*Official* BBCWatcher club

[helloworld321]

Hey BBC since you advocate having a good set of insurance. Would care shield etc affect the type of insurance we need?

Also, my current assets are quite small (was young and foolish).

- IWDA 10k
- Singtel 8k (lost a lot here).
- Sheng Siong 1k.
- SSB - 12.5k
- Cash - 15k.


Debt
- 13k (student loan, interest-free till 2019 December; 5% p.a afterward).

Salary
-1.8k (till 2019 sept)
-6k (2019 September onwards).


Should I focus on hitting the 100k for SSB or focus more on the IWDA and EIMI?

 

[swordsly]

Salary
-1.8k (till 2019 sept)
-6k (2019 September onwards).

1.8k jump to 6k?!

 

[BBCWatcher]

Hey BBC since you advocate having a good set of insurance. Would care shield etc affect the type of insurance we need?

I don’t think so. I’m eager to see what optional, purchasable enhancements will be available atop the base CareShield Life coverage, but I’m not too optimistic about that.

CareShield Life is a definitely step in the right direction, I’d say, but it still has some big gaps. One is that the minimum age is 30, although those individuals who qualify for payouts before age 30 can at least start those payments right at age 30. Another is the definition of disability, which is very narrow (“3 out of 6 ADLs”).

What I’d love to see is some sort of coordinated DII supplement or rider to CareShield Life that’s available before age 30 and that adds a work-based definition of disability. But I doubt I’m going to get my wish for Singapore’s insurance market. I hope I’m wrong.

Debt
- 13k (student loan, interest-free till 2019 December; 5% p.a afterward).

A ~5% guaranteed rate of return (i.e. paying off this debt in full just before interest starts accruing, and assuming no pre-payment penalty) is really quite attractive, so I suggest planning to do exactly that at the end of 2019. And it looks like you’ll be able to do that, so congratulations — that’s terrific.

Should I focus on hitting the 100k for SSB or focus more on the IWDA and EIMI?

OK, here are some suggestions, in no particular order:

* I think I’d hold the Singtel and Sheng Siong shares until they “pop” somewhat — reach a new 52 week high, for example, which could take a while — then sell them and plow the proceeds into whatever your regular savings program is. In absolute terms it’s just a minor amount, so you can just wait patiently and see what happens.

* You’ve got a SSB that’s almost exactly what you’ll need to repay your student loan, and that’s perfect, really. SSBs are also a great place to put emergency reserve funds that will be available from emergency month 3 onward. $27.5K (your combined cash and SSB) is very roughly equal to $2K/month for 12 months. So if that’s what you think you might need, give or take, to keep you afloat in an emergency such as job loss, great, you’re all set. If you think you’d need a bigger cushion, OK, adjust accordingly. Just build up a bit more in the time between now and your student loan repayment, so you can retire that debt, and you’re all set.

* Beyond that, yes, you can start to accumulate stock positions. I’m actually fine with IWDA as a pure play if you’re OK with that, if that money is aiming for retirement. If you want to mix in a little ES3 (STI stocks), I’m OK with that, too, up to 20% (1/5th) of stock holdings — I wouldn’t go higher than that, personally. (Opinions differ somewhat on this, but with long-term money I don’t think it’s all that important to stay onshore much at all, as long as you’re well diversified offshore. And IWDA certainly is that; so is VWRD, as another example.)

* On about January 25, 2020, you could consider making your first CPF top-up, and probably to Medisave specifically I’d suggest. At $6K/month you should have some room below the CPF Annual Limit, and the tax relief is nice, so you might consider that.

* Give some thought to whether and when you’re likely to try to get a HDB unit, the classic “big” decision in life. And that’ll involve coming up with a down payment. Your expected income is lovely, so if that actually happens you might be in a strong position to slam some (or all?) of your OA funds into SA, in the same months when your OA receives funds, in favor of some cash for the down payment. (SSBs are one possible choice for parking cash you’re expecting to use for a down payment.)

