8 pragmatic reasons to be Singaporeans.

A reader, JK, shared his perspective and he has graciously allowed me to publish it here after some editing.

Why a Singapore citizenship?

1. Pay less in HDB Service & Conservancy Charges (S&CC)
 Most of the town councils have increased the rates for S&CC. Singaporeans don't have to pay the higher rates. Our 4-room HDB flat pays a monthly rate of S$51.60 instead of S$61.50 which means an annual savings of S$118.80.

2. Plan to have children? You will get a cash gift called Baby Bonus from the Singapore government. You get S$4,000 for your 1st child. It is free money for you to use as you like. It was raised to S$6,000 for the 1st child starting from end of August 2012.

3. More money for your child? Sure, you could get an additional $6,000 from the Singapore government if you save $6,000 in a Child Development Account (CDA). It is a dollar for dollar matching program by the government.  There are only two banks offering the CDA, Standard Chartered Bank and OCBC Bank.

OCBC CDA gives 0.5% interest, if you keep a $20,000 balance in the CDA account, the interest rate is 0.8%. I upgraded my OCBC CDA to OCBC CDA Extra, agreeing to a contribution by GIRO of S$50 per month. This option will pay an interest rate of 0.8% per annum too. 

Money in the CDA may be used by all your children for fees at Approved Institutions (AIs) which have registered with MCYS under the Baby Bonus Scheme. These include child care centres, kindergartens, medical clinics, licensed pharmacies and optical shops.

4.  Parenthood Tax Rebate. Get a one time tax rebate of S$5,000 for your first child. Second child?  S$10,000. 3rd child? S$20,000. For some, it is like not having to pay any income tax for the next 20 years. Why don't Singaporeans want to have more kids ?

5.  Working Mother's Child Relief (WMCR). For the first child, a mother can claim 15% of her earned income. There is a lot of savings come from here. Do the maths and you would be shocked too. For those who have 3 children or more, they could claim up to 25% of the mother's earned income which translates to huge savings!

6. Qualifying Child Relief (QCR). Either the father or mother of a child can claim QCR which is S$4,000 per child. With WMCR and QCR, there will be huge savings in taxes paid per year. 

7. Only Singaporean households can keep their HDB flats if they should purchase private residential properties. Singapore PR households MUST sell their HDB flats 6 months after the purchase of private residential properties or 6 months after the T.O.P. date of the private residential properties.

8. Singaporean households are also allowed to rent out their entire HDB flats after obtaining the relevant approvals. Singapore PR households are NOT allowed to rent out their HDB flats.

For the pre-edited articles, follow the links below:
"Singaporean Benefits (Part 1) and (Part 2)."

In the past, I would wonder why some people want to be Singaporeans. After all, our homes and cars are notoriously expensive. However, I do know that the Singapore passport is well respected and that we have a good and safe environment to bring up children.

Now, after this blog post, I have a better appreciation of why some PRs would like to become Singaporeans. For sure, there are many benefits which are for Singaporeans and Singaporeans only which I did not appreciate before.

Related posts:
1. Why I don't feel proud to be Singaporean?
2. CPF-HDB scheme to trick Singaporeans!
3. Take the good with the bad retiring to Malaysia.
4. Something only Singaporean males know.

How I was moved by Lucy?

I watched Lucy, the movie, last night.

It was thought provoking and I enjoyed it very much.

Morgan Freeman asked if we humans are too concerned with having instead of being? I like that question.

I asked myself what would I like to be?

Pause.

Pause.

Pause.

I would like to be a person who can make a positive difference to people's lives.

I want to be a good influence.

I think a person like this is good to be.

Of course, whether I will actually be someone like this is harder to say.

Related posts:
1. The kindness of strangers.
(Published in the month of August last year.)

"I feel that if we can make a positive difference in the lives of others, why not? If we can show some consideration to others and make the world a better place, isn't that a good thing?" AK.

2. Another day in paradise.
3. The world is full of nice people.

Should I become a permanent resident (PR)?

