Speaker 1: Yeah,
Speaker 1: hello and welcome. It's a trend seen in survey after
Speaker 1: survey Singaporeans worry about whether they'll have enough money for
Speaker 1: retirement and this uncertainty has been made even worse by
Speaker 1: the covid 19 pandemic. But what is certain is that
Speaker 1: starting today is better than putting it off to tomorrow.
Speaker 1: I'm Jonathan peers from the money mine team and we're
Speaker 1: talking about the five things you need to know about
Speaker 1: retirement planning, joining me today, we have with us Vincent
Speaker 1: chan from Fullerton Fund Management and Carlos lee of the
Speaker 1: Insurance and Financial Practitioners Association of Singapore. Gentlemen, welcome to
Speaker 1: the show. Thank you Jonathan,
Speaker 2: thank you for having us.
Speaker 1: So Vincent question for you. First retirement basically means no
Speaker 1: more steady employment income.
Speaker 1: So does that also mean that we should aim to
Speaker 1: be debt free by the time we retire.
Speaker 1: What would you say is the one way to go
Speaker 1: about doing that.
Speaker 2: Let me address this by giving an energy every one
Speaker 2: of us, whether we are already retired or we just
Speaker 2: joined the labor force we have in front of us
Speaker 2: a balance sheet. So the balance sheet has inflows and
Speaker 2: outflows
Speaker 2: inflows for most of us will be employment income on
Speaker 2: top of that. Some of us may have investment income.
Speaker 2: So these are the two main sources of influence outflows.
Speaker 2: Since we're on the topic of retirement, we need to
Speaker 2: fund the retirement lifestyle. So there's a form of outflow.
Speaker 2: Other forms of outflow would include home mortgages, car loans,
Speaker 2: All these are form of outflows
Speaker 2: when a person enters into retirement, employment income for most
Speaker 2: of us would no longer be there. So the inflow
Speaker 2: has been reduced significantly. But if the debt outstanding is
Speaker 2: not painfully, then this outflow will continue. For majority of us,
Speaker 2: it is true when you're into retirement with a much
Speaker 2: smaller inflow and the steady outflow, it is important to
Speaker 2: keep as debt free as possible. But if we can
Speaker 2: manage the inflow to a city outflow, having some level
Speaker 2: of debt actually works for them. This applies only to
Speaker 2: people who have assessed inflow above outflow and can actually
Speaker 2: make use of leveraging or debt to manage their financial
Speaker 2: balances more effectively.
Speaker 1: So there's a difference between bad and good debt. Right.
Speaker 2: One form of assets that's grown and outpace us and
Speaker 2: accompany many of us into retirement is the value of
Speaker 2: our home property. Many of us would depend on leverage
Speaker 2: borrowing to acquire the asset,
Speaker 2: but the asset value has been growing at a pace
Speaker 2: that is much faster than the debt repayment needed. So
Speaker 2: that is a clear case in which it is a
Speaker 2: form of good debt.
Speaker 2: But the assumption here is very important. It must be
Speaker 2: in a period where the economy is doing well and
Speaker 2: the country is stable. So if those elements are still
Speaker 2: with us going forward, then we should consider in that context,
Speaker 2: especially now when interest rates are so low,
Speaker 1: Carlos, let's bring you in at this point, the mortgage
Speaker 1: is the single biggest expense,
Speaker 1: how can we plan? So that our mortgage expenses are
Speaker 1: manageable and we can get to that debt free goal
Speaker 1: housing is actually the largest and the most important expenditure
Speaker 1: for a lot of us. So I think a lot
Speaker 1: of them are actually using CPF in cash to do
Speaker 1: the repayment. Typically this that our loans to a certain
Speaker 1: extent is considered good loans, but they still need to
Speaker 1: manage the housing costing.
