Advisers’ Take: Biggest Misconceptions About Financial Advisers?

Advisers of fundMyLife share the biggest misconceptions about financial advisers

Financial advisers have an important job to do – plan your finances, provide advice on insurance and investments, etc. The best ones will be your lifelong friends as you move through different stages in your life. However, the bad ones are the ones that leave the strongest impressions on consumers – news, viral social media posts, angry word-of-mouth, etc. In fact, members of the public may have different ideas about who and what financial advisers are. In this article,  fundMyLife asks three of its financial advisers – Kennard Lee from AIA, Winifred Tan from Great Eastern, and Ryan Teo from AXA – about the biggest misconceptions about financial advisers.

Kennard Lee, AIA

Misconception #1: All advisers are the same

Consumers think that all advisers are the same. As such, they end up buying policies from friends and family. While relationship is important, it is more important to take into account the quality of the person providing the financial advice.

One of my clients bought several plans from her aunt. Upon finding out more information, I realized that she spends less than $200/month on insurance. It turned out that her combination of plans did not provide adequate coverage. For example, her hospitalization plan was at the lowest grade. She also purchased an endowment plan which she thought yielded 4%, but was only a projected yield as shown in the benefits illustration. I succeeded in redoing her plan and building a portfolio that best suited her. The financial planning jackpot is a friend or relative who is also competent at his/her job at advising. However, it is more important to choose someone who can advise well first and foremost.

People think that products are different across different insurance companies. But based on my calculations, the difference between insurance products of the same profile and type is only 5%. This means it’s never about the product. It is more about the adviser who is serving you and how much they care about your financial success. These advisers will always make sure your portfolio is never out of date, and make sure it is updated according to your life stage.

Misconception #2: Insurance agents can only sell insurance

Insurance agents are not just for selling insurance only, but also sell investment products. Competent agents will help their clients achieve good returns, and conversely those agents who are not as competent will achieve poor returns for his/her clients. Apart from being competent, good agents also truly cares for his/her clients as well.

My personal policy is to buy the same sub-funds that I recommend to my clients. By recommending what I myself use, I have skin in the game.

Misconception #3: Advisers from banks are the same as the ones from insurance companies

The products you purchase from an adviser from a bank is different from products you purchase from an adviser from an insurance company.

For example, purchasing a mutual fund from a bank is different from a investment-linked sub-fund. Consider this scenario: you purchase a $100k fund product from either a bank or an insurance company. The following day, a catastrophic financial event like the bankruptcy of  Lehman Brothers. The stock market collapses, and your $100k becomes $40k. The next day, you die of an accident. If you purchased the $100k fund from a bank (a mutual fund), your family will only receive the $40k. However, if you purchased the $100k fund from an insurance company (a investment-linked sub-fund), your family will receive $100k back. That’s a great safety net to have.

Winifred Tan, Great Eastern

Misconception #1: Financial advisers are the same as insurance agents

The financial planning industry has evolved since the past. With a population that is better educated, and a society that faces more problem that it did today, there’s a need to make sure that someone stands by you to help you.

Financial advisers are not just insurance agents, where we sell or take orders from clients. For us, we are qualified consultants – some even have Chartered [fML: professional bodies] or Masters – and know finance and insurance/investment related knowledge and applying them to your lives. We also know retirement planning, estate planning, tax planning, and we have advanced certifications in theses specialized areas!

Misconception #2: All financial advisers are the same

Regardless of the good or bad experience that you had with the advisers you met, there are so many different advisers out there that you should not generalize them. There are very good/responsible/ethical ones out there, and this is how you tell them apart.

Firstly, you usually know the good ones via referrals. Secondly, the good ones have good resume, experience, and qualifications that set them apart from others. Thirdly, advisers who conduct seminars and other forms of educational events are usually more credible.

Misconception #3: Advisers will sell me policies for their own gain

As mentioned, not all advisers are the same. There are very passionate ones who love to add value to their clients’  lives. The best ones are reliable, and clients love them and like to discuss not just financial issues but life issues as well.

Some advisers have better qualification like ChFC, Masters, CFP, etc, so they know matters that the members of the public do not. The number of years in the industry would show that if they are really the type to seek personal gain rather than clients’ interests.

Ryan Teo, AXA

Misconception #1: Clients should just leave everything to the adviser

When you have a financial adviser, you should not leave everything to them to handle. There are clients who let their adviser figure everything out by themselves without giving them enough information about themselves. Both parties should actively participate and play a role in the financial planning journey.

For example, you need to let the adviser know of any major changes in your life, such as marriage. Clients should also have a quantifiable goal to work towards, so that the adviser knows how to plot the route to get there. A lot of clients fear that if they reveal too much information, the adviser may sell them more things. This is detrimental to the client if he/she withholds information.

For investments, clients need to articulate the % returns that they want so that advisers can advise accordingly. There are clients who hand everything off to the adviser, but get upset when their expectations are not met because of a lack of communication. You have to help them help you by communicating your expectations. I suggest that clients and advisers engage each other quarterly to review the investments and discuss strategies.

