Endowment plans?

[BBCWatcher]

my wife is 45 this year, a cpf member who has met FRS & BHS & still has $100k+ in OA. she has not been saving much.
i am trying to get her to save more & am looking for a quick fix.

Caution: “Quick fixes” are not usually possible and can often backfire spectacularly. At age 45 it’s still possible to be patient and prudent.

We’ve seen many cases of people who, basically, suffer from mid-life crises and a general “Oh, s**t! I don’t have enough for retirement!” Who then do a great job reducing their retirement nesteggs. So let’s not do that.

is the above 4 month approach advisable for her profile?
btw she intends to continue working past 55.

Maybe. That illustration is for $2,400/year of savings inflow. What figure could she sustainably manage, and what is her expected retirement age?

 

[a4973]

Caution: “Quick fixes” are not usually possible and can often backfire spectacularly. At age 45 it’s still possible to be patient and prudent.

We’ve seen many cases of people who, basically, suffer from mid-life crises and a general “Oh, s**t! I don’t have enough for retirement!” Who then do a great job reducing their retirement nesteggs. So let’s not do that.


Maybe. That illustration is for $2,400/year of savings inflow. What figure could she sustainably manage, and what is her expected retirement age?

certain that average of $200 / month is sustainable up to age 55 as not sure how her income would be affected past 55.
she has expressed she would want to work as long as she can to generate income & keep active.
so for this discussion i would pin the retirement age at 65 which is the current PEA.

 

[BBCWatcher]

certain that average of $200 / month is sustainable up to age 55 as not sure how her income would be affected past 55.

OK, let’s assume for sake of argument that $200/month is a pace she can sustain.

she has expressed she would want to work as long as she can to generate income & keep active.
so for this discussion i would pin the retirement age at 65 which is the current PEA.

Right, OK.

Yes, I think the example I illustrated would work fine for the next 12 years, until she’s 57. I think I’d use VWRD specifically (and reinvest the dividends with each subsequent purchase) since she’s age 45 and since VWRD includes that dash of emerging markets, but either IWDA or VWRD is fine. Since she presumably doesn’t have any of her wealth in stocks at present, it’s OK to raise that percentage up as high as 30% of total wealth without even really thinking about it. So 12+ years looks entirely safe ($28,800 plus returns, and there’s no way that’ll be anywhere near 30%).

As she gets near age 55 she’ll want to consider some CPF-related choices, specifically:

1. If she can raise a CPF Special Account “shield” very briefly in order to form her new Retirement Account mainly from Ordinary Account funds, and if that shield still works, that’d be nice.

2. A top-up of her Retirement Account to the Enhanced Retirement Sum.

3. Possible repayment of OA she used for housing.

At age 57 she’d see where she’s at. It’s likely since she’s so underweighted in stocks at present that she can simply keep up her stock savings plan until age 60 or even beyond, and that would still be age and risk appropriate. But I would reserve judgment until then.

Note that the ES3 part is terrific inside a SRS account, and she can use SRS to reduce her income tax. $600/year isn’t a big SRS, to be sure, but it’s something.

 

[a4973]

OK, let’s assume for sake of argument that $200/month is a pace she can sustain.


Right, OK.

Yes, I think the example I illustrated would work fine for the next 12 years, until she’s 57. I think I’d use VWRD specifically (and reinvest the dividends with each subsequent purchase) since she’s age 45 and since VWRD includes that dash of emerging markets, but either IWDA or VWRD is fine. Since she presumably doesn’t have any of her wealth in stocks at present, it’s OK to raise that percentage up as high as 30% of total wealth without even really thinking about it. So 12+ years looks entirely safe ($28,800 plus returns, and there’s no way that’ll be anywhere near 30%).

As she gets near age 55 she’ll want to consider some CPF-related choices, specifically:

1. If she can raise a CPF Special Account “shield” very briefly in order to form her new Retirement Account mainly from Ordinary Account funds, and if that shield still works, that’d be nice.

2. A top-up of her Retirement Account to the Enhanced Retirement Sum.

3. Possible repayment of OA she used for housing.

At age 57 she’d see where she’s at. It’s likely since she’s so underweighted in stocks at present that she can simply keep up her stock savings plan until age 60 or even beyond, and that would still be age and risk appropriate. But I would reserve judgment until then.

Note that the ES3 part is terrific inside a SRS account, and she can use SRS to reduce her income tax. $600/year isn’t a big SRS, to be sure, but it’s something.

we were actually considering just GIROing $200 to VC All 3 accounts to her CPF every month as it is the most convenient.
what are your thoughts?
just between the investment plan you have laid out vs VC to All 3 on a monthly basis?
is age 45 relatively too young to be saving into CPF?
think we are fine with the CPF blended rate for VC to All 3 vs the risk of DCAing to ETFs.

