Tan Kin Lian's Blog: Inadequate savings for retirement

Sunday, April 18, 2010

Inadequate savings for retirement

The Sunday Times have an article that showed that many people have inadequate savings for retirement. Why is this the case? The same question was posed to me by a journalist recently. I gave the following reasons:

1. People spent too much money on their property.
2. They got a poor yield on their savings in life insurance policies, due to the high charges which takes away more than 30% of their accumulated savings
3. They were badly advised by insurance agents to switch from an earlier policy to a new policy, incurring the high upfront charges again. This can occur several times during a working lifetime.

Better late than never. Consumers should be educated to avoid bad investment decisions. They should spend $12 and 12 hours to read my book, Practical Guide on Financial Planning. This book also contains tips to the consumers on:

a. What to do with their existing life insurance policies
b. What should they do with their future savings?
c. How should they invest their money during retirement?
d. What type of life annuity should they pick?
3. How much should they spend on a property?

They should advise their children to start their working career on a proper footing and avoid making the same mistakes. Order online.

Tan Kin Lian

18 comments:

Anonymous said...: “He is aiming for a modest return on investment (ROI) of 6 per cent per year as he is a low risk investor” (Quote from the financial expert, Sunday Times page 33)

I am confused, if return of 6% per year is considered as modest and is suitable for a low risk investor, then why some of our leaders say that minibonds (return of about 5% per year) are high return high risk products?; April 18, 2010 10:08 AM
Createwealth8888 said...: It is hard for me to believe that a low-risk investor can compound his ROI at 6% over 25 years with market cycles full of bulls and bears by just averaging up every five years.

What if the averaging up unfortunately happen near bull market peak?; April 18, 2010 11:54 AM
Anonymous said...: Saving in the wrong products.
Use the wrong advisers.
No discipline.
No goals
too smart
half baked knowledge
spendthrift
earn too little
lazy; April 18, 2010 3:03 PM
Anonymous said...: Many people are like what I call NAAFI = Not Ambitious And Foolish Interest.
No Ambitious Plans on any Financial Planning ever:
1)They over invest in properties only to get burnt in a financial crisis
2)They gamble on 4Ds, TOTOs, Horse Racing and anything under Singapore Pools week after week with the hope of meeting Lady luck.
3)Pay high COE & expensive cars that depreciates over a span of 10 yrs.
4)They splurge on Credit cards spending, holidays, shopping, fine dining etc.
5)They engage on branded goods etc.
6)They live as there is no tomorrow.; April 18, 2010 4:14 PM
Anonymous said...: I agree most of the points by anon at 4:14pm except

People around 50+ now should not be burdened by property too much since property price in the 80 - 90s was not too expensive unless they speculated and get caught.

points to add:

1) over expectation from CPF and believe in full what the government said without reviewing own figures.
2) due to 1), saving plan goes wrong from day one and spend money on car, maid and etc because peers were doing so, must have attitude. Cannot reverse gear after getting used to the lifestyle.
3) high inflation in recent years.
4) unexpected expenses such as medical and children school fees.

