I write this article to help retirees, who are not savvy in investing, to decide on how to invest their savings to get a monthly income for a lifetime and leave behind some balance for their children and grand children. Should they buy a life annuity? If not, how should they invest their money?
Calculate the total amount of your assets, excluding the flat or house that you now live in. Estimate the monthly income that you need to live comfortably. If your total assets is more than 300 times of your monthly income, you are quite comfortable. For example, if you need $1,000 a month, you need more than $300,000 in savings (i.e. personal savings and CPF).
Another way to look at this matter is to take your total assets and divide by 300 to get the monthly income. Will this be sufficient to meet your living expenses?
If you have more than this ratio of assets that can be invested, you can manage your own investments. The best choice is to invest in a low cost investment fund, such as the STI exchange traded fund that is available from the Singapore Exchange (SGX). This fund is invested in the top 30 shares listed in SGX. It is well diversified and has a low expense ratio of less than 0.5% per annum. It will earn a market rate of return, which is likely to average more than 5% over the long term, net of expenses.
If you invest all of your savings in the ETF, you can sell 1,000 shares to realize money to spend at regular intervals. If you need $1,500 a month, the sale of 1,000 shares will provide about $2,800 which can last nearly two months.
If your ratio of assets to monthly income is less than 300 times, you may have to consider investing in a life annuity. The best annuity is provided by CPF Life. It provides an investment yield of about 4% and has low expense ratio. It operates on a mutual basis and shares the actual experience of the fund fairly among all the annuitants, i.e. it is not taken away as profits for shareholders.
Some people are uncertain about the choice of the four options. Look at the amount that you will get under each option and choose the option that suits your need. Do not try to calculate which option gives you the best value, as you really do not know how long your future lifespan is.
If your health is poor, relative to your age, you should avoid CPF Life and keep your money under the Retirement Account to be withdrawn monthly. If you are in fairly good health for your age, you can choose any of the option under CPF Life and leave the worry about future life expectancy and investments to CPF, instead of trying to manage the money yourself.
If you have to buy a life annuity from an insurance company, you have to consider the following - how much of the annuity payout is guaranteed and how much is variable? What is the amount taken away by the insurance company to pay its expenses, distribution cost and profit for shareholders? If the answers to these questions are vague, or if the amount that is taken away is more than 0.2% per annum of your invested sum, the annuity is likely to give poor value.
There is a chapter on selecting a life annuity in my book, Practical Guide on Financial Planning. It is available in the major bookstores and can be ordered online here.
Tan Kin Lian
Friday, March 5, 2010
China must reverse inequalities
By Michael Bristow
BBC News, BeijingChinese Premier Wen Jiabao has said China must reverse its widening income gap between rich and poor.
He said benefits of a growing economy - expected to expand by 8% this year - should be distributed more fairly.
In a major speech at the start of China's annual parliamentary session, the premier also said the economy needed restructuring.
He wants Chinese firms to improve their ability to innovate, producing high-tech and high-quality products.
The premier's comments came in a wide-ranging speech delivered in Beijing's Great Hall of the People, where the largely ceremonial parliamentary session is being held.
In the keynote speech, Mr Wen reviewed the government's work over the past 12 months and set out its policy goals for the coming year.
Registration reform
The speech touched on many issues, but on a number of occasions the premier spoke about the need to make China a fairer society.
"We will not only make the 'pie' of social wealth bigger by developing the economy, but also distribute it well," Mr Wen told about 3,000 delegates, returning to a theme that he has often spoken about during his premiership.
"[We will] resolutely reverse the widening income gap," he added later, in a speech that lasted more than two hours.
As part of that project, the premier said China would reform the household registration system that classifies people as either city or rural dwellers.
This controversial system means many migrant workers - farmers who travel to towns and cities to find better-paid work - are unable to get proper services.
"[We will] gradually ensure that they receive the same treatment as urban residents in areas such as pay, children's education, healthcare, housing and social security," he said.
But Mr Wen did not outline what policies would be introduced to achieve that aim, and when they would come into force.
And, importantly, he said reforms would only be carried out in towns and smaller cities, suggesting the system would remain in place in big urban centres such as Beijing and Shanghai.
Mr Wen also addressed what he called a "complex situation" facing the economy, which he said should expand by 8% this year.
