Financial Freedom SG

I saw a HDB infographic at the MRT station at Boon Keng today and thought about whether the change in policy was thought through thoroughly enough by the policy makers.

I refer to the change in rules governing purchases of HDB flats from maximum 30 years to 25 years loan tenure.

On one hand the government seemed to have taken some of the messages of the last election in 2011 to heart and communicate its policies more, witness the infographics, the ads of the pioneer generation package in the form of TV advertisement using soccer analogy instead of its usual mailer with cartoons.

However, when policies are rammed through without consultation, feedback and proper studies, their overall effect is to make the ordinary Singaporean less well off.

If you refer to the two scenarios below, you will understand why:

 

Scenario A
housing loan int	2.60%
index funds	5%
term	25
no. of mths	300
loan amount	420,000
housing loan payment each month	-1,905.41
Investment term no. of months	60
Investment from 25-30 years	129,579.60

Scenario B
housing loan int	2.60%
index funds	5%
term	30
no. of mths	360
loan amount	420,000
housing loan payment each month	-1,681.43
Use difference for investment	-223.99
Investment from 1 to 30 years	186,413.57

 

Scenario A is the one the government has changed to, where the tenure of loans cannot exceed 25 years. The rationale is to force people to buy flats within their means and then use the money that they will have saved from year 25 to 30 years into their retirement.

If we assume that,

1. The people taking the loan are rational and does what the government wants and will not use it for other purposes like fund their children’s education etc instead of funding their retirement.

2. The rate of return for investment is conservatively estimated at 5% with the assumption that the people will chose an index fund or exchange traded fund like the STI ETF which has yielded above 9% as at 16 Jul 2014.

In Scenario A, the family who finished their loan at year 25 and immediately invested the same housing loan amount to an index fund yielding 5% will have gotten about $129,579.

Which is not too bad.

What about Scenario B?

The folks who was under the old policy of a housing loan tenure of 30 years will have fared better by getting $56,833 more, if they had invested the difference of $223.99 each month to the same index fund earning 5% per annum.

The folks who was under the old policy will have fare better. Anyone who studies economics or finance will understand the effect of compounding interest.

So when the government forces the loan tenure to be shorter, it is in effect reducing the incomes of couples starting their families and reducing their ability to invest and finance their own retirements at the very start, when it matters THE MOST as early compounding means that the money pile at the end is much bigger,

 

Source:

1. http://www.spdrs.com.sg/etf/fund/fund_detail_STTF.html as at 16 Jul 2014 at 9.05%

There has been a lot of consternation and anger about the CPF scheme and the minimum sum recently.

While the CPF scheme in general works well, it is perhaps a little too conservative and benefits the government of the day rather than the general public in terms of the benefits gained from investments using the CPF monies.

This does allow the government the benefit of spending this money as it sees fit and helps fund infrastructure developments, social programmes, education and others.

I will argue that it is better to put it into the hands of the general public. At least a portion of it. A bit of a half-measure.

I propose a rather drastic amendment to the CPF scheme.


Let me explain further.


1. For the first few years of one’s working life, the entire CPF contribution of 36% should go to one account, let us call it OA-R (as it Ordinary Account- Retirement/Rocket Booster or OAR for short). And this account earns 3.5% (the present rate of 2.5% with 1% for amounts up till $60,000 in either OA or SA currently)

2. After this account reaches $21,000 (which should be about 4 years if you earn $1,100 or 3 years if you earn $1,500), this amount is transferred to an account that invests in an index fund like STI (or a mix of STI and S&P 500 or a mix of some other index funds/ETFs). The benefits of index funds/ETFs are the low cost and annual fees, which means that this $21,000 works harder for you in what Albert Einstein termed as the 8th Wonder of the World- the magic of compounding.

3. Assuming this person who reached this $21,000 milestone is now 28 years old (earning $1500 a month), and this entire amount of $21,000 is kept in the index fund with dividends reinvested, when he or she reaches 65 years old, this is what this $21,000 will look like under the different investment return rates:


4. As the STI returned about 8.5% for the past 10 years while a literature search of any good financial books will tell you, the returns from stock investment in the whole of the stock market can be pretty decent, so a range of 6.5% to 7.5% is doable. After all, didn’t Temasek Holdings and GIC claimed to have investment returns in excess of 10% over many years? The interesting thing here is that anything above a 5.5% return will have met the minimum sum. And that is with just the first $21,000. After investing this $21,000, the CPF reverts to the current model. For the purpose of comparison, the current 3.5% and 4.5% is illustrated here to show the returns possible even with current rates earned through CPF.

