MoneyDigest - Personal Finance, Lifestyle, Money Saving Tips

The Risky Assumptions When Planning Your Retirement

Have you ever wondered how much money do we need in our silver years to be able to afford our desired lifestyles? Most adults would be relying solely on their CPF funds to finance their retirement. Asset-rich but cash poor retirees could be thinking of renting their HDB flats out to supplement their retirement funds. There are indeed several ways to build up our retirement income. However, we must be mindful of avoiding some of the dangerous assumptions when planning for our retirement.

Oversight To Account For Inflation

Inflation can have a big impact on retirees even if they have been historically low. According to Monetary Authority of Singapore, Singapore’s historical core inflation averaged an annual 1.7% since 1990. While 1.7% per annum may not appear alarming, it will compound to a staggering 66% over a span of 30 years! If you are a retiree receiving a fixed amount of stipend, the value of your money will decrease with each passing year. Hence, your retirement funds will be eroded by inflation if they are not carefully managed. Unfortunately, inflation does not stop just because you have stopped working. Therefore, it becomes important that your investment grow at rates that are at least equal or better than the rate of inflation to protect the value of your retirement funds. How do we then continue to enjoy the taste of life at our retirement years without feeling the pinch of inflation, especially when we have stopped working and receiving salaries?

Reliance on Rental Income From Property

Some adults plan to rely on rental income from investment properties to supplement their retirement funds. However, with the recent cooling measures announced in July 2018, investing in a second residential property is increasingly out of reach for most working adults.

Some retirees might be thinking of renting out the vacant rooms in their HDB flat especially as their children gradually might have left the home that they grew up in. However, this option comes with its own set of inconveniences. It could take a couple of months before a tenant can be found. There is also the administrative hassle of providing tenant’s details to HDB for record-keeping. Of course, all these pale in comparison to stories of horror tenants who damage the HDB flat or are tardy in their rental payments. In such circumstances, renting out their HDB flats may not be the best option to supplement your retirement income.

CPF LIFE Alone Might Be Insufficient

For a retiree who sets aside the maximum Enhanced Retirement Sum (S$271,500), the monthly payout from CPF LIFE is expected to be about $2,000 per month. If this amount is sufficient to pay for your daily expenses during your retirement, then this is definitely a good safety net for you to rely upon. However, it is not true that all Singaporeans and Singapore Permanent Residents can depend on their CPF funds to finance their retirement entirely. In fact, it is widely reported that almost 4 in 10 CPF Accounts do not even have enough funds to meet the Basic Retirement Sum. For the group of retirees who do not generate enough funds from their CPF LIFE payouts, it is necessary to generate extra income from alternative sources such as investments.

Future-proof Your Retirement Funds With The AIA Retirement Saver (III)

Given that young professionals lead hectic lifestyles, they may not have the time and energy to plan for their eventual retirement. Yet, planning ahead to future proof our retirement is essential and the AIA Retirement Saver (III) is one of the ways to do that. The AIA Retirement Saver (III) is a simple and hassle-free retirement solution which provides a guaranteed stream of retirement income for 15 years. Your hard-earned savings is safely secured since the capital is guaranteed; you will get back every dollar that you contributed at your desired retirement age. On top of that, you will receive potential monthly dividends which could help to cushion the impact of inflation. Premium payment duration is also flexible; single lump sum, 5 years, 10 years or simply pay till your desired retirement age – 55, 60, 65 or 70. It is easy to get started because no medical underwriting and check-up is required. In essence, the AIA Retirement Saver (III) is truly an easy and stress-free solution tailored to any individual retirement plan.

Conquer The Uncertainty & Plan For Your Desired Retirement

With the AIA Retirement Saver (III) solution, individuals can cast aside their retirement worries as their savings will be in the good hands of professionals. The AIA Retirement Saver (III) can be an additional pillar to supplement your retirement funds. As it can be tailored to maintain the purchasing power of your retirement funds, you can be assured that you will still be able to enjoy your desired lifestyle during your twilight years. Don’t leave your retirement to uncertainty. You can certainly plan for the uncertainty by taking action now.

