Saturday, September 19, 2009

Duration of Term Assurance

As a rule of thumb, the correct duration for a term assurance should be 25 years or up to age 60 (if shorter). If you look at the benchmark premiums shown in this FAQ, you will find that the premium is affordable for a large amount of insurance.

The purpose of term assurance is to provide a capital sum in the event of premature death during the years when your children are still young. After 25 years, your children would have grown up and are likely to be independent. If you make adequate savings during the 25 years, you will have sufficient savings to meet your financial needs after that period. There is no further need for life assurance.

Under a decreasing term insurance, the protection reduces each year over the term. For example, if you insure for $300,000 over 25 years, the protection will reduce by $12,000 a year. Although the protection reduces, it can be compensated by the increased saving that you have put aside each year. Regular saving is an important part of your financial plan. The cost of decreasing term assurance is less than half of the cost of level term assurance for the same duration.

You can buy a term assurance that covers critical illness as well. The cost is about 2 times of a basic term assurance that covers death only, but will be still quite affordable.

You have the choice of paying a level premium for the entire term or to pay a premium that varies according to your age. Both methods are suitable. For most people, a level premium is probably better, as they do not have to worry about whether the higher premium charged each year is at a fair rate.

There is no need to buy life assurance for more than 25 years or beyond age 60. The premium will be too high. Some insurance agents recommend term insurance up to age 75, which is unnecessary and costly There is no need to buy life assurance for more than 25 years or beyond age 60. The premium will be too high. Some insurance agents recommend term insurance up to age 75, which is not necessary and too costly (and give higher commission to the agent).

Tan Kin Lian

Financial planning - Practical Steps (draft 4)

Some people observed that draft 4 contained a few blank pages. I will be writing them later. I am also adding a few new chapters, to cover tips for middle age and seniors. The book may be increased to 100 pages in later drafts. To get draft 4, click here:

Please give your
feedback on this book.

CyCab - Driverless Electric Vehicle

I will be visiting a research facility in France that is developing a driverless electric vehicle, called the Cycab. The visit will be in late November. Read more about this vehicle in various blog postings here. Watch an intereseting animated video about this vehicle.

RED Portal (7) - Graph of Price Trends

The RED portal allows you to displace a graph showing the price trend for the last 24 months where there are transactions. Those months without transactions will be skipped, so that actual period could be more than 24 months. It gives you a good idea about the movement in prices.

The information provided in the RED Portal is valuable and is now given FREE. At a later date, there will be some charge to access certain valuable information. Meanwhile, enjoy the FREE information. I hope that you find them useful. (Real Estate Data).

Experience with Part Time Work Portal

I tried to locate part time workers at the Part Time Work portal, I was able to get two good candidates for a project work, where they can work from their home.

It was more difficult to get someone to work in the office. Many of the registered people did not reply to my e-mail. Some have found a job already. I am still trying.

The advantage of this service is that it is free to the employer. It is also easy to find a worker that lives close to the place of work. I will be trying the unemployed workers at the older ages, as they are more likely to want my kind of work.

I wish to encourage employers to try this portal. If you wish to get someone to do the preliminary screening, you can click on the tab Agency. We will handle the initial search and screening for you.

I also encourage unemployed people and those looking for short term work to register in the portal. Although it is for Part Time Work, some employers are keen to offer full time work. It is also possible to do project work from your home. (Part Time Work)

Lodge a report with the Police

You can lodge a report to the Police here: It is a self-lodge report. Once lodged, it is official for investigation to carry out.

Regulate pay at bank

Even America finds it necessary to regulate pay at banks. This breaks the rules of the free market. It shows that the free market has failed, and America has now recognized it. You cannot rely on the free market that is unregulated and driven by greed and scams.

The banks and financial sector is probably the worse in this respect. America has decided now that they need to be regulated, even down to the pay of bankers. Read this article in New York Times.

Swiss model of health care

This seems to be a very good model. Singapore's model may be quite close to it and could be better in controlling some aspects of health care. Read this article.

Launch of a new property project

I attended a launch of a new property project recently. There were a few hundred potential buyers. They were given a queue number and allowed into the show flat in batches.

Although the project had a few hundred units, the marketing consultants released only one floor at a time. The prices were not disclosed. They will only be given to interested buyers, on private negotiation. The buyers were told that of the units released earlier, more than 90% had been booked, of which a high percentage had already presented their checks for the booking fee. This arrangement created the impression of overwhelming demand for a limited supply.

When the price was finally told to me "as a privilege", it was 70% more costly (per square feet) than a similar 5 years condominium located 100 meters away. A buyer who is not aware about the market price might be easily misled into booking an over-priced property and acting under a stressed condition. Later, I learned that many of the buyers were allowed to give an unsigned blank check for their booking.

The above pracitces are deceptive. This is how a property bubble is created and buyers were misled into booking for an over-priced property.

Before you consider any property investment, do your research. Go to this website, (Real Estate Data) and find out the recently transacted prices for similar properties in the vicinity. You can pay more for a new property but the difference should not be more than 20%.

Tan Kin Lian

Financial Planning (7) - What are good products?

The good investment and insurance products fit into the following criteria:

a) are transparent
b) have fair charges

Most products traded on an exchange are transparent and fair. The price is determined by the supply and demand. Information is made transparent and available to all market participants. You have the choice to be a buyer or seller.

You can buy stocks and bonds on the exchange and get fair pricing. However, you should avoid the illiquid stocks that may be subject to manipulation by the majority shareholders or certain funds.

You can also invest in unit trust and funds that offer diversification and display daily prices based on the market prices of the underlying assets. Choose the large unit trusts that have a high volume of daily transactions. Avoid the small unit trust with less than $100 million of assets.

Avoid structured products, as they tend to be non-transparent and are designed to have a large profit margin for the product issuers. These structured products also have high marketing costs that are passed to the investors. After paying for the high charges, which are usually not disclosed, the investors are likely to get a poor return.

Life insurance products of the investment type generally give a poor return, for the same reasons as the structured investment products. They are not transparent and impose high charges (to cover marketing and profit margins) on the investor.

To recap: choose transparent products with fair charges. Avoid structured investment products, including life insurance. Invest in financial products that are traded on the exchange.

Tan Kin Lian

Friday, September 18, 2009

Red Portal (6) - Highest Amenity Index

The amenity index measures the amenities within 1 km of a housing project. Points are given for the type of amenity (e.g highest is for MRT) weighted by the distance to the amenity. The highest score for the amenity index (AMX) is 100.

Here are the housing projects (i.e. condominiums) with the highest AMX. Most of them are not expensive, i.e. benchmark price less than $1000 psf. They are located in the central area.

Project name AMX BMP
Thye Shan Mansion 99 $572
Craig Place 93 $957
Pearl Bank Apt 91 $590
Abacus Plaza 85
Compass Heights 85 $531
Min Yuan Apt 84 $800
People's Park Complex 82 $688
Novena Suites 82 $1172
Grand Tower 81 $679
Burlington Square 80

Why does Thye San Mansion, located in Tanjong Pagar, have a high AMX? It is close to 3 MRT stations, 1 bus interchange, 2 community centers, 3 medical centers, 1 secondary school and 9 shopping malls. And it has a benchmark price of only $572 psf.

