2 in 3 S'pore workers don't save enough

About two in three Singapore workers save less than 20 per cent of their monthly salary, with those in the events management, public relations and sales being the worst savers.

A total of 2,278 people were surveyed online by JobsCentral from August to September last year.

The survey found that the savings trend is consistent across two vastly different income levels - those who earned less than $1,000 a month and those who made above $10,000 a month.

Majority of both groups of respondents - who comprise employed individuals from all levels of occupation and income groups - indicated that they save 10 to 20 per cent of their monthly income.

The top three savers among the group are employees in research and development (56.7 per cent), consulting (50 per cent) and business development (47.7 per cent).

JobsCentral Group's deputy CEO Huang Shao-Ning noted that it is "interesting" that the top three worst savers are those who "require strong social skills and high energy level to perform their tasks".

Ms Huang added: "The more exuberant personalities of these three groups of workers, and the requirement of their jobs to leave positive impressions on new people they meet every day may also translate to higher expenditure on grooming, commuting and entertainment."

The survey also showed that 44 per cent said they save most of their bonus.

At least one in three indicated that they spend the bulk of their bonus on recreation, mostly on holidays, shopping, and giving most of it to their parents.

Only nine per cent said they would put it into investments, and 0.5 per cent said they will donate to charity.

Most of the respondents (76 per cent) indicated that salary-related information should be kept private and prefer not to share it with their peers in the company.
Respondents with higher gross monthly salary are more tight-lipped about their salary compared to those who earn less.

About three-quarters of those surveyed said they do not moonlight and those who do, earn extra income through dividends from stocks or bonds, freelance work and part-time jobs.

Caught in a lower income trap

MADAM Koh Ting Guat’s bedridden husband needs to be hooked up to an oxygen
machine to help him breathe.

She changes the ventilator tubes once a week, instead of the prescribed every
three days. That way, she reckons, the $5 pack of 50 tubes will last longer.

Such cutting of corners is not out of meanness but a lack of means.

A year ago, they were getting by as a middle-income family. She earns $2,800
a month as a shipping executive and her husband made $1,500 as a salesman.

But life threw them a curveball when he suffered a stroke, leaving him bedridden.

These days, the family makes do on her salary, with little left after paying for
their two sons’ school expenses, her husband’s medical bills, the wages of a Filipino
caregiver, utilities, transport and food.

The family has fallen into that sandwich class of low-middle income Singaporeans
who keep Acting Minister for Community Development, Youth and Sports
Chan Chun Sing awake at night.

In a media interview last week, he said that this group tend to be in jobs that are
vulnerable to being lost in the churn of economic cycles. They also tend to have
little savings to cushion the impact.

He identified them as being in the 11th to 20th percentile in terms of resident
household income, making an average of $2,681 a month. These are headed by a citizen or permanent resident, and with at least one working person.

Another set of figures, measuring individual incomes of Singaporeans, is sobering.

A joint report by the Manpower Ministry and the Department of Statistics
showed that monthly real incomes of Singaporeans at the 20th percentile grew 0.3
per cent over the decade – almost zero per cent a year.

In contrast, those in the middle saw real monthly incomes rise 1.2 per cent a
year over the same period, or 11.3 per cent over the decade.

Who are in this low-middle income group and how can they be helped?

Figures culled from various agencies show them to be mainly made up of large
families with school-going children, with the parents aged between 40 and 50. One
parent may have been recently retrenched, or they may be burdened by
heavy medical bills or in some cases, marital woes have added to their troubles.

Some may benefit from the Workfare Income Supplement Scheme, if they are
aged 35 and above and have gross monthly incomes of $1,700 or less, among other
conditions.

But apart from Ministry of Community Development, Youth and Sports
(MCYS) programmes to help with childcare costs and taking care of elderly parents,
little other help is available as they fall outside social assistance nets.

Government schemes such as Com- Care Transitions and the Work Support
Programme disqualify households with incomes above $1,500.

Those in the 1st to 10th percentile – with average monthly household incomes
of $1,400 – would qualify for benefits such as cash grants and utilities vouchers
under these programmes.

The “at risk” group in the 11th to 20th percentile, Mr Chan pointed out, form a
significant portion of the bottom third of the population. About 377,400 employed
residents aged 15 years and above earn between $2,000 and $2,999, according to labour statistics last year.

