Buy term life insurance till age 65 or 99?

Reader:

Hi AK.
I asked my insurance agent about Term Life insurance after seeing the post on 1mil coverage on $41/mth.


He suggested to me, "Bro, if u r looking at $1mil, might as well go for till age 99. It's more expensive but at least won't waste the premiums paid and most likely the sum assured will be payable."


Can you advise me on whether to cover till 65 or 99?


I'm 34 this year, married with 1 child. Wife is also working.
Thank you.

 

AK:

ROFL

Insurance agent also need to tan jia... ;p

Reader:

Hahahahaha ya that's what I thought.

Cuz I was aiming for 65y.

AK:

Waste premium paid? 

You waste premium paid when you buy insurance when you don't need it anymore... ;p

Pay for what you need.

Reader:

👍🏼 understood. Thank you very much for the reply!

Really enjoy and learn a lot from your blog. 

Especially on cpf issues.


 

AK:

Aiyoh. I anyhow talk to myself de.

For fun and laughter.

Glad you enjoy.

Mortality risk goes up as we age. 

Life insurance becomes a lot more expensive in our golden years. 

It is only reasonable.


Want to be stunned like vegetable? 

Go see how much more we have to pay for term life insurance from ages 65 to 99. 

More shocking than watching a horror movie.







What happens if money not enough to pay for the sky high premium from ages 65 to 99? 

Tell our family to pay? 

Insured to family,

"When I die, the death benefit of $1m will go to all of you. Pay the premium for me, OK?"

Family to insured,

"Wah! What if you live to age 100 and what if we die before you? You think what? Buy insurance is like buying lottery har?"

"You cancel that whole life insurance policy!"





Continue paying for term life insurance when we no longer have dependents in the hope that our family will enjoy a windfall from our death?


Macabre.


Remember, we want to transfer risk to insurance companies but as there is a price to pay for insurance, buy only what we need.


OK lah, if you have money oozing out from your nose and ears, ignore me and go buy whatever you want. 

I am going back to my well.







Related posts:
1. $1 million term life insurance for $41 a month.
2. Term life insurance: How long a term?
"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."

Use POSB Invest Saver as a war chest?

Reader:
Hi Mr AK,
I would like to ask whether do you have any past blog post regarding POSB Invest Savers scheme as I would like to apply for this scheme so I could save up with the allowances I will be receiving during my NS period.

However, my concern is throughout the long run, lets say there is a recession and there are many good opportunities/companies to invest in and I would like to redeem the units I have in this scheme...

AK:
When we buy into (POSB Invest Saver), we are pooling money for investing in a basket of stocks. 

It has advantages and disadvantages. 

We cannot have our cake and eat it too.

If you are concerned, it could be a better idea to hold on to cash and wait for opportunities. 

Money in an ETF is money invested. 

You should not think of it as a war chest.


(Neither should it be thought of as an emergency fund.)

Related posts:
1. How to get $50K passive income in stocks?
2. POSB Invest Saver account.

Which REITs are in AK's portfolio ?

Dear Ak,

I have some question hope to seek your wisdom in the investing world. Hope that you would be patient with me.

1. May i know currently which REITZ are in your portfolio?

2. I am currently invested in Cache Logistic Trust, AimsAMP, SPH and SoilBuild Reitz, May i know which are in line with yours and the rest that are not in your portfolio, what are the downslide to them?

3. Currently in the market turmoil as well as pending fed rate hike, bond would be more attractive and equities would not bode well. What would bring for the REITZ in the long term? would they be able to sustain?

Hope to hear from you soon

Thank you

 
Hi,

You might want to read the blog posts on my passive income from REITs. You will find them in my blog's right side bar. :)

I don't know what you mean by bonds being more attractive. As interest rates rise, bond prices will fall. Why won't equities do well? You want to search my blog for articles on rising interest rates and REITs. :)

Best wishes,
AK


Related posts:
1. 2015 full year passive income from S-REITs.
2. Why have bonds and which ones?
3. How to approach REITs as investments now?

Get a bigger apartment with a baby on the way.

Hi ,

Would like to get your view on this plan that my Husband was thinking of. At the moment we are staying in a 1 bedder that belong to me that was bought in 2012. The original plan was to rent out this place but ended up stayed in after our marriage. Both of us SPR.