5. So assuming that we take the amount when you reached 65 years of age and invest the amount in an annuity. And now this annuity has more bonds, let’s say 80% government bonds and 20% equities(ie index funds) for a conservative return of 3.5% for each of the rows in the table in point 3 for 20 years till the age of 85. What will be the monthly amount a retiree will get?


Now that monthly payment doesn’t look too shabby right? And this is just with $21,000 invested when you are 28 years old.

6. So after the age of 28 years old, the CPF reverts to its original form with different amounts going to OA, SA and Medisave for the respective needs.

7. There could be people arguing that one will need medical insurance in case something should happen between the years when you are 25 to 28 years old.

i. There could be an alternative where the current 29% goes to this OAR account and 7% to the Medisave while the young person saves a while more to hit the $21,000.

ii. There could be also be people arguing that the first initial $21,000 should immediately go into this index fund and roll away the compounding interest earlier.

iii. Also, for illustration, I have kept the transition from investment in index fund to annuity to be a direct one, however, in real life, an annuity like the current one transits from 55 years of age to payout when you reach 65 years of age. However, if the annuity is managed through the government and invested in government bonds, this can be made a seamless transfer of monies between different entities that are linked.

iv. The other downside could be that young people will be wary of buying their first home and delay their marriage. This can be reduced with the existing government grant for buying HDB flats being expanded further or for a scheme whereby CPF loans the initial house loan deposit ( the first 10% or 20%) on top of the HDB or bank loan. After which the person pays back both the intial loan and the HDB/bank loan. 

8. The government still get to benefit from the CPF amounts invested after a person hits the $21k mark with funding still available for excess returns after paying off the government securities used to pay off the CPF interest rates for the public.

9. People still get to pay houses using their CPF OA account after they have prepared for their retirement using the first $21,000. And their risks are hedged as they will still accumulate SA amount after they are 28 years old which will be additional money for their retirement.

10. This may even allow more flexibility to how SA account can be used, for example, appeals through their Members of Parliament for partial amounts in the SA account to be used in the cases of long term unemployment, sickness in family etc as OAR is already being set aside for retirement.

11. The government still have money from investment returns from reserves to fund all the programmes that they feel is needed. In fact, by keeping 80% of the annuities in government bonds, the money there could replace that of the $21,000 OAR invested in index funds.

12. And more importantly, the people don’t have to worry about ever fulfilling the ‘minimum’ sum or retirement, while their retirement is more assured as the risks of managing the retirement is spread between the private index funds and public linked bodies which manage the reserves in the government, namely the MAS,GIC and Temasek Holdings.

13. Thus, we can consign the word “minimum sum” to history.


What do you think?

Read an article on Yahoo Singapore this evening about the people needing to prepare more for retirement as the retirees are living longer with better healthcare and lifestyles.

According to the article reposted from Bloomberg,  “Longest retirements fuel pressure for remodel”, Singaporean retirees are living longer like in most places in the world and this causes stress for the retirees as they probably had not saved enough for this.

In the same article, there is a quoted survey by Friends Provident International of 556 people who had at least $80,000 to invest found that only about 57% felt that they are saving enough for their retirement. I went to look at the survey that they provided and there were some interesting things there too like some felt that they need at least $800,000 for retirement while others have figures of $2.5 million. 

Being a bit of a busybody, i went to Google Friends Provident International, read a bit of their website and went to one of their funds that they advertise and suffice to say that i baulked at the fees that they are charging for their investment advice. This high fees charged besides other things is also mentioned at this website by Andrew Hallam that was part of the first page of the Google search results that I found.

The one thing you can control in investment is fees.

High fees are not indicative of expert knowledge. Nor do they indicate that there is a modicum of safety or stability in the high fees charged.