Find out more at (Real Estate Data)

Bizarre behavior of Singaporeans

Do you agree with this article about Singaporeans?

FISCA service - to write a complaint

FISCA will provide a service to help consumers to write a complaint on consumer financial matters, to be lodged with the relevant bodies, such as the financial institution, FIDREC, Police or Commercial Affairs Department.

As the FISCA volunteers will be familiar with this matter after handling many similar cases, they will be able to help the consumer to gather the relevant documents and evidence to make a good case.

The consumer has to pay an administrative fee of $50. The FISCA volunteer will spend some time to listen to the consumers, identify the documents needed to support the case and draft the complaint.

The work of the FISCA volunteer does not constitute legal or financial advice. They are using common sense knowledge to help the consumer. Consumers should be aware that legal and financial advice are costly and cannot expect the same kind of professional advice from FISCA for an administrative fee of $50.

The FISCA volunteer will usually be well educated and knowledgeable people, although they are not practicing law or financial advice. They can give good guidance to the consumer from a consumer's perspective.

If the consumer needs legal or financial advice, the FISCA volunteer will guide the consumer to the appropriate expert.

To use FISCA's service, go to

Tan Kin Lian

CPF Life will be operated on mutual principles

There were some negative comments about CPF Life - that the Government wants to make profit by operating this scheme and pay less to annuitants compared to the amounts that they have invested.

I asked some questions to CPF Board and they have given the reply here. The key points of the reply are:

a) A separate fund will be established for CPF Life
b) It will be credited with the premiums and investment income, and debited with the annuity payments, payment to beneficiaries and expenses of the fund
c) The expenses of the fund will be kept quite small, as the scheme is administered by CPF and enjoys economy of scale
d) The funds are not separately invested, but will be given a rate of interest that is pegged to long term government bonds plus 1%.
e) CPF Life will be operated on mutual principles, with the experience shared fairly among the members (i.e the profit does not go to the CPF Board or the Government).

I find this arrangement to be beneficial and in the interest of the annuitants. I hope that this will dispel any doubts about operation of the CPF Life scheme.

I thank the CPF for their helpfulness in giving this clarification.

Tan Kin Lian

Survey: CPF Life

Financial Planning (6) - How to find a good adviser?

If you need assistance to find the right type of investment or insurance product, you can use the services of a financial adviser.

It is better to find an adviser who will work for a fee. It is better for you to pay a fee of say $50 per hour for financial advice, rather than to use an adviser who earns a commission from the product that is sold to you.

If the adviser earns a commission, there is a conflict of interest. The adviser will recommend the product that pays him or her the highest commission. This cost is ultimately borne by your as the consumer, but you are not aware about it.

If you pay a fee to the adviser, you can ask for the commission that is paid on the recommended product to be refunded to you. This refund can be much more than than the fee that you have to pay. The adviser may be able to recommend financial or insurance products that are free of commission - so the cost will be lower anyway.

If you have to pay a fee of $50 per hour, you can reduce the total fee by spending some time to learn about your options, so that the financial adviser needs to spend less time to help you make the appropriate decision. The adviser may be able to give you some information from a website or booklet that you can read in advance.

To recap: Choose a financial adviser who is willing to work on a time-based fee, is willing to any commission paid on the products, and to refer you to educational materials that you can read in advance.

Tan Kin Lian

Civil or criminal case?

If a land banking company has cheated the investors, is it a civil case or a criminal case? Does the Government (i.e. the Commercial Affairs Department or the Monetary Authority of Singapore) have the duty to investigate an allegation of cheating made by many investors? Can they sit idle and let other investors be cheated?

What is cheating? Cheating is described in the Penal Code of Singapore as follows:

Cheating – Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he or she would not do or omit if he or she were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat". For example, A cheats if he intentionally deceives Z into a belief that A means to repay any money that Z may lend to him when A does not intend to repay it, and thereby dishonestly induces Z to lend him money.

It is the duty of the Government to enforce the law. If there is a complaint by the public that the land banking company is cheating them, the Government must at least carry out an investigation to see if cheating was involved. If there are grounds to believe that there was cheating, they should bring the case to court with the evidence (obtained through the investigation) and let the court decide.

If many members of the public lodge a similar complaint, the need to investigate is strengthened. Clearly, it is no longer a civil dispute. There is prima facie evidence of cheating.

For example, the investigation will show if the money received has been properly used for investing in the land that was intended. Has any money been mis-appropriated for other purposes? If the investment went bad, was there any money left that could be repaid to the investor?

The investors do not have the power or resources to carry out such investigation. Their lawyer (which has to be appointed at great expenses) do not have these investigative powers.

Even the act of investigation will deter the land banking company from continuing its dubious operations and put them in proper order.

If the investigation shows that there was no attempt to cheat, then the CAD can tell the investors to bring a civil case in court. But, I repeat, it is the duty for CAD to investigate the allegation.

Tan Kin Lian

Thursday, September 17, 2009

Land banking - call on CAD to investigate

Many investors bought a land banking product with an option (guarantee) that they can withdraw their investment after 12 months with a certain rate of return. They exercised their option, but the land banking company refused to honor the promise.

The investors lodged a complaint with the CAD (Commercial Affairs Department) but the CAD officer told them to see a lawyer and take a legal case. One investor went to see the Member of Parliament and was advised to lodge a complaint with CAD.

Why are our public officers not doing their job? They seem to be passing the buck around. One point to the other. The poor citizens, having "lost" their money, have to go on a merry go round. It seems that they have to carry out their own investigation.

It is the duty of the CAD, on receiving several similar complaints about this land banking company, to carry out an investigation. At the least, they should ask the land banking company to give an explanation, so that the CAD can decide if there is a potential case of cheating. If so, they should carry out more detailed investigation to gather evidence and charge the wrong doers in court.

If the investigation shows that there is no cheating, it will then be appropriate for the CAD to advice the investors to take up a legal case for specific performance.

I suggest that all the affected investors should get together and collectively go to see a Member of Parliament. If you go togther, you will be able to bring your point across more clearly to the MP. Ask the MP to write to CAD to carry out an investigation.

After refusing the honor the promise to repay the earlier investors, the land banking company continue to sell the product to new investors. Will this become a ponzi scheme?

I am worried about the future of Singapore. If our public servants and elected leaders do not carry out their duty, things will get worse. There will be more cases of cheating.

Is it due to lack of manpower in CAD that they cannot carry out any investigation? Or do we now have officials that do not like the ground work and prefer to sit behind a desk and write reports?

Tan Kin Lian

RED Portal (5) - Highest Benchmark Price

The RED portal provides an important indicator called BMP (Benchmark Price). It is the average PSF (price per square foot) computed for the latest 20 sales transactions, adjusted by the price index.

Do you know the condos with the highest BMP in Singapore. Here are the top 10 condos. 8 of them are still under construction (to be ready in 2010 and 2011). Two are already occupied. Are you familiar with them?

Go to (Real Estate Data) to see the map of the condo and also the actual transactions.