* I’m assuming you’ve covered basic insurance essentials (doesn’t have to be lavish), as usual. At $1.8K/month the DII you could buy would be quite limited, but you could start to explore that and get some “kick the tire” quotes, maybe even buy a little bit of DII if it’s a reasonable enough offer. However the insurers (notably Aviva) tend to offer their best premiums when you can insure at least for $3K/month, which you’re not able to do yet. When $6K/month kicks in then you’re more insurable.

* It’s probably a good idea to start building a credit history, and last I checked — it still seems to be true — Maybank’s eVibes card is a really fine low credit limit “student” card with no pesky annual fee as long as you use it to make a one penny (or more) charge every calendar quarter. Just set it up for automatic monthly full balance GIRO payment (I’d recommend), don’t spend any more just because you have a card, and you’re all set. The credit bureaus will start to get some positive vibes from you (pun intended), and that’s not a bad thing.

You’re on your way, and that’s exciting.

 

[helloworld321]

1.8k jump to 6k?!

intern 1.8k. full-time 6k.

I don’t think so. I’m eager to see what optional, purchasable enhancements will be available atop the base CareShield Life coverage, but I’m not too optimistic about that.

CareShield Life is a definitely step in the right direction, I’d say, but it still has some big gaps. One is that the minimum age is 30, although those individuals who qualify for payouts before age 30 can at least start those payments right at age 30. Another is the definition of disability, which is very narrow (“3 out of 6 ADLs”).


What I’d love to see is some sort of coordinated DII supplement or rider to CareShield Life that’s available before age 30 and that adds a work-based definition of disability. But I doubt I’m going to get my wish for Singapore’s insurance market. I hope I’m wrong.

- I'm currently 24, so careshield still have a while to go.As you mention, i really hope they would spend the next few years refining it. For now, I guess I can maintain my current insurance for now.

- Yup, planning to pay off the student loan next year.

- I really doubt Singtel is gonna hit new height (Sinking ship), hindsight is 20-20.

Just build up a bit more in the time between now and your student loan repayment, so you can retire that debt, and you’re all set.

Yes, I'm left with 16k cash and planning to dump into SSB. Although I'm heading for exchange in Jan 2019. I thought of withdrawing in December while earning a small sum of interest rate.

* Beyond that, yes, you can start to accumulate stock positions. I’m actually fine with IWDA as a pure play if you’re OK with that, if that money is aiming for retirement. If you want to mix in a little ES3 (STI stocks), I’m OK with that, too, up to 20% (1/5th) of stock holdings — I wouldn’t go higher than that, personally. (Opinions differ somewhat on this, but with long-term money I don’t think it’s all that important to stay onshore much at all, as long as you’re well diversified offshore. And IWDA certainly is that; so is VWRD, as another example.)

Thanks for this. I'll build it up accordingly

* It’s probably a good idea to start building a credit history, and last I checked — it still seems to be true — Maybank’s eVibes card is a really fine low credit limit “student” card with no pesky annual fee as long as you use it to make a one penny (or more) charge every calendar quarter. Just set it up for automatic monthly full balance GIRO payment (I’d recommend), don’t spend any more just because you have a card, and you’re all set. The credit bureaus will start to get some positive vibes from you (pun intended), and that’s not a bad thing.

I do have a few credit card - DBS Altitude and OCBC Titanium (got it when i was earning more). But my spending is quite...huge.. Although i do not have any card debt.

You’re on your way, and that’s exciting.

Thank you. I'm excited as well. Thanks for the advice. Yes, i'm also thinking about the HDB. But juding by it, my combined income with my SO would means exceeding the income ceiling of 12k.

 

[Shiny Things]

They pay out monthly dividend which lessen the need for drawing down from portfolio and also carry lower risk with their bond component.

One thing I'd add, on top of what BBCW said about why these things aren't great, is that they often advertise a high monthly yield... but under the hood, they're drawing down from the portfolio to subsidise that implausibly high yield.

There's no magic route to a high yield. You either have to take a lot of risk; or you have to draw down on your capital. (And drawing down on your capital is the right thing to do! If you take on extra risk to avoid drawing down your capital, you're eventually going to lose out, and you'll lose that capital anyway.)