Back to the topic of being prepared for retirement, I will say that quite a lot of people think that investment is hard. It isn’t, but it is not that easy either. In fact, I’d say that it takes more willpower than IQ.

In my second job working for a bank’s call centre, I remembered the trainer who showed us a newspaper clipping about a clerk who invested a fixed monthly sum to her Singapore unit trust fund. She retired as a millionaire.

All you need to do is to spend less than you earn each month (some months may be a bit of a challenge, what with insurance dues, credit card payments etc, but the key is that you have to spend less than you earn).

So no car, no LV bags, no Tag Heur watches, no frivolous expenses.

The author of the book, “The millionaire Next Door”, found firemen, teachers as people who managed to find themselves with a million. So there isn’t an excuse for not being prepared for retirement.

It’d be helpful if you can actually save a million, but that is doubtful unless you are earning millions each year. So for us mere mortals, we have to invest.

My abiding faith in the power of investment is because i was a beneficiary in that too as my father’s investment in stocks and shares all through his life was key to his being able to send me overseas for my university studies.

So I bought stocks and IPOs in my very first job right from the first year.

I’ve stopped making stock purchases in the past two years as my baby boy came along with my busy job and a master’s course (funded this time by the stock purchases I’ve made). But i have two monthly dollar cost averaging plans that are moving along without any input from me. And I plan to start again pretty soon, China looks inviting as it has fallen to below 10x in its PE ratio from sky high levels just about a year ago or so.

Meanwhile, time to relook at my estimates for how much we need for retirement based on the Bloomberg news article  and Singapore’s new high levels of inflation.

Source:
1. Bloomberg article: http://www.bloomberg.com/news/2013-04-18/world-s-longest-retirements-fuel-pressure-for-singapore-remodel.html
2. Friends Provident International survey: http://www.fpinternational.com/common/layouts/subSectionLayout.jhtml?pageId=fpint/SitePageSimple%3Ainvestor_attitudes#
3. http://andrewhallam.com/2011/04/weve-just-been-scammed-by-friends-provident-so-what-now/

Saw this article in Yahoo about “Many Singaporeans Worried about retirement savings: Survey.” In the article, it mentioned that a survey by the financial firm Aviva found that the majority of the respondents, 44 per cent, thought that they will still have to work beyond retirement age to fund their retirement.

Only 32 percent feel that they have enough savings to cope with emergencies.

In the same article it mentioned that the Singaporeans survey viewed investments as their preferred financial products, with 27 percent choosing savings as their preferred financial product.The actual survey results by Aviva can be found here at ‘Aviva in the News.’

Disturbingly for me, 37% wish someone else will sort out their financial affairs. This decreased to 29% when the people surveyed got older. Guess with experience, people realised that the only person who can sort out the financial affairs is the one staring back at them in the mirror.

And also in the survey was the nugget that the majority of people preferred a guaranteed return over a higher yield. Guess this reinforces the famous psychological tests done by Israeli academics Amos Tversky and Daniel Kahneman who showed the bias that humans towards decision making involving risks and returns.

What about you? Are you worried about not having enough for retirement? Or are you one who has sufficient reserves and furiously saving and investing to attain financial freedom?

If a clerk in Singapore can retire a millionaire, why can't you?

The article "The Secret to Retiring a Millionaire" illustrates one way to a comfortable retirement.

Can it be done?

I remember when I was undergoing training as a bank officer that the trainer showed us a Straits Times article of a millionaire clerk who had just retired.

Her secret?

Disciplined investment over 30 years through dollar cost averaging into unit trust investing into Singapore.

She puts in monthly sums to this fund, and put more in when she had bonuses.

So it is possible. The key is time, dollar cost averaging and discipline.

What are you doing for your retirement?

According to the figures provided on the CPF site, Singaporeans think we need less than $250k (it doesn't tell us how much less) to more than $1.5 million (again it doesn't tell us how much more).

Some books that I have read said that you should plan on having at least 80% of your last drawn monthly pay each month that you are in 'retirement' to meet expenses.

So, if you earn say $5000 monthly upon retirement, you should have plan to have an income of at least $4000 monthly during retirement. If you retire at the age of 65, and live till 85, that is a figure of $960,000 that you need for retirement.

