Tan Kin Lian's Blog: Managing the risk of retirement

Tuesday, September 15, 2009

Managing the risk of retirement

Some insurance agents ask customers to spend a lot of money on Private Shield or critical illness cover. They argue that it is for risk management, in case they face with a big hospital bill that has to be paid.

There is no need to face a big bill, if the patient is willing to be treated in a subsidised ward and is insured for basic Medishield.

The biggest and real risk faced by most people is insufficient money on retirement. More than 97% of working people will not face any critical illness or premature death in the first 25 years of their working life (when they have to accumulate their savings). If they do invest their savings well, they will have sufficient money for their retirement needs or to meet other unexpected events, such as critical illness.

Many people have insufficient savings as they got a poor return by investing in bad financial products, such as the following:

a) Paying too much premium for insurance that is not needed, e.g. expensive Private Shield or critical illness cover.
b) Buying a whole life or investment linked policy which takes away 160% of their annual savings
c) Investing in bad financial products, such as structured products, land banking, dual currency investments and overpriced property

Insurance allows you to manage your risks, but you have to pay the right price for this service. Do not pay an excessive price for a service that cost much less. Be careful of advisers who is only interested in the commission earned from selling an expensive, over-priced product to you. They do not take care of your interest; they only think about the commission that they can earn.

Look for an adviser who is genuine in giving good advice. Pay a reasonable fee for this advice, and ask for the embedded commission to be returned to you.

To recap: your biggest risk is not having sufficient money for your retirement. Do not invest in bad financial products that gives you a poor or negative return. Look for an adviser who is genuinely able to give you proper advice that is in your interest.

Tan Kin Lian

16 comments:

Anonymous said...: Those who have bought insurance products thinking they are are saving plans they will be in big shock. Even single premium like those 5 year plans
aggressively pushed lately are NOT saving plans but losing plans. How could 2.75% , even guaranteed, considered saving when it loses due to inflation. Yes, they beat the bank rates but these are losing rates. Saving is making your money work hard for you because by YOURSELF either you work very hard or your money works hard for you.
Many people cannot retire because they have not enough. AS Mr. Tan said , not many died of critical illness but many do 'die' of broke. For these people they have to work very hard. Their money isn't working at all.And their insurance agents are a bunch of charlatans
who worsen their plight.; September 15, 2009 8:23 AM
Anonymous said...: Where are you getting this 3% figure from for Critical Illness?

http://www.cancer.org/docroot/AA/content/AA_2_5_9x_Cancer_Atlas.asp Go to section 10.
The probability of getting cancer before age 65 in Singapore is 10%-12.4%.

And another big risk is becoming disabled and having to use up your retirement funds. Or your parents needing care which uses up your retirement funds.

Insurance can help protect your assets.; September 15, 2009 9:22 AM
Anonymous said...: Many insurance products are sold to the wrong people. Like wholelife , endowment products they are meant for the rich to play play. They can afford more and ALSO THEY CAN AFFORD TO LOSE but for the majority, the man in the street, these products hardly work any harder than the man himself. The products are always lagging behind inflation.
Another product like the NTUC Capital Plus,it was sure loss product at 1.8% locked away for 2 years.Another product of ntuc, the single premium endowment, Growth, is also for the rich to 'preserve' their money only and for the poor it is preserve his poverty.
So you see many products are sold to the wrong people. They either drain off the resources of the poor, like WL and endowment,or they help to keep the status quo.
The value for money and the real wealth accumulating products , albeit riskier, are never recommended by insurance agents because they pay low commission but they are good for their clients. The agents are also incompetent for they are trained product peddling salesmen only and not planners. Worse , many are dishonest.
Today, Singaporeans are under insured and they cannot retire.Any wonder? The reason is obvious but the regulator is not doing anything.
COMMISSION is the evil.Incompetence is another. Dishonesty is mother.; September 15, 2009 9:29 AM
Anonymous said...: Hello REX wishes to comment:

Contrary to what Anonymous 8.23 said, I opine that Single premium product paying about 2.75% pa equivalent (5 year plan) IS a good savings plan. The interest is usually not guaranteed but from experience the banks will pay it, and even if the lower limit expected is paid, the amount p.a. is still higher than bank interest rate. IT depends on how greedy you are. If you expect to get 5% because inflation is 5%, sorry, please buy stocks and shares and eTfs whatever, or buy toto or go to Genting. Do remember there exists simple people who have a natural bias playing with stocks and shares, worrying about a particular company'e performance all year round, there are people who prefer non-volatile risks tied simply to a big reputable bank of insurance company, and with fixed timings, i.e. put money in for x years, end of x years take out with capital guaranteed, and interests higher than prevailing fd's, they are happy, never mind inflation and agent's commissions, and stocks and shares earn more.