As I am expecting , we have to make plans for the future. My hubby has not own any property in Sg and he was thinking to buy a property for rental and in a way to cash out his CPF. With the rental (estimated 1.8-2k) of the new property, he planned to use the rental to pay my current property and new property instalment and pay the rest in cash. His Budget could only afford a 600K condo. Anything more than 600K will be too heavy for him.

I do have some cash to TOP up if we want to buy a 800K condo but somehow with the current economy situation (plus I am a home maker) and foresee will remain the same for the next 2 years , I am worried and indecisive of whether we should commit purchasing another property plan. What would be your advise? Thanks.

Hi,

1) Make sure you have sufficient cash put aside for emergencies. As you are a homemaker, on a single income, having enough cash to cover 12 to 24 months of expenses is a good idea.

2) You might want to put aside some cash (in your war chest) in case there are good investment opportunities in future since you feel that the economy is not doing well.

3) There is opportunity cost in using money in our CPF-OA. When the gross rental yield is less than 4%, you want to be very cautious. Your $600K condo is expected to have a gross yield 3.6% to 4%. There is a 10% property tax plus monthly maintenance fee which you have to pay. You will also be incurring borrowing costs on the bank loan. The net yield is likely to be lesser than 3%.

Of course, with vacancy rates increasing, rental is likely to drift lower. Real estate is also very illiquid and with Seller Stamp Duty (SSD) thrown in, if there is a need to liquidate, in the short run, the cost will be hefty.

4) Since you are both PRs and cannot buy BTO HDB flats and single PRs cannot buy resale HDB flat, buying a 2 bedder condo for your future bigger family is one option and with a $800K budget, a 2 bedder is well within reach. Move into the 2 bedder and rent out your one bedder or if you would like to strengthen your balance sheet, you could sell the one bedder and not worry about the SSD.

Buy what we need. :)

Best wishes,
AK


Related posts:
1. CCR, RCR or OCR for rental?
2. Buy shoebox apartment in NE SG?
3. What to do if I need a bigger home?

Never bored! (Thoughts on preparing for early retirement.)

UPDATED (19 DEC 16)

She is one scary lady!

It would be nice to be strong!

Recently, when I met a few friends for dim sum, one of them asked me if I was bored in (early) retirement? 

It is a question I get asked a few times before, online and offline. So, it was no longer a surprise.






I have a list of stuff I want to do. Some people call it a "bucket list" (i.e. a list of things to do before we die or kick the bucket). 

In retirement, my bucket list doesn't get shorter. It gets longer! 

I am discovering more things that I want to do in retirement.





Let me share a bit about my childhood. 

I always liked the arcade as a boy but didn't have the luxury of visiting regularly. 

I always envied friends for having game consoles as a boy but didn't have the luxury of having one. 

Something happened many, many years later:

I bought a Nintendo Game Cube for myself more than 10 years ago as a birthday present but as I still had a busy working life, I didn't have much time to play. 

Now, I have plenty of time and I am living one of my boyhood dreams. Bored? Impossible!




--------------------------------------


Reader says:

We have seen many old retirees becoming aimless in their life and it’s becoming a waiting game.


I can understand for many, they have little money after retired and for some, they are rich enough but their life evolve around having dinner with a few friends and family members, travelling around as long as they are healthy enough.






Nothing meaningful and to fill their time, some even continue working….it’s sometime reminded us what is soon becoming to us but maybe we can do it differently.

I would ready like to know if you can share with us your personal experience when one retired early ?

How do you prepare yourself ?

How do you manage retirement mentality and physically when you retired early ?

What do you do daily ?

Do you plan ahead for 10 years and more ? If you start all over again, what would you have done differently ?

Any advice is much appreciated ?

Thanks !

AK says:


I don't know about doing it differently but here are my thoughts.


I am a worrier and I plan almost everything in my life. 

Of course, I am aware that I cannot always get it exactly right but being approximately right is enough to make me happy.





I think it is important not to be married to our jobs and I have seen many people who do not have a life outside their working life. 

The danger for these people is having a feeling of emptiness if they no longer have their jobs.


