CPF Retirement account or CPF Life

Dear Mr. Tan,
For those born before 1954, is it better to:
a) Retain the retirement account or
b) Convert the retirement account into CPF Life?

REPLY
If you convert into CPF Life, you may get a bonus of up to $4,000 (depending on your current earnings and your property value). If you get a good bonus, it is better to convert to CPF Life.

Apart from the bonus, the key difference between the retirement account and CPF Life is that with the latter, a part of your savings is converted into a life annuity payable from age 62. The interest rate earned on your savings varies from 3.75% to 4.25%. This is probably the same as the interest rate credited on your retirement account.

Under the life annuity, your longevity risk is pooled with other annuitants. Those who die younger will leave the balance of their money in the fund to be shared among those who survive longer. (Hopefully, you can be the long survivor).

If you are in poor health, it is better to stay with the retirement account. If you are in reasonably good health (compared to other people of the same age), you should convert into CPF Life (and join the pooling of risk).

You have four options for CPF Life, namely, Basic, Balanced, Plus and Income. These options take away different proportions of your savings to be pooled. The Basic option has the smallest percentage that is pooled. Under the Income option, 100% of the savings is pooled. If you are not sure, take the Balanced option.

Tan Kin Lian

Seven new rules for first time home buyers

Here are some useful tips.

Here is a rule of thumb. If your repayment is to be kept at 30% of your income (plus 5% going towards maintenance, tax, insurance and other ownerhshop cost), and you take a 30 year loan at 4% interest, the cost of your home should be not more than 5 years of your income.

If your combined income (two working parents) is $50,000, you should buy a property for not more than $250,000. If you have the 20% cash payment, you can go up to $300,000.

Do not overstretch and buy a more expensive property (including HDB flat). Do not be misled by the low interest rate charged on your HDB loan now - as the interest rate is likely to increase in the future. It can be a burden on your finances.

Big food vs Big Insurance

One of the cause of the high health care cost in USA is obesity and its related medical conditions. Read this article.

Make websites easy to use

Many websites give bad experience to customers. They ask for a lot of unnecessary information to be provided, and they are unstable or difficult to use. The customers have to re-enter the information many times, to be rejected time and again. Some customers give up and go back to the old ways.

Websites should make it easy (not difficult) for customers to transact, so that more of the work can be done online, and reduce the pressure on the front line staff to handle customers personally or over the telephone.

Many websites of government agencies and bis companies have the same characteristics - they are difficult to use. It seems that they engage expensive consultants who make life complicated for everybody, so they can justify high fees. When will our leaders step back and use their common sense?

Tan Kin Lian

Forbers: World turns disapproving eyes on Singapore banquet

A worrying report about Singapore.

Financial Planning - Practical Steps

I will be writing about Financial Planning - Practical Setps over the next few days. The topics will cover the following:

1. How much to save from monthly earnings?
2. How to identify your future financial needs?
3. What risks do you need to insure against?
4. How much can you afford to save?
5. How to invest your savings?
6. How to identify an honest financial adviser
7. What are honest financial products?

Watch out for these topics over the next few days. Tell your friends to come to my blog.

Fair and balanced

MAS requires advertising and marketing materials on investment products to be "fair and balanced". What do you consider to be "fair and balanced"? Give your views here.

Financial planning at a late age

Dear Mr. Tan.
By chance, I come to know about FiSCA through the news media and I must say that the articles therein are very very useful.

I write to seek some advice. I am nearly 60 years old and lost my job a few years ago. I tried to start a business, but was unsuccessful. I stopped all my insurance policies ealier. I have just sold off my property, and after repaying the loan from the bank, I have about $300,000 cash.

Is it too late for me to make a financial plan? What insurance policies should I take up now? My children are all working now. I need $1,500 a month for myself and my wife.

REPLY
You can buy the MediShield to cover yourself and your wife. There is no need to buy any other insurance policy. Read this FAQ.

You can put as much as is allowed in CPF to earn 4% per annum, and invest the rest in long term government bonds to earn 2% to 2.5%. If you wish to earn a higher return, you can consider the suggestion set out in this FAQ.

If you earn 2% pa on your money and you draw out $1,500 a month, the $300,000 will last you about 20 years.

Website for budget airline

I had a bad experience in booking a ticket at the website of a budget airline. Read here.

Media interview on Lehman collapse

I gave two interviews on the Lehman collapse. They will appear on:

Sunday Times - 13 Sept

Channel News Asia - Thurs 17 Sept 8.30 pm

I described the events over the past year, and the difficulties faced by investors in getting a fair settlement. Eventually, many of them remain uncompensated. I hope that most of the points are covered in the news report, and are not censured.

I shall be speaking to some foreign TV stations.

Dubai Metro opens

Find out more about the Dubai Metro here.

Legal action by Minibond investors

Here is a report of the legal action taken by Minibond investors, advised by Conrad Campos.