Single Insurance Premiums supports the aspirations of such simple minded people perfectly, you can call me one such idiot if you like. No problem. Yes it is argued that the bank makes more from your SIPs. This is irrelevant. Be content. 2.7% equivalent pa. is more than double the prevailing rates. Lastly do not expect that parked money is going to save you from inflation. You can't survive on the returns from parked money whether 2.5% or 6%. They are just for some extra petty cash, get real. Do not expect that returns from parked money will let you retire, this is unrealistic. It is the capital base that will help you retire comfortably, not the paltry 2% nor 6% petty cash extra. Look at things in perspective.
REX; September 15, 2009 10:58 AM
Anonymous said...: REX has comment on 9.29 mail above.

Anonymous said "The value for money and the real wealth accumulating products , albeit riskier, are never recommended by insurance agents"

Firstly do be realistic. You can't have your cake and eat it, remember this proverb. IF you want wealth-accumulating product, don't expect to get good insurance cover from the same investment at the same time. Conversely, if you want insurance don't expect to get 5% pa equivalent return. You get tricked by the insurance industry, once you believe that you can have both good savings and good insurance in a bundle.

As far as insurance is concerned, originally, the whole concept of insurance had never been meant to be wealth accumulating!!!!!!!. The abundance of complicated products were created by institutions perhaps 40 years ago, to cheat the ordinary people thinking that they can get the best of both worlds - savings and insurance. A long time ago, insurance was just Term insurance, you pay a small amount to cover a big amount, don't be greedy and expect to take back the small amount, if you survived and didn't die.
"Buy Term invest the rest", the financial savvy will know that is the best policy for insurance. Term insurance will never accumulate wealth (it is negative wealth creation in fact, but for $50 a month you get $200,000 cover, is what everyone OUGHT to purchase). On the other hand, to accumulate wealth, DON't look for insurance agents. Go buy shares or ETFs as Mr Tan recommends.

Lastly, i wish that this blog will not be so condemning to insurance agents. IT is the authorities who allow the sale of bad products, that is to blame. Bad insurance products are just like cigarettes. The government allows it, so there will be ALWAYS people wanting to sell it - sometimes they themselves also very blur don't understand what they are doing to the customer. We should have the regulator come in to stop all these nonsense. The creators of the bad insurance products escape unscathed, just like the cigarette manufacturers. The drug pushers are hanged instead. We should follow the chain and catch the source of the problem instead of go insurance-agent bashing. For as long as the regulator allows such bad products, there will always be willing people to sell it. Even NTUC fairprice sells cigarettes, you know.

PS> I AM NOT AN INSURANCE AGENT. I AM NOT RELATED IN ANY WAY TO ANY INSURANCE AGENCY NOR FINANCIAL INSTITUTION.

REX; September 15, 2009 11:17 AM
Anonymous said...: I like to point out. In singapore, such a realistic world. With money, comes option. Do you actually think, doctors are all the same? When you pay for private shield plan. You are being attended by Top surgoens, unlike those GPs or junior understudy. This give u a choice in life. My mum is a clear example in this, she was diagnose with brain tumour. Chosen a more experience senior doctor than an understudy "Top" neuro doc, she survived. However, no names. The other patient who underwent the understudy doc became paralsyed for life. I like to point out also this understudy doctor is currently one of the top neuro surgeon in sg now.; September 15, 2009 1:01 PM
Anonymous said...: REX,
thank God that you are not an insurance agent otherwise many poor lives will be ruined by you.
The poor will be poorer and the rich will be richer. The poor is recommended a guaranteed loss product so that he or she can get poorer.If this is your idea of saving for the poor the poor are condemned.
Speak to those poor in India or China they will tell you how real is inflation. They work very hard and the wages they earn CANNOT even chase after inflation. Their salary doesn't increase faster than inflation and money is never enough to buy the goods they wanted , they are always out of their reach. Inflationary rate in India hovers around 8% and China around 7% and recently threatened to go into double digits. There is extreme disparity between the rich and the poor. The rich would splurge on a dog for $800K, the poor are eking out a living in the factory or in the farm.
REX, inflation doesn't impact your wealth very much. You can afford to lose but for the poor it means months of meals lost.
If you ask the poor to put in a 2.75% endwoment his or her money is shrunk by 10.25% after 5 years.He works very hard only to see it eroded in value and purchasing power.
REX, please do not become an insurance agent or an adviser on money matters. You either land up in court as defendant or your customers die of a broken heart.; September 15, 2009 5:54 PM
Anonymous said...: TKL:"The biggest and real risk faced by most people is insufficient money on retirement"

Before - A 78yo retiree received $297/month from Retirement Account. SP bill $50/month.
He survived !

Now - SP bill $100/month. Can he survived?

Future - SP bill above $100/month if oil price above US$100/berrel for 1 year. Can retiree survive?; September 15, 2009 9:55 PM
Anonymous said...: Each patient has different medical conditions.
Can we say A patient=B patient?

Can surgeon tell superbug not to attack a patient?

What subsidy patient can do is to ask sucessful rate before surgery.

All public hospitals are teaching hospital,
Subsidy patient can not choose a doctor.

