IFL Webinar On Financial Planning – 06 Sep 2017


 

FINANCIAL PLANNING

Question 1: What are the basics of financial planning?

The basics of Financial Planning includes Cash Management, Debt Management, Insurance Planning, Retirement Planning and Investment Planning and Legacy Planning. For a start, we would like to encourage you to check out our e-learning videos on Making Sense of your Money.

Question 2: How do I begin financial planning?

Remember the acronym: F.B.I. (Financial Goals, Budget, Intentional – Automation, Advice)

Set goals: This is a first step and a very important tip, especially when you are starting out, because it can be overwhelming when you do not know exactly what you want to do. It does not matter if you are saving for a vacation, to start a family, for a down payment for your property or even retirement―what does that actually look like? Then you can work backwards from there to find out what you need to do with your finances to achieve your goals.

Prioritize: We only have so much money to work with, and we want to do lots of things, but we may not be able to do them all right now. When you prioritize, you can be certain that you want to be able to accomplish the goals that are closest to your heart.
Budget: I presumed that many of us hates this word because this is where we think of cutting our expenses and tightening our belts. But a budget is just about being mindful about your money and spending less than you make―and that’s where the savings are. And really, budgeting is the only way to move forward financially, because you increase your savings and then you can reach those goals.

Automation: Once you know what you can save, that’s what you want to automate every month. It’s one of the oldest tips in the book, but automating your savings (like a bill) is really important when you start saving. Because when money comes in, you don’t even miss it anymore. And then the next thing you know―there’s your money for your downpayment.

Advice: Get unbiased advice for your financial plan from a competent financial planner professional. This way, you can have someone take a look at the whole financial picture and make sure that you have a good strategy so you can reach your goals efficiently.

Question 3: What do I need to get started with financial planning? Are financial consultants compulsory?
The earlier key tips will help you kickstart financial planning. To help you to remember, you can use this acronym FBI – AA.

Financial Goals, Budget, Intentional Action – Automate, Advice.

For people who do not have the expertise or time to plan on their own, working with a financial adviser can be a way to obtain expert advice. It is important to make a good decision about whether to hire a competent financial adviser whom you can trust or not.

Question 4: How does financial planning work?

Financial Planning is a process that sets you on a course toward accomplishing your life goals through the proper management of your financial affairs. Financial planning is more than budgeting and cutting back. The right financial plan balances what you need and want today with the personal goals you have for the future.

Question 5: Do you need a financial advisor?

For people who do not have the expertise or time to select investments on their own, working with a financial adviser can be a way of obtaining expert advice. It is important to make a good decision about whether to hire a financial adviser or not. Results may vary tremendously.

Question 6: Who should you look for as your financial planner?
By looking for a competent financial planner who is able to provide assurance that the design of your financial future rests with appropriately qualified professionals who will put the client’s interests ahead of their own.
Question 7: Are there any research that shows that the benefits of engaging a financial adviser?
Yes. For example, a study by US investment adviser Financial Engines, for instance, found that individuals who get professional investment advice had annual returns 3.32% higher than people managing their own portfolios. A study by the Centre for Interuniversity Research and Analysis on Organisations (CIRANO) in Canada also showed that advisers positively affect the level of household wealth, largely because the advice led to greater savings discipline.
Question 8: What are the downsides of having a financial adviser?
One of the biggest drawbacks of hiring a financial adviser is that they may not always have your best interest in mind. Advisers who work for financial institutions, and even those who work independently, may recommend investments based on commissions they’ll receive or products their firm is pushing rather than what is best for their client.

While MAS requires advisers to suggest suitable products, it does not require advisers to take a “fiduciary” role and put customers’ interests first or do what’s best for the client. It’s important to realise, then, that some advisers may be biased towards their own interests rather than yours.

In cases where investors have the expertise, time and inclination to manage on their own, they can usually manage well on their own. If you do not have the expertise, time and inclination to invest well, though, hiring a financial adviser/financial planner who puts your interest first can be beneficial.

