Basic Financial Planning Guide (moneysense.gov.sg)

[Ch3tah_39]

I followed the insurance benchmark because I was not sure the right way to determine how much coverage was enough. I read an article topic on insurance from DBS mentioning the same benchmark and used it until I saw this thread ​

Can someone please advise if the following approach makes any sense? Instead of using income as the base, I should use my current expenses and project it to the number of years required (e.g., up to 65yo) to determine the amount I should be covered.

Example:
Current
Allowance for dependant - $100/month
Monthly expenses (incl. utilities) - $900/month

Anticipated increase in expenses due to disability/Critical illness
Monthly expenses - $100/month

Coverage for Life+TPD = $1,000 * 12 * years required.
Coverage for Critical illness = $100 * 12 * years required.

 

[s0crates]

I followed the insurance benchmark because I was not sure the right way to determine how much coverage was enough. I read an article topic on insurance from DBS mentioning the same benchmark and used it until I saw this thread ​

Can someone please advise if the following approach makes any sense? Instead of using income as the base, I should use my current expenses and project it to the number of years required (e.g., up to 65yo) to determine the amount I should be covered.

Example:
Current
Allowance for dependant - $100/month
Monthly expenses (incl. utilities) - $900/month

Anticipated increase in expenses due to disability/Critical illness
Monthly expenses - $100/month

Coverage for Life+TPD = $1,000 * 12 * years required.
Coverage for Critical illness = $100 * 12 * years required.

You have the right idea, and this is the approach I take. There is a huge assumption made by government that expenses is directly proportional to income, and hence coverage. That imo is absolute bs and grossly oversimplified.

A married man with 2 dependants and similar household expenses,household responsibility should get the same coverage, regardless of whether they earn 5k or 20k. And not get 4x more coverage LOL.

CI coverage normally takes into account loss income, alternative medicine and increased expenses. It's more complex. I think it's still overly conservative (and great for insurance industry ) that people get 4x annual income. We can hospitalisation leave, sick leave medishield life coverage. Which is already many days of paid recovery with some expenses covered.

Why make insurance coverage excessive such that the payouts are more like a lottery winning than hardship coverage? Because they are the Singapore pools la....

 

[BBCWatcher]

Can someone please advise if the following approach makes any sense? Instead of using income as the base, I should use my current expenses and project it to the number of years required (e.g., up to 65yo) to determine the amount I should be covered.​

Almost. You've got at least a couple more factors to toss into the mix:

1. Inflation.

2. If a valid claim would generate an up front, lump sum payout then the interest/investment returns on the payout. That is, you (and/or dependents) need a smaller lump sum payout if you're only going to be spending it down over years/decades.

3. Your own retirement needs. You cannot plan to drop dead on your 65th birthday in a disability scenario.

[...]
Coverage for Life+TPD = $1,000 * 12 * years required.
Coverage for Critical illness = $100 * 12 * years required.

I suggest you combine term life insurance with Disability Income Insurance (DII) as your priorities. Whether (and how) you then add some CI coverage atop term life+DII is an interesting question (it's a lower priority then), but DII is much more squarely on point for disability situations. TPD is very, very hard to claim, and CI won't pay anything for myriad work-impairing events.

 

[s0crates]

We are one of the most highly educated nation in the world with the highest math score. Remember that.

Singaporeans should feel that their intelligence insulted when the guideline is so simplified.

 

[Mephist0pheLes]

We are one of the most highly educated nation in the world with the highest math score. Remember that.

Singaporeans should feel that their intelligence insulted when the guideline is so simplified.

not so sure about the math part. i've seen countless ppl asking how to calculate t-bill allocation, which is jus simple multiplication and subtraction also cannot do.

 

[Mephist0pheLes]

so anyone wrote to MAS to give their suggestions yet?

 

[Okenba]

Can someone please advise if the following approach makes any sense? Instead of using income as the base, I should use my current expenses and project it to the number of years required (e.g., up to 65yo) to determine the amount I should be covered.​

Using expenses make a helluva lot more sense than income for sure.
Number of years does not depend on your age, but on the age of your dependants (for life insurance anyway).
You want to provide for them until they are able to provide for themselves.
Keep in mind that upon your death, your CPF is released to your nominees, so your life insurance number may not be as high as you think it needs to be.

Example:
Current
Allowance for dependant - $100/month
Monthly expenses (incl. utilities) - $900/month

Anticipated increase in expenses due to disability/Critical illness
Monthly expenses - $100/month

Coverage for Life+TPD = $1,000 * 12 * years required.
Coverage for Critical illness = $100 * 12 * years required.

For CI and Disability, MediShield should provide for medical expenses, so you need insurance to cover any loss of income (or necessary family expenses) that you might incur due to the illness or disability, and perhaps any additional expenditure not covered by medical illness.

As mentioned, consider Disability Income Insurance.

 

[DevilPlate]

But let say for someone earning 3k take home pay and 2k expenses……still use expenses or 15% income?

It is not so straightforward…..here many high income earner >10k

 

[CrashWire]

We are one of the most highly educated nation in the world with the highest math score. Remember that.

Singaporeans should feel that their intelligence insulted when the guideline is so simplified.

Wonder what our ranking is for critical thinking tests.

 

[sohguanh]

But let say for someone earning 3k take home pay and 2k expenses……still use expenses or 15% income?