 

[cheongmanz]

Hi BBCW,

I'm currently considering buying ETF. Am looking at either ES3 or G3B. Purpose is to try to get dividend payout that is either in par and more than CPF OA 2.5% interest. Am looking at ETF instead of equity is mainly to minimize the risk of losing the capital. Unlikely to apply DCA when buying ETF. Not looking at capital appreciation although it will be a bonus.

Is this approach advisable?

I understand that ETF has management fees to be paid. Does the investors need to pay the management fees?

Please don't advise me to top up CPF SA to get 4% interest because I do not want my cash to be locked up by CPF.

 

[BBCWatcher]

I'm currently considering buying ETF. Am looking at either ES3 or G3B.

ES3 is the better of the two due to its slightly lower management fee, other things being equal.

Purpose is to try to get dividend payout that is either in par and more than CPF OA 2.5% interest.

These ETFs have been doing that fairly reliably, although principal is not guaranteed.

Am looking at ETF instead of equity is mainly to minimize the risk of losing the capital.

You still have some principal risk. A basket of 30 stocks should have less volatility than a single stock or a few stocks, but it’ll still have some. In 2015 the STI fell 4.3% in a single day, which is more than the current dividend yield.

If you’re investing for the medium to long term, you should do OK.

Does the investors need to pay the management fees?

The fund managers take their fees out of periodic dividends. There are other likely costs, though, such as CDP fees and broker commissions.

 

[salmonella]

Just discovered the BBCW fan club - a great idea!

Reading your post on insurance, is your view something like this on Eldershield, Careshield?
- the provided coverage by these actually is important
- however, it is not enough (e.g. only based on 3 of 6 ADL, rather than all included except for ...)
- DII is even more important and both supercedes and is a superset of the Eldershield/Careshield coverage. Therefore having appropriate DII coverage is better.

Does the relevance of DII change as you get older? E.g. I'd passed 40 and opted out of Eldershield previously

Is self-insurance an appropriate strategy? I thought self-insurance was preferable to Eldershield, but I'm not sure about Careshield... and it doesn't seem possible with DII.

The Vanguard part is terrific, but my understanding is that AutoWealth uses U.S. domiciled Vanguard funds, probably because they really must for several legitimate reasons. Thus there will be a 30% tax on dividends (for the U.S. listed stocks) rather than the 15% dividend tax rate available with Irish domiciled funds, including Vanguard's Irish domiciled funds such as VWRD.

It looks like AutoWealth focuses on a fund that tracks the MSCI World Index of stocks. About 60% of the MSCI World Index consists of U.S. listed stocks. Currently the S&P 500 (a good proxy for the U.S. portion of the MSCI World Index) has a ~1.8%/year gross dividend yield. Taking 15% of that (the tax difference) yields 0.27%/year. Then, 60% of that (the U.S. portion), is ~0.16%/year. So the tax treaty differential is adding roughly 0.16%/year of cost to what AutoWealth is doing versus an Irish domiciled equivalent such as, notably, IWDA -- and assuming my math and information is accurate enough.

That ~0.16%/year of additional tax expense might still be tolerable, but you just have to run the numbers in your particular situation.

AutoWealth (and its competitors) are not really appropriate for U.S. persons.

I'd love for there to be a low-cost, hands-and-brains-off approach to investing. But they seem to be recommending a mix of VTI, VGK, VPL, VWO to me for equities. I think these are all domiciled in the US, so I wouldn't just be hit by 30% dividend withholding tax on the US portion, but on all of them right?

And I have no idea what would happen if I passed on... Above US$60k, estate tax surely would apply too?

So, autowealth does not seem appropriate for US persons (because there are better alternatives), and not appropriate for non-US persons as well.

Any idea what might be the legitimate reasons that these robo-advisors keep using US funds?



On a related note, do those of us who are Singaporeans and have no income etc in US still need to fill in the pesky w-8ben form regularly? If we don't fill it, withholding tax would simply apply as though we are foreign (which we are, so this is the correct outcome), right? Would omitting the form make a difference in these cases?
- savings and current accounts in SG and US banks in Singapore.
- Buy IWDA, EIMI, etc on LSE via IB or Standard Chartered
- Buy ES3, A35, etc on SGX via brokers in Singapore
- Less than $5k in US bank accounts like BOA

 

[BBCWatcher]

....- DII is even more important and both supercedes and is a superset of the Eldershield/Careshield coverage. Therefore having appropriate DII coverage is better.