And, the minister feels, this group’s meagre savings – not more than a few
thousand dollars usually – mean they are on a dangerous keel in an increasingly uncertain global economy where a recession might be around the corner.

“You think I have savings now? If strike lottery tomorrow, yes,” said Madam
Koh.

She is thinking of taking on a second job to supplement her income. In the
meantime, scrimping and saving is all she can do. She is cutting back even on treatments for her husband.

Acupuncture treatments, for example, have been cut from thrice to twice weekly, saving $100.

“If a downturn really happens, I might have to sell this flat and move in with my
parents in Pasir Ris,” said Madam Koh of their four-room Sengkang flat.

Like many in their bracket, she and herhusband have only secondary education.
Singaporeans in this rung hold jobs such as technicians, security guards and in the service industry.

Top of their wish-lists: financial help from the Government when they hit dire
straits, or utility and transport vouchers, especially if a downturn occurs.

For Mr S. Ahmad, 55, his household is “already in a recession”.

A diabetic, he was a freelance travel agent earning about $1,000 a month until
June last year, when his right foot suddenly became swollen. He has been going for operations and follow-up treatment since. After insurance claims and government subsidies, he still has had to paymore than $10,000 in medical bills.

Now, his 25-year-old son, an optometrist earning about $2,500 monthly, is the
family’s sole breadwinner.

Adding further strain on Mr Ahmad’s finances are a $680 monthly housing loan instalment and another two young children who are still in school.

And as Mr Ahmad did not have the $1,000 advance to pay for a machine to
vacuum the pus from his foot last year, the infection spread upwards to his knee.

More medical treatments, bills and stress followed.

“I just have to borrow money from friends, what can I do?” he said resignedly in an interview in his Pasir Ris flat.

“I’m just living by the day.”

His 53-year-old housewife may resort to making kueh and selling it from home to raise funds, he said.

Another Singaporean trying to make ends meet is Mr Haron Ajit, 51.

He was a logistics supervisor until he suffered a stroke in June. His 21-year-old daughter is now the family’s sole breadwinner,earning about $2,500 from her nursing job. He has two sons – one in Secondary 4 and the other in Primary 1.

Mr Haron said: “We’re financially very tight now because of my condition.”

Apart from help to deal with medical expenses, social workers say some in the
low-middle income group also seek assistance for family problems like divorce, or after they lose their jobs.

Mr Hindran Maniam, a counsellor at Rotary Family Service Centre in Clementi,said: “They ask for counselling for problems like family violence, taking care of elderly parents, or communication issues with children.”

One middle-income wife, for instance,went for counselling at Fei Yue Family
Service Centre in Yew Tee after she discovered her husband had an affair. She was contemplating divorce, but was held back by fear that it would affect the household income.

Retrenchments are not a problem yet but Ms Florence Lim, the director of Covenant
Family Service Centre in Hougang,expects such cases to surface if the global economy drags Singapore down.

Industry veterans say the best way to help the low-middle income group is to raise
the upper limit for ComCare programmes to about $2,000 to $2,500.

This would open up qualifying for more benefits such as medical assistance,rental and utilities vouchers, and monthly cash grants.

Ms Lim, a social worker for three decades,said: “Why not also look at their net income after Central Provident Fund deductions,rather than gross household income,in deciding eligibility?”

This would widen the pool of those eligible,especially with rising living costs.

The Government could give slightly smaller ComCare subsidies to the low-middle income bracket compared to those at the bottom rung, Ms Rachel Lee, head of Fei Yue Family Service Centre and a social worker for 19 years, mooted.

Getting these workers to upgrade their skills so they can get jobs that are less susceptible to being wiped out by economic cycles was another popular suggestion,
but there are problems with that route.

“These people need money from work. Who’s going to feed their families when they go for training for those few months?” said Ms Lim.

She said CDCs do give a few hundred dollars a month to help these individuals during say the quantum should be higher.

Short-term assistance for about threemonths to help them tide over a difficult situation would also work well, said North East District Mayor Teo Ser Luck.

Mr Teo, whose district has been helping residents who do not qualify for Com-Care through its local scheme, said: “You have to be there when they need you.

That’s what this safety net is about – covering the cracks.”

Investing with your CPF

YOUNG adults already in the workforce will no doubt be familiar with their CPF (Central Provident Fund) accounts, into which a portion of their monthly salary is automatically squirrelled away, along with a percentage contribution from their employers.