 

[BBCWatcher]

we were actually considering just GIROing $200 to VC All 3 accounts to her CPF every month as it is the most convenient.
what are your thoughts?

Not bad, but it’s too early for that, in my view. On a long-term basis a total return of about 5% with that stock savings plan I outlined (doggedly and reliably executed, for many years) would be a reasonable forecast, and that’s attractive enough versus an “all three” CPF top-up that’d manage roughly 3% or maybe a bit less. There could even be a bit of income tax reduction for the ES3 part thanks to SRS. And she has already got lots of CPF wealth.

Also, “all three” top-ups have to fit within the CPF Annual Limit. Is she approaching or at the CPF Annual Limit already?

is age 45 relatively too young to be saving into CPF?

No, not into Medisave and the Special Account, with tax relief, but she’s already accomplished that. Those are the 4+% accounts, and with tax relief. That’s different math and attractive enough to be more interesting at any age. “All three” top-ups are much less interesting.

think we are fine with the CPF blended rate for VC to All 3 vs the risk of DCAing to ETFs.

Although I think the risk is very slight indeed, there is some risk in betting everything on CPF. At $2,400/year for 12 years we’re talking about S$28,800 of contributions into a stock saving plan. (More if the yearly pace can be raised and/or if the number of years is increased.) That’s not a large amount of money for someone age 45 who has already done very well accumulating six figure CPF assets. I don’t think that amount of money (S$28,800 plus returns, net of costs) is ever going to exceed 10% of her CPF assets, never mind any other assets she has such as her equity in her home. It’s a very prudent, reasonable savings plan for a 45 year old — too conservative for many. (Many 45 year olds would be much, much more aggressive.)

That tiny fraction of her (future) wealth will bounce around in value. That’s perfectly OK. This is for long-term saving. In periods when the prices of those stock funds are relatively low, she would buy more shares (because they’re cheaper). That’s a good thing.

Anyway, I don’t think $2,400/year into well diversified stocks for this 45 year old is a radical notion. It’s quite prudent. If anything, it could be criticized as too conservative.

 

[a4973]

Dear BBCWatcher , many appreciative thanks for laying out your thoughts in a clear & concise manner.

 

[iwanthp]

They’re less volatile (other things being equal), but their prices can still fall. And that’s a good thing when you’re buying. Just as with bread or coffee or mobile phone service, lower prices are terrific when you’re a buyer every month.


No, not as a separate matter. The long-run objective is to obtain total returns net of costs. Taking out the middlemen takes out cost.

You don’t need many funds, by the way. Two, maybe three, is enough. For SGX-listed stocks, ES3 (one of the STI stock funds) works. For global stocks, VWRD or IWDA works. I’m assuming you’re a non-U.S. person.

Assuming a $2,400/year pace into stocks, I’d do something like this:

ES3: $100 bimonthly = $600/year (or $200 every 4 months)
IWDA or VWRD: $600 every 4 months = $1,800/year

The every 4 month approach works well for simplicity, and you can do it this way (example):

September: $200 ES3
November: $600 VWRD or IWDA
January: $200 ES3
March: $600 VWRD or IWDA
May: $200 ES3
July: $600 VWRD or IWDA

And so on, loop repeat. That’s about a 25%:75% local:global split, which is a little more local than I prefer (and less local than Shiny Things prefers), but for rounding purposes it’s pretty good.

Then just keep doing that, periodically raising the inflow as you can afford it, until you get about 7 to 10 years before retirement. We’ll discuss what happens then then.

I’m assuming you’re a CPF member, and we’ll treat that as the bond-like part of your portfolio for simplicity.

Wow thanks so much for your detailed advice really touched!!! ) Will try out the approach with my SCB account!

Just to clarify between IDWA and VWRD, what are the main differences that would affect which to purchase? I saw online that VWRD has EM am i right? And just to confirm, one thing i read about IWDA is that their dividends are auto-reinvested back to my shares? If so, would really be better for me instead of thinking what to do with small amounts of dividends being credited to the account instead hahah!

And yes just to answer im a non-US person and a CPF member as well.

 

[BBCWatcher]

Just to clarify between IDWA and VWRD, what are the main differences that would affect which to purchase?

Here are the key differences, in no particular order:

1. VWRD includes emerging/developing market stocks (~10% of the fund) while IWDA does not.
2. IWDA automatically reinvests dividends, and VWRD does not. (IWDA is an accumulating fund, and VWRD is a distributing fund.)
3. IWDA has a slightly lower annual management fee than VWRD.
4. IWDA has somewhat higher trading volume and a narrower bid-ask spread.