In the hierarchy of insurance needs, DII ranks high, in my view. (And I have some.) Future earning potential is the most important asset most people have, and significant or total loss of that income would be utterly catastrophic.

ElderShield and CareShield Life are forms of Long-Term Care (LTC) insurance. They can be important, but they have a much narrower definition of disability. The debate about CareShield Life will be largely moot for younger adults (and future generations) since it’ll be compulsory. But it’s a different form of insurance anyway.

Does the relevance of DII change as you get older? E.g. I'd passed 40 and opted out of Eldershield previously

Yes, absolutely. DII protects against income loss due to disability (partial or full inability to work). As far as I know all of the DII policies sold in Singapore end coverage at age 65, a typical/traditional retirement age. Savings (hopefully wisely invested), CPF LIFE, Medisave, and (if profoundly disabled) ElderShield or its CareShield Life successor, are supposed to carry you onward from there. Saving is more difficult with (up to) 75% income replacement and no salary increments. Having a disability that affects your income earning (and other aspects of your life, for that matter) is no great fun, to say the least. But zero insurance would be even worse.

Is self-insurance an appropriate strategy? I thought self-insurance was preferable to Eldershield, but I'm not sure about Careshield... and it doesn't seem possible with DII.

The vast majority of people cannot self-insure against this particular risk (significant or total loss of future income due to a work-impactful disability) before and during the early years of their careers. But, over time, yes, they may be able to self-insure against disability and long-term care needs, as savings build up. And you should properly adjust your insurance coverage, if necessary, to account for that reality if your financial situation allows.

In DII, there are at least a few ways you can “automatically” adjust coverage. One way is to choose the longest waiting period (a.k.a. elimination period) before monthly benefits are paid. The longest available in Singapore is 6 months, and that’s fine. Your emergency reserve fund should bridge you at least that long, and if you don’t have an emergency reserve fund that can handle 6 months of income loss then you soon enough will, since that’ll be a priority to solve as you earn income. If the particular insurance carrier doesn’t offer a waiting period that long, and you still otherwise like their policy, so be it, but 6 months really is fine.

Another possibility is to pick a different term, such as age 60 instead of age 65. I’m a little less keen on that idea since you can always drop coverage at age 60 (or even earlier) if you’re able to self-insure. But it is possible to pull back from an age 65 coverage term limit right at the beginning, if you wish. If, for example, you’re expecting a large bequest (and reliably so) that couldn’t possibly be received any later than your age 60, then there you go, that coverage term might make perfect sense right out of the gate.

I'd love for there to be a low-cost, hands-and-brains-off approach to investing.

Amen!

But they seem to be recommending a mix of VTI, VGK, VPL, VWO to me for equities. I think these are all domiciled in the US, so I wouldn't just be hit by 30% dividend withholding tax on the US portion, but on all of them right?

Some U.S. domiciled funds are still pretty tax friendly, including funds that don’t pay any dividends and most funds that invest in U.S. bonds.

And I have no idea what would happen if I passed on... Above US$60k, estate tax surely would apply too?

Your dead body won’t care, but somebody expecting to receive the balance of your estate might.

So, autowealth does not seem appropriate for US persons (because there are better alternatives), and not appropriate for non-US persons as well. Any idea what might be the legitimate reasons that these robo-advisors keep using US funds?

They’re not ideal, no. However, they are convenient, and that counts for something. Also, they use U.S. funds probably because they have no choice. The favorable tax treatment available with Irish domiciled funds likely doesn’t pass through to foreign institutions but only to individuals (who are non-U.S. persons).

On a related note, do those of us who are Singaporeans and have no income etc in US still need to fill in the pesky w-8ben form regularly? If we don't fill it, withholding tax would simply apply as though we are foreign (which we are, so this is the correct outcome), right? Would omitting the form make a difference in these cases?