Condo Year Comp Tenure Location Nr Units BMP
Marq on Patterson Hill 2011 FH Orchard 66 $4,305
Cliveden at Grange 2011 FH Tanglin 100 $3,315
Orchard Residences 2010 99 Tanglin 175 $3,282
Parkview Eclat 2010 FH Tanglin 35 $3,220
Lumos 2011 FH Orchard 53 $3,133
Beaufort on Nassim 2008 FH Bukit Timah 30 $3,087
Leonie Parc View FH Orchard 44 $2,910
Helios Residences 2011 FH Newton 140 $2,840
Boulevard Residences 2005 FH Tanglin 46 $2,807
Nassim Park 2011 FH Bukit Timah 100 $2,751

These properties cost several million dollars and are beyond the reach of ordinary people. Anyway, it is nice to know how expensive they are, and where they are located.

You can find more reasonably priced properties at other sectors. Go to the portal and select the condo by its name, or choose the condos in your preferred sector (or district). (Real Estate Data)

RED Portal (4)

Which are the most expensive condos in Singapore (based on the benchmark price)?
Which condos have the best amenities within 1 km (based on the AMX)?
Which condos have the highest increase in price PSF over the past 12 months)?

This information will be posted in the Real Estate Data (RED) website soon. Go to (Real Estate Data). Read the Guide on how to use this website.

Foreign Talents in Singapore

Dear Mr. Tan,

I refer to the Business Times article about "Foreign Talents in Singapore", 17 September.

While it may be true that Singapore's GDP growth rate has gone up notches, the question is who benefited from the higher growth rate? If you get paid more so that you can pay for the same food that cost more, use the same road that cost more to drive on, rent the same house that now cost you more to rent, ... then it is just inflation.

If the higher growth means you work harder to get higher pay so that you can buy more of something you don't need, eat more and then has to go swimming everyday to get rid of the calories, then the higher growth just translates to wastage.

If all said, people are happier than before then it is all right, but are they?

Heng Chee Meng

RED Portal (3)

Dear Mr. Tan,

Your website has the additional information of stating the floor of the unit which all other websites do not offer. Of course we can try to make a guess but not quite accurate as knowing the actual floor number.

Another advantage is the comparison you provide with other condos. I wish I had done this before selling my unit. I was a first time seller and naively thought that my agent (who is a family member's good friend!) would have done all that is necessary to get me a good price.

Unfortunately she based her pricing on an earlier sale in my condo and told me that an offer of $X was good. I was quite shocked to have that offer and asked her if the market was picking up. She told me it could a temporary thing and made me commit just after 2 viewings and 1 offer!

I must say that it was my fault in trusting that my agent would get me a good price. I bought the property for $X and sold for the same price. It is a high floor. Later I got to know that the ground floor unit was sold for a higher price.

If I had waited just one month, I would have made 80K. At the current price, I would make 100K. The painful thing is that I was not even in a hurry to sell. I had a wonderful tenant who was keen to extend for another year. Guess this is a painful and expensive lesson that I have to learn.

I suggest that you add a listing of units sold more than 2 years ago or a history page (Real Estate Data)

A long way down

?This report shows the plight of many Americans who did not benefit during the Bush years. Now they are badly hit by the recession. I believe that many Singaporeans also fit into this situation.

Agent wants to recommend good products

Hi Mr Tan,
After reading several articles in your website and Fisca, I am wondering whether my decision to becoming an insurance agent recently is wrong!

I am always interested in insurance line many years ago and believe that the various insurance policies when used appropriately can protect people from unforeseen circumstances. Of course, this is only my own wishful thinking without putting any number in any calculation. My decision to become a insurance agent is to be able to see for myself on how to recommend to my clients that the insurance plan that benefit them the most.

So I am wondering whether it is of any good at all in being a insurance agent since the insurance products out there are mostly gearing towards high cost upfront and not to the benefits of our client. I felt like we are fighting a losing battle against the "big boys" out there.

You can continue to be an agent and sell term insurance and single premium products. If you are keen to do it, I can recommend clients to you , provided that these products give good value.

Financial Planning - Practical Steps (draft 4)

Some people observed that draft 4 contained a few blank pages. I will be writing them later. I am also adding a few new chapters, to cover tips for middle age and seniors. The book may be increased to 100 pages in later drafts.

To get draft 4, click here:

Financial Planning (5) - How to invest your savings?

You should invest 80% of your savings for for the long term. Here are the tips for this type of investment:

a) Invest in a large, professionally managed fund as it offers diversification. You will not be badly affected if some investments go bad, as the impact is small and is compensated by other good investments.
b) Choose a low cost fund, where the fund manager takes only a small fee. If you choose an indexed fund, you enjoy diversification and pay a fee of only 0.3% per annum.
c) Invest for the long term, i.e. 10 years or longer. The fund will do badly in some year but will do well in other year. Over the long term, you can get an average rate of return.
d) Choose a fund that invest largely or fully in equity, as equity gives a higher return over the long term. You have already reduced your risk through diversification and averaging out the good and bad years.

You can keep 20% of your savings in a money market fund or in short term assets. The return may be lower, but you can withdraw the savings at any time to meet emergency needs, without having to pay a penalty or suffer a capital loss.

Over the long term, an equity fund should be able to earn you a net return of at least 5%. This is attractive, compared to safe, short term return of less than 1%.

To recap: Invest at least 80% of your savings in a diversified, low cost equity fund that can give a return of at least 5% for the long term. You can reduce the risk through diversification and long term averaging.

Tan Kin Lian

Protect against critical illness - buy term and invest the difference

I wish to give consumers another choice of how to protect against a critical illness: buy a 25 year term insurance (that also covers critical illness) and put your savings in a low cost fund.

Here is a hypothetical example (to illustrate the concept). You can use the actual figures relevant to your age.

Suppose you have to pay $3,000 a year ($250 a month) to get a critical illness policy covering $100,000. If you decide to take the risk on your own and to invest the annual savings of $3,000 to earn just 3% per annum. The savings will accumulate to $113,000 at the end of 25 years. The accumulate savings will be more than the amount payable under the critical illness policy!

You can buy term insurance (including cover for critical illness) for 25 years for a small premium. Actually, you only need a decreasing cover, as the reduction in each year is compensated by your annual savings. The cost of this cover can be quite low, probably around 5% of the premium. See this FAQ for indicative rates. (You have to take one-third of the rates for $100,000 cover and increase it by 50% to 100% to include critical illness.)

The premium that you put in a critical illness policy will also have a cash value. You have to find out the cash value at the end of 25 years and compare it with the amount that you can get by investing on your own. If the difference is small, it is all right to buy the critical illness policy. If the cash value is significantly lower, than it is better to avoid the critical illness policy.

If you are younger, you may pay a lower premium for the critical illness policy, but if you extend the calculation to a longer period (say 35 years), you will get the same conclusion, i.e. that you will be able to accumulate sufficient savings to get the full sum assured.

I have given hypothetical figures to illustrate the approach can consumers can take to make the right choice. You may need to find an adviser who is willing to give you the advice for a time-based fee, so that you get impartial advice.

To recap: Consider the approach of "buy term and invest the difference". Get the figures relevant to your actual situation. Find an adviser who is willing to give you impartial advice for a fee.

Tan Kin Lian

Appeal to MAS - regulate investment products

I am writing to all parties, from the MAS, MOF to the business times editor, in a passioned appeal for the MAS to act.