If still worry, change an appointment date, patient may be treated by another doctor !; September 15, 2009 10:23 PM
Seth said...: Inflation is indeed a problem, which is why I recommend endowment plans to certain clients. If you think 3% is not enough to hedge against inflation, do you think putting it in a bank with 0.1% interest rate is ideal? There are some people who just save all their money in the bank. There are some who don't even save! Endowment plans have their purposes.

For people who repeatedly condemn endowment plans, what are some products that is of the same risk level and yet give higher returns? I am curious to know.; September 16, 2009 12:07 AM
Anonymous said...: To anonymous 5:54 pm

You said "
If you ask the poor to put in a 2.75% endwoment his or her money is shrunk by 10.25% after 5 years.He works very hard only to see it eroded in value and purchasing power."

Well, tell me how you will help this poor man to put his hard earned saving of $50. Where do you advise him to keep the $50? You will ask him to buy some shares yes? The returns are better - over the long term - but how long is long - do you know?

I am saying that buying shares in the stock market is not for everybody. How do you expect to convince a person who is by nature, conservative, and not very financially savvy, to buy shares? Even if so, which share will you dare to recommend and say with certainty to him, after 4 years, collect 15% more, able to hedge inflation, able to emerge from poverty trap? How to emerge, when the poor man only got $50 spare. Very small capital base.

It is the uncertainty element, the timing, which makes shares purchasing not suitable for everyone. So I maintian that Plans which pay 2.75% are still good and better than putting in a bank which pay 0.1% for many simple poor folks who can accept, painfully, anyway that the path to riches and the path to countering inflation, is NOT by way of this paltry investments a little here a little there.

To really get out of the poverty trap the only solution is to increase productivity and create value in terms of getting a better job, start a business, get promotion, etc. It's nothing to do with 2.75% investment returns when the capital base is so small to start with.

REX; September 16, 2009 8:38 AM
Anonymous said...: REX,
you are barking up the wrong tree again. It is NOT about getting rich . It is about getting decent return to make his hard earned money work harder so that he or she may have enough and NOT rich with $50.
How to save $50 and to make grow more than putting into a regular wholelife or endowment is a skill which is easy if want to know... Dollar cost averaging, without all the commissions and charges, is less risky and better return than these scam WL and endwoment products.He may not get rich but at least he is moving UP and his money growing faster than inflation.
Bank rate is NOT a benchmark but inflation is.
The difference is getting a salesman or a planner. The salesman sells and pushes any damned product so long he makes the sale and the commission.
The planner is more responsible. He thinks and plans which is the best way to grow your money.; September 16, 2009 11:16 AM
Anonymous said...: Warren Buffet is an investor first. He makes his wealth through investing and NOT as a business owner.
Yes, working for yourself by yourself is a good virtue but it will not get very far unless you are million dollar ceo.
Being a business owner has all the risks and your time in the business.
Being an investor has also all the risks and but there is diversification of risk..; September 16, 2009 11:23 AM
Anonymous said...: REX comments as follows,

to anon. 11.16
Exactly, it is not about getting rich, all these paltry investments. IT don't make a difference whether he will be able to cover or not cover inflation. It is essential to bark up the correct tree to chase for money, to escape the poverty trap. Therefore, one should not tie up one's energies thinking that investment will pull one out of one's poverty. I don't particuarly think the model of Warrent buffet is exemplary and should be the aspirations of all. If everybody makes his fortune by investments, there will be no productivity on earth. Everyone is waiting for some fool to do the work, to start a successful business, and then reap some harvest by "investing" to support him. It is not a good model.

You also seem to think that planners of the type you mentioned, do exist. I don;t know whether there are such guardian-angels on this earth, and specifically, in singapore, who is so nice to you who only cares the best way to make you grow rich, to make you happy is his mission. Maybe my mother and father who bore me, and my brothers and sisters and relatives, are the only such angels. Can anyone (strangers ..the financial planners as you called it) be trusted? Even our dear government cannot be trusted (aka minibonds). Who can be trusted, and how on earth can i know he is to be trusted, today, tomorrow and always? This is a sick world.
REX; September 16, 2009 12:03 PM
Anonymous said...: You are right, REX .It is not easy to find one. Nevertheless you have to find one than leaving to the mercy of the agents of destruction.
There are guidelines to reduce your risk lest you end up with a wolf in charge of your finance or piggy bank. There are many of them out there and in all the insurance companies and the banks. In each of them there are at least 95% of these crooks. Some look like gentlemen and some sweet angels but beneath the facade is an evil or an incompetent thief.
I don't blame you for doubting my suggestions. It is sick world full of dishonest and greedy people.; September 16, 2009 1:09 PM
Anonymous said...: speaking of sweet angels.. some of the consultants are really pretty cute young things.. and you can actually get hypnotised into buying rubbish all because of stupid male psyche. That's how man get married in the first place. HA HA HA : ); September 16, 2009 3:08 PM

Tuesday, September 15, 2009

Managing the risk of retirement

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