Misconception #2: All advisers that you see in roadshows are bad

One of the biggest misconceptions about financial advisers is that only bad advisers go on roadshows. However, good ones still go for roadshows because it is one of the many ways to meet potential clients. In road shows, there’s a fear that advisers whom you meet will sell you a plan straightaway. But, the best ones will first take a look at your finances before doing anything else.

fundMyLife Summary

Hate them, love them, financial advisers are here to stay. We hope you learned about the biggest misconceptions about financial advisers, from the advisers themselves. In their own ways, all three advisers emphasized the fact that not all advisers are the same. It seems that the public tends to hold a single impression of advisers, which is wrong since individual adviser has their respective edge.

Kennard emphasized the importance of competence over familiar relationships when it comes to financial planning, i.e. pick a good planner over supporting a friend or family. He also makes the case for insurance agents being able to advise on investments and not just insurance since the best agents can obtain the best returns from investments because good agents care about their clients. Winifred talked about the difference between advisers, and shared some tips on how to find the best ones. Ryan noted that it takes two hands to clap and that clients must work closely with their advisers to reap most of the benefits of the advisers’ advice.

Ask fundMyLife financial questions today!

If you don’t know who to ask or where to find amazing financial advisers, we got you. If you want to engage more financial advisers, or if you haven’t found the right one, why not consider advisers of fundMyLife?

Intrigued about any of fundMyLife’s advisers in this article? You can connect with either Kennard Lee from AIA, Winifred Tan from Great Eastern, and Ryan Teo from AXA, just click on the link in their names and you can ask them questions directly from their profile pages. Alternatively, you can check out our curated pool of individual advisers and ask them questions directly.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Looking For Insurance For Pre-existing Conditions? Here Are 4 Options You Can Consider.

Insurance for pre-existing conditions

It sucks to have what insurers call pre-existing conditions. These conditions are defined generally any injuries or illnesses that affect you before you start your insurance policy. It can range from something you were born with such as asthma, or something that develops later in your like, such as diabetes.  At best, you have to pay extra premiums to account for the additional risk borne by the insurance company. At worst, the company denies you access to insurance.

It’s not the end of the world if you are one of those out there. If you are looking for insurance for pre-existing conditions, there are still options available to you. In this article, fundMyLife discusses what you can do to get yourself protection, even with pre-existing conditions.

#1 Corporate group insurance plans

If you or your spouse works in a medium to large-sized company, chances are that your company has a group insurance plan, be it for yourself or your spouse. Some corporate schemes have a thing called medical history disregard. As its name suggests, employees (and their partner, if available) under this group plan can join no matter what their health condition is.

You should check with HR if the group insurance covers individuals with pre-existing conditions. The only downside is that you have to stick with the company to maintain coverage. That is a risky decision, since your coverage is now at the mercy of your employers. However, if it’s a good company, why not stay?

#2 Moratorium underwriting

When you apply for insurance, you under go medical checkups and complete questionnaires about your health. This is because insurance companies require these to assess the risks involved when covering you.

Moratorium underwriting is when the company does not require you to undergo checks and questionnaires. Instead, a waiting period is declared. If you do not undergo any treatment or get ill from your pre-existing condition during the waiting period, your application for insurance will be approved by the insurance company.

This move is risky, since you won’t have coverage until the moratorium period is over. Not all companies provide moratorium underwriting. At the point of this writing, only Aviva officially provides moratorium underwriting so you’ll have to speak with your own adviser.

#3 Non-conventional products

There are global insurance for pre-existing conditions offered by local companies, such as AXA’s GlobalCare Health Plan and AXA InternationalExclusive. Providing health insurance for individuals with pre-existing conditions is, from the perspective of a local insurance company, risky. The potential downside about international health plans is cost, i.e. it costs more to get yourself insured under these international plans.

In the recent years, insurance companies took the initiative to design specialized products for those looking for insurance for pre-existing conditions. Critical illness plans are typically out of reach for individuals with chronic diseases, such as diabetes. However, with rising cases of diabetes each year, it means more people are excluded from getting adequate coverage. AIA Diabetes Care is a critical illness plan for individuals who are pre-diabetic or have Type II diabetes aged between 30 to 65 years old.

In addition, most travel insurance do not cover claims from individuals with pre-existing conditions as well. NTUC Income has Enhanced PreX plans that provides coverage for those incurring medical expenses while they are overseas.

#4 MediShield Life

This is almost a no-brainer (since every Singaporean has access to it), but a point worth putting in this list. If all else fails, there is MediShield Life for basic coverage. Those with pre-existing conditions are still eligible, but have to pay 30% more premiums for ten years before the premium goes back to normal that corresponds to the age group. That said, according to MOH those who control their pre-existing conditions, or have mild ones, do not have to pay the extra premiums.

Ask fundMyLife financial questions today!

If you have a pre-existing condition, we hope this article is reassuring. There are still options out there if you are looking for insurance for pre-existing conditions.

If you don’t know who to ask or where to find amazing financial advisers, we got you. If you want to engage more financial advisers, or if you haven’t found the right one, why not consider advisers of fundMyLife? You can head on over to fundMyLife and ask our pool of financial advisers questions. Alternatively, you can check out our curated pool of individual advisers and ask them questions directly.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

A Really Simple Guide On Investment Products To New Investors

Guide on investment products

[9 min read]

Written by Sherwin Chan, edited by Jackie Tan

Hello readers of fundMyLife articles! If you have read my two previous articles, which are here and here, you probably figured that I am relatively new to investing that has just a couple of years of experience.

