#FinancialFriday - CPF not enough so how leh?

Updated: Oct 29, 2020

The news has been abuzz recently with the recent updates to the CPF interest rates. Simultaneously, CNA published a commentary on how 'Singaporeans were saving too little and too late'. Young adults planned to retire between 55 and 65 with an income of $3,500 yet they only start planning for said retirement once they hit the big 4-0.

Many Singaporeans rely only on their CPF for retirement - but given the small amount of interest and the short time that most people start actively saving for retirement, it's highly unrealistic that your CPF will be enough.

Let's skip the part where you're hit by the bleakness of reality and jump straight into how you can solve this problem.

Investing and insurance

In a nutshell, when done right, these two strategies could make that pipe dream of retirement, or even early retirement, come true.

One of my dogmas when it comes to investing and insurance (let's abbreviate that to I-I) is that everything must be done with a purpose. For example, if your life plan's sum assured is $150k, you must have had a good reason for selecting $150k rather than just because. Money in this economy is too tight to blow on unnecessary crap so it's crucial you strike a balance between what you absolutely need and what you're buying for kicks.

As a Financial Planner, Buying Term and Investing the Rest (BTIR) is a strategy I would recommend if you have a goal in mind.

A couple in their 50s recently took on a second property - and that loan will be paid across twenty years. One's sudden passing or inability to work would inevitably saddle the other one with debt.

Instead of a whole life plan, consider a targeted, 20 year no-frills plan that can protect you during that 20 years so that you can avoid that worst case scenario, while investing the difference that you might have paid for the whole life plan. Once the term plan expires, you would have made enough to cover your loan and made excess profits to celebrate your loan repayment.

That is of course, if you BTIRed correctly. There are non-monetary problems of BTIR that people forget to consider, and if you're not up for the challenge, a pricier whole life insurance plan may save you time and grief with the option to take out a i) lump sum of cash, ii) complement your CPF as an annuity or iii) leave a legacy behind.

See: Do you know if you can handle these 4 psychological problems of BTIR?

There are a variety of ways to invest, depending on a variety of factors as well. Ultimately, whether you want to learn how to BTIR or not, investing is a useful skill that historical scales or exceeds inflation rates while becoming a secondary source of income over time.

It can be very discouraging for beginners to try investing and see the value of their money plummet by huge, numerical numbers. That's one of the reasons that I don't endorse the STI ETF, despite it's convenience, due to it's non-beginner friendly qualities.

See: The STI ETF is NOT for beginners... No matter what the Internet says

In my years of experience investing, beginners are largely encouraged by dividend funds with low volatility.

Imagine that while you're taking your time to learn about your risk profile and investing style, you are also receiving notices of dividends soon to be re-invested on your behalf. While you study, you'll have the security of mind that your money is working for you. It is a really good feeling to have and I certainly enjoyed it.

Money Maverick

As one of the Top Financial Bloggers in Singapore (Feedspot, Withcontent.co), I would be happy to answer any emails and questions you may have, as I have been doing for my readers over the past few years - especially about Insurance and Investing, as it is my forte of personal and professional knowledge.

If you have any such questions about the articles and how it may apply to your finances, you can feel free to leave a comment, or drop a message through any preferred medium (if you prefer privacy).

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Money Maverick is a Licensed Financial Consultant with MAS, who specializes in Investments and Critical Illness Insurance.

The views on his blog are strictly of his own opinion and have no affiliation to any of the companies he works with.

Here are some of my resources on:

1) Investing: Why you should invest aggressively NOW (and how you still can have peace of mind)

2) Insurance: The Newest, Rising Critical Illnesses in Singapore (2019)

3) Retirement and Leverage: Leveraging a Private Annuity, Pros and Cons (ft. Jamus Lim)

4) Spending and Saving: The Biggest Spending Mistakes You DIDNT Even Know you were Making (and how to avoid them)

5) Job Assessment: A Case Study on How a $6k/mth Girl makes MUCH more money than a $10k/mth Guy

6) Financial Optimisation: How I Avoid the Largest 'Fees' of All

#cpf #btir #beginners #investing #riskmanagement #whereshouldIstart #sgfinance #nowyouknow #financialplanning #moneymaverick

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