Honestly, if you ask any person today what they think about life insurance, negative images will appear in their minds. They will most probably think of an insurance salesperson trying to push an expensive product down their throats. Well, they are not far from the truth, in a sense. Reason being many insurance agents join the industry with the hope of high financial rewards. Most of them are slammed with sales quotas to meet every month, and are rewarded with huge commissions and glamorous holidays when they do well. As a result, customers feel that agents are mostly self-serving, which we can’t blame them.

Of course, there will be some agents who truly believe in the value of life insurance from their hearts, and share the message based on authentic conviction. These agents are rare, but they are out there. This begs the question, “Am I one of them?” I can only say that I truly believe in the value of life insurance, because of my own personal experience firsthand with lupus and kidney failure. And yes, I am a kidney transplant patient, the sole breadwinner in my family, and a father to three young children.

I will share my own story more in detail in my next post. I would like to share that life insurance started off as a very noble idea in year 1706 in London by an Anglican bishop. It was called the Amicable Society. His sole purpose was to care of the widows and orphans, who lost the breadwinner, whom was usually the father in those times. His action resonates with a verse in the Bible – “The Christian who is pure and without fault, from God the Father’s point of view, is the one who takes care of orphans and widows, and who remains true to the Lord”
Does this noble idea still apply today? How many of us advisers go out into the marketplace to share the authentic message of protecting our families? Do our modern life insurance policies really help our families, or are these just overpriced products for profit-making companies?

Stay tuned to http://www.marvinfirst.com/#/learn for answers…

As I speak to my clients, I realized that retirement is on their minds almost every day, especially if they do not like their work and only desire their monthly paychecks. So I decided to focus on helping them plan early for their retirement as my primary goal, so that they can be financially free ASAP.

Our Singapore CPF Board has recently conducted many roadshows to educate the public on the importance of retirement planning. People are more aware how difficult it is to retire comfortably in our expensive Singapore. Most are concerned of not having enough money when they are old.

I have written 4 MOST IMPORTANT ways to ensure you can have a great retirement life ahead!

1. Know exactly how much you want when you retire

Many old people now do not have enough retirement savings and have to continue working. One main reason is that they did not foresee Singapore will become the most expensive city to live in the world! So, in order to prepare ourselves, we need to know how much we want as income, when we stop work.

A simple way is to imagine our lifestyle when we stop work at a certain desired age, eg. age 60. How much will you need in today’s dollars every month? After we have a figure, eg. $3,000 (today’s dollars), we need to project it at an inflation rate, to know what is the future income you need. You can use a retirement planning tool to assist you in calculation.

2. Focus on PASSIVE INCOME

Build “taps” of passive income

The total amount of saving and assets you need when you retire may be daunting! Usually it is in the millions! So if you do not have the amount of money, does it mean you cannot retire? Obviously not!

Financial planning in your early years is the key to ensure you have a great retirement future. And you need to focus on PASSIVE income. There are many financial instruments out there which can give a decent rate of passive income. In addition, passive income can also come from your small business, your rental property, or even your children!

Here are some sources of passive income:
– Renting out a room, or a whole apartment
– Buy good dividend paying blue chip stocks
– Our good and trusted CPF Life income for life
– Bonds which give income regularly
– Having a small business, which is run by your trusted general manager, and giving you dividends per month as a shareholder.
– Unit trusts which gives you monthly income or dividends
– Our children? 

Be knowledgeable about the passive income options. Start planning early. Start NOW!

3. Stay in an affordable home when young

If you plan to stay in a luxurious condominium when you are young, and spend all your CPFOA savings paying the mortgage, then you will find yourself having very little to retire later. So, it is best you spend at most 15% of your income on your mortgage repayments.

For example, if you are earning $5,000 a month, you should only spend $750 per month on your mortgage repayments. If you take a loan repayment scheme for 30 years and the loan amount is 80% of your home value, your home should only cost $240,000. This is equivalent to a 3 room flat in a non-matured estate, like Sembawang area. If you are a double income family (meaning husband and wife are working), then you can afford a home valued at $480,000 which is a decent 4 room flat in a matured estate, probably Bishan area.