Truthfully, when I first said to myself that I needed to start investing, I had a lot of inertia in the early stages because I didn’t know where to look for information or even what type of information I should be researching. And that’s why I am writing this article for those who are new to investments. Hopefully, I can be of some form of guidance to them.

What this article will cover is:

  1. How each kind of investment is suitable to the needs of different groups of people
  2. Pros and Cons of the major investment types
  3. My humble advice

Here’s the kind of investment that is covered below: 1) Stocks, 2) Bonds, 3) ETFs, REITs, and Index Funds, 4) Insurance products, 5) Alternative Investments

Disclaimer: this article should serve only as a general introduction to investment products. As such, do your own research and due diligence before you purchase any investment products. 

#1 Stocks

Who is it suitable for?

There’s no definite answer to this question. Why? It’s because there are so many stocks out there that every kind of investor can almost certainly find a stock that matches their financial needs. Still, pairing your financial needs doesn’t mean you should plunge straight into the stock market. There are other factors to consider as well.

For instance, one must have good knowledge and have the time to track how the stock market moves to time the entry and exit well. This knowledge is a combination of fundamental analysis and technical analysis because if you enter and exit the stock market at the wrong time or pick the wrong ship to board (analogy), you probably will lose money or won’t earn as much. Also, you should have sufficient financial and mental strength to weather volatility. The stock market is very liquid which results in high transaction volume, and therefore prices change quickly based on new information or market irrationality. As such, having the financial strength to weather volatility is critical, and you shouldn’t enter the stock market if you’re dumping a significant portion of your assets into it. Always be prepared for the worst.

Pros & Cons:

Pros:

  1. Potential for very high returns. (Look at Apple, Google 10 years ago and now)
  2. Some stocks offer stable, consistent dividends that investors can rely on as income.
  3. Almost all industries that you can think of are covered, and this is an excellent avenue for diversification across sectors.
  4. Stocks are easy to liquidate due to the ample liquidity in the market.

Cons:

  1. Higher risk especially if you pick wrong.
  2. Higher volatility in the short run than the long-term
  3. Time and effort are required for analysis.

My humble advice

Don’t be afraid of entering stocks! I know most of my peers are quite apprehensive about entering the stock market because to them, as newbies, it is venturing into the unknown. I genuinely understand that anxiousness, but it’s important to take your baby steps at the start. As I always mention to my friends, always start small and make as many mistakes as you can when your base capital invested is small. It’s better to lose $3,000 now than to lose $30,000 in the future. The earlier you make mistakes, the more you’ll learn because you know what doesn’t work. I’ve mentioned other advice regarding stocks on my first article here that I can only reiterate. Read voraciously, don’t limit yourself and test your pick across different strategies!

#2 Bonds

Who is it suitable for?

Bonds are suitable for those looking a regular source of income. Most bonds provide regular coupon payments that are stated in the terms, and this payment is pretty much guaranteed so long as the company doesn’t default on it. Bonds are also suitable for those looking for diversification sources from stocks and other forms of investments because bonds are stable long-term investments that can provide a decent income. Also, because it is usually recommended to hold the bond till maturity, investors should have sufficient financial strength to hold them until maturity.

Pros & Cons:

Pros:

  1. Returns are fixed and pretty much guaranteed so long as the company doesn’t go kaput
  2. Less risky in general compared to stocks in general
  3. You get the benefit of knowing what a good bond versus a junk bond thanks to credit rating companies

Cons:

  1. Sizeable principal sum needed to purchase the bond in the beginning
  2. May lose value in the future if interest rates rise especially for longer-term bonds
  3. May lose value if you don’t hold them until maturity
  4. Not as liquid as stocks.

My humble advice

Don’t shy away from junk bonds. It’s not that I’m saying you should buy junk bonds, instead, do give some considerations to junk bonds as well because junk bonds often have higher returns that AAA-rated bonds. Remember, go for the bond that you feel comfortable with and can maximize your wealth. Also, don’t underestimate the interest rate risks on bonds especially for those investing in long-term bonds. For all investors, it is essential to have a basic understanding of how the interest rates move and how it affects your investments.

#3 ETFs, REITs, Index Funds

Who is it suitable for?

For this class of assets, while ETFs, REITs and Index Funds are entirely different things, one thing they have in common is that they are all baskets of investments. These usually hold more than one financial product in it and as such, are decently diversified within itself. This means that there are less diversifiable risks and hence provide a safe investment with not so bad returns. Additionally, since it is usually passively managed by a finance professional, it is suitable for those who have no time to micro-manage their portfolio and for newbies who are risk-averse and not sure of what other investment products to venture into.

Pros & Cons:

Pros:

  1. Can provide stable returns
  2. Have lower volatility than individual stocks
  3. An easy way to track the health of an industry/sector/economy
  4. Some are passively managed while finance professionals actively manage some
  5. Good for newbies who are not sure of what stock to buy but know what sector is good. (Reduces the chances you make a costly mistake)

Cons:

  1. Returns are lower than individual stocks
  2. For those managed by finance professionals, you still must pay management fees even if you don’t make a profit
  3. If you do make money, they also take a cut of your profit
  4. Your exposure may be too focused on the industry/sector causing you to have systemic risk

My humble advice

Always check what is contained in the basket you are buying. If you don’t check what’s inside the basket you are purchasing; you’ll never know whether there are golden eggs inside or rotten eggs inside. As such, it is essential to understand what you’re buying. I mean, it’s basic common sense to know what you’re buying right? Additionally, always be sure to check the management fees and the commission fees the finance professionals are getting from you. In times of recession and periods of low return, these small amounts make a huge difference in whether you make a net profit or a loss.

