Ready to Retire or Retire Ready - Working till 67

In this issue we look at an all time "favorite" - retirement planning. But from a slightly different angle. Besides sources of income, is there something else that we can take note while planning for retirement? 

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In April this year, the Government announced that the re-employment age for older workers will be raised to 67 on 1 July 2017. Prior to this, the statutory retirement age was 62 and re-employment was up to the age of 65. A legal provision allowing wage cuts when employees turn 60 will also be removed.

There has always been talk of raising the statutory retirement age. Finally after 23 years the decision has been made. At present, one in three persons in the labour force is aged 50 and above, and this is set to rise further. 

The prevalent trend in Singapore sees most of us working well into our golden years. Rising cost of living coupled with low interest rates makes it all the more difficult to save enough for retirement. Most people would rely on one or more of these three sources for income during retirement. Are these enough and is there something else to consider?

1. Cash Savings

This remains the most popular nest egg for Singaporeans. In a recent Straits Times survey, it was found that seven out of ten people plan to rely mainly on cash savings for retirement. However, cash is the most liquid of instruments and easiest to spend. Bank deposits are at an all time low. Not to mention, interest from deposits are unable to even keep pace with inflation.

2. CPF Savings

CPF Savings continue to be a bulk component for retirement savings for most Singaporeans. However, the current CPF LIfe plan pays just $660 - $1920 per month. This is not guaranteed and is certainly not enough for retirement daily expenses.

3. Property

Most Singaporeans would have either a HDB flat or private property by the time they retire. Common methods of using property to supplement retirement income include 1) renting out a room, 2) renting out the entire house and staying with children, and 3) "right-sizing" to a smaller house. However, we might have to adjust emotionally to changes in living environment. Our children may also be inconvenienced, especially if they have their own families.

Conclusion

Working till the age of 67 is now more a reality than ever. In fact most of us might even work till we're older. It is also obvious that traditional sources of retirement income are not enough. What can we do then? Besides planning early for retirement, putting aside money in various financial instrument to grow it in our productive years, it may also be prudent to tamper our expectations of retirement. 

A recent survey showed that Singaporeans spend almost $3,000 a year on things that they have not planned on getting. Imagine spending more on stuff not planned for, during retirement. Thus an extra consideration while planning for retirement (besides income) may be to monitor our expenses such that we're used to spending within our means.

Contact your personal Financial Services Consultant for a review to find out more.

Explore the Best of Both World - SaVest!

We follow the last issue (on investments) with something for everyone. AIA has just launched a product that provides the guaranteed returns of an Endowment/ Savings plan, yet still enjoy the potential upside of an ILP investment. 

In addition, we're doing something fun with this issue. I've included a Free Personality Test based on the B.A.N.K. system. You'll be sent an email report once you've completed it. It takes less than 90sec. This will help us to better understand each other. We can further discuss more thereafter, if you'd like. Simply click on the link HERE,

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How are you preparing for your financial future?

Conventional saving methods may help you to accumulate money with minimal risk, but they fall short of the growth potential of well-managed investments. However, when it comes to investing, many people feel like they don’t have enough cash to start, or are concerned about risks.

Whatever your natural inclination, both saving and investing are equally important in building your wealth.

SAVEST - The best of both worlds? It's about time.

Savest with AIA Wealth Pro Advantage, where the advantages of saving meet the advantages of investing in one plan - the smarter way to prepare for your financial future.

AIA Wealth Pro Advantage is a unique 2-in-1 plan that offers both stable growth and potential returns powered by a thoughtfully constructed investments portfolio – Mercer’s Pro Optimiser. No medical check-up is required. Getting started is hassle-free.

Mercer is a leading global investment consultant with proven expertise in portfolio solutions for financial institutions internationally. A well-diversified portfolio to optimise your returns can be accessed via Pro Optimiser. Mercer’s annual market research and portfolio updates empower you to take control of your portfolio.

Alternatively, you are free to construct your own investment portfolio from AIA’s professionally managed suite of funds.

Flexible Options to Suit Your Needs

Contact your personal Financial Services Consultant for a review to find out more.

What should I do in the coming investment storm?

In recent months, the investment climate has been volatile and we have seen swings of almost 3% on a single day. If you are an investor, you would probably be feeling the jitters and be wary of what’s going to happen next.

In this issue, we will be sharing with you the investment outlook for the year ahead and tips on how to tide over this volatile period.

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ARE WE ENTERING A BEAR MARKET?

After a frenzied start to the year with rapid selloffs in various major economies, the market has begun to stabilise after Feb. But fears about slowing global growth and a slowing China continue to abound. The National People’s Congress approved lowering the GDP target and China’s leadership emphasized that 2016 will be a difficult year for growth.