loh; April 18, 2010 6:31 PM
Anonymous said...: Reasons why many people cannot retire?
1. Insurance agents screwed up their CPF.. 87% of the members are still losing.....only 13% made above 2.5% but how much more? don't know.
2.Insurance agents only interested to push wholelife and endowment which are known to be very bad saving plans.. return from these products are below inflation even after 30 years.
3.Insurance agents only push single premium endowment that returns at best 3%+ after 10 years.
3% is only good to preserve status quo, ie. if you are poor you remain poor and you are stuck in the rut.
4.Insurance agents are only salesmen and at best conmen and women.
5.Insurance agents are NOT qualified to plan , let alone as retirement planner
6.Insurance agents are NOT qualified in investment and therefore at best push you sure to die single premium endowment.
7.Insurance agents have only certificate level in insurance and ILPs. How could they be considered experts? How could someone be called a doctor when he has only nursing certificate? You see, they are conmen and women. Ethically they should not claim something they are not, right?
So you see with these insurance agents masquerading as some kind of financial consultants they mislead consumers into believing that their finances are in good hands. The truth is the consumers don't know that they have endangered their money and are keeping a thief in the house.
Why do you think people cannot retire if it is not due to the incompetence , dishonesty and self serving interest of these salespeople?.
Why do you think people are still under insured?
Why do you think there are so many people cannot afford CPFLife?
Why do you think the baby boomers have to continue to work?
If the insurance agents claimed they are 'financial consultants' why are these still happening?
Why? Why? I think MAS knows the answers. Or is it MAS thinks that people are dumb and never opened their eyes big before giving away their money to insurance agents?
Yes, people are dumb but trusting, trusting that their 'trusted' agents can help them.Instead they robbed them of their dreams of the golden years.
PEOPLE BUY BECAUSE OF TRUST and NOT becuase they understand and know the products and can make informed decision.
Unfortunately the consumers have been betrayed.Some suffer in silence. Some are too embarrassed to admit. Some are afraid to report because of the hassle. Some don't want to report because the agents are their friends , their relatives or their friends' friends.Some still don't know. Some are still in coma. Some are brain dead to understand.
These are some of the reasons why the ruse of the insurance agents must be exposed openly to warn people of who they really are.This is what the regulator can do by punishing them but it is not doing. Alas, we have to resign ourselves to luck or fate.

The Watchman; April 18, 2010 7:06 PM
Anonymous said...: Even if you have saved enough money for your retirement, with so many bad or toxic financial products (minibonds, high notes, pinnacle notes, land banking, life insurances, credit-linked notes ….) around, many people already lost most of their 30-years hard-earned money.; April 18, 2010 7:21 PM
Sandwich class said...: To achieve and maintain a ROI of 6% is not a good estimate. I think 4% may be more practical for singapore environment. The writer also assume having a job for 25years from 37years old. Which company in Singapore could guarantee you a job for 25years given the current influx of cheaper labor from overseas?
Only when the lower and sandwich class workers have lower salary (income) THEN the higher tier workers can justify for a higher salary. The income gap will just get wider.; April 18, 2010 8:04 PM
Conspiracy said...: Seriously, picking on this article is wrong. Anyone noticed a certain bank sponsorship at the bottom? Of course they talk about inadequate savings! How else would they get you to invest in their financial products?

"Never ask an insurance salesman if you need more insurance"

The bank is trying to prey on your fears.; April 18, 2010 9:45 PM
Anonymous said...: Yes, you can design a low risk portfolio that returns 6% over minimum 10 years.This is not difficult.
Only difficult with insurance agents. They sell funds on hit and run basis or they push single premium endowment mixing truth with lies. You have never heard of insurance agents coaching you on retirement planning, have you? They act more like stock brokers on ILPs and promise you quick return. No wonder you never retire with insurance agents.; April 18, 2010 10:19 PM
Anonymous said...: There are many reasons to the question: "Why people have inadequate savings for retirement?"

Paying too much money for property buying inappropriate insurance products are just two. But they are not the main reason.

Most people only put 10~20% of their money in insurance related products and 20% of their pay in property. Together they constitute between 30% to 40% of a person's pay. To put the entire blame on inadequate retirement funding on these two areas is not objective.

While you can tweak the 30% or 40%, it's also important to see where the 60% or 70% is going to. All I see is: luxury goods, holidays, cars, expensive dining, high-tech gadgets, spas, gym, expensive hobbies, excessive shopping, and the list goes on.

For your information, there are many people between 65 and 70 who has no life insurance, no term insurance, only has medishield and they have inadequate money for retirement too.

Just because you are against life insurance doesn't mean it is one of only two reasons why people has no money for retirement.