So far, all the measures that MAS has focused on are 1) training of sales staff, 2) labelling of products, 3) sales process, proper documentation etc.

However, the MAS has failed to address the root cause of all the mis-selling in the financial industry. They have failed to address the conflict of interest between the way the sales force is remunerated and the interests of clients.

Clients want good investment performance, within their proper risk profile. They want a diversified portfolio.

The sales force and the banks that set the score cards want to sell products with the highest sales revenues. The higher the sales revenue, often the poorer the investment performance for clients.

By allowing banks to sell products with upfront sales charges, the sales force have no incentive to conduct due diligence of the products. In fact, the sales force is incentivised to go for the products with the highest sales margins, often embedded in flow products, structured products and treasury products. These products often provide very limited upside but unlimited downside.

Flow products like equity linked notes and dual currency investments involve the clients selling put options for a fee. Often the spreads taken by the banks are 80%, while the client earns only 20%. Yet the spreads are not transparent. The client only knows what he has been quoted. Worse, the little fees that client earns from selling these options involve unlimited downside if the underlying equity or the currency being paired drops in value.

Sales people love such flow products because 1) they earn very high margins at expense of clients, 2) these investments are short-termed, often 1 month for an ELN and 2 weeks for a DCI, and they keep rolling the clients every time a contract expires until they customer gets converted. if the stock rises or the currency such as teh AUD rises, customer merely gets a small yield like 1% per month. But if the stock or currency falls, customer receives the underlying stock and currency. Hence, the return is asymmetric.

When the investment climate is favourable for equities, often the sales force would steer clients doing such flow products, which earn very little yields, when the clients are better off investing in mutual funds, ETFs, products that constitute a core portfolio.

There are also no controls on the spreads that a bank can take for bonds, convertible bonds, preference shares. They are quoted as bid ask with the spreads embedded. However, bonds, convertible bonds and preference shares provide much better returns to risk ratios than flow products and hence such spreads are often quite justified.

The banks cannot be relied on to treat customers fairly because they are under tremendous shareholder pressure to produce ever increasing revenues. Any one from senior management in a consumer bank will admit that their sales target rises 20 - 30% per annum, regardless of market climate. Hence, banks tend to veer towards selling products that generate the highest revenue at the expense of clients.

The only way is for MAS to legislate or control the spreads earned from flow products, unit trusts and all investment products. The banks will likely find other ways to make up for the lost revenue by implementing performance fees or wrap fees, which will align the interests of teh bank with the customers.

The MAS must take this financial crisis as an opportunity to take bold steps towards reforming the way investment products are sold by banks. Otherwise, I suspect more social harm will fall on the public. If the government is willing to take steps to control the rise in property prices recently, why not take equally bold steps to reform the financial industry?

Greg Wang

Wednesday, September 16, 2009

A suggestion to treat citizens better

Dear Mr. Tan,

The PM talked about treating Singapore citizen better, as compared to PR. I will recommend them to do this:

a) portion out our assets from Temasek holdings and GIC (not all of GIC as some are our own CPF money)
b) do a proper mark-to-market
c) unitize it (and call it Singapore Thank You Fund)

Each singapore citizen will be given shares based on the following:
a) number of years as citizen
b) number of kids he/she produced
c) done NS and reservists

So, the older citizens who has provided the nation with kids will be getting a larger number of shares as compared to a newly converted citizen who is single.

Add up all the shares and match them to the units of the Singapore Thank You Fund. Citizens will be given the units of the Fund in their CDP account. They can sell the units only back to the government. The government will provide transparent reporting of the values of the underlying assets so that the unit price can be calculated. Based on certain predetermined criteria, citizens can sell the units at a discount (depending on the age of the citizen)

Criteria will be something like this:
a. prolong joblessness
b. prolong sickness with no money to pay for
c. calamity in the family (sudden loss of a spouse)

I hope the old citizens (especially the poorer ones) will be able to benefit from Singapore's growth in the past 50 years, before they die.

Heng Chee Meng

US Health Care Industry

What's wrong with the industry, as told by a whistle blower. Read this report.

Singapore system getting rotten?

Dear Mr. Tan,
I hope that our top leaders realise that the Singapore system is getting rotten:
a) So much cheating going on
b) People in charge are not taking action - just passing the buck around
c) No sense of duty or pride

Land banking company refused to refund the money

Dear Mr Tan
I am an investor who has invested in a land banking project with X. Despite my investments maturing, X has not paid me the interest or the exit price. They keep postponing the issue by responding to my queries only verbally (nothing concrete in writing). If possible I would like to join other such investors in any class action suit that might be in the offing.

I must also add that I called CAD branch of Singapore police to report the obvious irregularities at X in their misrepresentation of their products to their clients. CAD officer directed me to a lawyer (who as you know charge anywhere from $600-$900 per hour).

I am not sure who is the right regulatory body in Singapore that will deal with such a case. I am very surprised that a company like X is operating without any check in a place like Singapore and is blatantly treating many its clients with disdain. I was wondering if you could suggest what recourse I can take.

It is the duty of the Commercial Affairs Department to investigate if this is a cheating case, especially as they have received a complaint. They cannot just push this matter to the lawyer. I suggest that you see your Member of Parliament.

Real Estate Data - RED Portal (2)

Dear Mr Kin Lian

This is indeed a very useful website. Thank you for putting this together. I am one of those who was fooled into thinking that my agent would do her homework and get me good deal. I've lost close to 100k due to failure in practising due diligence in marketing my property.

With your website, I think sellers need not be at the mercy of some agents who only want to close a deal as soon as possible and collect their commission! All buyer and sellers can do their own homework. (Real Estate Data)

CPF Life

Many people asked for my views on CPF Life. I replied:

a) It is a good scheme, as it provides the security of a lifetime income through pooling longevity risk
b) The Government gives a bonus of $4,000 for people (except the wealthy) to join the scheme
c) The annuity gives an imputed interest rate of 3.75% to 4%, which is attractive compared to the market return on low risk investments

Some of the remarks made by people who dislike the CPF Life are:

a) The Government will keep the money and may not pay it back
b) The Government makes a profit when the annuitant dies at an early age
c) The scheme will have a big surplus due to the low payout (based on the experience of other Government schemes)

I hope that these points can be addressed by the Government and that people can learn to trust the Government.

Tan Kin Lian

Behavior of the banks

The Archbishop of Canterbury, head of the church in the UK, has also criticised the banks for their excesses. Read this report.

Real Estate Data (RED) Portal

There is interest in private property in recent months. Before you make a big $1 million commitment, it is better for you to do some research. What is the price paid for recent transactions in the same condominium? What are the prices in similar condominiums in the same sector?

The Real Estate Data (RED) portal gives you the information. You will find the following information to be useful and easy to use:

BMP - benchmark price
AMX - amenity index
Transactions - actual transactions in this condominium.
Guide - read the instructions on how to use this portal.

Take note of the disclaimer. If you find any mistake or missing information, please reply to the Feedback tab. We need you to help make this portal useful for consumers.

Go to (Real Estate Data).

Part Time Workers

I wanted to employ some part time workers for administrative and data entry work. I found a few suitable people in this portal, (Part Time Workers).