I am publishing this in the hope that there are PRs amongst my readers who are willing to share their thoughts on the matter.

From reader:

Hi AK

 

I have been reading your blog for half a year now. It has been my great source of knowledge! Thank you for wonderful blog!

 

I have some questions on whether I should apply for PR. Here is my background. I have been in Singapore for 10 years. Started off as student at secondary 3 then JC and university. I have been working for nearly 2 years now. Still holding an EP. My friends and colleagues often ask me if I would apply for PR. My answer to them so far is no. The main reasons are I still do not see myself living here permanently. The high costs of house and car are the main factors as well. Nonetheless, I may end up living here if there is great opportunity ahead, plus I have pretty much adapted to life here.

Also, the benefits of PR, of course, is CPF contribution from employer but I also do not like the idea of monthly contribution while I am still uncertain of living here or not. I know that I can take all CPF back if, in the end, I discard my PR but again, there is no second chance if I drop my PR. Short-term wise, I see myself here in the next few years. Should I then apply for PR?

 

If it does not trouble you so much, I'd like to seek your advice or opinion on this matter. Thank you for reading this.

Regards,
C
 

Share a thoughtful moment?

My reply:

Hi C,

I cannot give you any advice but I can share with you how I might think if I were in your shoes.

Being a PR has quite a few advantages compared to being an EP holder, as you have rightly pointed out. I would simply ask myself whether those advantages are important and attractive enough for me to want to be a PR. If they are, then, I should apply to be a PR and pray that I am successful.

There is a big element of subjectivity in making this decision, of course. So, only you know if this is something you want to do.

Best wishes,
AK

Please leave your thoughts in the comments section for C. Thank you.

A way to be $48,000 to $60,000 richer in a decade!

My blog post on what I had for lunch yesterday attracted an interesting response from a reader who is in his 20s and who is new to my blog.

He said that his breakfast is typically bought from Subway or McDonald's near his office. These would cost him about $5.00 to $6.00 every morning. His lunch would cost as much or, usually, more. Any amount between $5.00 to $10.00 for lunch is quite normal.



Then, if he should stay in the office to put in extra hours in the evenings, he would spend another $10.00 on dinner which usually includes a cup of gourmet coffee from Coffee Bean. I was surprised it wasn't Starbucks but that is not the point.


Anyway, typically, he would spend some $400 to $500 on meals at work every month. Over the course of a year, it would amount to $4,800 to $6,000. That is quite a bit of money for someone who is making under $3,000 a month.

Anyway, the long and short of it is that the reader is thinking of making his own breakfast and lunch for work now, winning a stamp of approval from AK!

If he is good at this, he is going to be $48,000 to $60,000 richer over the course of a decade. 

I cannot see how that is not a tidy sum of money to have and this is assuming he leaves the money in a biscuit tin (or mooncake tin) at home too. No interest income and no investment income.


Related posts:
1. A quick and economical lunch.
2. Afternoon tea break with AK.
3. Economical gourmet sandwich.
4. What's for lunch?
5. Seven money saving habits.

A quick and economical lunch. Healthier?

What did I have for breakfast? Did you guess oatmeal? You are right!

What did I have for lunch? Did you guess instant noodles? You are right, again!

OK, before anyone starts scolding me, I love instant noodles but I have been cutting down. The last time I had this was in June. Not too bad lah.

It is the same brand of instant noodles. It is the type that comes in a bowl and all I have to do is to add hot water after pouring in the seasoning and dried vegetables that come with it.

The last few times I had this, I added only half a packet of seasoning. This time, I decided not to add any at all.

I know that the packet of seasoning is just lots of MSG and I know it is bad for me. Actually, I have become less tolerant of MSG as I grow older. I really should watch it.

Anyway, I also felt like having noodles without the soup. So, I poured in 50% less hot water than usual. The end result? Not bad.

Price? $1.10.

Warm, moist, springy and still tastes quite good without any seasoning. Well, the noodles are naturally fragrant and the vegetables had some flavour.

OK, maybe, it's more acceptable to older people.
Seriously, I have found that in recent years, I like rather bland food.