Either is fine. If you decide you like VWRD, then all you do to reinvest the dividends is to add any dividends to your next planned/regular purchase.

 

[iwanthp]

Here are the key differences, in no particular order:

1. VWRD includes emerging/developing market stocks (~10% of the fund) while IWDA does not.
2. IWDA automatically reinvests dividends, and VWRD does not. (IWDA is an accumulating fund, and VWRD is a distributing fund.)
3. IWDA has a slightly lower annual management fee than VWRD.
4. IWDA has somewhat higher trading volume and a narrower bid-ask spread.

Either is fine. If you decide you like VWRD, then all you do to reinvest the dividends is to add any dividends to your next planned/regular purchase.

Ahh i see thanks alot for the breakdown will consider either of the two! Also heard some people that buy IWDA also buy EIMI or something to make up for the emerging market portion?

Also, saw that you are in broad agreement with John Bogle’s philosophies! Are there any books by him that you’ll recommend for me to dig into?

 

[BiomedicalPasta]

Questions,

My dad just signed a one shot premium endowment plan. How do i calculate the cash bonus (non-guarantee) from let say, past year return of 3.16% with 1 shot premium of 50k.

Possible to not withdraw the survival benefits and cash bonus declared every year and let it roll interest?

 

[BBCWatcher]

Also heard some people that buy IWDA also buy EIMI or something to make up for the emerging market portion?

Yes, that works. The broker commission is higher, though, since there are two trades instead of one. It's also very slightly more work.

Also, saw that you are in broad agreement with John Bogle’s philosophies! Are there any books by him that you’ll recommend for me to dig into?

None that I've read, but he's had many interviews that you might find interesting. You can find several on popular video streaming sites such as YouTube.

 

[iwanthp]

Yes, that works. The broker commission is higher, though, since there are two trades instead of one. It's also very slightly more work.


None that I've read, but he's had many interviews that you might find interesting. You can find several on popular video streaming sites such as YouTube.

I see alright! I just borrowed a book by him “The Little Book of Common Sense Investing” gonna run through understand his philosophies!

Sorry can i just ask if say instead of investing with each salary i earn every month as you showed previously, i have a lump sum (eg 10k) to invest, would you still recommend doing it month by month or throwing it in one-shot?

 

[BBCWatcher]

Sorry can i just ask if say instead of investing with each salary i earn every month as you showed previously, i have a lump sum (eg 10k) to invest, would you still recommend doing it month by month or throwing it in one-shot?

You can do that, or if you prefer you can divide the lump sum into something like 5 to 10 chunks ($2,000 to $1,000 each) and add those extra chunks to your monthly buys. I wouldn't take any longer than 18 months to draw down a lump sum that you want to invest.

 

[iwanthp]

You can do that, or if you prefer you can divide the lump sum into something like 5 to 10 chunks ($2,000 to $1,000 each) and add those extra chunks to your monthly buys. I wouldn't take any longer than 18 months to draw down a lump sum that you want to invest.

I see alright thanks for the advice! ) ill try to do more each month coz SCB charges 10.70 a trade :/

 

[smart_alex]

is there any value in endowment plan?

feel like cancel it, I kow most people say endowment is waste money, but is it useful in some scenario?

 

[tangent314]

is there any value in endowment plan?

feel like cancel it, I kow most people say endowment is waste money, but is it useful in some scenario?

Hmm... a bit hard to say since this table only has death benefit and no surrender value. How many years are you into the plan already?

 

[mSnooze]

is there any value in endowment plan?

feel like cancel it, I kow most people say endowment is waste money, but is it useful in some scenario?

Show the maturity table for better illustration

 

[$ingaporean]

When you buy an endowment, they take your money and pay their agents, pay themselves some fees, put part of it into the insurance pool, and the rest of it goes into the investing in their PAR fund.


The PAR fund is a large fund that is a mixture of bonds and equities.


You can of course, cut out the middle man and invest in bonds and equities yourself, ideally through ETFs.

Probably the benefits of using insurer is the smoothing effect they have on your plan and the hands off approach for you.

If you don't want your portfolio to swing wildly according to market movements, the smoothing effect helps to manage this swing.

Also, you don't need to worry about your investment. Let the pros do it.

 

[smart_alex]

Show the maturity table for better illustration

Hi all

This is my surrender value table

This is my maturity table

That time when I buy this plan is because it is capital gurantee and it do better than normal bank

My plan is GE flexi goal, currently paid for 1 year only, should I continue to treat it as a diversify investment? or should I just end it?

 

[smart_alex]

Hmm... a bit hard to say since this table only has death benefit and no surrender value. How many years are you into the plan already?

only 1 year