That's a lot of ifs. And big fat assumptions.

When I first started doing my planning for our retirement (my wife's and mine), my ballpark figure is also about $1 million. For the both of us. Now, I think maybe we have to supplant it by selling the house, getting the proceeds and moving to a smaller apartment. This could yield another $300,000 after buying a smaller unit, assuming the price differences for the big and small apartment is as it is now. The more money we have for retirement, the better.

And when I did the math, the one million will be from our investments, cash, OA and SA balance, not including the Medisave amount or the insurance payout.

How far are we from the target? Assuming we only pump in $1200 each year to our retirement kitty for our investment/OA/SA, and assuming an return of 7% from all of our present investments. We are looking at around $835k. Which is short of a cool $165k from our target.

If you are interested in doing the calculations for this use the fomula in an excel spreadsheet ‘=FV(int rate target, number of years till retirement, fixed amount of investment put in annually till retirement, initial investment amount at year 1)’.

Solution?

• Spend less for retirement
• Pump in more money for investment
• Take on more risk (hard to in my case as our investment are all equities and no bonds)
• Maintain a sizeable position in equities even during retirement so that the money there can help stretch the money and fund the last years of your retirement. Which we intend to do anyway.
• Pretend the problem will resolve itself and magically go away (which some people do)

If you want to learn more about how much you need and start off for retirement planning, you can go to the CPF Retirement Planning page to get started.

Actually my forecast is pessimistic as we have been saving more than $1200 each year to put into investment so we should meet the target comfortably. Then again, some will say that my project return of 7% is too being optimistic. So you have to play around the figures and decide yourself. 

So how much are you aiming for your retirement?

 

Source:

1. My Golden Egg- My CPF

Not many people like change. Nor do we like to plan ahead of time. So why do we put off retirement planning?

1. Why should I plan for it? I just started in my career and retirement is too far away.

2. How do I know what I will need then?

3. I plan to die early.

4. I don't know how to plan for retirement. It's too complicated.

5. I'd will, but I don't have the time.

6. What's that?

7. My idol is Mr Lee Kuan Yew and I plan to never retire and work till I die. If I am still needed after death, I shall arise from my coffin and save my company.

8. My financial planner will do it for me.

9. I plan to live off my kids.

10. It's the government's responsibility. I've worked so hard, they should take care of my retirement.

11. I live day to day, I don't even have a bank balance at the end of the month.

12. I don't have much savings, it won't make a difference.

13. Isn't it taken care of by the Central Provident Fund (CPF- Singapore's form of 401k plan)?

14. My family's rich, go bugger off.

15. I'd think about it when I get there.

16. I don't know how.

17. Uh? You mean you have to plan for it? Doesn't it just happen?

18. It's too complicated. I don't know how to start.

19. Look at all those people who lost money in investments and the big insurance firm which needed a series of massive bailouts from their government. And you ask me to plan for my retirement?

20.Retirement planning? That's so uncool. I just think about what my next meal is gonna be.

I'm just glad that my first job is with a brokerage and learnt the value of investment and my second is with a bank and learnt the importance of fiscal discipline and frugality.

So what is your excuse for not preparing for retirement? Or why are you preparing for it?

England defeated by Germany in World Cup. Yet again.

Hopes were high when England was preparing for this World Cup.

The coach said they can go all the way to the finals. So did some of their players. However, they struggled through the group stage and met a rampant Germany side which is reinvigorated with talented players.

It is another tragedy for the English supporters and the legions of BPL (Barclays Premier League) fans all over the world.

Were they being too optimistic?

What about your own projections of returns for investment to meet your retirement needs?

What happens if your projection of returns fail to match reality?

And your retirement kitty falls short of what you felt you need.

If you had planned for yearly investment projections for retirement and along they way, you found out that you fall way short of the target. What do you do next?

There are 5 options:

1. Save even more now

2. Look for investments with even higher returns along with higher risks

3. Look to do more with your retirement funds by investing a portion of your retirement funds even during the retirement

4. Prolong your working life and put off retirement

5. Pretend nothing is wrong and go on as usual

Of course, some people will grin and say shorten your retirement and die earlier. But that isn’t a viable option for most people.