Speaker 1: So typically we'll advise consumers not to over leverage into
Speaker 1: all this kind of depth. Try to keep within 30,
Speaker 1: of their income, especially when those who are pre retirement
Speaker 1: age or going to retirement period. They should pay off
Speaker 1: as much as they can. If not, there's some of
Speaker 1: them may even look at right sizing their home
Speaker 1: because some of the family members have moved out. They
Speaker 1: don't need such a big space. And during retirement here,
Speaker 1: we also do not forget the daughter cost of home
Speaker 1: ownership because there's no more income coming in. I still
Speaker 1: go out flow like what VINce said to share. So
Speaker 1: my outflow is electric debut, internet broadband home insurance property tax.
Speaker 1: If I'm still having any loans or rental income from
Speaker 1: properties
Speaker 1: as well as maintaining cause so I believe we still
Speaker 1: need to juggle the best. Is that free. If not
Speaker 1: that we should scale down
Speaker 1: of course, you know, when you go into retirement, another
Speaker 1: major expenses, hospitalization costs, All it takes is one major
Speaker 1: or chronic illness and it can wipe out your retirement savings.
Speaker 1: We may even end up possibly disabled and that will
Speaker 1: eat into savings as well. Carlos in your opinion, how
Speaker 1: can insurance help guard against this? Yes,
Speaker 1: coming to retirement. Yes, we will go into a stage
Speaker 1: of ill health,
Speaker 1: Especially the last 10 years of our life span. So
Speaker 1: typically a lot of people when you plan for retirement
Speaker 1: we've been planning and saving for many years
Speaker 1: but however our retirees forgot or mentally not prepared financially,
Speaker 1: not prepared for the high cost in terms of medical
Speaker 1: expenses in their retirement years. If we don't have a
Speaker 1: proper insurance coverage. Typically when human come we force it
Speaker 1: or we get injured or worse case we become disabled.
Speaker 1: It would drain away our retirement as a
Speaker 1: Therefore having a good plan. A good health insurance is
Speaker 1: very important. If a person is down with disability it
Speaker 1: can wreck the percent down for the next five years,
Speaker 1: 10 years or to limit where nobody knows how long
Speaker 1: this Pacific will live on and give a lot of
Speaker 1: stress to the caregivers and people around them. So in
Speaker 1: fact more money is needed. So we have to look
Speaker 1: into this area as well. Vincent do you agree? Why
Speaker 1: is it important to have adequate insurance coverage and what
Speaker 1: kinds of insurance would you recommend?
Speaker 2: I'd like to share a figure which I recently came
Speaker 2: across from the Singapore Cancer Society. It talks about late
Speaker 2: stage or last stage cancer patients. So on average the
Speaker 2: amount that is spent range from 100,000 to 200,000 per annum.
Speaker 2: You translate that to a monthly number is between 8000
Speaker 2: to 17,000 compared to the median income
Speaker 2: of an individual. They're drawing somewhere around 4005 to 5000
Speaker 2: in the ballpark. So it's already much, much more now.
Speaker 2: What is threatening is to bear in mind that medical
Speaker 2: cost inflation is much higher than our common basket of
Speaker 2: goods or C. P. I. Inflation rate.
Speaker 2: The medical cost inflation in Singapore in recent years have
Speaker 2: been
Speaker 2: around 8%.
Speaker 2: So what this means is that the 100-200,000 per annum
Speaker 2: Will quadruple in 20 years to 400,000 to 800,000. Why
Speaker 2: is that? 20 years figure important because many of us
Speaker 2: entered the retirement around age 60, the life expectancy is
Speaker 2: about 85.
Speaker 2: So by the time they need this sum of money
Speaker 2: for the medical needs, they will be shocked that as
Speaker 2: much as 4,800,000 will be taken away from the N. S. A.
Speaker 2: And they are not prepared. So medical insurance hospitalization plan,
Speaker 2: I think it's important to have on top of medicine
Speaker 2: to life.
Speaker 2: The other insurance program which is integral part of retirement
Speaker 2: planning is what I call a term insurance program.
Speaker 2: This is more for legacy planning upon death. The individual
Speaker 2: will leave behind some of money. Most of us would
Speaker 2: like to leave behind something big property or some wealth
Speaker 2: to pass on the next generation.
