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Videos on reaching 55 and what is CPF Life?

Sunday, September 7, 2014

Actually, the CPF Board have some very good videos but very few people actually watched them.

Two videos available since 3 weeks ago, one titled "Reaching 55" and another titled "CPF Life", have been viewed online barely 1,500 times and a bit more than 1,000 times, respectively.





Although I have blogged on these topics a few times before, I think videos will be more appealing to some of us. 

So, if you have 6 minutes to spare, here they are:


.....




.....


Not bad but I had to resort to reading the subtitles at times. 

We Singaporeans have a bad habit of "eating up our words" as we speak too fast sometimes.






Share the videos with friends and family who have doubts about the system. 

All of us should embrace retirement planning and CPF Life can be a very strong cornerstone for many of us in retirement funding if we help the system to help ourselves.




Related posts:
1. National Day Rally: Retirement Adequacy.
2. How to upsize $100K to $225K in 20 years?

Buying term life insurance: Sharing some lessons.

I received this email in response to a guest blog (see related post at the end of this blog):

Hi AK,

On your latest blog on term insurance, you write that $50 a month can get  fresh grads $500K coverage. I am not sure if you meant to have CI coverage  included, if yes, the premium rate looks unrealistic in current market. To  share my recent term insurance purchasing experience -

It costs a male going 30, non smoking, for $1300 a year for death coverage of $1M, $200k for TPD and CI. This is after 30% discount from Aviva, the discount applies to the whole policy period, till 65. For a female going 25, it is $880 for the same coverage.

I got all quotes from major insurers and found this to be the lowest,  particularly with the 30% discount. If I were to opt for $200k death, TPD and CI coverage, the lowest annual premium is around $900. I feel  additional $400 premium to cover for $800 k death coverage is a bargain from Aviva, and $200k coverage is not sufficient, hence, I opted for this. Note that Aviva gave the discount to policy with coverage of $1m and above.



 
Lessons from this experience:

1. One has to get quotes from as many insurers as possible to know the market rates and to get the best rate.
 
2. Buy term insurance early. In this scenario, for the same coverage, the female got 5 more year coverage and pays less every year, and even less total sum, partly because she buys this term insurance earlier than the male! (I say partly here, female premium tends to have lower premium than male in same age etc.)
 
3. Another reason to buy early is that premium goes up every year due to cost and inflations.
 
4. Insurance industry is very competitive, take advantage if there is a massive discount!

What insurer did you get from? $100 a month is really cheap for that kind of coverage and I am quite sure it is hard to such rates now.


Regards, IIIW

I had clarified that the earlier blog post in question was a guest blog. It wasn't written by me.

We decided to share this email here as it could help many people out there who are looking to get term life insurance. Also, we could possibly get many more people to come forward to share their experience or perspectives.

Related post:
Term life insurance: Why buy term? How big a sum should I buy? How long a term should it be? How much does it cost?

Eldershield: What does it shield us from?

Often, we meet really nice people in life. Sometimes, we meet really nice people who might even influence the way we think. 

One such person for me is a fellow blogger, LP, and he is the blog master of Bully the Bear. A few years ago, I was wondering whether to opt out of Eldershield but he persuaded me not to.





How did he persuade me?

To save anyone who might be interested from having to scroll through the many comments generated by that blog post written in 2011 (yup, when I turned 40), here it is:

"Hi Ak,

"My opinion is that u should buy. 


"Firstly, it doesn't cost much, so 400 per month (should be claim out) is sufficient to hire help to take care of u.

"Of course u can argue that your passive income is more than sufficient to create your own elder shield, but this is just extra protection at low cost. 


"Secondly, I wish to appeal to your sense of public charity - help contribute to the pool of money so that those poor elders can insure against this risk at lower premiums. 

"These people do not have passive income at all, most likely.

"So how? :)"


I decided not to opt out of Eldershield after that.





Recently, he had an exchange of comments in another blog on the matter with my more recent blog post on Eldershield in mind (see related post #2) and I would like to share it here:

LP:
With your first hand experience in eldershield, would you advice a person with say a passive income stream of 7k per month to get a plan that pays 300 per month only upon hitting certain set conditions?