Having surveyed the gamut of asset classes and investment vehicles over the last few months, the Young Investors' Forum takes a look this week at how young working adults can think about investing their CPF savings for the future.

While the prospect of retirement may still be far from the minds of energetic go-getters just scaling the lower rungs of their career ladders, it is only prudent to start preparing for that future today.

Know your CPF

The government bills the CPF as a 'comprehensive social security plan'. Meant to provide working Singaporeans financial security in their old age, the scheme covers retirement, healthcare, home ownership, family protection and asset enhancement.

These aims are met by mandatory monthly sums of money working Singaporeans and their employers channel into each individual's three CPF accounts:

• The Ordinary Account (OA), which is where the bulk of your monthly contribution goes if you're under 35, and stores monies which can be used to buy property and insurance policies, make financial investments or pay for your own or your children's education.


• The Special Account (SA) is to accumulate funds for old age and contingencies, which can be used to invest in retirement-related financial products.


• The Medisave Account's (MA) savings are meant for hospitalisation expenses and approved medical insurance plans.

While entrepreneurs and the self-employed need not contribute to the Ordinary and Special Accounts, they must contribute to the Medisave Account if their yearly net trade income exceeds $6,000.

Without you choosing to invest, CPF savings in all these accounts will earn interest. Funds in the OA earn an interest rate based on the 12-month fixed deposit and month-end savings rates at major local banks, but the CPF Act guarantees a minimum risk-free interest of 2.5 per cent.

For the Special, Medisave (SMA) and Retirement Accounts, which earn an interest rate equal to the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus one per cent, the government announced last September that it would keep an interest rate floor of 4 per cent till this December.

Also, the first $60,000 you have across your CPF accounts - with up to $20,000 coming from your OA - earns an extra one per cent interest.

Hence, one possible way to grow your CPF savings is to transfer monies from your OA into your SA, to take advantage of the higher interest rate that uninvested savings in the SA earn. But such a move is irreversible, as fund transfers in the opposite direction are not allowed.

CPF Investment Scheme

As long as you are at least 18 years old, are not bankrupt and have more than $20,000 in your OA or more than $40,000 in your SA, you can tap the CPF Investment Scheme (CPFIS) to grow that 'retirement nest egg'.

The CPF Board runs two separate investment schemes for the OA and the SA, allowing for your CPF savings to be put to work via a wide range of instruments, in the hope of reaping a return above the prevailing interest rate.

The ultimate aim, of course, is still to accumulate wealth for retirement, so any profits made from these investments are still subject to the standard CPF withdrawal rules.

If losses are incurred on your CPF investments, you need not top up the accounts from which the investments were made, but your retirement savings would have shrunk.

Financial planners posit that, as a rule of thumb, a person needs about 70 per cent of his last annual income to keep up his current lifestyle in retirement. CPF savings are meant to cover basic retirement needs and may not meet a person's other lifestyle needs - one key motivation for private savings and investments.

Also worth considering before you decide to start investing your CPF savings are any financial obligations that would require payment from a CPF account. For instance, whether you need to use your OA to make monthly housing payments will help you decide how much of your savings you are willing to channel into investments.

Getting started
 
The CPFIS's range of investment options include fixed deposits, bonds, annuities, endowment insurance policies, investment-linked insurance products, unit trusts and exchange traded funds (ETFs).

What is available to you under the CPFIS-OA and the CPFIS-SA differ, since the two accounts are meant to help accumulate savings for different purposes.

So, while OA funds can be invested in fund management accounts, shares, property funds, corporate bonds and gold or gold products, SA savings cannot.

Other restrictions you should be aware of before investing your CPF savings include the fact that you may only invest in unit trusts, exchange traded funds and fund management accounts approved by the CPF Board.

And CPF savings can only be used to purchase common shares, Reits and corporate bonds issued by companies incorporated in Singapore and traded on the Singapore Exchange (SGX).

Also, you can put a maximum of only 35 per cent of your investible savings into shares, Reits and corporate bonds, while the cap on gold (including gold ETFs and other gold products) is 10 per cent.


More details on restrictions and possible charges you may incur from the CPFIS and the other financial intermediaries are available at www.cpf.gov.sg, where you can also calculate how much of your investible CPF savings you have at the moment.

If you intend to use funds from your OA, you will need to apply for a CPF Investment Account with any one of the CPFIS agent banks: DBS, OCBC and UOB. Do note that you can have only one CPF Investment Account at any one time.