I sent an e-mail to a few selected workers and wait for their response. I choose the workers that live near my home, rather than those who live far away.

I encourage people searching for part time work to register in this portal. I encourage employers who wish to have part time workers to search in this portal. This portal is managed by Tan Kin Lian & Associates. Service is free.

All the best!

Make a balanced decision

A few insurance agents have criticised me for my views about over-spending on buying of critical illness and private shield. They argued that, even though the risk is small, it is necessary to protect against the risk.

It is important for consumers to make a balanced decision. Each person has only a limited amount of savings. If you spend too much of your savings on insuring against risks with a low probability of happening, you will not have sufficient savings for other risks.

The biggest risk is insufficient money at retirement. Most people will survive to retirement without a critical illness or big hospital bill. If you over-spend your savings on insurance, you will not have enough savings for your retirement.

When you buy insurance, make sure that you pay the right amount of premium. Do not pay too much. Do not buy insurance that is not really necessary. Choose an adviser who takes care of your interest, rather than one that wants you to spend more (and you know why).

You can buy term insurance (including cover for critical illness) up to age 60 (or earlier) to give a large cover for a modest premium. You can scale down the cover at the older ages, to keep the premium low (e.g. decreasing term insurance or family income benefit). Read this FAQ for the benchmark premium.

Most people need insurance when they are young but they only need to cover for a period of say 25 years. After 25 years, they will have sufficient savings to protect them against loss of income due to illness or unemployment. But they need to put their savings in a low cost fund, so that it can grow and give a good rate of return. (Most structured or life insurance savings products take away too much charges and give a poor return).

There is a big argument about the merits of Medishield and Private Shield. There is no doubt that Private Shield covers more than Medishield, but consumers should ask the question - is the justified to incur a higher cost? The lifetime cost for Private Shield Plan A is 2.5 times of Medishield. Why pay 2.5 times of the cost when for most cases, Medishield will be sufficient to cover all the cost (excluding the co-payments). In fact, Private Shield requires you to bigger co-payment when you are hospitalised.

I want you, as a consumer, to be aware about the choice to be on Medishield. I have presented my reasons. Your insurance agent will present the argument to be on Private Shield. You have to make the final decision.

If you are happy with Private Shield, it is all right. If you decide to convert back to Medishield, you can get cancel your Private Shield and ask the insurance company to put you back on Medishield. I did that.

To recap: You have certain amount of savings to take care of your future financial security. You have to use this savings wisely. You can cover some risks through insurance, but you have to pay the right premium. Do not over-spend on insurance, and leave insufficient money for your retirement needs (as this represent the biggest risk that you have to face).

Tan Kin Lian

Financial adviser charged fixed fee

Mr. Tan,

I suggest that you add this advice in your book:

Do not use Financial Advisers charging on a fixed percent of the total managed fund with no conditions attached. This scheme is supposed to motivate the Financial Adviser to grow the fund to the benefit of both the client and customer. The contrary could turn out with Financial Adviser collecting the fee regardless of the outcome of the fund performance (which is also a conflict of interest) and customer suffering a double whammy – i.e. losses on the fund + paying a fee above all the other basic charges...

Challenge of reforming the finance sector

Read this report. I hope that President Obama succeeds in reforming the finance sector and create a better environment for future growth.

The world has not learned its lessons from the crisis

Read this report. The world has not learnt its lessons from the crisis and is continuing the bad old ways.

Using happiness as an economic indicator

Here are the views of President Zarkosky of France. I like the idea.

Financial Planning (4) - How much can you afford to save?

The amount that you can save depends on your income (combined with the income of your spouse) and the amount that you spend.

Some of your spendings are fixed. You have to make monthly repayments on the loans that you have taken to buy your home, car or furniture. If you do not make the payment, you are charged a high rate of interest, which can be a burden.

You also have to spend money on transport, food, clothings, utilities, telephone, medical expenses and other essentials. You can spend a smaller amount by being frugal, but there is a minimum sum to be spent. If you have more members in the family, the spending increases proportionately.

Tuition for the children and employing a maid are expensive items. Are they really necessary? Can they be avoided?

Spending on credit should be avoided. The interest charged on credit card can be 2% per month or 24% a year. This is too high and can be a heavy burden.

After setting aside the fixed commitments and the essential items, you have a remaining sum. You can decide on how much to set aside as savings for the future and how much should go into discretionary spending.

Some people make the mistake of setting aside too much of their monthly income in life insurance savings. This forced savings take a large part of their earnings. When they are unable to meet the premium payments, their policies lapse and they forfeit a large part of the premiums that have been paid. This should be avoided.

To recap: Have a budget to allocate your savings into fixed commitments, essential expenses and voluntary expenses. Avoid having fixed commitments (e.g. loans installments and life insurance savings) that may be difficult to service.

Tan Kin Lian

Calculation of insurance premium

In a competitive market, an insurer has to calculate its premium at a level that is just sufficent to pay the expected claims, expenses and provide a small margin of profit.

The expected claims is about 70% of the premium (also called the claim ratio), with the difference of 30% (also called the loading) being reserved for expenses and profit.

If the financial accounts show a claim ratio of 70% for a class of business, the premium rate is at the right level. If the claim ratio is less than 50%, the insurer is making an excessive profit margin by charging a high premium (relative to the expected claims).

If there is intense competition, the premium rate may be pushed down to a low level, resulting in a claim ratio higher than 70%. The insurance company is making a loss, and has to increase the premium rate in the future.

For example, take the case of term insurance covering $300,000 for young people with an average claim rate of 0.1% (say). The average claim per person is $300. Allowing for a loading of 30% (to cover expenses and profit), the premium charged per person should be $428.

An insurer is able to charge a higher premium rate and enjoy a bigger profit margin by designing a product that is not easy to be compared against similar products in the market. The insurer train the agents to sell the products, in spite of its higher price.

Customers should avoid insurance products that are not easy to compare and are marketed by agents who earn a high rate of commission. They should look behind the marketing presentation of the product to see what is the underlying claim ratio.

Tan Kin Lian

Tuesday, September 15, 2009

Financial Planning - Practical Steps (draft 4)

I have posted a revised draft 4 of my book, Financial Planning - Practical Steps. You can download the soft copy after entering your particulars here.

The printed version of this book will be sold for $7.90. It will be given free to members of FISCA at the new member briefing to be held each month. The author will also give a 1 hour talk of the key points in this book to the members. Join FISCA now.

The practical tips in this book can help you to choose the right products and save you a few thousand dollars in charges.

Fair pricing of insurance

Insurance serves a useful purpose in society. It only needs to be made transparent and priced fairly. I shall be writing about this matter separately.

Insurance should not be used to take money from consumers without giving fair value. It should not be over-priced or used to make excessive profit.

Financial Planning Book

What title is best for my books?

a) Financial Planning: Practical Steps
b) Pocket Guide to Financial Planning
c) Practical Financial Planning
d) Financial Planning Primer

In the survey, most people said that the price should be $5 to $10. Some suggested a lower price (less than $5) and a smaller number suggested a higher price (more than $10).

Most people like the book to have more content and to be in more depth. This is now being done.

More views welcomed.