With only 15% of your income financing your home mortgage, you can save up the rest of your CPFOA and cash savings to invest and fund your retirement. If you take time to calculate, you will realize it will be a very substantial sum of retirement sum in the millions!

4. Save 20% of your CASH income

Imagine you are 30 years old and just got married. You earn $5,000 per month and your employer gives you 17% of your income in CPF. You followed my advice and took up an affordable mortgage of 15% your income (using CPFOA).

Now, if you continue to save 20% of your income in cash, you will have the following:
CPF savings towards retirement = $1,100 per month
Cash savings towards retirement = $1,000 per month

If you take the total savings and compound it over 30 years at a return of 7%, you will have $2.38 million at age 60! This is more than enough for a very comfortable retirement in Singapore!
Therefore, it is extremely essential that you save not only in CPF, but also 20% of your income in CASH.

If you are in your early 30s and have yet to plan for your retirement in Singapore, it is definitely a good time to start NOW! If you are already in your 40s and still have not started planning, it is extremely urgent that you begin NOW! Time waits for no man, and you will soon realize you are already 60 years old and have to continue working into your golden years.

Take your first step towards planning for your retirement!

As a boy, I was diagnosed with lupus and kidney problems.

Growing up with much challenges physically and emotionally, I managed to complete my degree in Business Finance, and became a financial consultant. I was helping many people with their financial planning, insurance and investment management. I did well and was happy with my life.

However, my kidneys totally failed and I had to be on dialysis. The process was grueling. I had to undergo treatments 3 times a week, each session lasting up to four hours. After the sessions, I often felt weak and nauseous, but still I continued to meet my clients and helped them in their planning. On one hand, I loved my work and on the other hand, I needed to support myself financially, especially since dialysis fees can be up to $3,000 Singapore dollars each month. Fortunately, I had the financial assistance from the National Kidney Foundation, which helped me to alleviate my financial burden.

After four years on dialysis, my heart function started to deteriorate. It was only functioning at 25% and doctors gave me five years to live. I had to undergo an emergency kidney transplant as the dialysis caused my heart to weaken tremendously.

My brother volunteered to donate his kidney to me, and I was very grateful. In year 2008, I received the “gift of life” from my brother and was given a “new lease of life”. I truly appreciated the value of good health. Amidst all these ordeals, I carried on the work of financial advisory, believing in the value of proper planning and protecting our families financially.

I was very fortunate to get married the following year after my kidney transplant and had a chance to start a family. After much difficulty, my wife and I were blessed with twin daughters, with our third daughter coming soon in November 2016. My wife has been a homemaker and full time mother for five years now, and we enjoyed the benefits of having a stay home mum.However, it meant more financial responsibilities to me as the father and sole breadwinner. As a father, I feel responsible to protect and provide for my family. I tried to apply for life and health insurance from various companies. I even spoke with underwriters (people who review applicants based on their health status), but none of the companies were willing to grant me coverage.

As a result, I had to “self-insure”.

Every dollar I earn, I invest it prudently and save it for my family. My greatest concern will be for my wife and three children, if anything untoward happens to me. I understand how it really feels like to be uninsured and the deep sense of responsibility towards my family.

I was so grateful to our Singapore government, when they allowed every citizen and permanent resident to be insured by Medishield Life (a national health insurance scheme). It meant financial security for my family in event I needed medical treatment.

It has been my life goal to share the value of financial protection to people I meet and my clients. People who are healthy should never take their health for granted, and insure themselves when they still can. It is indeed a privilege to be able to protect themselves and their families financially, in the event of any health crisis or even premature death.

Life insurance is a tool to achieve that purpose, to be financially responsible to our families.

By Aaron Tay

Father, kidney transplant patient, Certified Financial Planner

Click here to receive a FREE review, to ensure you are well covered financially against unfortunate life events.