W-8BEN only matters with U.S. domiciled assets and/or U.S. financial institutions. But you should still fill it out since it’s typically part of KYC measures and also since there are some uncommon but possible occasions when the broker/institution will be forced to withhold tax simply because that form wasn’t filed. A few days ago I was reading up on that, and apparently there are some weird, arcane corners of the U.S. tax code where that might occasionally happen — where you’d be over-withheld, even if you’re a non-U.S. person living in a non-treaty country (like Singapore) with no particular tax breaks. I think what could happen is that the financial institution would feel compelled to classify you as a U.S. person without a W-9 (analogous form) on file, meaning you’d be subject to withholding both on dividends and capital gains. That wouldn’t be good. (Recoverable eventually, without interest, if you file a U.S. non-resident tax return, but not fun.)

 

[oysterworld]

I must say that this is a really fantastic thread. Kudos to BBCW for the great pointers.

I have a question about my insurance situation: 36 y old, Singaporean male, earning more than 15K a month, 2 kids both below 5 y olds. I have the full integrated medishield plan (with full riders covering all deductibles and co-insurance, so I don't have to pay anything for hospital bills), and am wondering what other insurance options I should be looking at.

It seems to me that DII and Term does stand out. I am minded to take out DII for a sum of between 4-5K (the reason for the small sum is that I think the likelihood of payout is rather small) until age 55 (I do plan to retire latest by then). Term would be the direct purchase term insurance to cut out agent fees and looking at the maximum 400K until age 65. Would appreciate any suggestions/views.

 

[oysterworld]

Some U.S. domiciled funds are still pretty tax friendly, including funds that don’t pay any dividends and most funds that invest in U.S. bonds

In addition

I was under the impression that Singaporean tax resident investors pay 30% on US-domiciled bond ETFs for US bonds' component (same as the withholding rate for dividend income for US-domiciled equity ETFs in respect of the US equities' component).Is this true (including the underlined bits)? You mentioned, however, that most funds that invest in US bonds are tax-friendly though? Which ETFs are these?


On a separate but somewhat related note, I chanced upon this - page 5 of the Deloitte ETFs 2015 publication mentions that 'Irish ETF’s can benefit from the USA/Ireland double tax treaty which reduces withholding tax to zero
on interest and 15% on dividends' - this is available on the internet and is easily searchable by googling 'Deloitte ETFs 2015' . As such, I am looking at the CRPA ETF (domiciled in Ireland and listed on LSE) which holds bonds of US corporates (such as Verizon and BOA) amongst others. If I go with this ETF, presumably all the interest income from the US bonds would be zero then? How about the interest income from the non-US bonds (i.e. those issued by companies incorporated outside of the US such as in the eurozone or APAC) - is that subject to any withholding? A jurisdiction by jurisdiction analysis would be particularly onerous..

 

[BBCWatcher]

I have a question about my insurance situation: 36 y old, Singaporean male, earning more than 15K a month, 2 kids both below 5 y olds. I have the full integrated medishield plan (with full riders covering all deductibles and co-insurance, so I don't have to pay anything for hospital bills), and am wondering what other insurance options I should be looking at.

Just to point out something here, in principle you could buy some product from an insurance company that pays for the full cost of the repair or replacement of your smartphone if it’s lost, stolen, or damaged. But the cost to replace your smartphone is not a material financial burden, so that’d be pretty silly, wouldn’t it?

The same is true for anything else, including a hospital bill. Except with hospital bills you also have Medisave funds that can only be spent on medical care (and base insurance premiums). You have a pile of money, already, expressly designed and earmarked to pay hospital bills (and some other medical bills). It’s a really weird thing to do, and it’s so weird that the government (which barely regulates anything) just banned “zero dollar” riders. (The policy is being phased in.)

The only time this might make sense is if you are highly confident that you will incur gigantic medical bills above and beyond your Medisave resources and withdrawal limits that your rider will cover — that is, in essence, that you’re in poor health. But that doesn’t match what you write below....

It seems to me that DII and Term does stand out. I am minded to take out DII for a sum of between 4-5K (the reason for the small sum is that I think the likelihood of payout is rather small) until age 55 (I do plan to retire latest by then).

OK, I don’t understand this logic either.