#4 Insurance products

Who is it suitable for?

Almost everyone. Now, talking about insurance warrants its series of articles but thankfully fundMyLife has covered this topic here and touched on the basics of it. But as a summary, there are many different forms of insurance available out there in the market, and you really should talk to a financial consultant to understand more and tailor your needs to the correct financial products. However, in general, it is suitable for people seeking ultra-long-term financial security and for those who are risk averse but do not want to earn the measly interest rates a savings account in the bank provides. Also, it is advised that you hold these products for the long term to enjoy the full benefits of it and hence, it is more suitable for those who have the financial capability to sustain this commitment.

Pros & Cons:

Pros:

  1. Returns are stable especially if you hold for ultra-long-term
  2. With proper research and planning, some have high bonuses over the long run
  3. Variety of insurance products are massive, and some will suit your needs

Cons:

  1. Returns may be lower than the market average
  2. Some products are not suitable if you need high liquidity in the short term
  3. You need to read all the fine print and understand everything inside it
  4. Most products require regular premium top up
  5. Be careful not to be scammed by those products that promise high returns but may not suit your long-term needs

My humble advice

I am no expert in insurance products and as such, implore you to read other fundMyLife articles on the basics of insurance as a start. One thing to know about insurance is that while there are many financial consultants out there who are out to eat your commission, there are many others who have a genuine passion in helping you meet your financial needs. One way to protect yourself is to do your research before engaging one to prevent yourself from falling into investment traps.

#4 Alternative Investments

Who is it suitable for?

Alternative investments here are those types of investments that don’t fall under the above four categories. For example, the most prominent alternative investment product is currently cryptocurrency. Other forms of alternative investments include art, vintage cars, timepieces, wine, etc. While there are many alternative types of investments out there, these usually don’t have the size and liquidity of the above four, and as such, I only recommend it to those who are willing to take risks and for those seeking to diversify away from regular investment products.

Pros & Cons:

Pros:

  1. Returns can be eye-popping (Bitcoin if you time it well)
  2. A wide range of choices available for you and as such, provide useful avenues for diversification

Cons:

  1. Returns can be wild, and losses can be massive (Again, look at bitcoin)
  2. Information about it is a lot lesser and are less accurate than those provided by reputable firms.
  3. Usually not very liquid investments

My humble advice

Truthfully, I am not well versed enough in this area of investments that I can provide you guidance per se. However, what I can tell you is that this area of finance is niche, and most investors are not suited for it. If you ever dabble in this area, make sure you do your proper research on the technical details, legal details etc.

Conclusion

What I have written above is just a simple guide for newbies to understand more about the different product types and by no means a comprehensive list. Newcomers should still do their research on every kind of investments and more importantly, understand their individual financial needs and goals so purchase the correct investment products. It is imperative also to have some basic finance knowledge before you genuinely commit your money into the investment. All the best and may you be profitable in your endeavours!

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

The Best Insurance Policies At Your New Life Stages

The right policies when transitioning to new life stages

Life is a long journey. Typically, advancing into new life stages can be scary since each new life stage comes with its own special challenges and intricacies. Which you may or not be prepared for.

However, fear not. In this article, fundMyLife explores the insurance policies you need to get as you enter different new life stages. Typically, an individual in Singapore first goes through student life, followed by working adult life as unmarried, followed by marriage and family, and finally retirement. Do bear in mind that this guide accounts for more common life stages.

#1 Student

As a student, the minimum protection you should get is hospitalization plans for yourself. This is because you have do not have dependents, and you still relatively low risk for critical illnesses,  For students in tertiary institutions, your school usually has a group insurance plan.

The only downside to that is that those are group insurances, and the payout may not be adequate. A quick look at the group hospitalization NUS scheme for students reveals that the limit is B2 ward. As a student, you can also consider personal accident plans if you are active in sports.

#2 Working adult

Congratulations, you’re gainfully employed in a company! Often, being employed comes with corporate benefits such as group insurance. Similar to what we mentioned earlier for pre-graduation students, group insurances do not have high payouts and you typically need other plans to cope with new challenges. For example, on top of your hospitalization plan, you’ll need to get critical illness. Now that you’re older, you’re at higher risk of contracting critical illnesses, especially cancer (touch wood). The lump sum from critical illness plans will help you get back on your feet in those events.

Depending on the nature of your occupation, it’s a good idea to thinking about disability income as well. Of course, office work has relatively lower risk of disability-causing injuries, compared to a physically-demanding job like working in a warehouse.

What if you’re a freelancer? Almost 9% of Singapore’s workforce consists of freelancers. This number is set to increase over the years as the gig economy expands in Singapore. While the freedom of time is a plus as a freelancer, it may also be slightly trickier. Being a freelancer has various challenges. Firstly, freelancers often have irregular and unpredictable cash flow. Secondly, when freelancers fall sick or get injured they do not earn money at all. Furthermore, there is no company insurance benefits that employees enjoy.

