This was a recent email exchange with a reader:
I've been following your blog for quite a while, but this is my first time writing to you. Hope you could 'talk' to yourself about my sis case below and let me hear it so I will know how to help her.
My sis is almost 60 years old, single and stays alone. Recently, she fell very sick and was admitted to hospital for a few weeks. Now she is at home on medical leave. We got a maid to look after her. Don't think she will be fit enough to go back and work.
She doesn't earn much as an admin staff, but still managed to save quite a bit through many years of working and saving - about $150,000 in Cash and $100,000 in CPF. And she has also paid up fully for her HDB flat, so no debts except for some insurance premiums which she is still paying, her medical expenses and expenses to employ the maid @$720 per mth. She knows that her saving will not last her very long. She has asked me to invest her money so that she could collect some dividends and help pay for her daily expenses since she will have no income in future. I am not a savvy investor. Most of the times I bought stock based on reading your blog and some other financial blogs. I have no qualms to invest using my own money but how to invest for her?
Two years ago, I brought her to open a POEMS account and put in some of her money, all ready to 'chiong' and invest but till todate, I still do not dare to invest for her as I can't afford to lose her hard earned money. Recently she asked me to buy Cityspring Trust at 50 cents but I hesitated and missed the boat.
What were you do if you are in my shoes? How can I help my sis? Safest is to put in FD but the interest rate is so low.
Hope to hear from you. Thank you.
If I were in your shoes, I would be very cautious too. Losing some of my money is one thing but losing my sister's money would be something else. I actually gave my sister a capital guaranteed privilege at one time. If the investments should lose money, I would bear the losses. Bad idea, I know.
Anyway, back to your case. What would I do?
If your sister needs $720 a month or $8,640 a year. Obviously, relying on her savings of $150,000, it would take only 17.36 years to be depleted. This is not considering any interest income earned during that time, of course. Add other expenses, maybe $800 a month, and her savings will take half the time to deplete. 9 years, perhaps? So, there seems like a need to invest for income.
However, we must not forget that she is eligible for CPF Life payouts in another 5 years from now at age 65. If she has $100,000 in her CPF retirement account (RA), she could be drawing $800 or so (this is a rough estimate and you should call CPF to check the exact amount) every month for the rest of her life and this would be enough to pay for her medical expenses and the maid.
In my opinion, there isn't any need to take on risk by investing your sister's money in the stock market now. Of course, I am not asking you not to invest on her behalf in the stock market. You could keep an eye on the stock market and buy some good dividend paying stocks for her when Mr. Market goes into a depression. In the meantime, your sister has enough financial resources to take care of her needs.
I will publish our email exchange in my blog to see if others have ideas which they might be willing to share with us. :)
If you have any ideas you would like to share, please leave a comment. Thank you.
1. What happens at 55 and CPF Life?
2. The PM on retirement adequacy.
3. Free e-book: Retiring before 60 is not a dream.