The likelihood of payout is fairly small — some single digit percentage. But that’s not an argument for possibly underinsuring. You’re earning $15K/month, which is a lot. That’s $180K/year or $3.6 million for the next 20 years, in 2018 dollars and not counting salary increments above the rate of inflation. OK, let’s suppose you suffer a disability starting from tomorrow that whacks that number down to zero for life. Would you and your household be OK with an income stream of $60K/year ($5K/month) level (no increase, so clawed away with inflation)(*) for about 18 years? That’s a lifestyle question, really, not a probability question.

A $1,750 mostly or fully Medisave payable hospital bill wouldn’t affect your lifestyle at all. Clearly the loss of $10K/month (and rising, because DII is ordinarily level nominal in its payout) would be a big financial whack. Would it be a too big/too catastrophic lifestyle whack? Your insurance behavior suggests it certainly would be intolerable, because you’re afraid of even one dollar of Medisave payable hospital bills, so afraid that you’re willing to spend cash to avoid that. Not that you should double down on over-insuring, but I’d step back and rethink your priorities here.

Term would be the direct purchase term insurance to cut out agent fees and looking at the maximum 400K until age 65. Would appreciate any suggestions/views.

You base this decision fundamentally on the same approach, but answering a very slightly different question: what would be the lifestyle impact on your dependents in the event of your untimely passing (and the loss of $15K/month present dollars for the next 20 years or so)? Adding up all your assets, including your CPF balances (that you nominate to a survivor), would they be OK? They’d be sad, I expect, but would they be OK enough already, financially? Would they be able to keep the house and have enough for a “reasonable” lifestyle in the circumstances, keeping in mind that there aren’t too many paid employment opportunities for 5 year olds? If the answer is “No,” then add some term life insurance, enough until the answer is “Yes.” If $100K, or $250K, or $400K is enough to flip that no to a yes, there you go. If that’s still not enough, add some more.

If you don’t like the premium cost for these coverages at these levels, then shift premium dollars from what never would be a calamity (a $1,750 highly Medisave payable hospital bill — the amount that’d be your bill if you have a “Saver,” “Lite,” or “Assist” rider instead of a zero dollar rider) into true calamity-mitigating insurance.

(*) Aviva offers a DII payout option that increases annually by a fixed percentage (3% as I recall) if/while payouts occur. The nominal payout amount starts at the same number, and over time that nominal number will be less valuable due to inflation. Nonetheless, this payout option tends to align with the risk better, and it’s worth considering. Naturally there’s a higher premium for this payout option.

 

[maple96]

I must say that this is a really fantastic thread. Kudos to BBCW for the great pointers.

I have a question about my insurance situation: 36 y old, Singaporean male, earning more than 15K a month, 2 kids both below 5 y olds. I have the full integrated medishield plan (with full riders covering all deductibles and co-insurance, so I don't have to pay anything for hospital bills), and am wondering what other insurance options I should be looking at.

It seems to me that DII and Term does stand out. I am minded to take out DII for a sum of between 4-5K (the reason for the small sum is that I think the likelihood of payout is rather small) until age 55 (I do plan to retire latest by then). Term would be the direct purchase term insurance to cut out agent fees and looking at the maximum 400K until age 65. Would appreciate any suggestions/views.

I beg to differ with BBCW's opinion.

Insurance plays with your psychology, your fear and greed when managing your risks. If u cannot manage it well, u will transfer more risks than is necessary, thereby donating more of your hard earned money to the insurers!

If or before u get hit with "severe disability", first u need to consider is medical cost (hospital, post treatment, long term care, death could occur). With isp with full riders, it covers more than just deductibles and coinsurance. I was lucky with full riders as I also get a sum of money to cover for medical costs not covered by the basic isp, especially my post treatment stretch beyond 90 days. What about multiple hospitalisations, my relative was moving in and out of hospital for treatment.

I have an additional rider for daily cash benefit, every day I was on hospitalisation leave, I was given more than 8 months! Disabled, but not sure if it qualifies for DII claim. That's another major consideration, uncertainties over possibility of claim for DII. I never had, never bother to read/research more cos I dun need it!