Taking a free ride

Some Singaporeans have the habit of taking a free ride. They are not prepared to join the class action now. If the class action succeed, they want to join later. But this is not possible.

When the investor groups were being formed a few months ago, they did not register or join the groups. They wanted to wait to get compensation from the bank or FIDREC. When FIDREC rejected their case, they approached me for the contact persons for these groups. It is too late.

If Singaporeans want to have a just and fair society, they cannot sit back and ask for help at the last moment. They cannot take a free ride.

They have to act early and join others in a collective action. This bad character of some (perhaps many) Singaporeans have to change, if we are to be a strong nation.

Tan Kin Lian

Means Testing

Someone asked if a high income person can still use the subsidised wards (B2 and C).

The answer is "yes". They will be given a lower rate of subsidy. Currently, the subsidy varies from 80% to 65% for class C and from 65% to 50% for class B. See the explanation here.

Basic Medishield should be sufficient to cover the cost of the subsidised bill, even though the rate of subsidy is lower for a high income person. Even if it does not cover the full amount, the difference is quite small.

Most retirees and elderly people have a low or no income and should qualify for a higher of subsidy anyway.

Patient advocate

I have posted a newspaper article about patient advocates. They are knowledgeable people who advice patients on selecting the right doctor to treat an illness. Many patients are at a loss on selecting the right treatment and can pay a lot of money in selecting the wrong doctor or patient. This is how they get a big hospital bill.

By getting insurance, the patients are covered from the burden of paying the large bill, but the total cost is shared by all consumers through higher insurance premiums. Premiums will continue to increase, if patients do not make the right choice and pay more than needed.

Insurance companies and their agents are happy to see higher premiums. It means bigger commissions and profits to them. Can they step back and think about the burden of higher cost to consumers? Can they play a role to minimise these increases?

Patient advocates are now found in America. I hope that they can be available in Singapore too.

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

Monday, September 14, 2009

Economics of Private Shield

Some insurance agents like to tell scare stories about people who are hit with large medical bills, costing $50,000 or more. These stories are true (and they can provide evidence), but they are exagerated, in the following ways:

a) Only a very small proportion of insured get hit with large bills, maybe less than 1 in 10,000 people (corrected).
b) You have the option to go to a subsidised ward and pay less than one-third of the bill charged by a private hospital.

If you are already insured under a Private Shield, you can be sure that the bill will be high, as the hospital know that it will be paid by Private Shield.

The lifetime cost (from age 25 to 85) of Basic Medishield is $20,000. The lifetime cost of Private Shield is $50,000 for A class(restructured) and $70,000 (private hospital).

If you are well off and have adequate savings for retirement, the additional cost of $30,000 may not be important to you. Go and spend it for the "status". But, if you do not have sufficient savings for retirement, do not waste $30,000 (which is a lot of money to most people).

Some agents will advise you to go to Private Shield when you are young (as the premium is low) and to downgrade to Medishield after you retire. This may make sense, but you must remember that you are more likely to face a big hospital bill after you retire.

Out of the $50,000 that you pay in a lifetime for a Private Shield (class A), about $15,000 (30%) goes to pay commission, expenses and profit. Another $15,000 goes to replace the subsidy that is provided for B2 ward. The real benefit to the patient is quite small, except for the "status" of being treated in class A.

The scare story that you will go bankrupt if you land with a big bill and you are covered under Basic Medishield is exaggerated. But it is effective in getting you to convert to a Private Shield and increase the earnings of the agent. Who convince you anyway?

Tan Kin Lian

To take loss or hold USD?

Hello Mr Tan
I am retired. I am currently holding US Dollars converted from Dual Currency Investments. At the current low exchange rate and low interest rates, what should I do with the US Dollars to minimise my loss of about S$60k.

If you think that USD will go lower, you can take your loss now. If you think that it will go up, you can hold on. But, I do not know whether it will go up or down. So, I cannot advice. Sorry.

Agent fail to explain the upfront charges

Hi Mr Tan
I have a question related to my ILP policy bought from X in late November 2005. My yearly payment is S$1800 with protection of S$80K death and S$100K critical illness. The agent said it is very cheap for the protection but she did not mention the huge charges of 85% for 1st year, 50% for 2nd year and 25% for 3rd year. After 3 years later, then I realize my cash value only left less than 1k. My husband also bought a ILP from her too. May I have your opinion that should I continue these policies.

You have already incurred the upfront charge. So, it is better to carry on the policy, as the charges from now onwards is relatively modest. But you can lodge a complaint to X against the conduct of the agent in failing to tell you the relevant facts.

Reforming the financial system

Read this report.

The key proposals are:
a) strengthen consumer protection (MAS please take note)
b) regulate derivatives
c) monitor systemic risks

Financial Planning - Practical Steps

You can get a complimentary copy of my book, Financial Planning - Practical Steps (draft 3a) by entering this form. Please print the book, read it and send your comments to

The printed version of this book will be sold for $7.90. It will be given free to members of FISCA at the new member briefing to be held each month. The author will also give a 1 hour talk of the key points in this book to the members. Join FISCA now.

The practical tips in this book can help you to choose the right products and save you a few thousand dollars in charges.

LATEST. There is overwhelming demand for this complimentary draft. I will keep it open until midnight today. For those who like the book, please consider making a donation to FISCA or join as a member. Give us your support.

Planning the new bus network in Singapore

There is a report about the new bus routes to be introduced in Singapore. What is going to happen? Find out here.

Offer window period for uninsured to join Medishield

Printed in Straits Times Forum Page, 14 September 2009

Forum Page
Straits Times

When Medishield was introduced more than two decades ago, the Government decided to cover CPF contributors only and give the right for members to opt-out of the scheme. Some members opted out as they were already covered by their employer or for other reasons. Many other people were not covered under Medishield as they do not have a CPF account at that time, for example, they were not working or self-employed.

Today, there are many people who are not covered by Medishield. They are allowed to join Medishield but are subject to underwriting. If they are not in good health, they may be rejected or have exclusions imposed on them.

As many years have passed since Medishield was first launched, it is time to review the need for underwriting requirement for Medishield. I suggest the following measures:

a) Have a window period to allow those not insured to join Medishield on special terms. They are not subject to underwriting but will have existing illnesses excluded or partially covered for a period of two years. These illnesses will be fully covered after the two year period. The excluded illnesses will be of a serious nature and will be defined clearly.

b) Identify the non-insured people, approach them and have an easy way for them to join Medishield. The people to be approached are those with a Medisave account, who is not covered under a Medishield plan.

c) Make it compulsory and automatic for all new-born babies to be covered under Medishield.

It is important to have every resident covered under Medishield, so that they will not be bankrupted by the high cost of major medical expenses. As Medishield is a national scheme, it can be made easily available to all eligible people, without the need for the meticulous underwriting measures that are adopted by commercial insurers. The risk of adverse selection and moral hazard is already reduced by the imposition of a deductible that has to be paid first by the insured.

We have read about the debate in USA about reforming their health care system and the need to offer coverage to more than 30 million uninsured people.

We have a similar problem in Singapore, although on a smaller scale. We have to act early and offer coverage to our own uninsured people.

Tan Kin Lian

Favorite Singaporean Expressions

Here are the contributions of respondents to the survey.