It could be that huge drastic drops like what happened in 2008 and the early part of 2009 make option 5 attractive. I found that investment is often boring and you basically wait patiently or otherwise. I remember an article quoting Warren Buffett wisdom on the market:

“The market is an efficient mechanism for transferring money from the active to the patient”

What would you do when your projections fall short?

 

Source:

1. 7 Lessons the World Cup Offers on the Stock Market

Was watching the shenanigans that the Bear Stearns people were up to just now on Bloomberg. This guy was playing bridge while his company was collapsing around him.

Who does he blame when his firm went bankrupt? Market forces and loss of confidence.

When the going was good and profits was rolling in, you bet that they will say it is because of them, the leaders that the firm is doing well. Then clamor for higher pay and million dollar salaries for themselves.

If the company that you invested in has a leader like that, quick to claim credit when things are well and blame everything and everyone else when it isn’t, would you trust that person?

The Media?

I have also read books that advised readers to mute the financial news channel when watching it so that you are not affected too much by their opinions and views about where the market is heading. I found a bit hilarious and I did found it funny that every time the market moves either up or down, they have to come up with reasons to why it went that way.

So the market went down because they are fighting in Greece? Why can’t it be because of the inane comments made by the ex-Bear Stearns executives? Or because BP took a hell of a long time to clean up the mess they caused? I mean do you seriously sell your shares because people are fighting in Bangkok?

The Broker?

Once, I believe that the broker’s recommendations should be taken seriously. I even bought into such a company on the strength of the broker report on the company.  After a while, I started laughing when I saw some of them. Especially last year and the end of 2007 when it was filled with ‘sell’ recommendations with valuation becoming dirt cheap.

Also, even if the recommendation proves to be astute and well researched, very soon, more people will come to know about it. By the time you finally get to know it, the prices you are able to buy at is likely to have become expensive.

Or if your financial advisor turned out to be one of those who sold you the Lehman minibonds or one from a firm like Goldman Sachs which sold investors a product that the product manager wouldn’t buy himself in a million years and the company took a short position in too.

If you are still not convinced, there is a title of a book called “Where are the customer’s yachts?”

Or Yourself?

I read a thread on ChannelNews Asia about a guy lamenting that he had lost a lot of money on stocks over the past 10 years. He had bought a lot of China counters which ended up with financial troubles. Mirrored it with the CLOB saga which older investors experienced, and anyone can see that the investing landscape is not for the faint hearted or for someone with no idea what he or she is doing.

A useful quote to remember is this:

“We have met the enemy and he is us”

So what do you end up with after this exercise? Believe no one, not even yourself at times.

You place your belief in your retirement plan, your regular savings, a well diversified investment portfolio and take up adequate insurance protection (thanks of La Papillion for reminder for the protection part).

 

Sources:

1. Cayne Blames Market Forces for 2008 Collapse of Bear Stearns: http://www.bloomberg.com/apps/news?pid=20601109&sid=alC3tjVvlBuk&pos=10

You may want to sign up for this talk at the SMU organised by FISCA to talk about Financial matters. If you sign up, you can get a financial planning book by the ex-CEO of NTUC income.

Details of the talk are as follows from a post in the FISCA site:

We still have places left for the financial talk on 8 May 2010. Please hurry and book your seats now! The public can also sign up through the events page.

All attendees will receive a free copy of the Practical Guide on Financial Planning book. This means both the members and the public will receive the book! The book is written by our very own President. I'm sure you can get him to sign your copy there. :)

The outline of the talk is as follows:

1. When to start, how to approach financial planning
2. How much to save, how to invest savings
3. How much to spend on a property for a home
4. How to manage investment risks through diversification and averaging
5. How to identify and buy suitable investments
6. Draw down savings during retirement
7. Different types of investment products
8. Investments products to avoid
9. Summary

Why wait? Tell your friends. Bring your family. For more details of the Financial Talk, please visit this page.

So what are you waiting for? Register, listen about financial planning and get a free book.

Have a good weekend!

A new survey by Russell Investment reported by Channel News Asia shows that 60% of Singaporeans want to retire by 60.