N:
Regardless of the amount of passive income, eldershield is a form of hedging or insurance to insured against the unexpected. So instead of taking up the basic of $400 per month, one should top it up to $1k per month simply using cpf, w/o forking out of pocket, cash. So, yes, eldershield is still applicable, but a higher payout amount, with a higher premium should be the plan.



LP:
Regardless of amt of passive income? Are u sure?

The pt of having eldershield is to provide a supplement to the financial needs to take care of an elderly with the conditions laid out in the plan. If there's already a stream or a sum of money to cover this possibility, the need is no longer present. So why buy something that you no longer need?

Buying an eldershield plan doesn't shield you from getting hit by the 6 activities of daily living as laid out in the plan. It shields you from the financial cost of caring for such a person. If you can cover that cost, there's no need to buy the plan. That's what I think.









LP makes so much sense. I have always thought of him as a strong voice of reason in the world of investment and personal finance bloggers (whenever he decides to blog).

Hmmmm... OK, maybe, I should terminate my Eldershield policy on Monday.

Kidding!

Related post:
1. Eldershield. Opinions, anyone? 
(Great comments!)
2. Eldershield: Is it really necessary?

Consider terminating whole life insurance policies.

Saturday, September 6, 2014

An exchange with a reader inspired this short blog post.

My dad who is almost 70 recently told me that he was trying to reduce his expenses and he asked if he should still pay almost $500 every quarter for his one and only whole life insurance policy. It amounted to almost $2,000 a year as a recurring expense.

Unnecessary recurring expenses are like financial chains.

I explained to him that he has no dependents anymore and that it is OK for him to terminate the policy. He said that we would get more money from the insurance company if he should pass away while the policy was still in force.

My dad is right, of course, but I told him our family don't need the money. We are no longer dependent on him financially.

I think he might already have thought of terminating the policy but was unsure because he would have liked to leave more money for his family when he leaves this world. I persuaded him that the product had already done its job and that it had become a luxury, a "nice to have" item but not a "must have" item.

My dad terminated the policy shortly after and got back a 5 figure sum as well. However, the most important thing to note is that my dad's cash flow improved by quite a bit after this. His financial burden is now lighter.

Need or want?

For many years now, I am a big advocate of buying insurance for the sake of insurance. Buy when there is a need. It is like buying anything on a need to have basis in life.

We might want something but we should think if there is a need for it. This is premised on the fact that money is a scarce resource for many of us. Some of us realise this while some of us don't.

Beware of marketing efforts to create an impression that something is a need for us when it could really be a want. To be fair, however, something could be a need for a person but a want for another.

Related posts:
1. Matt terminated his whole life insurance policies.
2. Term life insurance: Why buy term?
3. Money management: Needs and wants.
4. Eldershield: Is it really necessary?
5. Enhanced Incomeshield for my mother.

Term life insurance: Why buy term? How big a sum should I buy? How long a term should it be? How much does it cost?

A reader shares his wisdom:

Before we discuss about how much insurance to get, we must first understand what insurance is all about. Insurance is 

(1) a risk management tool 

(2) to transfer the financial risk of catastrophic events to the insurer 

(3) in exchange for a small sum of premiums.

In light of the above definition, I usually recommend people to stay away from whole life insurance and go for term-life instead. Insurance, after all, is an excellent risk management tool but a poor investment vehicle, IMHO.







How much life insurance should one get? 


There's many factors to consider. One of that will be your financial commitments. Say, you are a fresh graduate and no dependants at all. Technically, you only need sufficient life insurance to cover for TPD and CI. 

The required sum assured will still be high (up to S$500,000) because a young disabled man in his 20s will need lots of $$$ for care and support until he passes on. Take note that expected longevity in SG is about 82 for male and 85 for females.

An additional point to note is that when buying term-life insurance, I would suggest my friends to cap the term up to retirement age (currently 62 years old).

The reason is simple: Insurance loses it cost effectiveness after a person is in his 60s and
70s. The cost of life insurance will rise exponentially because the probability of dying also rises exponentially.

This is one of the main reasons why the Dependent Protection Scheme (DPS) caps at age 60. Getting life insurance beyond that age is no longer value for money.







When you are in your 60s, life insurance should no longer be needed because your financial commitments should be at a minimum. This means no debt, no dependants and no major financial expenditures.