The reflect the negative quality of Singaporeans: apathy, indecisiveness, fear, arrogance.

I am surprised that there are no positive expressions of hope, charity, kindness.

Financial Planning (3) - What risks to insure against?

Insurance is available to cover the following risk:

a) risk of premature death
b) medical expenses
c) disability

You need to insure against premature death during the time when your children are still young. This insurance will provide a regular income to your family until all your children have grown up and have started to work.

You should buy term insurance, as just provide pure coverage (not combined with savings), and the cost is quite low.

You should have insurance to cover you up to age 60, or for a period of 25 years (if shorter). The cost of insurance increases according to the period of insurance, i.e. you pay more if you want to insure for a longer period. You should avoid paying a higher premium than is necessary.

You should insure for an adequate sum. It can be 10 years of your earnings or to provide 50% of your earnings each month for the remainder of the period of insurance.

For example, if you earn $40,000 a year, you can buy insurance to pay $400,0000 on premature death or to pay $2,000 a month for the remainder of the period of insurance. If you insure for 25 years and death occurs after 15 years, the monthly income is payable for the remaining 10 years.

You can buy an insurance policy to cover your medical expenses. In choosing the suitable policy, you should consider the coverage and the cost. The insurance that offers the best value for money is the basic Medishield offered by the Central Provident Fund.

If you buy a private Shield plan, you may get 50% more coverage, but you have to pay a premium that is 100% more costly. If you are well off, you may not mind paying a higher premium. But, if you do not have adequate savings for your future needs, you should avoid wasting the money on expensive, unnecessary insurance.

If you are covered under basic Medishield and you wish to be treated in a private ward, you can pay the uninsured expenses out of your savings. The risk of this happening is likely to be quite low.

Disability insurance will pay you a monthly income during the period that you are disabled due to accident or sickness. You have to consider the cost and benefit of this insurance, and the chance of making a claim. If the insurance is too expensive, relative to the chance of making a claim, you can carry this risk on your own. If you are disabled, you can draw down on your savings and replace the drawdown in the future.

to recap: consider the benefit, the chance of making a claim and the cost. Insurance is costly, so you have to choose an insurance coverage that gives you good value for your premiums.

Tan Kin Lian

Patient Advocates

Read this article about the role of patient advocates in health care.

The role is similar to what FISCA helps to do on financial matters. Join FISCA now.

Sunday, September 13, 2009

Admirable qualities of the American way

America faces many big challenges. They have to rebuild their economy, to reform health care, to regulate the financial sector. They faced a big budget and trade deficit.

I have been followed the debates in Congress over the past months and speeches by President Obama. I also listened to the inaugural speeches of many past Presidents. They gave me the confidence that America will overcome these challenges and be a better nation. Here are my reasons:

a) Honesty. The leaders of America are honest people. They recognize the problems and face them squarely. They engage in honest debates and have an open mind to explore the options. The people expect their leaders to be honest, sincere and open.

b) Courage. The leaders and the people have the courage to face their challenges and are determined to overcome them. They are driven by what is right, good for the country and needs to be done. They do not shirk their responsibility.

c) Fairness. They believe strongly in fairness and justice. Their solutions will be for the benefit of the people at large, and not just a few.

d) Public service. The leaders earn a modest salary, which is a fraction of what they can earn in the private sector. Their salaries are benchmark against the national average, not against the top salaries in the private sector. But they are proud to be in public service to serve the people and the nation. This is a stronger motivation than monetary rewards.

e) Positive. They are a positive people. They show confidence and hope in working for a better future. This is the strength of a people who cherish freedom over tyranny.

I hope that the leaders and people of Singapore can embrace these qualities, so that our nation can also be strong and united.

Tan Kin Lian

Singapore has no future

Comment posted in my blog (edited):

It is hard to compete with "foreign talents" when Singapore men have to do National Service for two years and will be called up each year for reservist training.

The Government expects Singapore males to be supermen - tie their hands behind their back, add weight on their legs and ask them to compete with "foreign talents".

What kind of Government treat its citizens as slaves - give them no choice and no rights. Now, the Government ask "foreign talents" to be new citizens - no need for National Service until the second generation. When it is time for the second generation to do National Service, they will leave Singapore.

Singapore has NO FUTURE.


Click on the Survey label on the right and take part in the surveys (relevant to you) in this blog

Personal experience with Shield plans

I invite the public to share your experience with the Shield plans, i.e. Medishield run by CPF and the private Shield run by the insurance companies.

Any comments about:
a) premium rates?
b) underwriting requirements?
c) claim settlement?
d) customer service?

Please state your positive and negative experiences here.

Too many cars, insufficient parking spaces

We face this problem in Singapore. Do you agree? Here is a long term solution.

Obama warns against scare tactics over health care

Read this article.

The health insurers in USA made huge profits, but the premiums keep escalating at an uncontrolled rate, and the quality of health care is below average. This is the evil of greed in a capitalist society that seek to maximize profit without caring for the welfare of the ordinary people.

In Obama's plan, he will make it illegal for health insurers to stop or restrict the coverage when someone falls sick. They will also be required to place a cap on the co-payments.

Historic speech by Ted Kennedy

Watch this historic speech by Ted Kennedy. Sadly, Senator Kennedy passed away recently.

New hope ... for a just and fair prosperity, for the many and not for the few.

Five myths on the Minibonds

Here are 5 myths that the banks and security firms want the public to believe. I urge the public, who are not aware about the struggle of the investors, to read about the injustice that has been done.

Many people got the mistaken impression that the Singapore authority has helped many investors to get fair compensation. This is the impression given by the headlines in the mainstream papers. But this impression does not represent the true situation.

Think again. Out of over $500 million that has been invested, the total amount of compensation was only $107 million. Just about 20% was compensated. This is far short of the compensation offered in Hong Kong and Taiwan.

Are we an honest society?

Website for Minibond Investors Action Group

Visit this website to know the progress of the legal action by the Minibond Investors Action Group.

Medishield should cover congential illness

Here is an article written by Gerald Giam.

I agree with his views. We need a mindset change in our Ministry of Health and the Government. Instead of the current commercial approach, they should think of a national, social approach - which is the role of the Government.

Financial Planning (1) - How much to save?

The first step in financial planning is to decide on the proportion of the current income that should be saved for the future. The answer is "as much as possible".

Some people are frugal. They spend only to meet the essential expenses and save the remainder of their earnings for the future. They are willing to forgo their current spending and enjoyment - no vacations, search for cheap offers and bargains, take public transport, find inexpensive eating places.

There are many opportunities to leave frugally and still enjoy the pleasures of life. The parks and public spaces are free. Activities and courses in community and sport centers are affordable. Walking is free and good for the body.

As a rule of thumb, you should save 10% to 15% of your earnings and keep it for future needs. After meeting your essential expenses and savings, you can still have a balance for the discretionary spending, such as vacations, branded goods, tuition, entertainment or the pleasures that do cost money.

It is very important to avoid getting into debt, including borrowing on credit cards, that charges a high interest burden. It is already difficult to earn money and set aside savings, yet some people have to pay interest that takes away 10% or more of their earnings!