Speaker 1: Well, some sobering facts. So let's just recap for now.
Speaker 1: One of the things important to know is that we
Speaker 1: should work towards being as debt free as we can
Speaker 1: by the time we retire,
Speaker 1: number two we should have hospital and long term insurance
Speaker 1: in place. Another aspect of retirement which sometimes gets under
Speaker 1: the radar is the wealth aspect. Vincent. How can we
Speaker 1: grow our wealth so that we can retire comfortably
Speaker 2: electing of saving and investing for retirement as a journey.
Speaker 2: So at the start of the journey, it is wealth
Speaker 2: accumulation at the end of the journey when rouge retirement age,
Speaker 2: it is about income distribution.
Speaker 2: We're very familiar with the energy concept. It is when
Speaker 2: we are nasty has been built up and we can
Speaker 2: draw income from there. So from wealth accumulation to income distribution.
Speaker 2: This is one concept. The other concept is at every
Speaker 2: stage of our life. We must have two types of
Speaker 2: assets in terms of financial investment. One is what I
Speaker 2: call the safe
Speaker 2: ss
Speaker 2: this will include bank deposit,
Speaker 2: government bonds, even your CPF savings, especially insurance products, they're
Speaker 2: very low risk products. So they fit into the category
Speaker 2: of safe assets. The safe assets will not get you
Speaker 2: the high return that you need to grow your essay
Speaker 2: so therefore you need the other part which is the
Speaker 2: growth assets. The growth assets are typically property
Speaker 2: and more commonly
Speaker 2: investing in the stock market. Equity market for long periods.
Speaker 2: Equity market tend to give much higher return than fixed
Speaker 2: income or the safe assets
Speaker 2: in your journey from wealth discrimination to income distribution, The
Speaker 2: mix between the safe assets and the growth assets will
Speaker 2: change for someone joining the labor force fresh, he has
Speaker 2: a much longer time horizon, he has the employment income.
Speaker 2: He has a bigger risk appetite than this individual should
Speaker 2: have a larger proportion in the growth assets
Speaker 2: And keeping some money for many days. So the proportion
Speaker 2: would be typically maybe 80% in growth assets, 20% in
Speaker 2: safe assets. This ratio reversed by the time the person
Speaker 2: reaches retirement age,
Speaker 2: His capacity to take on race is much smaller. He's
Speaker 2: no longer fully employed. Therefore his sources of income. The
Speaker 2: inflows has been reduced. So with a lower capacity to
Speaker 2: take on financial race, he should flip it the other
Speaker 2: way round, have 80% of it in stable income ready
Speaker 2: for the income distribution, but not neglecting still having some
Speaker 2: allocation to growth assets, say 20%.
Speaker 2: And with this combination, he can still allow his nest
Speaker 2: egg to grow in excess of inflation rate.
Speaker 1: We always hear it said that it's important to start
Speaker 1: young because of this compounding effect. But Carlos, you know,
Speaker 1: I speak for all my generation now, what advice do
Speaker 1: you have for those of us who are not so
Speaker 1: young or those who have started a bit later, it's
Speaker 1: never too late to start because right now inflation is
Speaker 1: catching up and bank interest rates very low.
Speaker 1: So those people who were yet to stop or thinking
Speaker 1: to start, in fact they should start doing something like
Speaker 1: that being said have shared depending on your age group,
Speaker 1: then either you do a safe to support growth and
Speaker 1: support the distribution according to the risk appetite
Speaker 1: because there's more than one instrument to grow the wealth
Speaker 1: growth assets. But by living too much money in the bank. Also,
Speaker 1: there's an issue because of inflation. So we need to
Speaker 1: make sure that our money keeping pace. So there's a
Speaker 1: lot of instrument out there from the insurance company or
Speaker 1: in the investment area.
Speaker 1: I've been starting chess ivy bonds
Speaker 1: also reads these are the different areas that individuals should
Speaker 1: look at. It should look at the proper financial advice.