Fuelled by innovation
Last year China was desperate to keep the economy growing following a global downturn that left many Chinese people without jobs.
But now, having weathered the worst of that crisis, Premier Wen said China needed to concentrate on restructuring the economy.
"This is a crucial year for…accelerating the transformation of the pattern of economic development," he said.
He wants future growth to be fuelled by innovation.
China should also expand consumer demand by getting people to spend on such things as tourism, fitness and other services.
Delegates to the Chinese parliament are selected, not elected, but in his speech Premier Wen indicated that he does listen to those outside the government.
Many people across China are currently concerned about rising house prices that mean many cannot afford a home.Mr Wen said China would do something about it.
In the keynote speech, Mr Wen reviewed the government's work over the past 12 months and set out its policy goals for the coming year.
Registration reform
The speech touched on many issues, but on a number of occasions the premier spoke about the need to make China a fairer society.
"We will not only make the 'pie' of social wealth bigger by developing the economy, but also distribute it well," Mr Wen told about 3,000 delegates, returning to a theme that he has often spoken about during his premiership.
"[We will] resolutely reverse the widening income gap," he added later, in a speech that lasted more than two hours.
As part of that project, the premier said China would reform the household registration system that classifies people as either city or rural dwellers.
This controversial system means many migrant workers - farmers who travel to towns and cities to find better-paid work - are unable to get proper services.
"[We will] gradually ensure that they receive the same treatment as urban residents in areas such as pay, children's education, healthcare, housing and social security," he said.
But Mr Wen did not outline what policies would be introduced to achieve that aim, and when they would come into force.
And, importantly, he said reforms would only be carried out in towns and smaller cities, suggesting the system would remain in place in big urban centres such as Beijing and Shanghai.
Mr Wen also addressed what he called a "complex situation" facing the economy, which he said should expand by 8% this year.
Fuelled by innovation
Last year China was desperate to keep the economy growing following a global downturn that left many Chinese people without jobs.
But now, having weathered the worst of that crisis, Premier Wen said China needed to concentrate on restructuring the economy.
"This is a crucial year for…accelerating the transformation of the pattern of economic development," he said.
He wants future growth to be fuelled by innovation.
China should also expand consumer demand by getting people to spend on such things as tourism, fitness and other services.
Delegates to the Chinese parliament are selected, not elected, but in his speech Premier Wen indicated that he does listen to those outside the government.
Many people across China are currently concerned about rising house prices that mean many cannot afford a home.Mr Wen said China would do something about it.
eGovernment adds to stress and cost
As a director of a small company, I am required to submit application forms for Ministry of Manpower, Inland Revenue and other agencies. They expect me to log into their website using my Sing Pass, and to enter the details in the application form.
In the real world, the paper forms are completed by an office staff and submitted to a director for signature. In the e-Government, they expect the director to complete the form by entering all the details, just like an office staff. This is a big waste of time for the director and is likely to lead to many mistakes.
The e-Government environment should follow the real world and allow a staff to complete the details in the form and then submit it electronically to a director to "e-sign" the form, which can be done by entering the Sing Pass ID and password.
I have given this suggestion to the Infocomm Development Authority (IDA) but was told that these specific applications are under the control of the agency and is outside of the influence of IDA. This is typical of the "turf" mentality of Singapore organisations.
I know that for some applications, it is possible for the director to authorise a staff to submit the forms on behalf of the director. However, this is not practical in many situations and is tentamount to giving the check book and check signing authority to the staff!
The private sector has to work under stress and waste a lot of valuable time complying with the requirements of government agencies. With this type of waste, it is no wonder that the cost of doing business is so high and life is so stressful in Singapore!
Tan Kin Lian
In the real world, the paper forms are completed by an office staff and submitted to a director for signature. In the e-Government, they expect the director to complete the form by entering all the details, just like an office staff. This is a big waste of time for the director and is likely to lead to many mistakes.
The e-Government environment should follow the real world and allow a staff to complete the details in the form and then submit it electronically to a director to "e-sign" the form, which can be done by entering the Sing Pass ID and password.
I have given this suggestion to the Infocomm Development Authority (IDA) but was told that these specific applications are under the control of the agency and is outside of the influence of IDA. This is typical of the "turf" mentality of Singapore organisations.