However, only 40% have develop any sort of plan for retirement, and only 20% have accessed professional financial advice regarding retirement. wonder what sort of professional financial advice they are talking about here.

If it was those by banking wealth manager, I think they can do without it. Or even those by unscrupulous insurance agent out to sell them commission heavy investment products, which is only beneficial to the insurance agents.

You can do better by following the advice dished out on the “Blogs of Note” that is listed in the blog on the right. From the newbie investors starting out on their journey to financial freedom to very experienced financial experts like Mr Tan Kin Lian.

More than 500 people between 25 and 55 years old participated in the survey and rightly so, their biggest fear is out-living the sum that they have saved.

So according to the same report, the majority of the respondents are open to working part time even after retirement.

Do you have any plans for retirement?

Or are you one of those who live day by day?

I made a mistake by overselling my bonus stocks. But I made 89% from the Breadtalk counter. That is from less than 2 years of patient wait through a turbulent market and not including dividends. Can just putting money in bank do that?

My belief is that you can do well in stocks by careful selection. You lose some, but when you win big a few times, it can help you reach your retirement goals.

My mantra is ‘To Plan, Save and Invest’. If you do just one of from the three, you can do alright, but if you combine all three, you can reach your goal of financial freedom before retirement.

Have a good journey ahead!

The earlier you save, the more your money compounds.

If you started saving and investing $100 at the age of 20 years old and compound this at 7% over 46 years until you are 65 years old, you would have accumulated $407,915.42.

That is for a total sum saved of $55,200.

To see how early saving is important, I did up a simple excel sheet which you can download here. Interest on investment is fixed at 7% unless you change the formula for the excel file.

I only wish that investment interest earned can be that constant :)

In it, the yellow shaded cells are where you can enter the different monthly sums you plan to invest.

Investor A realises the importance of investing and starts early, at age 20 and invest $100 each month until he retires.

Investor B consumes his way around, enjoying life and only starts to invest at age 30, 10 years later. He saves and invests a bigger sum $150 until he reaches the investment age of 65.

Investor C is not financial savvy and keeps putting off retirement planning. He starts a family and doesn’t start planning for it till the grand old age of 40 years old. He puts in 3 times the amount of investor A, dumping $300 to invest till he reaches retirement age.

What amount does Investor B and C ends up with?

Investor B has $291,546.84.

Investor C has $264,307.33.

So the later you start to save and invest, the less you’d end up with, even if you put in more money later. If Investor B starts late and wants to end up with an amount bigger than what A ends up with, he’d have to cough up around $210, more than 2 times the amount A puts up with to get slightly more than A.

For Investor C, to surpass Investor A, he’d have to cough up with $464 per month if he start saving and investing 20 years later. That is 4.64 times more than investor A.

In case you are interested in the savings calculator to see how much you need to save each month and also change the assumed interest earned (just don’t put 20% and think you are a Warren Buffett), you can go and download the excel file here.

Want financial freedom? Be prepared to put aside money to save and invest and delay gratification to attain your financial goals.

 

Sources:

1. Savings Calculator by Vertex42

In the papers today, it claims that investors are more upbeat.  However, it says in the same article that 7 in 10 feel that they don’t have enough in their Central Provident Fund (CPF) for retirement.

Guess it means that around 3 out of 10 reading this are interested in planning, saving and investing for retirement.

Are you one of those?

What are you prepared to do to save more or invest more?

I wonder how many of the 7 are doing something to save more to make sure that they have enough to retire on.

Also, it mentioned that 4 in 10 remained invested in the turbulent markets last year while another 4 in 10 who who stopped investing in 2009 either have resumed investing or intend to do so when the opportunity arises. I wonder that the 2 in 10 are doing? I hope that you are not 1 of the 2.

If you are, do not fret, the chart above shows the different ways that you can invest and you can google any of the terms there to find out what they mean.

It is never too late to know and do something about it.

If you are one of my regular blog readers and know about my stock and unit trust positions, it hasn’t changed at all from August 2009 except I bought more unit trusts from dollar cost averaging. The percentage changes have moved up and down some, but it is more up than down ( I think).

I don’t check my stock position when I am working but found myself checking it daily when I was on holidays, go figure. I took loads of photos and I shall be sharing some of those over the next few posts.

