IPS forum on CPF: The Future Retirement Landscape.

The first speaker at the forum was Associate Professor Kalyani Mehta who is the head of the Gerontology Programme in the School of Human Development and Social Services at SIM University. In case you are wondering, Gerontology is the study of social, psychological and biological aspects of ageing. Big word, I know.

The main take away for me here is how people are living longer but they are not necessarily healthier. So, we have longer life expectancy (LE) today but what is also important to note is healthy life expectancy (HALE) and this might not match up. Take a look at the slide below:

So, on average, a male would be unhealthy (i.e. needing medical and maybe even palliative care) for 6.6 years while a female would be so for 6.8 years before saying good-bye to this world.

There will also be a growing number of aged who are single or divorced. They could be childless. So, there would be more elderly who stay alone in future.

We always say that family is the first line of defence but for these elderly people, the State will have to take a more active role in providing the necessary care.

What do I think?

Well, it is true that life expectancy has risen as nutrition and hygiene standards improved over time. Medical science has also improved. These factors help to promote longevity.

So, as people live longer, they will need more money for a longer time and healthcare costs will be a big burden if they are not well prepared. I like how our government has come up with Medishield Life to provide coverage for all Singaporeans for life, including those with pre-existing medical conditions. That is fantastic and I can't wait for it to be implemented because it will help people like my father who has pre-existing medical conditions and is almost 70 years old.

More importantly, we have to accept the fact that there will be more elderly people who are without children in future and if they happen to be financially disadvantaged at the same time, how can the government help them to meet their needs in their old age?

The CPF is a system that rewards employees. For those who were not gainfully employed for most of their lives for various reasons, what then? For these people, the CPF will not figure largely in their retirement plans, if at all. Those in such a situation who did not plan for retirement at all would be in dire straits.

The CPF is a system that help people who are able and willing to help themselves.

See slides: here.

Related post:
AK attended forum on CPF.

AK attended a forum on CPF and Retirement Adequacy with Mr. Tan Chuan Jin and Mr. Tharman Shanmugaratnam.

This really came as quite a surprise:

It took me a while to decide on whether I  should attend the event or not because of privacy considerations. Then, when I was talking to my younger sister about it, she told me quite bluntly that the media won't be interested in a certain obscure blog run by a certain obscure AK. They would be zooming in on the ministers! OK, that made up my mind for me.

So, I took a day leave from work and went for the event to see and hear for myself discussions regarding the CPF by probably some of our country's more brilliant thinkers. Issues regarding the CPF and retirement adequacy interest this frog in a well and it is really a privilege for me to be at the forum.

It has been a long day and I am feeling mentally and physically exhausted. Mentally exhausted because I had to process so much information in such a short time. I have not felt so taxed since my undergraduate days! Physically exhausted from sitting down for a whole day? Yup, I also walked from the Shangri-La Hotel to Orchard MRT station. I am so out of shape, I know.

I will try to share more in detail on what was discussed today at the forum in the coming days. I will also share some of my thoughts then.

For this blog post, I am just going to share some photos as well as an outline of the topics discussed.

Here are some photos:



Kiasu AK was quite early so that he could choose a good seat.

Panel discussion in the morning:
Meeting current and future needs and aspirations of Singaporeans.

Minister for Manpower, Mr. Tan Chuan-Jin.



Panel discussion in the afternoon:
Achieving the desired outcomes in a sustainable way.

DPM and Minister for Finance,
Mr. Tharman Shanmugaratnam.

Here is an outline of the issues discussed:

1. Future retirement landscape: Key influencing health and social trends.

2. Future needs and wants of seniors.

3. Housing and the CPF system.

4. Behavioural perspectives of the CPF system.

5. International retirement income systems.

6. Balancing returns, risks, facts and fallacies.

7. Analysing the CPF-IS and its alternatives.

8. Improving the CPF system.

From these 8 titles alone, I think you can guess that my brain had a fulfilling day. Now, some time is needed for digestion.

Related posts:
1. An(other) open letter to the Prime Minister.
2. E-books: Thoughts on financial security for Singaporeans.

Getting paid more while waiting for opportunities.

I have blogged about the importance of having a war chest or a few (i.e. money in the bank, SRS, CPF-OA and CPF-SA). I also blogged about how I have a preference to put most of my money in the bank in fixed deposits for higher interest income.

Of course with fixed deposits, there is a lock up period but if we should need the money, breaking a fixed deposit simply means forfeiting the higher interest income and nothing else. So, try to have several fixed deposits instead of putting all our money in a single fixed deposit and try to go for shorter lock up periods.

We want to keep a good percentage of our money in the bank liquid enough to react quickly to opportunities. Unfortunately, with interest rates in local savings accounts around 0.05% to 0.1% per annum, we have to pay a pretty steep price for having liquidity. As I have a relationship with UOB, I am paid 0.2% interest per annum for money in my savings account. Yah. Big, fat, hairy deal, right?

Although some have told me about other banks like OCBC offering up to 3.05% per annum in interest on savings (up to a maximum of $50,000 deposited in the OCBC 360 account), I have been slow to act because of the various conditions which look complicated to me and I am a simple (or, some might say, lazy) person. Conditions? Must go online to make 3 bill payments a month and must charge $400 worth of purchases to a credit card issued by OCBC per month, for examples.