So, don't take my word for it but you might want to try it. If it is too bland for you, you could always add the seasoning later.

What? You threw the packet of seasoning away already? Oops.

Related post:
Think we can't save $400,000?

In my 40s, married with kids? What would AK do?

To do better, one way is to invest for higher returns but at the same time we want to have some measure of stability. This is quite natural.

As we age and take on more responsibilities, including getting married and having children, we might start looking at things differently. 

Quite suddenly, we might not feel so carefree. 

Of course, we want to provide our loved ones with a better life too.





We fear that one wrong move on our part, we might jeopardise not only our future but the futures of those who are dependent on us. Again, it is quite natural to feel this way.

For people who have fallen along the way, it could be really difficult to get back up to continue the journey. 

I know because it happened to me before too but such is life and we simply have to soldier on. 

We only lose when we stop trying.

My way might not be your way.
However, we will find our cup of tea.

So, to someone in his 40s, married with young kids, who lost lots of money in his investments before and who is trying to find his way now, it could be quite a stressful process. 

Add multiple leveraged investment properties, some of them co-investments, and it could create a feeling of being stretched too thin, like spreading a little butter over too much bread, as Bilbo Baggins would say.

Here, I share a recent reply to a reader:

Actually, it is really a coincidence that you should be writing to me at this juncture because I have been invited to give a talk for a "recovery group" next week. 

It is for a group of people who lost a lot of money in stocks and are feeling somewhat demoralised...

... when bad things happen to anyone, there has to be closure. It is like a wound that needs to heal but it should heal properly. 

To have proper closure, we have to examine what went wrong and if there is some way we can grow to accept it and grow stronger in the process. 

Not an easy process which is why many who fell never recover.

You might remember that I have a blog post on how building an income portfolio is like building a house. 

So, if a bad thing should happen and the house was destroyed, what do we do? Go without a house? No, of course not. 

We build another house. This time, try to make sure that the foundation is stronger. Maybe, even install some earthquake proof technology. ;)

Bad things happen sometimes.

So, I would say that we want to take care of the basics first:

1. Have an emergency fund ready, enough to cover fixed expenses for 12 to 24 months. In your case, this should include the many mortgage payments for your many properties as well. 

2. Make sure you have necessary insurance in place. H&S, Critical Illnesses, Disability and Term Life. Term Life should cover the remaining mortgages of your properties and your dependents' needs till they graduate from tertiary education. Ask your insurance agent about reducing Term policies for the mortgages. Yes, they exist.





3. Plan for retirement and that is where your investment properties possibly fit in. If you feel that you are over-exposed and are uncomfortable, reduce your exposure. Losing sleep over anything is a bad idea.

4. I like the CPF-SA and I have maxed it out years ago. I do not know of any other instrument that will give me a risk free return of 4 to 5% per annum. As a tool for retirement funding, this is as easy as it gets.

5. Any excess money then can go into a war chest to wait for opportunities.




Like with anything, start from the ground up. 

Financial planning and investing for a better future? 

Much of it is about staying grounded and having a peace of mind. :)

I hope that this blog post has provided food for thought and if you should have opinions which you would like to share, please feel free to do so in the comments section.

Related posts:
1. Building an income portfolio is like building a house.
2. The best insurance to have in life.
3. Achieving financial freedom is a family affair.
4. How to upsize $100K to $225K in 20 years?
5. Thoughts on financial security for Singaporeans.

Eldershield: Is it really necessary?

What is the correct answer to the question?

This was a recent email exchange I had with a reader:

Reader's email:

Hi AK,  
Did you get any private insurance to complement your eldershield?

Thanks.







My reply:

Nope, I didn't. 

I don't need Eldershield but I gave in to a friend's persuasion to do collective risk sharing. :)

Reader's reply:

Thank you.

I'm a short time away from getting on eldershield. And i'm still trying to decide if i should stay in or hop outa the pool. 

My reply:

Well, insurance should be bought on a need basis.