This being the first post of 2010, let me wish all the readers a belated Happy New Year. Have a great investing year of 2010.

After you retire, you will probably live on for another 20 years on average. Have you thought about how much you will need when the day comes?

Depending on how much you are spending right now, you will probably be spending at least 60% to 70% of your expenses. Although the figure can vary much on how well you control your spending.

Some people advise that you should have a lump sum and use the interest generated to spend. Others say that you only need a big enough lump to whittle it down.

Also, there are advice out there that say that you should not invest in stocks after retirement, or if you do, it should be 10%-20%. But who’s to say what is the correct model for you?

Everyone’s different. Your situation is different. But you got to think about it while you are still working about the sum of money you want as your nest egg and actively do something about it.

With a plan, you can see if you are behind or ahead and adjust your spending and savings accordingly. If you can’t plan or don’t know what to do, it is advisable to get a trustworthy financial planner who is recommended by your relatives or friends and who will not fleece you nor try to sell you products which have high costs to you.

Else, self-educate with the huge amount of free information out there and from well regarded investment books.

At the moment, my wife and I are slightly ahead of our plan, and we intend to stick to it and try to keep saving and continue to invest.

Hope your own plan is running smoothly along.

What have you been doing for your financial freedom?

If you have been very disciplined and frugal, saving every penny you can find, while putting the money in the bank, you will find that come retirement, your savings isn’t worth much.

Using my favorite =FV formula in excel spreadsheet, you can create this simple table as shown below:

Investment Bank savings

total sum	50000		total sum	50000
% returns in investments	5.00%		% returns in bank account	0.03%
no. of years	30		no. of years	30
Compounded returns	$223,387.22		Compounded returns	$50,376.41

The difference is very stark. A doable 5% return from investment will yield you a return of $223,387. Warren Buffett can get slightly over 20% yearly on his investments for 40 over years but he’s in a league of his own :) Any investment advisor that tells you that he can do as well or better, steer well clear of him or her.

However, if you had take the ‘less risky’ path and put every thing in the bank and take the paltry bank savings interest rate of what is around 0.03%, you will get $50,376.

A miserly return of investment of $376 for 30 years.

If you had invested in something that yielded just 1% just for 1 year, you would have gotten a return of $502, which is higher than putting in the bank for 30 years.

So if you want a more comfortable retirement, you should look to work your savings harder than putting it all in the bank. In this case, taking some risks is essential for preparing for your retirement and you have to start right now.

What if you had just left the money in the CPF ordinary account which yields 2.5%? This $50,000 would have become $105,767.45 Double your initial investment of $50,000.

Does that mean that you should start putting money and your savings in CPF?

Nope, since you cannot touch that until retirement. Instead you should look to put aside some money to invest in index funds, ETFs and buy stocks and shares.

Put aside around 3-5 months of your expenses in the bank account for emergencies and invest the rest that you manage to save.

If you are feeling lucky, just get some Citibank shares and it will be better than putting them in the bank account.

Read this article on WSJ, “Are Distressed Homes Worth It” and remembered my own apartment search here in Singapore. It was both challenging and ultimately fruitful as the flat we bought is being sold for around $200,000 more.

The photograph here on the left shows the type of environment I am living at now and it is a quiet and nice place to stay away from the hustle and bustle of the city.

The fact that people are coming out to buy properties which were foreclosed as illustrated by the WSJ article is yet another sign that the housing market is on the mend.

For the buyers, it is a relatively good buy despite the hassles, problems and inconvenience you face trying to bid for the property.

Here in Singapore, I just read an article talking about release of balance flats by the HDB which you may want to check out. It includes a mix of new flats in prime areas like Queenstown, CBD area like the Duxton project etc and old flats which were probably repossessed or if it was a rental flat, the tenet decided not to continue.

I spent quite a bit of time today looking at the website to see if there are any flats worth taking a closer look at.

In contrast to people who are upgrading, I am looking to downgrading to a smaller flat, and pocketing the difference between the prices for either investment purposes or to repay the mortgage loan in full. For me, if I have the equivalent of the housing loan in investments, it is the same as having the apartment fully paid up for. And I can do more with the investments in an emergency, but if I pay off the flat and need the money, I will have to sell it off.