People in this life-stage should be focusing on retirement adequacy.


Btw disclaimer ah, I am just talking out loud to myself in the above posts. Please visit a professional planner (not insurance agent) if you want sound and constructive $$$ advice.

I bought my insurances when I was 26 years old.

I paid $100/month for $1M term life and $250K major CI. You can use this a base for comparison.


For fresh graduate earning a market rate of $3K/month. $50/month can "smelly-smelly" get them $500K insurance coverage if they go for term-life insurance.


Friends, not everything in life needs insurance one. Ponder and chew on this point.




Get adequate insurance where it matters. Don't overpay for insurance and we do not need insurance for everything under the sun. Words of wisdom.

Note: Author would like to remain unnamed.

Related posts:
1. How much term life insurance should fresh grad have?
2. In my 40s, married with kids? What would I do?
3. Achieving level 1 financial security for Singaporeans.

No free lunch (or dinner) but what about mooncakes?

Friday, September 5, 2014

Recently, I had a mission in town and, so, I had to have an "atas" dinner in town:

Rice with stir fried vegetables, chye poh egg and sweet sour fish.

Price? $4.00. Not too bad. There is less expensive food in town too, I am glad to say.

Now, what was the mission I was on? I had to collect mooncakes and since so many people are putting up photos of mooncakes and blogging about them, let me join in the fun.

Stacked them up in the back seat of the car.

People buying the mooncakes or buying the carrier, I wonder?

I am not really a mooncake person these days and pretty lucky I am not too. They are so expensive (and unhealthy)! On that note,

HAPPY MID-AUTUMN FESTIVAL!

It is happening on 8 September (Monday). Just have to hope that the skies are clear enough to see the moon then. Crossing fingers.

Related post:
Sambal mooncakes!

Investing for income: An important element (UPDATED: BUFFETT ON BUYING HIS FIRST STOCK.)

Thursday, September 4, 2014

Wah! So much mail from the broker! 



AK must be trading a lot!


I receive quite a few emails from readers. 

Among them, some are encouraging and some are depressing. 

I usually share the more encouraging ones here in my blog but not the depressing ones. 

No point, right?





Well, in case you are wondering, the depressing ones are usually along the line of how they make so little money in their day jobs and how they cannot save enough. 

So, they can't put much money into investments and for those who did, they get so little dividends that it seems meaningless.

What do I have to say in reply?





It takes time to build a strong income producing portfolio. 

It is not going to happen overnight. 

It is usually not glamorous. 

It is definitely not exciting like promises of fast money.






So, what is needed? 

Time.

Now, you have an idea what those envelopes contained.



Readers who have followed me for a while and who have put some of my strategies into action would be able to attest to how their financial health has improved if they have been disciplined.

With extra money coming in regularly, how could it not be a good thing?





A reader told me how his passive income has improved from just a two figure sum so many years ago to the five figure sum it is today. 

Impressed? 

I know I am.

So, for those who are already on the path to financial freedom, stay the course. 

For those who are just starting, remember that it is always toughest at the start.






Related posts:
1. If we are not rich, don't act rich.
2. Do the right things and we could transform our lives.
3. Seven steps to creating passive income from stocks.
4. The best insurance to have in life.
5. First REIT: AK reveals size of investment.

How to size our more speculative positions?

Wednesday, September 3, 2014

I have shared before that it is OK to gamble a bit once in a while. 

I am Chinese and gambling is in my blood. 

It's not my fault that I am born Chinese.





So, I have nothing against speculation per se. 

1. As long as speculators know that what they are doing is speculation, 

2. As long as they are mindful of the possible consequences 

and 

3. As long as they are able to take the losses comfortably if things go wrong, there is nothing really wrong with speculation, is there?




http://singaporeanstocksinvestor.blogspot.sg/2014/08/accordia-golf-trust-hole-in-one.html

Well, I would say please keep speculative positions small. 

Of course, how small it is would depend on

1. our risk appetite 

and 

2. our ability absorb losses. 

2 to 3% of our portfolio size for some and 10% for others? 

Sounds rather arbitrary, doesn't it?





When a reader asked me for a "formula" to help quantify "small", what did I say?