From our research, how some freelancers cope is purchasing personal accident insurance with income protection riders. However, this can be an expensive option. Earlier in 2018, GigaCover launched Freelancer Income Protection (FLIP) Insurance to provide freelancers who are unable to work with daily cash benefits.

#3 Married

With marriage, you now have dependents, i.e. people who depend on you. At the risk of sounding grim, with additional responsibilities, your life is now not just your own.

As such, you can consider more policies at this stage. On top of hospitalization, critical illness, and/or disability income plans, breadwinner(s) should strongly consider life insurance. In the case that the breadwinner(s) pass away suddenly, the life insurance payout can tide his/her family by. Mortgage insurance will also be important as well if you have a loan for your house, as in cases of unforeseen circumstances, mortgage insurance covers the remainder of your housing loan.

Mothers-to-be can think about maternity insurance for the peace of mind during your pregnancy. When your kid is older, consider getting a personal accident plan for him/her, since children are prone to injuries.

#4 Retirement

Now that you’re older, and the children have flown the nest, it’s time to scale back on some policies. Keep your personal accident insurance, as the elderly are accident prone. As always, make sure you have hospitalization plans for yourself to cover hospital and medical bills. On top of that, once you’ve retired, you’ll be less exposed to occupational hazards that causes disabilities. Your children are fine on their own – you can focus less on life insurance and focus more on life.

Ask fundMyLife financial questions today!

That’s all we have for you, folks! We hope this article was useful for your journey in life ahead. Whether you’re still going to be in one life stage, or is moving on to a new one, you’ll need to be aware of several constants. Hospitalization plans should be a lifelong mainstay, as there is a chance of you being in hospital at any point in your life. Furthermore, another constant is that in each life stage, you have new responsibilities. As such, your new policies should align with those new additions.

Getting your insurance done when you enter new life stages can be scary, but that’s what we’re here for. If you don’t know who to ask or where to find amazing financial advisers, we got you. If you want to engage more financial advisers, or if you haven’t found the right one, why not consider advisers of fundMyLife? You can head on over to fundMyLife and ask our pool of financial advisers questions. Alternatively, you can check out our curated pool of individual advisers and ask them questions directly.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

The Essential CPF Guide For Young Adults

An adult's CPF guide

Written by Letitia Jinghui Lean, edited by Jackie Tan

If you’re like me, a soon-to-be graduate about to enter the workforce, it’s probably high time you started getting acquainted with CPF. You know, “that compulsory government scheme that siphons off part of your allowance each month”. It’s gotten a bad rep for locking away the average Singaporean’s money till age 55, but there is another side to this complicated savings scheme, and we’re here to break it down for you. For the average millennial seeking financial independence and security, here’s your blueprint to understanding the intimidating CPF system to better guide you to a comfortable retirement:

#1 CPF is multi-functional

It sounds like CPF is just one jumbo savings/pension fund, but well, that’s barely scratching the surface. As defined by the Central Provident Fund Board, CPF is a “social security savings plan that provides working Singaporeans with security and confidence in their retirement years”, and every month, 20% of your salary (as the employee) goes to this account, whilst another 17% is contributed by your employer. This applies for all Singaporeans, unless you are: (a) self-employed, (b) working overseas, or (c) have renounced your citizenship.

Most importantly, CPF comprises 3 subsidiary accountsOrdinary (OA), Special (SA) and Medisave (MA). Remember the 37% of your salary that goes into CPF every month? Till age 35, different amounts are allocated to each of these subsidiary accounts like clockwork – 23% for OA, 6% for SA, and 8% for MA. It’s a whole different ballgame above 35, but eh, we’re sure you can google the new percentages when you hit that age. For now, just remember these numbers, and that each of the 3 subsidiary accounts have different purposes: the OA is used for housing, investment, education and insurance, the SA is used for retirement and investment, and the MA is used for hospitalization and medical insurance expenses.

#2 A fourth account – the Retirement Account (RA) is created when you’re 55

At 55, the remaining balances in your OA and SA are combined and transferred to automatically form the RA, to provide for comfortable self-sufficiency and retirement in old age. Monies are transferred up to the Full Retirement Sum (which increases approximately 3% every year), up to the Basic Retirement Sum (half of the FRS) with a property pledge, or even beyond for the Enhanced Retirement Sum (1.5 times the FRS). If you have excess above the minimum required retirement sum in your RA, this is when you can withdraw it, at the ripe age of 55.

The next milestone is then 65 years old, under a nifty lil’ scheme known as CPF LIFE. For now, all you need to know is that CPF LIFE is what gives you the monthly payouts once you’re old (and preferably not too wrinkly) at 65, and it’s based off your RA. The general rule of thumb: the more you have in your RA, the higher your monthly payouts.

#3 There are different interest rates for OA, SA and MA

As mentioned previously, CPF is kinda like a compulsory savings account, which means that it automatically generates interest for you, which introduces an almighty term – compound interest (great for more moolah). Interest rates for OA is at 2.5% per year, whilst rates for SA and MA are at 4% per annum. This is way higher than what most banks tend to offer for savings account (about 1% or less), so rejoice my fellow young adults!

As a bonus, there’s an additional 1% interest for your first $60,000 in your CPF – a good deal because that means you get higher interest rates for your OA at 3.5% and your SA at 5%. One caveat: this additional interest is capped at $20,000 for OA, and $40,000 for SA. Wily millennials will know it’ll make more sense to transfer money from the OA to SA to milk that higher interest rate for the SA account, but word to the wise – this transfer process is irreversible, so do give it careful consideration based on your own personal goals and circumstance before you make the decision.