Japan announced negative interest rate in January. The European Central Bank (ECB) not only took its main policy rates lower, but also expanded bond purchases and extended cheap financing to banks. Against a backdrop of challenging economic conditions,

Amid mixed economic signals, the United States is seeing some encouraging numbers from labour demand, consumer spending and inflation, which the Federal Reserve (Fed) could take as positive signals for policy normalization.

We are currently in a situation where central banks are running out of options and global growth is in limbo. The current relative market calm could be transient.

WHAT CAN WE DO AS AN INVESTOR?

We are aware that investments will bring about potentially higher returns than normal deposits. However, in such a market, how do we ensure our investments are not adversely affected?

There are 2 investment strategies, which, if employed correctly, will definitely help in managing our risk.

1. Dollar Cost Averaging

This is the technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the unit price. More units are purchased when prices are low, and fewer units are bought when prices are high (i.e. collect more when it’s on “sale”).

By using this strategy, we will be able to ensure that our cost of investment is always lower than the average market price.

The best way to make use of this strategy is to invest in a regular premium investment plan that allows you to invest a fixed amount regularly, regardless of the prevailing price of the units.

2. Fund Rebalancing

Rebalancing is the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original state.

Rebalancing imposes a level of discipline in terms of selling a portion of your winners and putting that money back into asset classes that have underperformed. In a bear market, this is evident by selling your fixed income securities and buying into underperforming equities.

Regular portfolio rebalancing helps to reduce downside investment risk and ensures that your investments are allocated in line with your financial plan.

If you have an AIA Investment-linked plan, you will be glad to know that we are able to automatically rebalance your portfolio without any charges.

CONCLUSION

Regardless of the market conditions, it is important to stay invested and not make investment decisions based on fear or greed. By using investment strategies as mentioned above, you should be able to face the storm and come out of it in an even better financial position.

Contact your personal Financial Services Consultant for a review to find out more.

What has the US Fed Rate Hike Got to do with Me?

HAPPY NEW YEAR! As we work on our New Year's resolutions, it would be prudent to have an eye on the world economy. 2016 is set to be exciting year for financial markets. After almost a decade of low interest rates, the US Federal Reserve finally raised its key interest rate by 0.25%. This may seem a pretty small rise, but it has huge implications for the world economy. In the first article of 2016, we examine how raising the interst rate will affect us directly in Singapore.

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What: Borrowing rates on big ticket items such as mortgages and cars will go up.

Implications: We will need to pay higher interest on our loans. However, if our flat is financed with a HDB loan, this will not really affect us, as the HDB loan rate is expected to remain at 2.6%.

Action: If we’re considering buying a new house or car, it may be time to make those big decisions. If our house is on an adjustable rate loan, we might want to consider refinancing to a fixed rate one. It is also time to seriously implement a plan to reduce and pay off our creditcard debt.

What: Savings Deposit rates will likely start to inch up... in the long term.

Implications: There’s no need to break out the champagne yet. Banks have made it clear that deposit rates will not be raised immediately. It takes time for banks to earn back a profit on the loans that have been enjoying low interest for such a long time. However, deposit rates are expected to improve over the long run.

Action: Bank deposits are still not a good place to park our money if we want to match or beat inflation. There are other instruments that would give a better return over the long run. Speak to a qualified Financial Services Consultant, or be prepared to be patient.

What: The volatile stock market will get even bumpier.

Implications: If we have investments in stocks, bonds or other investments, we can expect a bumpy ride as the markets adjust to the reduced stimulus. The days of double digits gains of the past five years or so are likely to be over. It is even very likely that many of our portfolios may shrink.

Action: Invest for the long term and plan for market volatility. Have a diversified portfolio and stay invested. Implement strategies to take advantage of the ups and down; such as Auto Fund-rebalancing. Remember, in every crisis (and we’re not even there yet), there is opportunity.

What: The USD is likely to continue to strengthen.

Implications: Expect to spend more when holidaying in the USA. Products and goods from the USA will also be more expensive. These include products bought online through portals such as Amazon or those who transact in US dollars. Studying and living in the USA would also be more costly.

Action: Make sure to factor in the exchange rate before going on a spending spree in US dollars. We should also be prepared to pay more when our creditcard expenses are charged and converted from US dollars. If we’re planning to send our children to the USA for studies, we should factor in the expected appreciation of the US dollar into our financial planning.

In conclusion, the raising of US interest rates will affect Singapore. Furthermore, the Singapore economy is affected by not only what goes on in the USA, but also other big players such as China and Europe. We should be aware and prepared for the changes that will come.