I told him it would have to be an amount I can recover quickly within a year or less in case of a total loss. 


This measure has always given me peace of mind and he said it is helpful to him. 

So, I thought I should share this.





Of course, if I should have more than one speculative position, the total exposure should not exceed the amount I think I could recover within a year. 

It is a bit like having one or five credit cards from the same bank. 

The credit limit doesn't increase with each additional card issued.





Like with so many things in my life now, it is about avoiding stressful situations where possible and not losing more money than I can recoup in a relatively short time works for me.

Always ask "to what extent can I afford to be completely wrong?"

Once we have the answer to this question, we will know how to size our more speculative positions.




Related posts:
1. Motivations and methods in investing.
2. How to make recovery from losses easier?
3. To be richer, be comfortable with being invested.

Croesus Retail Trust: Acquisition of ONE'S MALL.

Monday, September 1, 2014

I had expected some form of equity fund raising and although I was hoping that it would be a rights issue, I was not surprised that a private placement has been chosen instead. It is more expeditious, after all.

However, it does not mean that I am happy about it since, in all likelihood, I won't be one of those "other investors" who would be offered new units in the Trust to be priced between 89c and 92c per unit. What? Unit price was about $1.00 when you last looked? Wow! 89c would be a steal, wouldn't it? Bummer.

Anyway, the acquisition of the new (freehold) mall, ONE'S MALL, in Greater Tokyo will cost about S$132.5 million.


The private placement is expected to raise S$70.2 million to S$72.6 million. The Trust will also be drawing upon a Japanese local bank loan for most of the shortfall (equivalent to S$74.1 million) at an interest rate of 1.29% per annum. I like the natural hedge that comes with this and also the very low interest rate.

A much smaller amount of S$6 million will be drawn from the Fixed Rate Notes issued in January this year. To utilise funds from the Fixed Rate Notes minimally is a good move as it attracts a higher interest rate of 4.6% and it is also denominated in S$. So, there will be some FOREX risk but it will be miniscule here with only S$6 million drawn.

Overall, income distribution per unit (DPU) is not expected to receive much of a boost with this acquisition because it is half funded by the private placement. Expect an increase of only 0.2% in DPU. Expect NAV/unit to increase by only 0.1%.

What about gearing level? As the purchase is about half funded by the private placement, gearing level stays more or less unchanged, reducing from 51.7% to 50.5%.

Nothing to be too excited about.

See announcement: here and here.

Related post:
Croesus Retail Trust: 4Q FY2014 DPU improved.

If our income is $3K a month, we could get a 6.6% raise!

People sometimes wonder if it takes a lot of time to prepare food to bring to work. It surprises people to find out that actually it could take very little time. It is very easy to cook oatmeal and to make sandwiches, for examples.

It could take 15 or 20 minutes to make some sandwiches to last us for a few days each time we do it. Therefore, the time taken to prepare meals on a per meal basis is actually very little. (See related post #2.)

Oatmeal takes very little time to prepare too. (See related post #1.)

So, join me for some home made lunch?

What's this?

Bread, cheese, lettuce and ham. Yummy!

Evidence of me chomping away.

Cost? Probably $1.00 or a bit more.

Whenever I ask people to try making their own lunch to bring to work, a common reason for not even trying is that they don't have the time or energy to do it.

Well, I understand that it is more convenient to simply buy cooked food outside but there is always a price to pay for convenience. We might want to ask if the price we pay for convenience is too high.

High, higher, highest. It is all relative, isn't it? So, if our gross salary is $3,000 a month and we spend $450 a month eating out at work (15% of our gross income), is that too high? I don't know about you but it seems like a lot to me.

Of course, for someone who makes $10,000 a month, that same $450 monthly spending on food at work is more manageable, everything else remaining equal.

All our circumstances are probably different and saving a couple of hundred dollars a month might not look like much to some people but to the vast majority of working Singaporeans, I believe that it does make a difference.

A dollar saved is a dollar earned and, for someone who makes $3,000 a month, if he could save an extra $200 each month, it is like getting a 6.6% salary increment each month. Is that not good to have?

Related posts:
1. It takes only a few minutes to cook oatmeal.
2. Prepare 6 gourmet sandwiches at one go.


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