What On Earth Are Investment Bonds?

DEFINITION

A bond is a fixed income investment in which an issuer or investor loans money to an entity. Entities such as companies or governments borrow the funds for a definite period of time, involving an interest rate. These bonds are used by said entities to raise money or finance a variety of projects.

PREPARATION

If you are comfortable with getting less money in return, then you will benefit from investing on bonds. You may think that bonds are less risky than others. However, this statement is not entirely true. Bonds are usually less risky than stocks when you are comparing products from the same issuing company.

Most investment bonds are whole of life. Thus, there is no minimum term. At surrender or during the occurence of death, a lump sum of money will be paid out. The amount of money depends on the bond’s terms and conditions as well as the investment’s performance.

ACQUISITION

a. Bond ETF

The ABF Singapore Bond Fund is listed on the Singapore Exchange and managed by Nikko Asset Management. Investors can easily sell or buy holdings in the bond fund for as low as S$100. This fund buys the bond issuance of quasi-government entities such as Temasek, LTA, and HDB. What’s the main catch? There is no maturity period for this. The fund will use the proceeds to buy other bonds. You will receive your principal by selling your holdings in the open market.

b. Singapore Government Securities (SGS)

The Singapore Government issues bonds under SGS. It offers treasury-bills, SGS Bonds, and Singapore Savings Bonds. These are typically risk-free and are applied through the three local banks.

c. Investment Grade Bonds

Whether you believe it or not, bonds come with bond credit ratings. These ratings measure credit worthiness. An investment grade bond (i.e., AAA, AA+, or AA) means that the bond issuer is unlikely to default.

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These are just some things that you must consider before investing on bonds. Best of luck on your financial journey!

Sources: 1, 2, & 3

The Thriving Coffee Culture In Singapore

One of the most deeply rooted icons in Singapore is Kopitiam. Kopitiam is an age-old tradition that thrives until today. The country’s coffee culture dates back for about several centuries. It serves as a reminder of how diverse and rich our culture is. You see, the word “kopi” means coffee in Malay and the word “tiam” means shop in Hokkien and Fujianese.

Notice how people interact in Kopitiams. At Kopitiam, you will rarely see people who are working on their laptops. It exudes a laid-back atmosphere where people can read the morning paper, enjoy lengthy conversations with friends, or watch as the day goes by. What makes their coffee unique is how it is made.

Kopi is made from Robusta beans, a type of bean which contains a high dosage of caffeine. The beans are roasted in a wok with butter and sugar to enhance its flavor. The mixture caramelizes the beans and gives it a tempting aroma. Lastly, the beans are strained and combined with condensed milk. To experience a cup of kopi, you must visit famous chains such as Ya Kun and Killiney. Both of these chains go way back to the early 20th century. Would you believe that?

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In the modern days, independently owned cafes began sprouting like mushrooms. No neighborhoods or CBDs were left untouched! With its great prevelance, coffee has gone through several waves. I shall focus on the third-wave which is highend or speciality coffee. Third-wave coffee is a conscious consumption that highlights on the fair trade of coffee beans. Thus, it is an eco-friendly choice, which puts a focus on natural flavors. One can only imagine the methods they use!

Aside from the third-wave coffee model, some shops in Singapore offer subscriptions. It is a new dimension in the growing specialty coffee scene. According to the Perk Coffee founder: “The subscription model fits very well with the roasted coffee model. You want to make sure it’s very fresh and regular – small quantities, and frequently [distributed].”

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Do you agree that subscription coffee is the future? Will this help you save money and effort? Feel free to leave a comment.

Sources: 1 & 2

Budgeting 101: Taking Over Your Financial Life

Have you created a budget in the past? Were you able to firmly follow through? What were the obstacles that you have experienced?

It comes as no surprise that budgeting is no easy feat! It is a strategic task that encourages cutting down of your expenses. Furthermore, you must find a way to still enjoy the money you earn. Striking a balance between your needs and wants can be stressful for some.

So, where must you start?