#4 You get tax relief for being pious

As a full-fledged working adult, you will have to pay taxes. It’s inevitable, unless you pull a Trump. You can however, reduce the amount of taxes you have to pay, by voluntarily topping up your own or your family members CPF SA account. For each year, you get up to $7,000 in tax relief when you perform cash top-ups to your own account, and an additional tax break of up to $7,000 when you do the same for your loved one’s SA account – that’s up to $14,000 in tax relief a year! It’s a win-win situation because you save yourself from having to pay excessive taxes, whilst building your retirement fund at the same time.

#5 You can specify who receives your CPF savings after you pass on

Our time on this earth is finite. In Singapore, when you die (touch wood), the monies in your CPF account will be distributed to your surviving family members according to intestacy laws. For those who want more control over how your CPF savings are distributed, consider making a CPF nomination to ensure that your loved ones are taken care of upon your death, and the money gets distributed according to your wishes.

#6 You can pay for a home using CPF

As any Singaporean will attest, buying a house/apartment/flat in Singapore is ridiculously expensive. Its common practice to use savings from the CPF OA account to buy a HDB flat (assuming you’ve gotten your BTO), or to use it for monthly loan repayment to pay off the mortgage under the public or private housing schemes.

For those keen on buying a house in the near future, here’s 2 things to consider:

  1. Remember that the process of money transfer from your OA to SA is irreversible, so if you’re dead set on getting a house, stick to your guns and keep the money in your OA until you’ve bought one. The caveat of course, is if you don’t intend to purchase a property, or if you can splash the cash and do not need your CPF to cover for the cost of the property.
  2. Remember that to withdraw CPF funds from your RA for retirement at 55, you will have to satisfy the Basic Retirement or Full Retirement Sum with sufficient property pledge. A property pledge is a promise you undertake to return the CPF funds used to pay for your housing, with interest, should you sell your property. TLDR; if you want to withdraw all the excess monies in your CPF savings when you hit 55, you will have to own a house. Otherwise, it’s a cap of $5,000 on the amount you can withdraw from your RA.

Still confused? Here’s a more comprehensive review from DollarsandSense about the whole CPF-HDB housing scheme. You’re welcome.

Adulting is tough, entering the workforce with its mountain of responsibilities even tougher. We’ve consolidated just 6 key aspects of CPF most relevant to young adults, that we hope will help you navigate the complexities of adulthood better. Time to make the most out of your CPF, and win at it!

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Getting Married? Find A Good Financial Adviser!

Getting married? Find a good financial adviser

Getting married? Congratulations!

There’s definitely a lot of moving parts involved. You’re probably surrounded by well-meaning friends and relatives who are giving you tips for the big day and beyond. Let’s talk about one piece of advice that’s not given as often as it should be when people are getting married: the importance of finding a good personal financial adviser. A lot of people neglect the importance of budgeting when it comes to marriages, leading to massive debts down the road. In this article, fundMyLife shares the reasons why you need a good financial adviser when you are getting married.

Do you share a common dream?

Previously, we talked about ways couples can manage their money and how to stop fighting about money. However, besides having a conversation about the present, it’s important to talk about the future as well. Angela and Ben* want to build an asset base of $1 million in 20 years. This would provide them with sufficient passive income to quit their jobs and start their own business. After reading up on their own, they decided to invest $500 per month in a single investment.

It was only during their consultation with their personal financial adviser that they saw, based on their plan, that they would achieve only a small faction of what they wanted at the end of 10 years. In the absence of a personalized financial planning process, we often plan our finances without proper approaches. The information from these sources is often not catered to our specific situation, leading to mistakes like the one Angela and Ben made. Sometimes you and your partner may have blind spots due to emotional factors, or simply, a lack of financial knowledge.

Working with a personal financial adviser ensures that you cover all financial grounds. On top of that, your unique situation is taken into account in creating your personalized financial plan.

Can’t see the future together?

There is a saying – “a goal without strategy is called a wish”. We often think about the destination, but not necessarily the journey required. If you and your partner have clear goals in mind, but have no idea how you are going to get there, you should seek a personal financial adviser. The same applies if you can’t set clear goals together on your own. The best ones can tease out what you really want out of life.

Note: that sort of question is also a deep one and may require more self-reflection. Just don’t spiral into an existential crisis.

Can’t agree with each other?

If discussions about personal finances result in regular disagreements and heated quarrels, you may wish to engage the services of a counselor and/or personal adviser. There may be emotional blockages in the flow of communication that need to be addressed for the good of the relationship. Having a financial adviser in the picture may provide clarity and an unbiased view on how to discuss money. Besides, an experienced adviser would have advised other couples on their finances as well.

Ask fundMyLife financial questions today!

That said, having a personal financial adviser is not always necessary, especially if you have clear goals in mind, and have designed a clear path to get there. If you don’t know where to start to get to where you want to end, then having a personal financial adviser may be useful to you.

More importantly, if you don’t know who to ask or where to find amazing financial advisers, we got you. If you want to engage more financial advisers, or if you haven’t found the right one, why not consider advisers of fundMyLife? You can head on over to fundMyLife and ask our pool of financial advisers questions. Alternatively, you can check out our curated pool of individual advisers and ask them questions directly.