1. Premiums differ from various insurance companies

As seen in the table above, a 35 year old male who wants to cover $300,000 for death, total permanent disability and major illnesses can choose from the above term insurances. The premium difference between the plans can be up to $518 per year. This means the policy owner can save up to $15,022 in premiums over the term of the insurance.

If the policy owner chooses to invest the extra savings of $518 per year into an investment that yields a return of 7%, he will accumulate a lump sum of $45,245 when he is age 65. This is equivalent to 3 holiday trips to Europe. This is the value of a good decision made when it comes to choosing insurance.

2. Life insurance is for protection, not accumulating wealth

The return on a typical life insurance policy with cash value is less than 3%. Singapore inflation rate is already at 3% – 4%. The value in your money kept in an insurance policy will erode over time. There are many other instruments in the market which can give you above 4% return on your investments. Thus, to save your money in a insurance policy which has mortality charges, policy fees and other costs, it will be an unwise plan for retirement. Life insurance is meant to protect your family in times of crisis.

3. Types of coverage

People usually think having an insurance policy means they will be covered from all calamities. They are wrong. There are many types of insurances to cover for various risks, such as death, total permanent disability, major and early illnesses, hospitalizations, accidents, etc. It makes sense to review your insurance plans and ensure that your coverage is comprehensive. A well designed insurance portfolio can help you save on premiums yet provide you with comprehensive and sufficient cover.

4. Amount of needed coverage

According to the Life Insurance Association of Singapore, you will usually need death and total permanent disability coverage of about 10 times of your annual income. For major illnesses, you will need to be covered for about 3 – 4 years of your annual income. This is because if you are seriously ill, you will need time to recover and will be unable to work for a few years. For example, if a person suffers a major stroke, he can only fully recover majority of this physical capabilities after a few years. He will be most likely be unable to work in his previous job, and may need to take a part time job at best.

5. Life insurance is the foundation of a financial plan.

We can plan for our retirement, having financial freedom, and even to become very rich. However, life may not be smooth sailing at times, and we may face unfortunate events such as accidents, major illnesses, disabilities and even premature death. Therefore, managing our life and financial risk is very important as a start to our financial planning. The reason is if we are not rich when we are starting out in life, a crisis can cause our finances to be bankrupt. Or if we develop any ailments early on in life, it may cause us to be uninsurable in future. So life insurance is indeed the foundation of any financial plan.

“Don’t simply retire from something; have something to retire to”. ~Harry Emerson Fosdick

Retirement is something we seldom think about. We are busy with everyday lives that we have no time to plan ahead. But at some point, usually after age 50, we will have to face the reality that our health may not be strong enough to sustain us working for the next 30 years. We will have to take a slower pace of life and enjoy the finer things in life. We may even want to pursue something entirely new, a passion which we have always dreamed of doing.

Some retirement desires expressed by Singaporeans include:

• Spending time with friends & family
• Travel extensively
• Continue to work to some extend
• Learning a new skill/hobby
• Volunteer work
• Writing a book
• Start a business

I have worked out the retirement numbers if we want to work and retire in this city state Singapore. Based on research by HSBC, a person desires about $4,000 SGD (today’s dollars) to retire comfortably. Our little red dot is one of the most expensive cities to live in the world. Not to mentioned increased healthcare costs when we enter into old age.

Therefore, there are 3 essential things we need to retire:

1. Health insurance
2. Disability insurance
3. Adequate retirement savings

Most Singaporeans are well covered in the area of health and disability insurance through our Medishield Life and Eldershield schemes. But statistics show that our CPF Life is insufficient for us to retire. In the HSBC report, we have on average 10 years of retirement funding gap. It means we have to depend on national welfare, our family members, or continue to work in our old age to sustain our living for the 10 years of retirement funding shortfall.

Other stark statistics by HSBC report include:

• > 53 per cent of working-age Singaporeans said they are unable to retire comfortably
• 15 % believe they will never be able to fully retire
• With the benefit of hindsight, 41% of retirees say that they would have saved more and started earlier
• Only 25% of Singaporeans have implemented a retirement plan, while another 25% are still at the planning stage.
• 50% do not have a concrete retirement plan in place.