I know that for some applications, it is possible for the director to authorise a staff to submit the forms on behalf of the director. However, this is not practical in many situations and is tentamount to giving the check book and check signing authority to the staff!
The private sector has to work under stress and waste a lot of valuable time complying with the requirements of government agencies. With this type of waste, it is no wonder that the cost of doing business is so high and life is so stressful in Singapore!
Tan Kin Lian
Books by Tan Kin Lian
My books on financial planning and intelligence quiz are sold at the following bookstores:
1. Harris
2. MPH
3. Kinokuniya
4. Times bookstores
5. Popular
Thursday, March 4, 2010
Wasteful security measures
To visit an office in Suntec City, I had to register with the security counter to get an access card and to fill in my particulars. On leaving the building, I had to return the access card. Both activity took me an additional 20 minutes, including time waiting in the long queue. I had to carry two bags containing materials for my talk, so the security measures and waiting time is a big hassle. Nobody bother to look at the contents of my bag - to see if I was carrying a bomb.
Security is important, but are we overdoing it? Is there more effective ways to have security instead of asking visitors to spend a lot of time unnecessarily? All these hassles add to wasted time and higher cost of doing business. If there is a terrorist visiting any large office in Singapore, it is easy to bypass the security measures as the security guards are too busy doing paperwork and recording particulars of genuine visitors.
To be effective, it is better to employ more security guards (i.e. create more employment) to watch the strategic locations, such as lift lobbies or lift cars, and to watch people moving around the office. Security is watching people and not doing paperwork.
You can multiply the wasted time in all of the big office buildings in Singapore to get an idea of the scale of wastefulness. Anyway, Singapore is a wasteful society. We spend a lot of time and money on things that are look good but are not effective.
To be productive, we should be adopting practical measures that reduce our cost and achieve our goals. We have to cut down wastefulness.
Tan Kin Lian
Security is important, but are we overdoing it? Is there more effective ways to have security instead of asking visitors to spend a lot of time unnecessarily? All these hassles add to wasted time and higher cost of doing business. If there is a terrorist visiting any large office in Singapore, it is easy to bypass the security measures as the security guards are too busy doing paperwork and recording particulars of genuine visitors.
To be effective, it is better to employ more security guards (i.e. create more employment) to watch the strategic locations, such as lift lobbies or lift cars, and to watch people moving around the office. Security is watching people and not doing paperwork.
You can multiply the wasted time in all of the big office buildings in Singapore to get an idea of the scale of wastefulness. Anyway, Singapore is a wasteful society. We spend a lot of time and money on things that are look good but are not effective.
To be productive, we should be adopting practical measures that reduce our cost and achieve our goals. We have to cut down wastefulness.
Tan Kin Lian
High cost of driving
I went to Suntec City to deliver a talk. I had to drive there, as I had to carry the materials needed for the talk. I left home at 7.45 a.m. hoping to avoid the ERP charges at Central Expressway. I did not realise that the ERP charges start from 7.30 a.m. I paid a total of $6 for the ERP charges along the expressway and to enter the Central Business District. Parking at Suntec city for slightly longer than 4 hours cost $11. This reminded me of the high cost of driving in Singapore.
Promoting Singapore as a Financial Center
Dear Mr. Tan
From 2005, the MAS has been aggressive in promoting Singapore as a financial centre. Singapore gave tax incentives of all sorts to attract financial institutions to relocate their biz to Singapore.
Many banks relocate their FX, fixed income, structured products biz to Singapore. Also, Singapore has attracted many hedge funds to set up offices here. While the effort did boost Singapore's GDP, it might have also led to the following:
i. inflated real estate prices in commercial offices, residental
ii. more structured products being structured and sold here to unsuspecting retail customers.
HCM
From 2005, the MAS has been aggressive in promoting Singapore as a financial centre. Singapore gave tax incentives of all sorts to attract financial institutions to relocate their biz to Singapore.
Many banks relocate their FX, fixed income, structured products biz to Singapore. Also, Singapore has attracted many hedge funds to set up offices here. While the effort did boost Singapore's GDP, it might have also led to the following:
i. inflated real estate prices in commercial offices, residental
ii. more structured products being structured and sold here to unsuspecting retail customers.
HCM
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