It is not so straightforward…..here many high income earner >10k

Agree. What if earn 3K spend 6K expenses? Not enough borrow, take loan, credit card etc ? There is a thread for such readers in such situation in the other forum. What about them?

I think precisely it is not so straight forward to cover everyone scenario, the financial guide has to be as simplified as possible in the hope it can cater for all readers which I doubt it can. But still it is better than no akaa zero guide at all I think.

 

[Ch3tah_39]

But let say for someone earning 3k take home pay and 2k expenses……still use expenses or 15% income?

It is not so straightforward…..here many high income earner >10k

yes, there are so many scenarios, and not straightforward.

But I feel the underlying isn't to cover loss of income. Expenses will still be more logical in any scenario. You shouldn't be looking at whichever is lower. Why buy something that can't serve your needs in this scenario?

 

[Ch3tah_39]

Wonder what our ranking is for critical thinking tests.

looking back at covid times and vaccine need to define critical thinking leh

 

[Ch3tah_39]

Hi @BBCWatcher, I,m wondering how I can factor in inflation to the calculation? Is it I have to fair value the monthly expense yearly over the period?

The amount of $2k a month can add up to over a million with 2-3% of inflation. Is something not right in my calculation?

 

[BBCWatcher]

Hi @BBCWatcher, I,m wondering how I can factor in inflation to the calculation? Is it I have to fair value the monthly expense yearly over the period?

Yes, you could incorporate an inflation assumption into monthly expenditure needs. For example, if you believe you need $1,500 per month in 2023 for a ”good enough“ lifestyle and want to forecast 3%/year inflation then that’s $1,545 in 2024, $1,591.35 in 2025, etc. The formula is:

Future Nominal Dollars Needed = Current Nominal Dollars Needed * (1 + Inflation Rate) ^ (Number of Years to that Future Year)

For example, to determine how many dollars you need in 2043, assuming $1,500/month in 2023 and 3%/year inflation, it would be:

1500 * 1.03^20
= $2,709.17

A simple spreadsheet can help.

For expected lump sum insurance payouts you could make some simplifying assumptions. For example, if you were to receive a $500,000 lump sum payout you might assume a “Safe Withdrawal Rate” if that sum has to support you for the rest of your life. If you were to use a SWR of 3% then that would mean you could spend $15,000 (3%) in the first year, or $1,250 per month. Then increase that $15,000/year for inflation only. All unspent dollars would be invested in a mix of a low cost stock index fund and a low cost bond index fund (or similar), in a 50-50 ratio for example. No, you probably cannot use a 3% SWR if you were to keep this insurance payout in fixed deposits, SSBs, and T-bills. And 4% would be too high because that assumes a classic retirement age (age 65), not trying to endure from age 40 for example. (4% is probably too high even in that classic retirement scenario.)

Anyway, exactly how you do this is up to you. But somehow you have to take inflation and your realistic investment assumptions into account. If you’re just going to deposit an insurance payout in a fixed deposit then you’ll need to spend that payout much more slowly (lower SWR) because it’ll grow that much more slowly. Or if you chuck it all into a single REIT that goes bankrupt you’re totally screwed. So some investment assumptions make sense depending on what you’re actually going to do in a claimable event.

DII payouts are monthly, not lump sum. However, you still have to incorporate inflation. And that means actually saving/investing a portion of initial payouts so that you can offset inflation. Unless you opt for the 3%/year payout escalation feature (one DII carrier offers that), but that doesn’t increase your sum assumed (initial payout amount). Which is probably OK since presumably you’re saving and prudently investing while you’re not disabled, so that you have more financial stamina if disaster strikes. Also, DII payouts stop at age 65 maximum (or age 70 if you have a claim from the MINDEF/MHA group DII plan). You could be disabled (unable to work and earn an income) but live to 100+. That happened to one of my ancestors, actually. So you still need to incorporate a retirement leg to that financial trajectory. This is easier if you have nailed down a good CPF LIFE income stream.

 

[Value.Matrix]

yes, there are so many scenarios, and not straightforward.

But I feel the underlying isn't to cover loss of income. Expenses will still be more logical in any scenario. You shouldn't be looking at whichever is lower. Why buy something that can't serve your needs in this scenario?

Coz having half an umbrella at least help to cover half of your needs. Better than drenched entirely. This is the state of financial planning in Sg now.

It's like a necessary evil here, when people are not critical enough. I kind of like MM forum at least coz we do argue though as long as they are sound, it works. Rather than parroting useless and too generalised 1s which confuse people.

 

[Value.Matrix]

Agree. What if earn 3K spend 6K expenses? Not enough borrow, take loan, credit card etc ? There is a thread for such readers in such situation in the other forum. What about them?

I think precisely it is not so straight forward to cover everyone scenario, the financial guide has to be as simplified as possible in the hope it can cater for all readers which I doubt it can. But still it is better than no akaa zero guide at all I think.

You have term insurance to cover their needs.

But anyone whose income is lower than expenses, generally is in financial ruins. Its not even at a place where optimisation can be done.

 

[BBCWatcher]

But anyone whose income is lower than expenses, generally is in financial ruins. Its not even at a place where optimisation can be done.

Notable exceptions: students, retirees.

 

[chiokcc]

Digital planning service MyMoneySense to cease operations in December 2025​

https://www.straitstimes.com/busine...-mymoneysense-to-cease-operations-in-december

https://www.mymoneysense.gov.sg/conclusion_of_services-faq

 

[Jirachi]

I hope the SGFinDex still stays