Such an account is not needed if you intend to invest from your SA, in which case you can approach investment product providers directly.

Naturally, all the usual caution urged with regard to investing in general will apply to investments made using your CPF savings too.

Any investor must consider his investment time horizon, asset allocation, the risks and returns of each product, and diversification across his portfolio, before committing to an investment - even ones made under the CPFIS.

'No one can guarantee that investments under the CPF Investment Scheme will always be profitable,' the CPF Board states on its website.

'CPF members have to decide for themselves how to invest their savings, and what risks to accept, and exercise prudence and care in investing their CPF savings to ensure their financial well-being after retirement.'

'If they are not confident of investing on their own, they should leave their money in their CPF account which earns interest and is risk-free,' it adds.

How to teach kids about money

Teaching children about money is no child's play.

Children must be battle-equipped on how to manage money as they grow up and it's up to the parents to provide them the necessary tools.

Using the allowance system to teach your kids about money is one way to go.

The upside




The fact is there are many benefits for parents who "pay " allowance to their children.

"When it's our money, our kids want to buy everything in sight, without even a care in the world of how much money we had to put out for them," says Abby Lim, a retail manager for a textile store.

"But when it comes out of their own allowance, they think twice before buying," she adds.

She says parents provide for necessities such as food, basic clothing and school supplies, whereas the allowance will be mainly for the "extras" the kids want.

"These extras can be from toys, video games, movie tickets, fast food or anything which are not a necessity, but a nourishment to their childhood," she says.

"Basically we are not stopping them from buying toys, we are teaching them the concept of budgeting at an early age through allowance," she adds.

She says that it's normal for kids to make mistakes and deplete their allowance in an instant after getting the money.

"This is a learning process for the kids, as they soon realise that money is not infinite, that when it comes out of their own pockets, they become much more selective about their purchases," says Lim.

Figure it out




New parents have to figure out how much to give their children.

Lim says the amount should be large enough to allow the children to experiment. In her case, she gave her two children a weekly allowance of $10 each, but as they entered secondary school, she decided to give each $50 a month.


"From the beginning, I would advise my kids the amount should last them throughout the given month. I would refuse to restore their allowance until the beginning of a new month. This gives them a sense of responsibility," she says.

She says as the children get older, the amount should be raised as well of not more than 10 per cent a year.

Haslinda Hj Luqman, a 35-year-old mum who runs a home-based food and bakery business, believes setting the amount based on what she expects her children to do with their allowance is much more effective as opposed to determining the amount according to their age or following what other parents do on how much they give their kids.

"As parents, we should also help decide for our children how their allowance is utilised," she says.

Haslinda's 14-year-old son gets $100 a month. Her son uses the money to pay for food during recess in school, whereas the rest would be spent on things such as eating out, fashion accessories or movie tickets.

She says she would be by his side when he's making spending decisions, to guide him and to see whether any of his purchases is worth it or unnecessary. "As they grow up, they will have to take on more responsibility for their spending habits as their allowance is increased, so it's crucial for us to monitor their spendings to guide them towards smart spending," she adds.

The savings drill





You can't save money if you don't have money to begin with. The allowance system is also ideal to drill the savings habit on children.

Haslinda says the best thing about the allowance system is that it enables her son to see very clearly that when he delays gratification, he could save enough to afford pricier items such as sports gear and video games.

"Sometimes, we reward them the things they want based on their school performances, but it's also rewarding to give them that sense of independence as they learn to save their money for a certain period of time and allow them to experience the thrill of getting that slightly expensive item from their own efforts," she says.

She says her son has also learned to spend more prudently in the process.

"This is good practice. They will get the hang of it and as they get older, they know from their own experiences that saving is a better way to go than loaning in the long run," she adds.

How Long Will My Retirement Savings Last?

I'm 64 and plan to retire next April. I have $160,000 saved. How much lifetime income can I expect to draw from my savings? -- Mike W.
 

Have you ever heard the joke about the accountant who is asked how much two plus two is? His response: "How much do you want it to be?"

Well, there are many possible answers to your question, too.

The amount of income you can expect to receive from your $160,000 stash can vary significantly depending on a number of factors, many of which you can control and many of which you can't. Indeed, how long you'll live and what sort of gains you'll earn on your savings are beyond your control.