Start accept your accountability over the choices you make. Every action has an equal reaction towards your wealth. Regularly subscribing to designer shoes can take a toll on your income. While, decreasing your trips to the coffee shop can help save cash. With this form of thinking, you will practice financial self-awareness.

Financial self-awareness comes the observation of thoughts, feelings, and actions surrounding money. For instance, you will be more aware of temptations such as the “cheap” 24-hour marketplaces.

TYPES OF BUDGETING

A. Traditional

A Traditional Budget maps out a plan for how you expect to spend your money. It indicates the amount of money you allot during a specific period of time for a specific financial obligation. How much will you set aside for rent, entertainment, or insurance?

B. 50/20/30 Rule

The 50/20/30 rule is a proportional guideline that helps you establish good habits through the alignment of saving goals. 50% of your income shall go to essentials, 20% of your income shall go to savings, and 30% of your income will be spent on the unnecessary personal expenses.

C. Envelope Method

Envelope method is a simple way introduce you to budgeting. Begin by track the last month’s spending. Highlight your fixed and variable expenses. Then, devise a plan that will consist of different categories. Segregate each category into various envelopes. You must strictly follow through the allocation of each envelope. Do not get money elsewhere.

D. Event-based Budgeting

The last type of budgeting revolves the life events such as weddings, funerals, vacations, and special holidays. Tweak your budget in accordance to these events.

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Budgeting lies at the foundation of each and every financial plan. It is about understanding how much money you have, where it goes, and how to allocate those funds. Best of luck!

Sources: 1 &2

Choosing Trading Indices or Individual Stocks and Shares – Which Is Best Suited to You?

Indices versus stocks and shares is a tricky question. You can trade both, but most people prefer to stick to one or the other. Let’s take a look at both and discuss the pros and cons.

What are Indices?

Indices are compilations of stocks and shares. The FTSE 100 is an index of the top 100 companies listed on the London Stock Exchange. There are many others, including the S&P 500 Index, the Hang Seng Index, the Dow Jones Industrial Average, the NASDAQ 100 Index, and so on.

An indices performance is measured in points. For example, if the FTSE 100 goes up by 56 points, the overall value of the companies listed in the index has risen in value. When the value of stocks and shares fall, the index loses points.

When you purchase shares in the FTSE 100, you are essentially buying shares in ALL the companies listed in that index. The value of an index is derived from the average value of each company or entity in the index. If you elect to purchase shares in a single company, the value of your investment goes up or down according to the performance of that company.

The Benefits of Trading Indices

Trading in indices is more cost-effective than trading in individual shares. If you buy shares in the FTSE 100, you’re effectively buying shares in each of the listed companies. To buy individual shares in each company would be very expensive.

Trading indices can offer a far greater degree of diversity. You can spread your money across multiple indices, which also spreads the risk. If you place all your eggs in one basket by buying shares in a limited number of companies, the risk is far greater.

Risk Management

Stocks often rise and fall based on news reports, politics, financial statements, etc. If a company’s shares take a nosedive because they were caught hiding toxic assets in the Cayman Islands, it will have a dramatic effect on the company’s share value, and not for the better!

When you trade on indices, you are betting on whether the value of the indices will rise or fall in the same way forex traders bet on whether a currency pair will rise or fall in value. If you sell an index at a higher price than you bought it, you make a profit and vice versa. When the price of an index rises, more investors are buying than selling.

Whereas stock prices in individual companies reflect the performance of that company, indices reflect wider market sentiments. For example, the day after Theresa May called a snap election, the FTSE 100 had fallen by 180 points, which saw £45.7 billion wiped off valuations.

In most cases, trading on indices is less risky than investing in individual stocks and shares, but there are always exceptions to the rule. For example, the Dow Jones fell by 22.6% on Black Monday in 1987, so never rest on your laurels.

Indices versus stocks and shares is a tricky question. You can trade both, but most people prefer to stick to one or the other. Let’s take a look at both and discuss the pros and cons.

What are Indices?

The Benefits of Trading Indices

Risk Management

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