What to do with $45K? It depends.

Reader:
I have a bal of 45k which trying to find place to put. need for kid study or health problem. Is posb invest-saver a good choice?







AK:
Since you say you might need it for health problem, then, it is not money you can afford to lose.
Go for the safest options.
In case you are wondering, safest options are those that will not result in monetary loss. 🙂
So, if you need the money, you know you can get 100% of it.

Reader:
ya. cause read many earn from this invest saver but not savvy in investment. think just buy some good stock to keep is better.






AK:
Invest saver is an investment plan.
There is a risk of monetary loss.
The same goes with stocks.
Invest only with money u can afford to lose.

Also read this:
Investor psychology.

Reemployed with lower pay and worried about retirement.

Reader says...
I have been a reader of your blog for many years now.

Similar to your childhood experience - my parents also went thru bankruptcy during my teens and bad memories of money lenders coming to the old house.

I am Malaysian and coming to 55 years old. I was made redundant middle of last year, was unemployed for 4 months and have since resumed working.






My current gross salary is just enough to cover my household expenses + medical insurance for the whole family. (wife+ 3 kids.)

My fear of becoming destitute in the old age has created self-stress, as I continue to have interrupted sleep & tension with family members as I continue to delay/disapprove of their wants.

I currently have > RM3.3Mil in Malaysia Bonds, EPF & fully paid-up endowment policies. I park SGD$0.57Mil in a Singapore bank and have 2 fully paid-up landed property (one for my parents and the other for my family worth a total of RM2.5Mil).

AK pls talk to yourself, How should this person 'live life' going forward?






AK says...
All of us need to plan for the day when we stop working either voluntarily or involuntarily.

Usually, it means saving some money first and then putting it to work.

Hopefully, by the time we stop working, we would be able to receive a regular and meaningful income to have a comfortable retirement.

If your gross salary is enough to only cover your expenses, it means that you do not have any money left to grow your savings. So, I can understand your worry.






However, I can see that you were prudent in your younger days. 

Having 2 fully paid homes, $0.6 million in savings and RM3.3 million in bonds, EPF and endowment, I feel that you could possibly have a comfortable enough retirement if you have a modest lifestyle.

Having said this, I agree that you should continue to be prudent when it comes to wants because your earned income does not have room for wants. 

To satisfy the wants, you would probably have to dig into your savings.





Assuming the old folks at home are financially independent, I would continue to work till my 3 children are financially independent.

If my parents depend on me financially, then, I would continue to work till they pass on and when all my children are financially independent.

Maybe, I could switch to part time work and have more leisure time when fewer people depend on me financially.






You could rent out one house when your parents pass on in future. 

The rental income plus the interest income from your bonds and EPF savings mean you would have a more meaningful passive income.

Money from your fully paid endowments and savings in the bank could be put to work when Mr. Market goes into a depression or whenever there is a good investment opportunity. I would think of these as your war chests.





If you are risk averse, you could think of purchasing a few annuities to fund your retirement. 

You might want to do this sooner than later so that you could start receiving another stream of passive income sooner.

At your age, your balance sheet is definitely not weak but with dependents, it could be exhausted quite quickly if you are not careful especially when you are not able to grow your savings meaningfully.






As long as you stay prudent when it comes to expenses, when you no longer have dependents, all else remaining equal, I believe that your retirement will still be a comfortable one.

Related posts:
1. Advice on saving.
2. Needs and wants.
3. To retire, have a plan.
4. Have an annuity?
5. Too late to plan at 57?

How insurance weakened a family's balance sheet?

This is the continuation of a conversation with a reader who is having difficulty accumulating an emergency fund and who depleted her savings after her dual income household became a single income household.

Reader:
I just read on "How many 20 years and $29,000 do we have?"

I have the Prulink too and have been paying for 12 years now.

Apart from this I have an endowment plan to be paid for another 9 years before mature.

My husband and I plus 2 kids have whole life plans, personal accidental and hospitalisation plans.








AK:
You are (probably) paying too much for insurance.

Your children don't need life insurance. Life insurance are for people with dependents. Children don't have dependents.

I won't touch investment linked policies or ILPs (e.g. PruLink) even with a 5 feet pole. I don't mix investment and insurance.





My action plan if I were in your shoes:

1. You and your husband just need term life insurance (+Critical Illness cover). (You need life insurance until your children are no longer financially dependent on you.)

2. You do not need whole life insurance. Definitely, your children don't need life insurance (until they have dependents). It is a luxury.

3. ILPs are terribly expensive life insurance. (I would get rid of this.)





4. Keep the hospitalisation insurance (H&S). (This is essential.)

5. Accident insurance is not a must but they are pretty cheap. You can keep this if you like. (Otherwise, don't renew when it expires.)

6. Endowment plan, 9 more years. A form of forced savings. Just complete it. (A plain vanilla endowment is less problematic than an ILP.)

Before terminating any of your life insurance policies, get covered with term life insurance of equivalent level of protection first.







We should increase our income if we can but we must be sure that in the event our income suffers a dip or disappears, we are able to cope.

We want to be especially careful with any long term financial commitment that takes up a significant percentage of our regular income.

Making sure that these long term financial commitments are absolutely necessary will help to avoid weakening our financial health too much.






This family can bring down their expenses rather significantly and strengthen their balance sheet by not overpaying for insurance and to buy only what they need.

Related posts:
1. Critical illness insurance.
2. Disability insurance.
3. Term life insurance.

Exceeded CPF FRS and 2 questions.

Reader:
May i get your advise on this matter. Am going 52, meet Full Retirement Sum (FRS) with excess. So OA, SA and MA all met limit.

I read your blog said its good to do Voluntary Contribution (VC) to CPF.




Questions:

1. If i do a VC, where or which account will the money go to since all 3 accounts had hit limit?

2. Can i withdraw the VC that i put in with interest together with my excess above the FRS at 55?

Thanks for your advise in advance.

AK:
Please remember the CPF Annual Contribution Limit (i.e. $37,740 which is 17x of CPF monthly salary ceiling of $6,000 x 37%).

How much Voluntary Contribution you can do depends on how much Mandatory Contribution (from employment) is made in a year. 

Of course, if you are retired or unemployed, then, there is no mandatory contribution.

In your case, Voluntary Contributions will flow into your OA and SA. Nothing goes to your MA.

(The same thing happens with Mandatory Contributions for anyone who is still gainfully employed.)




You want to read this blog and refer to the Allocation Table provided:

http://singaporeanstocksinvestor.blogspot.sg/2017/08/cpf-sa-savings-10-years-from-now.html

At 55, the FRS will go to your newly created CPF-RA. The FRS money will be from your CPF-SA and, if that is insufficient, your CPF-OA. 

Anything in excess of the FRS in the CPF-SA and/or CPF-OA, you can withdraw when you turn 55.



Related posts:
1. Know how to grow our CPF?
2. Average HDB household $1M.