Speaker 1: Don't just jump into it without knowing the reason Carlos,
Speaker 1: once we've managed to build up this nesting, how can
Speaker 1: we protect it so that we won't run out? I mean,
Speaker 1: there's a lot of factors that played as protecting it
Speaker 1: from inflation that's protecting it from bad investments. So what's
Speaker 1: your best advice looking at the portfolio that they have
Speaker 1: if they are able to lock in, some of them
Speaker 1: will be looking into legacy plane.
Speaker 1: So by putting into energy, they actually give passive income
Speaker 1: payout for them to use their lifetime. So when something
Speaker 1: happened to them, I'm foresee if you want to walk
Speaker 1: out the picture, the asset itself will be protected and
Speaker 1: give it back to the next of kin. In fact
Speaker 1: right now, a lot of people are looking into things
Speaker 1: like legacy trust,
Speaker 1: creating for the family members as well as family members
Speaker 1: got special needs.
Speaker 1: So key thing they want to make sure that all
Speaker 1: these assets are, there also have to manage their own
Speaker 1: retirement list out because things have changed. There's no more
Speaker 1: income coming in. So it's important for them to really
Speaker 1: look into the budget, whether all the expenses makes sense
Speaker 1: or not
Speaker 1: because all these lifestyle changes, they should review from time
Speaker 1: to time. If they overspend, they're there to trim down
Speaker 1: if they spend too much very fast their retirement that
Speaker 1: it will become smaller and smaller.
Speaker 1: Vincent. Earlier you mentioned about how some people would intuitively
Speaker 1: SEo once you reach a certain age you should not
Speaker 1: worry about growing your wealth anymore. But that's actually wrong.
Speaker 1: Is that right? Why is it important to still continue
Speaker 1: growing the wealth in retirement?
Speaker 2: Most people underestimate their investment time horizon. Typically
Speaker 2: for someone
Speaker 2: Age 60, just after they finished their lifetime employment, they
Speaker 2: thought it's time to relax
Speaker 2: and that they normally have this impression that I mentioned
Speaker 2: to retirement, my time horizon remaining is quite limited. Now
Speaker 2: this is actually quite off the mark because of the
Speaker 2: advancement in medical science people are really living longer.
Speaker 2: So the life expectancy is 85 in Singapore and it's
Speaker 2: still growing. So this means that there must be sufficient
Speaker 2: and adequate financial savings to last a very long period
Speaker 2: of time.
Speaker 2: So the first point is do not underestimate how long
Speaker 2: life can go on beyond your retirement age.
Speaker 2: The second point is, we need to make sure that
Speaker 2: the financial estate has been built up up to this
Speaker 2: point in time can continue to keep pace.
Speaker 2: It is very important because your employment income would now
Speaker 2: have to fish into an investment income and investment income
Speaker 2: need to keep pace with inflation rate.
Speaker 2: As I mentioned, I think there are avenues, the colors
Speaker 2: talk about. I'll just add to one is absolutely cost free.
Speaker 2: It is having a healthy lifestyle. So make sure you're
Speaker 2: healthy and then you will have less medical bills and
Speaker 2: then itself will protect your Let's take the second one,
Speaker 2: which is also almost free because it is
Speaker 2: government guarantee is to top up your CPF program, whether
Speaker 2: CPS live or your CPF accounts is guaranteed both principal
Speaker 2: and coupon.
Speaker 2: Then the third thing that we should do is have
Speaker 2: a diversified portfolio because at this point in time is
Speaker 2: too risky to take concentrated race. So your financial investment
Speaker 2: has to be in a balanced portfolio with a combination
Speaker 2: of fixed income and equity, Well diversified, low risk
Speaker 1: Carlos. Earlier you were talking about the change of mindset,
Speaker 1: you know, retirement is a big life change,
Speaker 1: no more regular picture from employment, your activities, your schedule changes.