Sometimes, all you need is a good third wheel before getting married.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

fML Case Study: Shield Plan Riders At Old Age – Yay Or Nay?

fundMyLife Case Study - Is it worth it to get shield plan riders at old age?

While we’re a question-and-answer platform that connects questions to the right advisers, once in a while the fundMyLife team receives questions directly. We get them via email, our contact page, or even Facebook itself. One day, fundMyLife had the opportunity to correspond with Karen*, who dropped one of the team members a message about personal finance.

Here’s a little bit about her – she is 50 years old, currently unemployed, and has three children who are still in school. They are aged between 17-21. She presented a total of four different questions for us, which we thought were worth discussing. In this article, fundMyLife explores her questions and shares our thoughts in this case study, on whether it’s worth it to get Shield Plan and Shield Plan riders at old age.

Karen’s questions

Karen started the conversation by sharing that she and her children had a Shield Plan A from NTUC Income without any riders. She was wondering if it was worth it for her to firstly switch to Enhanced Shield Plan (presumably from NTUC Income as well) (Question #1).

She also expressed concern whether it was worth attaching a rider since there will be a co-payment of 5% in a few years’ time (Question#2).

The next question she had was if it was a good idea to upgrade her children’s plans to the enhanced private hospital shield plan without riders first (Question #3). Her children can obtain riders when they start working.

Finally, she asked if it was easier to downgrade plans later in her children’s lives when they purchase the private hospital plan now while they are still young and healthy (Question #4).

fundMyLife’s opinion**

#1 To upgrade or not to upgrade

An easy answer to that is “it depends”, but that would be a cop-out.

The Integrated Shield Plan from NTUC Income comes in two variations: IncomeShield and Enhanced IncomeShield. The main difference between these two plans are that the Enhanced version has less limits when it comes to compensation. For example, the equivalent of IncomeShield Plan A is Enhanced IncomeShield Advantage where the limit of compensation is $1,200/day for the former as opposed to as charged for the latter, i.e. as much as the hospital charges.

Let’s see how much she has to pay to switch to an enhanced plan equivalent for her age. IncomeShield Plan A vs Enhanced IncomeShield Advantage, at 50 years old: from annual premium of $178 to $224. That is pretty affordable! How about after 50 years old?

We plotted a table for her perusal, from 50 until 85 years old.

A table showing the premiums for age ranges
Before we ask whether it’s worth it to get shield plan riders at old age, we must see how much it costs to maintain ISPs into old age. Information found here and here.

We discuss this from a premium point of view. At first, between 51 to 60 years old, the premiums remain manageable for both kinds of ISP, with around $100 difference between the two. Two observations on what happens after 60 years old:

  1. Within the same plan, the premium almost doubles from the previous age bracket, i.e. $257 vs $413 for IncomeShield
  2. The difference in premiums for the same age bracket between IncomeShield and Enhanced IncomeShield increases drastically

The increase in amount reflects the higher risk of hospitalization when a person gets older, which is normal. However, for Enhanced IncomeShield, the cash outlay, i.e. amount required to pay in cash, increases a lot as well. In addition, the cash outlay for Enhanced IncomeShield is twice that of IncomeShield in each age bracket. Hospitalization plans are important, and Karen will have to consider whether she’s okay with the expenditure and whether she will be able to maintain the cash outlay for the years to come.

#2 Is it worth getting a rider?

Her concern comes from the fact that there will be at least a 5% co-payment for the hospital bills in the near future, in 2021. To address the first concern, hospital bill sizes range between $970 – $13,1490, depending on the ward class and location of the hospital. In addition, NTUC declared there are maximum co-payment of $2,500 for both Plan A and Advantage with the Assist Rider.

A secondary concern that she should address is the fact that she has to cough up additional cash to pay for the riders. How much does need to pay? We plotted a table for her convenience.

Table that helps Karen decide whether to get shield plan riders at old age
Rider premiums for Plan A and Advantage riders. Plus Rider is no longer offered for Plan A policyholders.

Judging from the the table, the premium for the riders jump at she’s 60. It’s relatively affordable, and if she has the cash for it, why not?

#3 A family that upgrades together, stays together

…in the same ward, that is. However, as mentioned it’s important to consider the costs involved. More so if she and her children are not working yet so that presents additional  risks and may use too much of her MediSave funds.

That said, because her children are not working, this reduces the household expenditure per person. This is advantageous to Karen because this will qualify her and her children for substantial subsidies for MediShield Life.

Table of MediShield Life subsidies based on income per person
Subsidies for MediShield based on household monthly income per person. Source: https://www.moh.gov.sg/content/moh_web/medishield-life/premiums—subsidies/types-of-premium-subsidies.html

With lowered MediShield Life premiums, she can channel her funds to paying for her and her children’s Shield Plans.

#4 It’s always easier to downgrade

Have you ever thought of why you need medical checkups/underwriting when purchasing life or health insurance? The insurance company is taking on a risk to insure you, and as such requires as much information as possible.

When her children downgrade from Integrated Shield Plans to MediShield, there’s no need for any health assessment or medical underwriting. However, if any of her children decides to upgrade again after downgrading, they’ll have to undergo medical underwriting again.

fundMyLife opinion

We don’t have the entire picture which includes household income. This is important because households below a certain level qualify for premium subsidies for MediShield Life (more details here). Whether we assume that there is a breadwinner in the family or otherwise, the household monthly income per person should be at a sufficient level to qualify for subsidies.