What about longer term care cost? These are as important as other costs for the family, for higher chances of recovery for u to take care of your family. Eldershield, Careshield, your Life or Term insurance, etc. What can help u?

If u can claim DII, then u should be able to claim eldershield, careshield, your term or life insurance, pa depending on nature of work, withdraw from medisave, withdraw CPF or CPF Life? What about your other funds/assets? U have a very high income, should have other assets, your house, etc by now ? Even if you have DII, will the payout be enough to cover just your medical cost and long term care?

If u pay 5k premium per year for DII till 55, that is about 20 years = 100K? As u said, likelihood of claim is another consideration.

If nothing happens when u reach 55, you will have more than 100k as your assets, not donated to the insurers. If something happens, do u have other insurance/assets mentioned above? You dependents might already have ability to take care of themselves in your later years.

Some food for thought!

(Note: I plan to terminate my 100% cover when older as it will be too expensive to maintain and gahmen gives higher subsidy)

 

[tangent314]

Some U.S. domiciled funds are still pretty tax friendly, including funds that don’t pay any dividends and most funds that invest in U.S. bonds.

Hmm... so for bond funds, it doesn't matter if we choose one domiciled in the US, there will be no tax on the distributions?

 

[BBCWatcher]

Hmm... so for bond funds, it doesn't matter if we choose one domiciled in the US, there will be no tax on the distributions?

That appears to be correct, as long as the bonds are U.S. bonds. However, U.S. estate tax liabilities still seem to attach.

Please triple check that, of course.

 

[BBCWatcher]

Insurance plays with your psychology, your fear and greed when managing your risks.

Insurance salespeople certainly do.

If or before u get hit with "severe disability", first u need to consider is medical cost (hospital, post treatment, long term care, death could occur). With isp with full riders, it covers more than just deductibles and coinsurance. I was lucky with full riders as I also get a sum of money to cover for medical costs not covered by the basic isp, especially my post treatment stretch beyond 90 days.

Hang on a minute. First of all, base Integrated Shield plans do that, too. AIA's base Integrated Shield plan stretches back as far as 13 months and as far forward as 13 months pre-/post-hospitalization. Riders don't increase the coverage period pre-/post-hospitalization.

Second, there are different riders. The riders named "Lite," "Saver," or "Assist" (typically) cap out-of-pocket and Medisave payable costs per year, typically at $1,750. What on earth is wrong with that, in Medisave-equipped Singapore?

What about multiple hospitalisations, my relative was moving in and out of hospital for treatment.

Base plans cover even that. Even the most basic riders cap annual costs.

These are not great arguments you're making.

Disabled, but not sure if it qualifies for DII claim.

Of course you can claim on a DII policy in the scenario you describe. If you're partially or fully unable to work and earn an income, and after the waiting period (ranging from 2 to 6 months depending on what you choose -- choose the longest waiting period, I would advise), you can claim.

What about longer term care cost? These are as important as other costs for the family, for higher chances of recovery for u to take care of your family. Eldershield, Careshield, your Life or Term insurance, etc. What can help u?

All of those policies only pay benefits if you are profoundly disabled, usually defined as an inability to perform 3 (or more) of 6 defined "Activities of Daily Living" (ADLs). That's a much, much narrower definition of disability than what DII policies have.

Yes, you really should study up on this.

If u can claim DII, then u should be able to claim eldershield, careshield, your term or life insurance, pa depending on nature of work, withdraw from medisave, withdraw CPF or CPF Life?

No, absolutely not. There are many situations when DII will pay but 3-of-6 ADL policies won't. DII is always defined according to ability to work and earn an income. It's focused like a laser beam on the actual experienced risk you face: loss of income. It doesn't care why you've lost income due to disability, with very few exceptions. (Intentional self harm, e.g. a suicide attempt, is one of the very few exceptions.)

 

[w1rbelw1nd]

That's definitely not my understanding. US bond ETFs, for a non-US resident, is likely more liable for the 30% WHT than not, based on

1. My understanding on dividend why for US sourced distribution to non-US tax residents


2. This boglehead thread https://www.bogleheads.org/forum/viewtopic.php?t=250219

3. Limster shared something on it previously.

That appears to be correct, as long as the bonds are U.S. bonds. However, U.S. estate tax liabilities still seem to attach.