If we are reasonably sure that we will have enough resources to see us through years of reduced physical capacity, we don't need Eldershield. 

This is true for me but I decided to help lower the cost of risk pooling for others who might need Eldershield. ;)





First, we should understand what is Eldershield:

"ElderShield is an affordable severe disability insurance scheme which provides basic financial protection to those who need long-term care, especially during old age. 

"It provides a monthly cash payout to help pay the out-of-pocket expenses for the care of a severely-disabled person."
Source: Ministry of Health

So, it is a disability insurance scheme and I know friends who bought such insurance to give themselves an income in case of disability, permanent or temporary. 





However, not everyone needs disability insurance.

Why? 

We don't need disability insurance because we are Superman (and just have to cross our fingers that we do not come into contact with Kryptonite)?

Source: NTUC Income.

Logically, if we own income generating assets which are able to provide meaningful and regular income streams, we do not need disability insurance. 

Hence, we do not need Eldershield.





This was what I meant by having "enough resources" in my email reply to the reader.

So, is Eldershield necessary? 

It might not be necessary for some of us but we might want to have it.





Related posts:
1. Tea with AK: Eldershield. 
(Read the comments too.)
2. Get free medical insurance in Singapore.
3. What is the best insurance to have in life?

CPF Annual Limit and voluntary contributions.

2016 Update:

CPF Annual Limit is now $37,740, up from $31,450 in 2015.
----------------------
An exchange of comments with readers on my FB wall highlighted something that could be overlooked by some. 






In March this year, I shared a screen shot in my blog:

Why did I voluntarily contribute $4,000 and not much more?

Reason:

The maximum amount of CPF contributions, including mandatory contributions your employer pays on your behalf, is $26,393.
 
The maximum amount of voluntary contributions a person (employee or self-employed) can make in one calendar year is subject to the CPF Annual Limit. 




All CPF contributions, whether mandatory or voluntary, will form part of the CPF Annual Limit.

From 2011, the CPF Annual Limit is $30,600.

No further voluntary contributions can be made if the mandatory and voluntary contributions have already reached the CPF Annual Limit of $30,600. (From 2015, the limit is $31,450.)

Source: CPF



Latest on CPFB's website:

The maximum amount of mandatory and voluntary contributions that a person (employee or self-employed person) can make in a calendar year is subject to the CPF Annual Limit. 

From 2016, the CPF Annual Limit is $37,740.







So, from 2016, maximum amount of VC = $37,740 – Mandatory Contributions

Mandatory contributions are compulsory contributions required under the CPF Act and include our own monthly contributions from earned income.

Use this calculator for VC:
https://www.cpf.gov.sg/eSvc/Web/Miscellaneous/ContributionAllocation/ContributionAllocationCalculator







Related posts:
1. Securing risk free returns early for retirement.
2. National Day Rally 2014: Retirement adequacy.

National Day Rally 2014: Retirement (funding) adequacy.

I enjoyed the National Day Rally by PM Lee this evening. 

He talked about many things but it was the segment on retirement adequacy that I paid extra attention to because of the unhappiness in certain segments of the population with the CPF in recent times.




PM Lee's speech on retirement adequacy was quite clear and free of financial jargon. 

He clearly showed how having savings in the CPF and ownership of a HDB flat will work well to fund our retirement. 

This is not something new but the way the message was delivered in a story telling fashion with PM Lee pretending to be a financial planner advising a fictitious Tan family in Singapore made a difference, I feel.

It is quite clear in the PM's speech that he sees HDB flat ownership as a pension that can be drawn upon in retirement. 

This is something I blogged about before too. See related post #1 at the end of this blog post.




There are many ways in which seniors could monetise their flats:

1. Rent out a room.

2. Rent out the entire flat and stay with their children.

3. Downsize or rightsize to a smaller flat which will pay them a Silver Housing bonus as well.

4. Do a lease buyback with HDB.

https://www.mnd.gov.sg/yourhousingjourney/seniors.html

With point number 4, PM Lee said that it was only available to 3 room flat owners but because many seniors who stay in 4 room flats would like to have this too, preferring not to move from surroundings familiar to them, the lease buyback scheme will be extended to 4 room flats by the HDB too in future. 