Taken from OCBC's ad.
3.05%? Sounds good, doesn't it?

Well, to be fair, why shouldn't OCBC have conditions which have to be fulfilled if they are paying us so much more? Even if we met only 2 out of the 3 conditions, it would mean getting 2.05% interest per annum and for $50,000, that would be a nice $1,025 a year in interest income. Good enough for a short holiday. OK, lazy, er, I mean simple AK, put this is on your "to do" list.

Also, recently, I opened a savings account with CIMB because they are offering 0.5% per annum in interest and 0.8% per annum if I were to deposit $500 in the account every month. No minimum spending required. No payment online required.

To save me the trouble of depositing $500 each month, I could even give them a lump sum upfront which I did and they would treat it as monthly deposits in advance. I get an ATM card and a free cheque book too. I am still very old school and believe that a cheque book represents convenience.

Like OCBC, there is a cap on which the higher interest rate would apply. In OCBC's case, it is $50,000. In CIMB's case, it is $750,000. Wow! I don't have that much liquidity. So, it doesn't matter to me but I know where I should be squirrelling my excess liquidity now.

An interest rate of 0.8% per annum is 4x more than what UOB is paying me. Sheesh. Why should I not consider parking more money in CIMB from now on (after parking $50,000 in OCBC 360, that is)? OK, need to visit OCBC soon.

If you should be interested, here are the links:
CIMB Star Saver Account
OCBC 360 Account

In case you are wondering, this is not an advertorial. Just talking to myself, as usual.

Related posts:
1. A foreign chest for emergency funds.
2. A special chest for emergency funds.
3. Why fixed deposits over structured deposits?
4. $350,000 gets peanuts? Upsize the peanuts!
5. If we want peace, be prepared for war!

CCR, RCR or OCR for rental income? AK talks to himself.

When we buy properties in Singapore, there is often this idea that if we buy one in CCR (Core Central Region), we should do OK. It is like amateur watch collectors gravitating towards Rolex watches because the brand is deemed safe. To a certain degree it is true as many foreign investors naturally gravitate towards properties in CCR when they invest in properties in Singapore.

Those who are more familiar with Singapore will be braver in venturing out of CCR and into RCR (Rest of Central Region) or even OCR (Outside Central Region). This is probably a prudent choice if they are investing for rental income as well since it is not uncommon to hear of properties in CCR with rental yields of 2% or lower. Sheesh. Why bother?

According to the Singapore Real Estate Exchange Property Index, rental for private non-landed properties in CCR peaked in the months of July and August 2013, post GFC (Global Financial Crisis). It was some 30.8% higher compared to January 2009.  Since August 2013, rental has declined by some 6% by June 2014.

Click to enlarge

For properties in RCR, rental peaked in the month of February 2013 and was 38.6% higher compared to January 2009. Since then, rental has come down some 6.7% by June 2014.

Click to enlarge

For properties in OCR, rental peaked in the month of January 2013 and was 33.8% higher compared to January 2009. Since then, rental has come down some 7.5% by June 2014.

Click to enlarge

From these numbers alone, it would seem that there is more resilient rental demand in the CCR and buying a property in CCR provides greater resilience in rental income. It is also probably because there is more limited new supply of properties in the CCR compared to RCR and OCR.

In terms of percentage growth from January 2009 to June 2014, rentals in CCR, RCR and OCR were higher by 23.2%, 29.3% and 23.7%, respectively. Interestingly, these numbers show that, in general, properties in RCR are clearly the winners when it comes to growth in rental income for the real estate investor, not properties in the CCR.

Also, if we should look farther back to the peaks achieved in January 2008 for all three regions, we would see a startling outperformance for properties in RCR and OCR compared to those in the CCR.

Rentals in RCR and OCR surpassed their peaks achieved in January 2008 by a wide margin while rental in CCR barely recovered to the same level. So, in the last few years, people who bought properties in RCR and OCR before the GFC for rental income would have done better and are still doing better than those who bought properties in the CCR during that time.

Buy a new condo in Queenstown?

Of course, we are only looking at rental indices here. We have not looked at purchase prices. For sure, if we managed to buy an undervalued property anywhere in Singapore, we would do better than the average property investor because we would have a margin of safety.

Where do we find undervalued properties in Singapore? You tell me. I am sure there are some around but they are just harder to find these days. Sounds like a lot of work and we might not even find anything for all our efforts.

So, I prefer to ask another question. When do we find undervalued properties in Singapore? If I were looking to invest in a property for rental income in Singapore now, I would wait. (Hint: Read related post #5.)

Then, CCR, RCR or OCR? You decide.

Source: URA

Related posts:
1. Don't think and grow rich.
2. Real estate: Affordability and value for money.
3. Apartments with rental yields of 4.95% to 7%.
4. Where to buy a shoebox apartment for investment?
5. Smaller apartments' prices more resilient.
"we expect the private vacancy rate to rise ... to 9.9 percent in 2016," ... noting that historically when vacancy rates hit 8 percent, rents and prices start declining.
(Source: CNBC)