Even if you knew the average return you would earn on your savings throughout retirement, you still couldn't know exactly how much lifetime income you could get. When you're drawing money from a portfolio, the pattern of returns, not the average, determines how long your savings will last.

So if you draw the same amount of money each month from two portfolios that earn an identical annualized return of, say 6%, over the next 30 years, but one suffers big losses early in retirement and recovers down the road while the other zooms to big gains at first and stumbles later on, the portfolio with the early losses will run out of money sooner.

The reason is that the combination of lousy initial returns plus withdrawals can deplete your nest egg so badly that there's not enough capital remaining for the portfolio to adequately recover — even when the markets turn around.

Given this sort of inherent uncertainty, how can a retiree arrive at a balance between pulling enough dough out of savings to live on without taking too much risk too soon?

You've got a number of choices. One is to manage the process yourself.

The key to this strategy is to start with a withdrawal rate that gives you a high level of confidence that you'll be able to increase your withdrawal amount annually based on inflation for at least 30 or so years — in your case, into your mid-90s.

Toward that end, many advisers recommend that you follow the "4% rule." For you, that would mean withdrawing 4% of your $160,000, or $6,400, the first year of retirement and then boosting it each year.

If inflation runs at say, 3% a year, your second withdrawal would be roughly $6,600, the third about $6,800 and so on. The advantage to this approach is that research shows you have roughly 80% to 90% odds of your money lasting 30 or more years.

But the 4% rule also has its downsides. One is that you can still run out of money, especially if you get hit with losses early in retirement. Another is that you might find it difficult to live on just 4% of your savings (although, of course, you'll also have CPF and possibly a pension if you're expecting one from an old employer).

A less obvious risk is that if the financial markets perform decently, limiting yourself to an inflation-adjusted 4% could leave you with a big pile of savings late in life, which means you could have lived larger earlier in retirement.

The way to avoid these issues is to adjust the amount you withdraw along the way, taking less if your portfolio has taken a hit and more if it's ballooning in value.

Of course, you could also consider other withdrawal rates. For example, Maryland financial planner Michael Kitces has done research showing that you may be able to safely go to a higher initial withdrawal rate, say, 5% or more, if you're starting out when the stock market is undervalued and thus more likely to earn above-average returns going ahead.

Similarly, Minneapolis financial planner Jonathan Guyton and retirement-planning software developer William Klinger have done computerized simulations showing that a retirement portfolio has a high probability of lasting 40 years even with an inflation-adjusted initial withdrawal rate of just over 5%, provided you strictly follow a series of "decision rules" that call for you to adjust your withdrawals throughout retirement based on your investment performance.

If you want to take some of the guesswork out of the process, a good way to generate guaranteed income in retirement is to buy an immediate annuity.

To set up an immediate annuity, you hand over a portion of your savings to an insurer (or, far more common, to an investment firm selling annuities for the insurer) that then issues you a monthly check for life, the size of which depends on your age and the prevailing level of interest rates. Today, for example, a 65-year-old man might receive roughly $580 a month.

If you want income that will rise with inflation, you can get an immediate annuity that is linked with the consumer price index, or CPI. But you'll start with a payment closer to $400. (To see how much you might receive at different ages and for different sums, click here. and contact me now)

A couple words of caution about annuities, however. When you buy an annuity you are betting that the insurer will be able to make payments for many years into the future. There is no 100% guarantee that insurer will be able to meet those obligations, but there are ways to protect yourself.

Also, I strongly recommend that you don't put your entire retirement stash into an annuity, as you are typically giving up access to the money you invest. That means the cash won't be available for emergencies or other expenses, which is why I think it's a good idea to consider a hybrid strategy that combines the assured income of an annuity with draws from a portfolio of stocks and bond funds that can provide liquidity and some long-term growth.

Whichever way you decide to go, it's important that you monitor your progress and be prepared to make adjustments to stay on track.

Online tools can help. With my Retirement Calculator, for example, you can estimate how long your savings might last with different withdrawal rates and investing strategies.

If you feel as if all of this is a bit much for you, consult an adviser. Just try to find one with an open mind — not someone whose main mission is to sell annuities nor someone so ideologically opposed to annuities that he wouldn't even consider including one in a retirement income plan.

The bottom line, though, is that if you start making withdrawals at a sensible level and remain willing to make occasional adjustments, you'll be doing everything you need to do to make that $160,000 go as far as it can.