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Old 30-03-2019, 04:37 PM   #1129
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Join Date: Jun 2010
Posts: 10,475
Scenario: Taking HDB Loan of 2.6%, and before picking up the keys to unit

1) Take full advantage of the 4% that SA is offering, by transferring balance after subtracting $20,000 to SA, thereby drawing 4% which is >2.5% from OA and >2.6% mortgage loan so net net I am 'gaining' the difference in interest.

2) Another alternative instead of 1) is to use CPFIS OA to purchase a low cost index fund that ideally (and hopefully) would return an annualise gain of >2.5% from leaving it in OA, as well as >2.6% mortgage loan.

Both of the above would thereby leave loan servicing of 2.6% to be largely or entirely made up of hard cash so as to not rid the opportunity cost of earning what 1) and 2) could be offering.

Up till now, am I on the right track?
Mostly. Option #1 is only available while you’re both below age 55 and below the Full Retirement Sum. Option #2 is only realistically available when your time horizon is sufficiently long enough to have excellent odds of beating 2.6%.

Also, cash can be used in a lower cost way than Option #2, for long-term investing. (And for SA top ups with tax relief for that matter.) So you really need to separate the “before picking up the keys” part (the “sweep”) from the “how do I service my HDB loan?” part.

Usually you’d execute Option #1 before picking up the keys (the 4% is attractive!), service your mortgage with OA dollars (since they’re restricted dollars), and diligently save and prudently invest cash in low cost, age appropriate ways, including SA top ups with tax relief if available and via a SRS account, especially mid to late career when you’re likely to be in the highest tax bracket. However, if you’re just not a good, reliable saver — if your only savings is what the government forces you to save (CPF compulsory contributions) — then you’d be better off servicing the mortgage with cash.

See how that all fits together?

i understood that medical and disability income insurance are crucial for for a working adult who has started on the workforce (Age 20+).
I’d flip the priority since we have compulsory MediShield Life in Singapore, especially if you’re a citizen and qualify for the maximum government subsidies for care. Yes, disability income insurance is extremely important, then a modest upgrade of MediShield Life to a public hospital Integrated Shield plan.

Other than that, there is critical illness ('CI') and term insurance in the market. Is CI in placed at a higher priority than term at this age given that if anything relating to CI happens, continuous medical exp need to be incurred for it?
You don’t need life insurance of any kind unless you have at least one dependent. Early career individuals generally don’t have any dependents, although obviously there are exceptions.

I think the idea behind “CI” is (or was) to provide less robust, partial DII-like coverage and to plug some gaps in medical insurance. If your DII and medical insurance are solid, then you shouldn’t need CI, PA, or TPD. But in the world they might not be solid enough, particularly medical insurance in Singapore which is really hospitalization insurance. I can envision some scenarios when you might have a chronic, long-term condition requiring some ongoing, expensive medication (in particular) that’d be tough to handle. CI isn’t exactly perfect in that role either, but it might help plug that particular hole. (Or maybe there’s a prescription drug insurance plan I’m not aware of that could plug that possible hole more directly?) I’m also assuming you have enough DII that you could allocate a portion to “bridge” to CPF LIFE, i.e. you could still maintain some savings during an extended loss of income. That’s a big assumption.

Anyway, it’s just a question of prioritization. Disability is just not fun in Singapore; it’s a high cost of living country, and the income loss (millions of dollars of income from work) is devastating. “Game over,” basically — you’re onto ComCare and charities, and that’s really, really tough. And it isn’t going to get better enough soon enough. CareShield Life will have a very narrow definition of disability (inability to perform at least 3 out of 6 Activities of Daily Living). So DII is at the front of the insurance parade, very important stuff.
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