One thing to note is that, when she is older, her MediSave will not cover everything for either the IncomeShield or Enhanced IncomeShield. In her later years, cash is required to cover the rest. Without a job, the burden falls on her children. The amount of cash required for the plan is not trivial from 66 years onwards.

It’s important that she engages a financial adviser, preferably one who can advise not just herself but also her children. We recommended her to approach on of the awesome financial advisers of fundMyLife.

Ask fundMyLife financial questions today!

That’s all folks! We hope the case study useful to understand whether it’s worth it to get shield plan riders at old age. If you see anyone who’s like Karen, just show them this article and let them know it’s good to reconsider.

If you’re still unsure about what you need, why not head on over to fundMyLife and ask our curated pool of financial advisers? Alternatively, you can check out our curated pool of individual advisers and ask them questions directly.

*name was changed for anonymity

**the following article is a opinion, and does not constitute financial advice whatsoever. Please do your own due diligence and speak to a professional financial adviser

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

I Already Know Which Insurance Policy I Want. Is There A Difference Who I Buy It From?

Does it make a difference who to buy insurance from?

You’ve definitely done your homework on which insurance policy to buy. You’ve read through every article in finance media sites like DollarsAndSense, scoured through every HardwareZone forum post, and tried all the financial calculators out there. Now that you’re equipped with all the knowledge you need to make a decision, it’s time to buy the policy you want. Wait a minute, who to buy insurance from?

Fortunately for you, there are plenty of places you can purchase your policy. You can get your policy from tied agents, independent financial advisers, personal bankers, and if all else isn’t your cup of tea, you can even DIY. You might be wondering if each of these places make a difference. Spoiler: it does. In this article, fundMyLife looks at the different channels where you can purchase insurance for comparison.

#1 Tied agents

What is it?

Tied agents are appointed representatives of one single insurance company and thus can only sell policies from their respective companies. They also form the most common of agents you will encounter out there.

Is it any different?

They are unable to sell insurance from other companies. That means if you want to purchase products from other companies, you’d need to engage another tied agent from a different company. There are pros and cons regarding that.

In addition, due to the fact that they can only sell their company’s products, there is an impression of biasedness. However, the best ones can offer their opinion regarding competing products and tell you the pros and cons of products outside their companies. Make sure you do your own homework as well.

#2 Independent financial advisers (IFA)

What is it?

Independent financial advisers, as opposed to tied agents, have access to greater variety of products from several companies. Their draw is that they can recommend you products from different companies, and provide comparisons for these products. Thus the term “independent” in their titles.

Is it any different?

The variety provides flexibility for your financial needs. However, don’t buy too strongly into the whole we-are-independent branding they commonly espouse. Just as you have great tied agents, you also have lousy IFAs. You can have the most “independent” of IFAs, but the independence counts for nothing if they’re terrible at what they do. If the IFA is terrible and they have access to five companies’ products, it also means you have access to five times unsuitable products.

As such, it’s important that you do your homework as well.

#3 Personal bankers

What is it?

Once in a while, you will get a call from your bank asking if you’re interested in purchasing insurance. On other occasions, it can be when you’re meeting your relationship manager in the bank and he/she asks if you’ve bought insurance yet. Banks occasionally form partnerships with insurance companies, e.g., DBS and Manulife, UOB and Prudential, etc. In these partnerships, banks act as a distribution channel to capture consumers.

Is it any different?

To some, it is a good way to do everything at once – banking, insurance, and investments all under one roof. There is an advantage in getting your insurance via a bank. Innovative bank accounts such as DBS Multiplier involves the purchase of insurance through the bank. We wrote something on the account, by the way.

However, the turnover rate in the banking industry is notoriously high. When it is time to claim, be mentally prepared to do some legwork to correspond with the assigned representative in the bank. In addition, when the partnership between an insurance company and the bank ends, you’ll also have to do some legwork to contact the representative from the insurance company.

#4 DIY

What is it?

DIY, as its name suggests, refers to you getting insurance without the need of any external human parties, i.e. agents or advisers. The DIY approach depends on what sort of insurance you’re purchasing. Certain kinds of policies are relatively straightforward. Personal accident and travel insurance are examples of this class of insurance. Those, you can purchase online.

For other insurance policies like direct purchase life insurance, some insurance companies do not allow you to purchase online. In those cases, you typically have to trek down to the company’s office to get your insurance.

Is it any different?

The DIY insurance experience is divided into two parts: the purchase and claims. Typically, the purchase experience is hassle-free and easy if it is online. After all, in the age of e-commerce, user experience is everything. However, the second part, claims, has more variability. The claims experience of DIY insurance depends largely on the company representative you’re assigned to.

For direct purchase insurance, we wrote an article on the pros and cons of direct purchase insurance, and questions you should ask yourself before you purchase a DPI.

Connect with our advisers today!

The matter of who to buy insurance from is definitely crucial, and we hope that this article helped you make a decision. In the end, it is up to you to decide who to buy your insurance from and it’s not an easy choice. However, you can also consider asking our pool of financial advisers who were carefully curated to ensure that you’re engaging with advisers of high caliber.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.