Question 9: What questions should we ask our potential FA/FPs?

a. What are your qualifications?
b. What are your experiences?
c. What kind of services do you provide?
d. What is your approach?
e. How are you compensated?
f. Are there any references whom you can check with?
g. How can I be certain that you will not put your interests before mine?
h. Are you willing to put this commitment in writing?

 

INSURANCE AND OTHER QUESTIONS

Question 1: How do I manage my CPF for retirement?

Essentially, it is important for members to try to meet their Full Retirement Sum (FRS) for their cohort so that they can meet their basic retirement needs. It is $166,000 now and will increase by 3% till 2020. We would like to encourage you to check out our e-learning videos on Managing CPF Money For Your Retirement.

Question 2: What percentage of income is recommended to be the portion for insurance? Insurance as in protection plan.
The recommended guide is not to use more than 10% of your net income for insurance coverage.
Question 3: What are the differences between early stage critical illness and critical illness insurance? How to decide?
There are two main types of CI plans. The early stage critical illness plan and the basic critical illness plan. The main difference between the two plans is that the early stage CI provides for payout as soon as the policyholder is diagnosed with any of the Critical illnesses that are being covered. The basic CI plan only provides payout when the critical illnesses are in the advanced stage.
As early critical illness plan are rather expensive, a way to mitigate this is to have a normal critical illness coverage and a comprehensive H&S plan to ensure that the hospitalisation bills are covered as you may still be gainfully employed given that it is not in the advanced stage. If it is in the advanced stage, there will be a payout to help you with your expenses as you are unlikely to continue to work.

Should the early critical illness fit your budget, you can consider getting it. It is important to seek the financial advisor whom you trust so that you can make an informed decision eventually.

Question 4: Money Management Framework - Separate 'Buckets' vs 'One Bucket' - How to develop both, switch between each other and gel everything together?
The concept of separate buckets are having to split the investments into different buckets, each with a specific purpose, each with a range of investments meeting specific needs over a particular time frame. It provides a way for the investor to stay focused and keep track.
It is not necessary to introduce separate buckets if one bucket is all you need, assuming you have a balanced mix of investments and rebalanced it over time. The amount you need is determined by selling portion of the units from this mix. The one bucket concept is based on a systematic withdrawal strategy and it is easier to manage.
Question 5: Are foreigners allowed to invest in REITs?
Yes, foreigner are allowed to invest in REITs. You may want to approach a brokerage firm to open a trading and CDP account so that you can start investing. Alternatively, you may also consider investing via a REIT ETF or a REIT fund.
Question 6: Should I buy term life insurance or a full life insurance plan till 90+ years old?
It will depend on your needs and budget. Term life insurance are low cost insurance that provides protection but it has no cash value component while a life insurance plan comes with protection and cash value. We would like to encourage you to use Insurance Estimator to assess your insurance needs.
Question 7: Should I upgrade my income shield or retain what I have since I have some medical condition. Knowing that my premium will be loaded and the medical condition will be excluded?
As Medishield Life provides coverage for pre-existing condition, you can be assured that there is an element of coverage. You may want to consult your income adviser for a detailed understanding of your existing plan, the pros and cons of upgrading your plan so that you can make an informed decision.
Question 8: As I have fully paid my standard eldershield plan, should I buy an eldershield supplement?
ElderShield is a severe disability insurance scheme which provides basic financial protection to those who need long-term care. It provides a monthly cash payout to help pay for out-of-pocket expenses up to a maximum period of 72 months.

If you wish to have higher severe disability insurance coverage (e.g. higher payouts and/or longer payout period), you can consider buying ElderShield Supplements offered by the three appointed private insurers. The premiums of ElderShield Supplements can also be paid using your Medisave savings, up to a limit of $600 per year per insured person.

Question 9: How do we become debt free?
Cash Management – spend within your means or even below your means.
Pay off loans with the highest interest first.
Pay off loans with lowest amounts first. This might give you a psychological boost.
Approach Credit Counselling Singapore – Helping individuals with unsecured debts through education, credit counselling and debt management programmes.