Thus, it is extremely important to plan and start early to save for our retirement, apart from our CPF. Imagine, if you need $4,000 per month to survive today when you are aged 35, you will need $12,973 per month to maintain the same standard of living at age 65. It means a total of $3 million if you live till 85 years old.

Many Singaporeans are unable to reach this amount if they only rely on their CPF and their property for retirement. Therefore we desperately need a realistic strategy to retire well in this sunny island. Our government is concerned, and we as responsible individuals need to plan and start NOW!

Aaron Graham Tay

Certified Financial Planner™

***Aaron speaks on “Practical Retirement Funding Strategies” every first Saturday of the month, 10am to 12pm, at 78 Shenton Way.

It is complimentary. Do contact Sharon at 9741 7955 to register NOW!

Family governance is a topic that most families in our modern age do not understand and are unwilling to address. When the word “governance” is mentioned, people back off and feel a sense of being controlled. Generally, people feel that the family ought to be a place where family members are free from any control, and can be themselves. While this is true to a certain extent, the need for boundaries, rules and regulations is equally important in the facet of family life.

Our children need rules and discipline for them to grow up strong in character and abilities. It is my strong opinion that our children in our modern society especially in Singapore, has lost the respect for elders and discipline in their character. I say this after having spent 4 years in the education system coaching the young people of our generation.

Family governance will be the solution to the problems of our children today. Many parents feel that they lack control of their children and when they grow up to be teenagers, they will rebel against authorities in general and establish their own set of philosophies in life.

For family governance to be properly implemented in the family, there needs to be a few essential components:

1. Presence of the Head of the House

Needless to say, we need fathers to return back to their original calling as leaders of the family (see article “Fathers as Leaders”). A government needs a king, a leader, and a father will need to rule and govern his household, just like any other nation. When the father properly establishes his role as the head of the house, the children will naturally revere and respect his authority.

2. Presence of the Heart of the Home

A king will not be complete without a queen. If the queen is absent, the house will not be a “home”, lacking the warmth and nurturing environment which our children need. And notice that I use the word “presence”. Even if a physical mother is there, it may not necessary mean that she exudes the aura of a “mother”. Much is to be discussed about the topic of “presence” and I shall reserve it for a later time.

3. The Unity of the King & Queen of the House

Children are extremely intelligent. They know how to manipulate their parents to achieve what they want. Therefore, both the father and mother ought to be of one mind in various matters and establish clear boundaries for the child. For example, if child knows that mummy do not allow him to eat ice cream but daddy allows, he will naturally go to daddy to ask for ice cream and get what he wants. Mummy will then be upset. This problem will be easily solved if daddy and mummy can work things out and decide whether their child is able to eat ice cream, the frequency, and on what occasions, etc.

4. Clear boundaries for the family based on principles

Clear boundaries based on right & wrong, morality and values need to be establishing early in the family, preferably when the children are still young and teachable. Some boundaries may include:

• No watching of television or media devices when the family is having dinner
• Family dinners need to be prioritized above everything else, including work
• Children have to account for their going out with friends and to be home by an agreed time.
• Greeting of elders when seeing them for the first time.
• Looking at each other in the eye when conversing with the family member.
• Cleaning of room and the house every day

When rules, regulations and boundaries are established, it will create a totally different culture in the family. This culture will produce well disciplined children with a reverence for parental authority.

5. Consequences when boundaries are crossed

Children, even parents, ought to face consequences if they break the rules and cross boundaries. For example, if the child talks back at his mother and shows an attitude of disrespect, the father needs to step in to take action. He can isolate the child in the room, ground him for a week, cane him, or any other measures which commensurate with the discipline needed to correct the erring child.

The above components need to be carried out with a heart of love for the child and not for the parents own benefit. Parents who truly love their children will train and discipline them for the children’s own benefit.