Speaker 1: What kind of mindset do we need to have when
Speaker 1: you're going into this new phase of your life? The
Speaker 1: retirement is actually a new form of retirement
Speaker 1: Because right now a lot of people are looking into
Speaker 1: pre retirement or even what they call the half retirement,
Speaker 1: but there are some that never go back to work.
Speaker 1: So in fact right now is no longer I retired Asian,
Speaker 1: 60 so they choose to retire early.
Speaker 1: They have to plan a hit if one there in
Speaker 1: the 40s or in the 30s they have to plan
Speaker 1: when they would like to retire, do something that they like,
Speaker 1: but at the same time they have to make sure
Speaker 1: that they start planning now, they have sufficient funds to
Speaker 1: reach that goal that set
Speaker 1: for those people who are near retirement. Yes, they have
Speaker 1: to take a step back and really, really sit down
Speaker 1: and go through their expenses, Focus more on health. Like
Speaker 1: recent shape, staying healthy is actually the key goals for retirees.
Speaker 1: So that's the concept of active aging, right that the
Speaker 1: government is promoting as well. Yeah, I've heard of this
Speaker 1: concept called
Speaker 1: Paycheck versus your play check, you know, maybe you can
Speaker 1: elaborate a bit about that.
Speaker 2: So the concept paycheck, is that something that we're used
Speaker 2: to in our working years, we received a check every
Speaker 2: month without fail is with certainty. So this concept of
Speaker 2: receiving a fixed amount with certainty is extended into retirement age.
Speaker 2: So it comes in the form of income entity
Speaker 2: that has certainty and amount is there to meet all
Speaker 2: the basic expenses to keep people healthy and ready to
Speaker 2: retire in a playful and happy way, so to retire
Speaker 2: in a playful and happy way on top of the paycheck,
Speaker 2: you need a play check.
Speaker 2: The play check concept is basically savings and investment that
Speaker 2: can give you additional income beyond meeting your basic needs.
Speaker 2: So meeting the basic needs we already have in Singapore
Speaker 2: a very very strong program called the CPF Life.
Speaker 2: So others may have their own insurance energy to buffer
Speaker 2: that
Speaker 2: the paycheck really is to support additional activities that the
Speaker 2: young active retirees would like to have your lifestyle, could
Speaker 2: range from picking up a new hobby, traveling or even
Speaker 2: starting a new venture, be a business or enterprise. So
Speaker 2: then this paycheck plus play check would hopefully give you
Speaker 2: an
Speaker 2: A very comfortable enjoyable retirement. Years ahead. And the proportion
Speaker 2: between paycheck and pay check. It really varies but my
Speaker 2: estimate is 40%. Going to play check 60% as a
Speaker 2: paycheck energy to cover your basic needs is a good
Speaker 1: stuff. Good stuff there. Everyone let me just recap again
Speaker 1: for the audience.
Speaker 1: Number one always try and pay off your debt or
Speaker 1: manage you in a good way.
Speaker 1: Number two, make sure you have the insurance that you
Speaker 1: need for medical as well as other needs. Number three.
Speaker 1: Look at ways to grow your wealth, even when you're
Speaker 1: going into retirement, there are safe options for you to
Speaker 1: look at. Number four, protect your wealth as well so
Speaker 1: that you can last the duration of your lifetime.
Speaker 1: Number five budget spend within your limits. Have a plan
Speaker 1: and paycheck versus paycheck. Very interesting stuff. That's what we
Speaker 1: can wrap up with as the five things you need
Speaker 1: to know about retirement planning. So for everyone who's listening,
Speaker 1: I hope you picked up a tip or two. I
Speaker 1: know I certainly did.
Speaker 1: And I would like to especially thank the guests here
Speaker 1: with Sunshine from Fullerton Fund Management. Thank you. And Carlos
Speaker 1: lee of the Insurance and Financial Practitioners Association of Singapore.
Speaker 1: Thanks a lot guys. Thank you. All right and for
Speaker 1: everyone listening to join us again next time. Bye for now.
Speaker 1: Mhm