This change will bring cheer to some seniors. 




With this change, the lease buyback scheme will become available to more than half of all HDB flat owners.

This is all said with the understanding that the minimum sum (MS) of $155,000 is really insufficient to provide adequate monthly lifelong income from age 65.




Estimates show that a MS of $155,000 at age 55 would provide some $1,200 a month in lifelong income from age 65 when members of the audience mostly thought $2,000 a month is a more realistic figure. 

When PM Lee asked for a show of hands, no one thought $1,000 a month is sufficient.

So, there are ways to make up the shortfall and to ensure retirement funding adequacy for owners of HDB flats.

PM Lee then went on to say that the MS will be tweaked one more time next year to $161,000. 

There is no need for anyone to make anymore wild guesses. However, it will still be only enough for basic retirement funding, in my opinion.




Although PM Lee says that he does not think there will be need for big adjustments beyond that, the MS might need to be adjusted from time to time and they will have to study how this should be done.

Apart from what has been said so far, PM Lee has announced a major concession in the CPF scheme and that is to allow seniors to take out a bigger lump sum in their retirement (i.e. from age 65, not 55) if they wish to but it has to be within reason. 

There must be a limit of, perhaps, 10% or 20% of what is available in their CPF-RA. There should be valid and good reasons for seniors to do so.

If you get to choose, choose wisely.

However, the seniors who choose to do so will have to fully understand the trade off. 

They would have less in their CPF-RA after a bigger lump sum withdrawal and, so, the monthly payout from CPF-Life would be reduced.

PM Lee also announced a Silver Support Scheme which is to help the elderly poor, acknowledging the fact that there are seniors who do not have much in CPF savings and who might not own a HDB flat. 




They might not have family support to fall back on either. So, the government will do more to support them and they will be given yearly bonuses from age 65. Details to be announced in next year's budget.

The PM reminded us that the CPF is there primarily to help members achieve retirement adequacy and, together with home ownership, the vast majority of Singaporeans will be OK financially in retirement. 

However, he said that there will be exceptions and there is room for flexibility. The measures he has announced, I believe, will help address these issues.

The PM did not give details but I look forward to announcements by the Ministry of Manpower at a later date on how the CPF could give people more options in retirement in future.




What is my take?

In general, I think the CPF is a good system and provides basic retirement funding for its members. 

I like its reasonably good risk free returns and how it helps people who help themselves.

Since most in the audience felt that $2,000 a month is more realistic to fund retirement more comfortably in today's money in Singapore, the current MS is not excessive. 

In fact, next year's MS is also not excessive. In fact, it is too low.




Although PM Lee has suggested that citizens have "savings" locked up in their HDB flats and he suggested an average of $300,000 for 3 room flats and $400,000 for 4 room flats, I would like to caution that depending on HDB flats as pensions (i.e. for partial retirement funding) has its own set of risks.

With the MRT link to Johor and the high speed rail connection to K.L., there is no guarantee that property prices here in Singapore will continue to increase meaningfully. 

So, asset rich and cash poor Singaporeans who form the majority of the population here could find themselves in a bind 10 or 20 years later.




Therefore, not to be complacent and too dependent on our homes as pensions, efforts to improve financial literacy and to encourage financial prudence in our citizens must be strengthened. 

A national financial education program in schools should be introduced as soon as possible.

PM Lee suggested that people who are still healthy and who are able to continue working in retirement continue to do so. 




Although I like the suggestion and applaud the spirit of seniors who would like to continue working, I would like it more if they work because they want to and not because they have to.

Not to run the risk of sounding like a broken recorder, for anyone who might be interested in more of my thoughts, see related posts #3 and #4 below.

Related posts:
1. Retiring comfortably with a HDB flat.
2. Housing and the CPF.
3. Achieving level 1 financial security for Singaporeans.
4. Retiring before 60 is not a dream.
5. Purchasing a HDB flat, new or old.