I can understand that sometimes we really have to work very hard to make more money. I have been in that situation before. 

So, I know the feeling. 





For a few years, I was monetising all my free time to make more money because I wanted to retire early.


However, at some point, if we have free time, we should find something else to do. 

Hobbies we enjoy. Spending time with people we love. There must be quite a few things to do that is not work related.

I won't tell you what I do in my free time because each of us will have different likes and dislikes. 

To put it crudely, have a "bucket list". :)






Retirement is not about being unemployed and having nothing to do. 

It is about having the time to do things we enjoy and not having to work for money.




Related posts:
1. To retire by age 45, plan...
2. Retiring before 60 is not a dream.
3. Work not because you have to.
4. AK answers questions on early retirement.

(Added 1 Jan 17 from FB wall.)

Confused and wondering what to do with $500K yearly.

Reader:

I read your blog and have a few queries on houses and all. Might be a long post.

Im would like your help to see whether u can talk to yourself? Hhahaah

My wife and i are grateful we have a few businesses giving us very decent cashflow.

We rent small and manageable house(follow rule of 15) and have abt 200k in stocks and a good allocation for gold and silver.

Where im stuck at is every year we will have 500k in cashflow that needs to be utilized. I would like to ask. If you have 500k every year net net. How would you allocate ah.

Thats for stocks. For house. Im also stuck. I would like to buy a small hdb and let my parent stay and be happy and all. But i feel if i do that. I was told by an agent then lose 2 opportunity to buy a property. Zzzzz

I would like to ask if you are free. Can talk talk to urself? Or if u prefer. Can i buy u large lunch?

Regarding cash my main concern is im hoarding cash and is that a good thing?

So many qn so confused. Whole new ball game outside of the biz world im familiar in haha.

Paiseh. Thanks ah

AK:

What people should always ask is what do they want? For me, I am concerned about having a comfortable level of cash flow since I am retired. So, most of what I do will have that in mind.

In your case, cash flow is not an issue. So, what are you looking for? When you know what are you looking for, you will know what to do with the money. Don't ask me how I will allocate the money because we have different circumstances and different aims in life. For example, I would probably allocate a huge chunk of the money to charities if I had an annual cash flow of $500K. ;)

If you know you want to invest the money to grow your wealth, there is nothing wrong with having an overflowing war chest while you wait for opportunities. :)

As for buying a flat for your parents, I think I understand your concern. Well, you could buy a small flat for them in their names. You won't lose the opportunity to buy a HDB flat or EC for yourself in future then. Consider it a gift. Or you could buy a shoebox condo for them to stay in but in your name. Of course, you won't be allowed to buy a HDB flat or EC for yourself then. With your level of cash flow, either option will be easy financially.

Related posts:
1. Get the most out of ASSI.
2. Enough for retirement and do charity?
3. Is it bad to receive dividends and sit on cash?

PREH is likely to continue trading at a big discount.

My experience with Perennial Real Estate Holdings (PREH) started from its days as Perennial China Retail Trust (PCRT).

PREH has a portfolio consisting mostly properties in China in terms of asset value (75%) and the balance being properties in Singapore.

Some numbers:

NAV/share= $1.68
Gearing= 0.45x
EPS=6.88c






At 90c a share, we are looking at a PE ratio of about 13x.

I believe that PREH is a long term value creator. 

The investment thesis is somewhat similar to that for CapitaMalls Asia which I had an investment in before. Similarly, PREH's Chinese investments will take time to deliver the goods. 





PREH is definitely not for the impatient investor. 

Although not comparable in many ways, for something similar in terms of gearing and EPS, the purist income investor might be more interested in Croesus Retail Trust (which holds Japanese commercial properties) and regular readers know that I have a significant investment in Croesus Retail Trust.

...

At the moment, I have a smallish exposure to PREH and I am likely to add to my position if its stock price should decline further.

I like PREH's longer term growth story and I am quite willing to wait for it to do better.

I bought into my investments in both OUE and Wing Tai Holdings at a 50% discount to NAV or more. 

So, I will probably add to my investment in PREH using the same yardstick.






Related posts:
1. Perennial Real Estate Holdings.
2. Perennial China Retail Trust.
3. Croesus Retail Trust.
4. CapitaMalls Asia.