What we have discussed so far is a minor facet of the whole matter of family governance. For a start, if we can successfully implement the above components in our families, we are already on a good head way to ensure our children and families are well governed with a strong set of core values, principles and culture.

Aaron Graham Tay, Certified Family Life Educator

How do we value investments in general? What are the principles and framework for us to value stocks, real estate, private business, etc? Can we, being lay people, confidently evaluate investments to get a good feel of the value and potential of the deal?

The answer is yes. And the following are some guidelines I use and advice my clients to apply too.

1. Revenue of the business

Revenue measures how well the company is selling its products. Higher revenue will mean that the company is selling a large volume of its products or at a higher price. It will mean increased potential profit for the company.

2. Potential market growth rate of the industry

We can do some research on the internet to find out what industry experts say about the future of the industry. We can get a good feel of whether it is a sunrise or sunset industry. We can know its challenges, government interventions, and also the potential growth rate of the industry. We can include this into our financial calculations. Understanding how to use an excel sheet will be very useful to do the financial modeling as there are many user friendly functions to help in calculations.

3. Expenses to operate the business

A high revenue generating business may not be profitable if the cost of doing business is high. An ideal business will be a low cost, low overheads business with high revenue. This will translate to higher profit margins. Costs will typically include labor cost, rental, machinery, raw materials, etc.

4. Inflation rate for expenses

Costs will increase overtime due to inflation. To understand whether inflation will rise in the future, we will have to know the interest rate by the central banks and the monetary policies set by the different governments of different countries.

5. Profit margin

The profit is derived after the cost is deducted from the revenue (Revenue – Expenses). Investors will usually be very concerned about the profit margin. A healthy business will typically have margins of about 30% – 40%. A very attractive business will have margins of 50% and above.

6. Cashflow

If the profit margins of a business are high, it does not mean that the cash flow of the business is healthy. This is because some payments from customers are accrued payments (delayed payments). So even though the revenue is “captured” on the accounts, the actual cash has not come in yet. Thus, businesses can run into cash flow problems, which is dangerous and detrimental to the company. The company can go into bankruptcy if cash flow matters are not handled well.

7. Financial Ratios

Some financial ratios are:

• Asset Turnover Ratio = Sales/Average Total Assets
• Debt to Equity Ratio = Total Liabilities/Total Shareholder Equity
• Current Ratio = Current Assets/Current Liabilities
• Return on Assets = Net Income/Average Total Assets
• Return on Equity = Net Income/Average Shareholder Equity

There are many other ratios to measure different aspects of the business, depending on the type of business and its particular industry. A good investor will take time to calculate the relevant and significant ratios and have a overall feel of the profitability and value of the business. A strong knowledge of reading financial statements will be very useful.

8. Net Present Value (NPV)

For any investment project, I will make sure to calculate the Net Present Value (NPV) after I have determined all the cash flows of the investment. With the advent of sophisticated and professional Excel spreadsheets, this value can be calculated with a few simple clicks on the mouse. As long as the NPV for the investment is positive, it will be a worthwhile attempt to invest in the particular project. Simply put, the NPV is the present value of all the projected cash flows in the future divided by the discount rate used. The discount rate can be the current real interest rates prevailing in the market.

9. Internal Rate of Return (IRR)

Similarly, when the cash flows of an investment is determined, the excel sheet can automatically calculate the internal rate of return. This return is when the NPV is ZERO. It means the reasonable return to be achieved from the investment. A good project will be one where the IRR is >15%.

10. Other factors

To determine the VALUE of an investment, there are many other factors to consider. Different investors/fund managers will employ different criteria to their investment analysis, depending on their styles and strategy. It will be beneficial to understand who you are as a person, your personality, and your beliefs and select the strategy that best suits you. For myself, I believe that VALUE investing is the way to go.

Value investing truly benefits all stakeholders; the investor, the business owner/entrepreneur, and the economy as a whole. Till date, Benjamin Graham & Warren Buffet has proven that VALUE investing is successful investing.

Aaron Graham Tay, Certified Financial Planner