Please triple check that, of course.

 

[BBCWatcher]

This tax treatment changed rather recently, so you should check this again with more recent information. Fund managers wanted the ability to pass through the dividend/interest tax treatment of U.S. bonds to foreign investors, and Congress honored their request.

I’ve read through fund prospectuses recently, and they do seem to say this.

You could run this test quite easily and inexpensively. Just invest in Schwab’s TIPS fund (SWRSX), which you can do with as little as $1. (Try US$100, for example.) Make sure you have a W-8BEN on file. If you have an account with Schwab, great, you can do that directly with zero sales charge. (At other brokers there might be a sales charge depending on how they handle mutual funds.) Then wait for the next fund distribution and see what happens.

....And I’m confused, because the Bogleheads thread you linked to is saying the same thing I am. International (non-U.S.) bonds inside U.S. bond funds are different, and one commenter made the point that some brokers might possibly incorrectly withhold, which is always a possible risk. Brokers can sometimes make mistakes. Improper withholding is annoying but recoverable.

 

[w1rbelw1nd]

This tax treatment changed rather recently, so you should check this again with more recent information. Fund managers wanted the ability to pass through the dividend/interest tax treatment of U.S. bonds to foreign investors, and Congress honored their request.

I’ve read through fund prospectuses recently, and they do seem to say this.

You could run this test quite easily and inexpensively. Just invest in Schwab’s TIPS fund (SWRSX), which you can do with as little as $1. (Try US$100, for example.) Make sure you have a W-8BEN on file. If you have an account with Schwab, great, you can do that directly with zero sales charge. (At other brokers there might be a sales charge depending on how they handle mutual funds.) Then wait for the next fund distribution and see what happens.

....And I’m confused, because the Bogleheads thread you linked to is saying the same thing I am. International (non-U.S.) bonds inside U.S. bond funds are different, and one commenter made the point that some brokers might possibly incorrectly withhold, which is always a possible risk. Brokers can sometimes make mistakes. Improper withholding is annoying but recoverable.

My understanding is that one has to go through a fairly tedious process of tax filing to get the it recovered. My guess is that there might be people who has a fetish of going through unchartered waters and get it waived, and potentially waste lots of time, effort and in the boglehead forum case, money to engage a CPA to do it.

Happy to try out once the first half a dozen of brave souls here prove that it is indeed a fruitful process.

Anyway, for the ease of the brave souls:

This is broadly true for when no tax treaty exists, and perhaps the number is 25% or 15% under various tax treaties. However, I have recently learned that this is only half the story, according to an international tax accounting expert I hired. Brokerage firms tend to withhold the full amount (30% in your example), because they are liable if they don't and the tax laws are complex. The US government DOES NOT tax the vast majority of dividends paid by AGG or BND (~85% exempt respectively, and similar funds to different exemptions depending on holdings) when held by non-USA residents. The dividends are largely classified as "NRA Exempt Qualified Interest Income (QII)" and various fund companies publish this data for their funds every year. To get the refund, it seems NRA investors need to file with the IRS. Most probably do not ... extra cash for the IRS. Here is a link to the iShares 2017 NRA Exempt Qualified Interest Income report. https://www.ishares.com/us/literature/t ... 364636.pdf

If we accept that tax argument, then many bond funds are better owned by NRAs in the US market (from a total fee perspective, leaving aside inheritance tax risk and tax return hassle). Also, the US market has a better selection of funds and narrower bid/offer spreads. For example, compare AGG (US based) and IUAG (London based) from a total fee perspective (I used various assumptions for yield, QII and tax treaty, which can be modified to fit other cases).

 

[Morning Sunshine]

Mortgage Insurance

Hi BBCWatcher,

Is Mortgage insurance needed? If both husband and wife already have Life, Term and Disability Income Insurance (only the husband), would it better to increase the sum assured of any of these insurance policies instead of purchasing Mortgage Insurance? I am asking specifically for the case where only one spouse is in employment and the other is a home-maker.

And could you advise on which kind of Mortgage Insurance to take up? Fixed vs decreasing term vs others?

Thank you.