I don’t mind relatives or friends thinking about why I downgraded my flat, as long as I have money for investment, and in the bank account.

If it succeeds, this will mean that my wife and me will take a major step towards financial freedom.

Wish me luck? :)

A recent study has found that 9 out of 10 Singaporeans are not prepared for retirement.

You can watch the news snippet here:

Another article from the Straits Times, Retiring Without the Tears , lists the factors you have to consider before retirement.

They are:

• Retirement Age
• Years to Retirement
• Retirement Lifestyle
• Inflation
• Financial Commitments
• Medical Expenses
• Leaving a Legacy
• Existing Assets and Post Retirement Income

If you have no idea where to start and the link from the Straits Times article is likely to be gone in another few days, you can go to the CPF page where they do a decent set up of how well prepared your are for the day when you finally retire- www.financialfreedom.com.sg. There are calculators, files you can download and explanation of what is needed for retirement.

The longer you have before you actually retire, the better your chances of being adequately prepared for it as you will benefit from compounding interest.

Financial Freedom can be attained if you plan for it and actively do something about it. Save, Plan and Invest for your retirement as the tag above says.

Have an interesting journey to reaching your retirement goals.

I dug out all my insurance policies today to do up the insurance payout yield. I noted that the policies that I have gotten later seemed to yield much less than the earlier ones while keeping the number of years constant.

As promised, I have done up a insurance payout yield for you to see how much your insurance policy yields when you got your lump sum at the end.

If you have not retired yet, it will be a good exercise to dig up all your insurance policies and key in the guaranteed sum promised in the policies to see how much it yields at the end.

You just need to enter the figures into darker blue area. Your yearly premium, the number of years you have paid the premium for and the payout obtained from the insurance company. If you pay the insurance premium monthly, you can convert it to yearly by multiplying it by 12 and the figures should approximate to what your actual insurance yield is.

The figure in yellow is the insurance yield which will be generated automatically.

The numbers below show the total payout each year and interest. So you can see if you'd be happy with an earlier payout if your policy allows for it or you may want it to stretch to the maturity date.

Paying around $3,000 each year, I suppose I am one of many people who believe in insurance.

However, if you are young and just join the workforce, I would advise you to get a term insurance and not those endowment policies where the investment yield is much lower than if you had invested in an index fund or exchange trade funds (ETFs). On hindsight, the money could be better invested and yield a higher interest by investing directly in the equity markets.

I am gathering materials to write a post on how to save money. If you have any tips or hints, please give me your comments here or email me at: lemizeraq at gmail.com

With the payout from insurance polices and investment, these are essential steps towards your financial freedom and a comfortable retirement.

Do you know if you have enough for your retirement and financial freedom?

Everyone's figures would be different, but you should think about your lifestyle now and how you can sustain it when you reach retirement age. Financial Freedom does not drop on your lap, you have to work a bit for it.

Say your expenses each month now is around $2500 for two persons (you and your spouse). You would assume that after retirement, you would probably still spend that amount, although it is likely to be a higher amount due to inflation, it is tempered by the fact that you'd probably spend less when you aren't working. You'd probably be at home and do a lot of stuff like watching re-runs of movies and drama serials.

So if you stop work when you are 55, and assuming you will live on till 88 years old, you'd need: (88-55) x 2500 x 12 = $990,000. You'd need almost a cool million.

How far are you from your retirement age?

If you are interested, you can download this simple excel sheet to put in the values in the blue boxes to see how much you are projected to have upon your retirement to see if you are ready for your financial freedom.

Remember though that the figures are only projected and you may earn less than the 7% targeted returns for your investments.

If you have a shortfall, either you

• make do with whatever you have at the end
• you extend your working life and postpone retirement
• invest more each month
• take a bit more calculated risks (like take out the $30k from the bank and invest it after putting aside an emergency fund of about 3 months' expenses)
• earn some money on the side to build your retirement kitty
• pray you go earlier than the average life expectancy (not recommended)

Without a plan, you wouldn't know if you are on the way to a comfortable retirement or an unpleasant shock.

Are you on the way to your financial freedom?