Do not invest in a property that requires more than 40% of your earnings to service the monthly repayment. Do not buy a car that needs more than 20% of your earnings to meet the monthly repayment. You have other options that should be explored. If you take these loans, you must make sure that your job is secure, as the monthly repayments can be a heavy burden when you are out of a job.

If your spouse is also working, which is now quite common, the above rules should be applied on the combined income.

To recap: as a rule of thumb, save 10% to 15% of your earnings. When you are clear about your financial goals for the future, you can adjust the amount that you need to save.

Tan Kin Lian

Financial Planning (2) - What are your future needs?

Your savings are required to meet your future financial needs, of which the most important are:

a) to provide an income after retirement
b) for your children's education
c) for unexpected events, such as unemployment, disability, medical expenses

The amount of savings that you have to set aside from your monthly income will depend on how much money is needed for the future. What kind of lifestyle do you plan for the future? What is the future cost of educating your child?

You have a range of choices. If you want to have more money for retirement, you have to save more and spend less now. You should have a balanced approach. You need to enjoy some luxuries now, while you are young, instead of keeping most of the money to spend when you are old (and weak).

Educating a child can be very expensive at a good overseas university. You may want to give the best for your child, but is this a sensible way to spend the money? Will the investment in an expensive education give a good return? Will this money be taken away from your own retirement fund?

I suggest that you should adopt a practical approach. You can set aside 10% to 15% of your earnings for your future needs. If you want to sacrifice for your child's education, you can increase the savings to 20%.

Your total savings can go into a fund that can be used for the various future needs. Try to keep as much flexibility as possible. When the time comes, you can decide on how much you can afford to spend on educating your child, and how much should be set aside for your retirement.

You can buy insurance to cover some of the risks, such as medical expenses, temporary disability and premature death. As insurance cost money, you should find a suitable policy that gives you the adequate cover at a reasonable cost. Do not pay too much for your insurance, as it will take away from your savings for other purposes.

There is no commercial insurance available for unemployment. You have to take care of this risk on your own. It can be achieved by having adequate savings. If you are unemployed for a few months, you can draw down on your savings, but you should restore the savings as early as possible, when you get back a new source of regular income.

Tan Kin Lian

Lifetime cost of health insurance

The following table shows the cost of Shield insurance from age 25 to 85:

Age Medishield Private Shield
Ward A
25 to 65 $5,755 $12,870
65 to 85 $12,263 $34,951
Total $18,018 $47,821

It will cost the insured a total of $18,018 to pay for the premium for Medishield from age 25 to 85 (assuming that the premium does not increase due to inflation). To insure for class A, the cost increases to $47,821. The difference is nearly $30,000.

In both cases, the patient has to pay the deductible and 10% of the excess (i.e. the co-insurance). The co-payments that has to be borne by patient is expected to be an additional 50% of the cost of premium.

If you wish to be treated under class A in restructured hospital, you must be prepared to set aside $72,000 in a lifetime. If you are treated in a subsidised ward B2, your lifetime cost is $27,000.

For the majority of people, it is better to be insured under Medishield, as it covers the cost of treatment in a subsidised B2 ward. You can save a lot of money in insurance premiums, which can add to your retirement savings.

Most people are likely to be hospitalised not more than 2 times before age 65. At the time of hospitalisation, the can still decide on being warded in B2 or be upgraded to a higher ward. If they are upgraded, they can pay the difference from their savings.

If you buy a Private Shield plan, about 30% of the premium is taken away to pay the marketing and administrative expenses (i.e. $15,000 under plan A). You pay this cost without any increase in benefit.

The above figures are based on the current cost and ignore the time value of money. If inflation and investment yield is taken into account, the difference will be much more than $30,000.

Tip: Enjoy the government subsidy under B2 ward. Insure for Basic Medishield and pay a lower premium. Save $30,000 over a lifetime.

Live within your means

Mr. Tan,
Just to share from my personal experience, as a young working adult with a very young family.

Based on the advice of good friends, my wife and I planned our finances based on one of our incomes only, in case either one of us becomes incapacitated, or decides not to work.

We started our marriage with a combined annual income of about 80K. If we based it 5 times our annual income, we could have gotten a property of $400K. Instead, we got a 4-room flat at about $200K.

As our family members increased after a few years, we sold off our 4-room flat. Then, our combined annual income was about $200k. Once again, instead of getting a $1m property, we opted for a $500K property.

With our proportionately low financial commitment, we were able to live worry free financially. In fact, as a couple, we hope to be able to pay off the mortgage soon, with a view that my wife can stay at home to be a fulltime stay home mum.

While I am sure that different families have different financial circumstances, and that our financial circumstances are a lot fortunate than many people, I believe "living within your means" is a hardly a virtue nowdays as people are encouraged to live beyond their means, be it getting a too big/fast/flashy a car, rolling credit card debts, too big a mortgage etc.

Mr Tan, just as a suggestion to your posting about financial planning, perhaps you may want to encourage your (numerous and growing) readers to live within their means. Thanks for your hard work!

Courage to fight for what is right

SCMP: SFC enforcer still waiting for new contract
2 Sep 2009

As head of the financial regulator's enforcement division, Mark Steward has for the past three years been the driving force behind a crackdown against those involved in illicit deals.

But with less than two weeks left on his contract, there is a deal of his own that remains in doubt. The Securities and Futures Commission executive director is still waiting to find out whether the government will give him a new term.

Last week, Steward raised concerns about his future by revealing he was still in negotiations with the government over a new contract. His current one ends on September 24, and his work visa is also due to expire.

"There is an issue of principle which needs to be ironed out. It is not about money," he said after making a speech at a Hong Kong Securities Institute function on September 3.

His comments, first reported in Ming Pao, have fuelled speculation that the government is under pressure to either replace or clip the wings of the man who is widely credited with the adoption of a hardline approach by the SFC against those who breach market rules.

Steward has recently been at the forefront of a series of high-profile cases. These include a string of insider dealing convictions and jail terms, a legal challenge that scuppered PCCW's privatisation plan on grounds of vote-rigging, and the striking of a deal with banks to get money back for investors in Lehman Brothers minibonds.

Some brokers say Steward may have been too aggressive in his pursuit of market miscreants, leading to complaints about his crusading style. Others say the contract negotiations are over pay, with some suggesting he wants a pay rise. One broker said he had heard that Steward wanted an increase of 25 per cent. Contacted last night, Steward said this suggestion was "completely false".

A spokesman from the Financial Services and the Treasury Bureau said it would not comment on individual appointments. All executive directors of the SFC need to be appointed by the financial secretary.

Steward was praised this week by SFC chief executive Martin Wheatley, who described him as a man with "ability and creative ideas" who had found new ways of using the regulators' powers under the law to crack down on offenders. The latest example was the conviction on Thursday of former Morgan Stanley Asia managing director Du Jun for insider dealing involving HK$87 million.

The legislator for the financial services sector, Chim Pui-chung, said Steward had done a great job so it would be good if he stayed on. "It depends on whether the SFC would fight for a pay rise for him. A pay rise is always an important issue to debate in a contract renewal," Chim said.

Steward's contract is not the only one due to expire. The term of SFC chairman Eddy Fong finishes at the end of this month. Financial Secretary John Tsang Chun-wah has not announced whether he will stay on.

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