Pay down mortgage or beef up emergency fund?

Dear AK - 

Thank you for all your sharing, I have learnt so much from your blog.

 

I have one quick questions that I am not sure if you have touched on previously.

 

My situation is that I am expecting to receive a lump-sum payment by end of this year, an amount that while would be meaningful for me, and around 12 months my monthly expenses.

 

I currently have a separate emergency fund allocation of 4 - 6 months monthly expenses buffer.

 

I am wondering if it would make sense for me to use this lump-sum payment that I would be receiving to pre-pay my mortgage. 

 

Or shall I keep it into an emergency fund account (One UOB/ OCBC 365)

 

Thanks for your thoughts.

Best regards

 

Hi,

If the interest rate on your home loan is much higher than the interest rate you could receive from UOB ONE or OCBC 360, then, it makes sense to pay down the home loan.

I don't know how old you are but if you are older than 30 years old, you might want to beef up your emergency fund. See: http://singaporeanstocksinvestor.blogspot.sg/2015/05/how-much-should-we-have-in-our.html

Best wishes,
AK


We want to remember that there is a cost for holding liquidity but because it is important to have liquidity, bearing some cost to do so is acceptable.

We are lucky that in the current low interest rate environment, it is also less costly to do so.

When will it rain again? You tell me.

Related post:
UOB ONE or OCBC 360?

Downsizing our homes for better financial health.

Hi AK,

My husband and i are in our late thirties. 

Right now we own a 5-rm hdb flat. 

We do not have children yet, but are planning to. 





We have plans to downsize our hdb to a 3-rm flat because:

1) there's only the 2 of us. 
Even if we have children, the size of a 3-rm flat is still considered ok.





2) we can pay off a bigger portion of our mortgage loan as the loan amount will be much lesser compare to our current one. 

We do not plan to buy a 3rm which is more expensive than our current 5rm. 

(However, we may have to take up bank loan as I have already used up my 2times hdb loan quota - one with my family before i got married and the current one.)





3) i have a couple friend who downsize their hdb from 5rm to 3rm, fully renovated it nicely and was able to pay off the housing loan in full. 

Now their income are purely for living expenses and savings/investments. 

That also gave me the idea of downsizing.





Please advise if there is anything which i may have overlooked and anything to look out for.

Thank you!

Best Regards
Blue

Hi Blue,

I like the Tiny House movement. 

Very often, people over-consume when it comes to housing. 

In a country where housing is so expensive like Singapore, over consuming on housing can really set us back financially, everything else remaining equal.





1. If you feel that a 3rm flat gives you ample space, then, you don't need any flat bigger than a 3rm flat. 

You might want a bigger flat but you don't need a bigger flat. 





2. If you would like to have a smaller mortgage, downsizing and downgrading definitely makes sense. 

Keep the monthly repayment for your new home loan the same amount as what it is for your current home loan and you will pay up the mortgage faster.





Alternatively, you might want a longer term loan, taking advantage of the low interest rates now and improve your cash flow. 

However, you should have the resources to pay down the loan rapidly in case interest rates go much higher.





3. To have a home fully paid means you have both control and ownership. It is an asset. 

As long as a home is not fully paid, we do not have ownership despite claims to the contrary. It is a liability.

Related posts:
1. My home is a hut in the sky.
2. Housing and my CPF money.

52 year old lost $200K and unsure about next 30 years: Discussion continues.

Reader says...
Hi AK,

Thank you so much for responding to my email and providing your thoughts. I have been thinking over it for the past few days.

1.

I am pretty frugal and current monthly personal expenses on myself is about $1k. Another $1k spending on the maid, and $500/mth on insurance.

So roughly $2.5k/month.

2.

The sad thing is I haven't been able to build up any passive income at all, except for the $1.4k monthly rental from the 2 rooms let out.

3.

Friends ask me to move to the condo and rent out the 5-room flat for passive income, but the rental market seem weak with all the property cooling measures and tons of new hdb flats launched.




4.

I do not have any dependents, just myself to take care of.  Would it be a good idea to take up a loan (6% p.a.) from the whole life and continue to let it run vs surrendering the policy?

5.