Is the volconic eruption in Iceland a result of people buying life insurance and got badly advised by insurance agents? Don't put all the blame on life insurance.; April 18, 2010 10:54 PM
Anonymous said...: It is not always the people that are lazy. After the financial crisis broke out, alot of employees are either retrenched, got pay cut, no increment, no bonus, etc. I myself has been trying to cut down my spending & so far had gotten used to spending less unlike the pass when the economic outlook was good. I hope I can keep up with this good habit though.; April 19, 2010 10:10 AM
Retired at 53 said...: The pie should be something like this
( at 50 yrs )

40% stocks ( s'pore )
25% property ( not the home you live)
20% CPF
10% Cash
5% Unit Trusts.

At 55 yrs if plan to retire:

Then ensure you have income stream from:

Rental of property
CPF yearly withdrawal
Dividends from stocks

This should allow you to leave your principal amounts untouched, or at least slow its depletion.
Better if you can find some part time work that pays for your monthly expenses like utilities, phone, internet, medication, dental.

You must have income cash flow.
otherwise its merely consuming past savings.
That is possible if you have at least 1.8 million... at 50,000 per year, it will take 36 years to deplete.. assuming you have it at 55years.. it will last till you are 91. Dont worry about inflation.
there are scare mongers out there.
Inflation cannot last beyond 5 years.. if it did, your 1.8 million will still last you till 80.. by then who knows?.. toothless, demented, deaf and blind.. just wait for death.; April 19, 2010 1:59 PM
Anonymous said...: Retired at 53,April 19, 2010 1:59 PM

' Dont worry about inflation.
there are scare mongers out there.'

Tell this to the poor Indians and Chinese in India and China and let see what they do to you. The inflation has hit double digit and they are trying very hard to work or earn more than the inflation can steal from them.
In case you have a some problem with math, let me tell you if you do NOTHING about the $1.8million for next 36 years it will become only about $500k in today's value at 4% inflation rate.
"Inflation cannot last beyond 5 years." don't understand what you mean..it is either inflation, disinflation or deflation and worse stagflation..'flation' will always be there . Don't know which one but they are all bad except disinflation.
Any idea about the risk of your portfolio?; April 19, 2010 5:59 PM
Retired at 53 said...: To Anon 5:59pm

Inflation at 4% rate is not sustainable... unless we end up like Zimbabwe. Even then, it cannot go on forever.

Since the Depression years, inflation, stagflation, deflation has occured. Thats a duration of more than 80 years. Anyone born into that time who is still alive ( dearest LKY ) does not need to keep his principal sum intact anymore.

The time horizon that I have used is less than 40 years. There is plenty of examples of costs being driven down by China's ability to manufacture things cheaply.
Oil is abundant, do not let the oil futures traders scare the daylights out of everyone that in our time, oil will be depleted.

Inflation levels out over time.
Depletion of the principal sum of 1.8million is delayed by investments in property and equities, and a slower rate of spending as one ages. ( long term ICU not included )

There is an over emphasis on inflation.

Thanks for the chat.; April 19, 2010 10:27 PM
Anonymous said...: I agree with Retired at 53, to some points.

Inflation cannot last forever
Enough to live till 90 is ok

I do not want to leave a 'legacy'
so do not need so much. I will buy annuity as Mr Tan has suggested.

Only people like Bill Gates, Warren Buffet, Kweks and Kohs can leave behind legacies of millions of dollars.. man-in-the street just needs to live out their lives.; April 20, 2010 8:58 AM
Anonymous said...: Commodity prices have shot through the roof. Oil will rise to its pre 2008 level.
Over the long term inflation averages 3.5%.; April 20, 2010 10:24 AM
Anonymous said...: American Dream to Retire Young & Rich.
Singapore Dream to have the 5Cs & be materialistic.
My Dream at age 63 - Not to seek Re-employment & Retire in peace!
My message : Life is short no matter what you are? Make the best in Life!; April 26, 2010 7:13 AM

Sunday, April 18, 2010

Inadequate savings for retirement

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