them will be looking into legacy plane. So by putting into energy, they actually give passive income
payout for them to use their lifetime. So when something happened to them, I'm foresee if you want to walk out the picture, the asset itself will be protected and give it back to the next of kin. In fact right now, a lot of people are looking into things like legacy trust, creating for the family members as well as family members got special needs. So key thing they want to make sure that all these assets are, there also have to manage their own
retirement list out because things have changed. There's no more income coming in. So it's important for them to really look into the budget, whether all the expenses makes sense or not because all these lifestyle changes, they should review from time to time. If they overspend, they're there to trim down if they spend too much very fast their retirement that it will become smaller and smaller.
Vincent. Earlier you mentioned about how some people would intuitively SEo once you reach a certain age you should not worry about growing your wealth anymore. But that's actually wrong. Is that right? Why is it important to still continue growing the wealth in retirement?
Most people underestimate their investment time horizon. Typically for someone Age 60, just after they finished their lifetime employment, they thought it's time to relax and that they normally have this impression that I mentioned to retirement, my time horizon remaining is quite limited. Now this is actually quite off the mark because of the advancement in medical science people are really living longer. So the life expectancy is 85 in Singapore and it's
still growing. So this means that there must be sufficient and adequate financial savings to last a very long period of time. So the first point is do not underestimate how long life can go on beyond your retirement age. The second point is, we need to make sure that the financial estate has been built up up to this point in time can continue to keep pace.
It is very important because your employment income would now have to fish into an investment income and investment income need to keep pace with inflation rate. As I mentioned, I think there are avenues, the colors talk about. I'll just add to one is absolutely cost free.
It is having a healthy lifestyle. So make sure you're healthy and then you will have less medical bills and then itself will protect your Let's take the second one, which is also almost free because it is government guarantee is to top up your CPF program, whether CPS live or your CPF accounts is guaranteed both principal and coupon. Then the third thing that we should do is have a diversified portfolio because at this point in time is
too risky to take concentrated race. So your financial investment has to be in a balanced portfolio with a combination of fixed income and equity, Well diversified, low risk
Carlos. Earlier you were talking about the change of mindset, you know, retirement is a big life change, no more regular picture from employment, your activities, your schedule changes. What kind of mindset do we need to have when you're going into this new phase of your life? The retirement is actually a new form of retirement Because right now a lot of people are looking into pre retirement or even what they call the half retirement, but there are some that never go back to work.
So in fact right now is no longer I retired Asian, 60 so they choose to retire early. They have to plan a hit if one there in the 40s or in the 30s they have to plan when they would like to retire, do something that they like, but at the same time they have to make sure that they start planning now, they have sufficient funds to reach that goal that set for those people who are near retirement. Yes, they have to take a step back and really, really sit down
and go through their expenses, Focus more on health. Like recent shape, staying healthy is actually the key goals for retirees. So that's the concept of active aging, right that the government is promoting as well. Yeah, I've heard of this concept called Paycheck versus your play check, you know, maybe you can elaborate a bit about that.
So the concept paycheck, is that something that we're used to in our working years, we received a check every month without fail is with certainty. So this concept of receiving a fixed amount with certainty is extended into retirement age.
So it comes in the form of income entity that has certainty and amount is there to meet all the basic expenses to keep people healthy and ready to retire in a playful and happy way, so to retire in a playful and happy way on top of the paycheck, you need a play check. The play check concept is basically savings and investment that can give you additional income beyond meeting your basic needs. So meeting the basic needs we already have in Singapore a very very strong program called the CPF Life.
So others may have their own insurance energy to buffer that the paycheck really is to support additional activities that the young active retirees would like to have your lifestyle, could range from picking up a new hobby, traveling or even starting a new venture, be a business or enterprise. So then this paycheck plus play check would hopefully give you an A very comfortable enjoyable retirement. Years ahead. And the proportion between paycheck and pay check. It really varies but my
estimate is 40%. Going to play check 60% as a paycheck energy to cover your basic needs is a good
stuff. Good stuff there. Everyone let me just recap again for the audience. Number one always try and pay off your debt or manage you in a good way. Number two, make sure you have the insurance that you need for medical as well as other needs. Number three. Look at ways to grow your wealth, even when you're going into retirement, there are safe options for you to look at. Number four, protect your wealth as well so that you can last the duration of your lifetime.
Number five budget spend within your limits. Have a plan and paycheck versus paycheck. Very interesting stuff. That's what we can wrap up with as the five things you need to know about retirement planning. So for everyone who's listening, I hope you picked up a tip or two. I know I certainly did. And I would like to especially thank the guests here with Sunshine from Fullerton Fund Management. Thank you. And Carlos lee of the Insurance and Financial Practitioners Association of Singapore.
Thanks a lot guys. Thank you. All right and for everyone listening to join us again next time. Bye for now. Mhm