I popped by the bank and opened a SRS account today and will transfer in the annual max $15,300.  I am at the 14% income tax bracket, so hopefully it will help to bring it down a bit (maybe a few hundreds).

Hope to go into ETFs and REITS for passive income, in your view is it ok to enter at current level or i should wait for market to go down a bit?  I am very worried because i cannot afford to lose too much at my age, and am really clueless which ones to go for..

AK says...

1. Frugality can only help in your wealth building effort. Good on you.

2. Try to build up passive income to improve cash flow but it is easier to improve cash flow by reducing expenses first. You still have room for this.





3. Rental market is expected to remain soft. My stand on the condo remains the same if you are concerned about cash flow. (Readers who are interested, please see related posts below.)

4. If you have no dependents, you don't need life insurance. (Dispense with this expense and have more savings.)





5.1 SRS makes sense for anyone who is paying quite a bit in income tax.

5.2 If you are worried about losing money at your age, obviously you are worried about volatility. If you cannot stomach volatility, staying away from the stock market is not a bad idea. Peace of mind is priceless.







Related posts:
1. 52 year old lost $200K and unsure about next 30 years (Part 1).
2. Should we buy a shoebox condo in NE Singapore?

52 year old lost $200K and unsure about next 30 years.

hi AK, need your advice.

I am a 52 years old single person, still working but hoping to quit from my stressful job and pursue own interest.  

Have come across your postings just recently - how i wish i had done that much early.  

My investment decisions over the past 10-15 years were really bad and lost $200k+ in stock and commodity markets.

Current financial situation:

- 5 room hdb flat (fully paid) with 2 rooms rented out. Got maid to take care of the flat, tenants and me

- mini condo (570 sqft - $660k) above MRT station and mall TOP later this year, w outstanding loan $400k @1.5%+ p.a. (another bad decision?  haiz)

- Cash at bank $580k, Investment $280k, CPF OA $150k, CPF SA $190k

Insurance:

1 whole life and 2 critical illness policies sum assured of $50k each running since 1980's (total annual premium $3.6k for all the 3 policies)

1 term life $250k until age 65

1 Enhanced Incomeshield (advantage)

1 Aviva MyCare (Supplement ElderShield) Premium $1.2k/yr with payout of $2k/month for live if anything happens

1 Home insurance $80k

Very unsure what i should do at this crossroad in life to at least get some stable/passive income to sustain myself for the next 30 years maybe?

- sell or rent out the mini condo? not sure what price it could fetch if sell?  If don't sell, should i try to pay up the full loan asap? 

- what type of investments i should go into, thinking of ETFs and REITS, but which ones and when to enter?

Would really appreciate if you could throw some ideas..

Many thanks. 

AK says...

I will make a few general remarks here and you see if they are helpful to you:

1. You must find out how much money you need on a monthly basis in retirement and whether your current passive income level is sufficient. 

If it is sufficient, you can basically quit your stressful job and retire now to pursue other interests.

2. If passive income level is insufficient, are there ways to reduce expenses and liabilities? 

Are there ways to improve passive income level?





3. Shoebox condominium. 

I don't know if it is a good decision or a bad one. 

If this is able to generate positive cash flow for you, keep. 

Otherwise, you might want to consider selling it.

4. Insurance.

- Since you have had the Whole Life policy for donkey years, you might want to keep it till age 65 before surrendering. Treat it like a bond. 

However, you could consider terminating it if you do not have dependents. This will improve cash flow.

- Keep the CI policies. You need these.

- Keep the Term Life unless you have no dependents.

5. Investments. 

I won't tell you which ETFs and REITs to invest in. 

Do a bit more reading and decide for yourself.






- At your age, you might want to simply max out your benefits as a CPF member. 

You are only 3 years from 55 when you will be allowed a lump sum withdrawal from your CPF account. 

Contribute to the Annual Limit allowed.

- You might also want to start a SRS account especially if you are a high income earner. 

The tax savings is very attractive and is money in the pocket. 

The SRS account money will become accessible without penalties at age 62.







The discussion continues in part 2: here.

Related posts:
1. Why plan early for retirement?
2. Buying a property: Value for money.
3. Consider terminating whole life insurance.
4. SRS: A brief analysis.
5. Retirement: Buying AAA rated bond.