A whopping 65% of retirees’ saving will not last, says NTUC Income’s survey

Last Updated on 8, June 2016

It was reported that 65% of retirees feel that their savings will not last through retirement. This survey was conducted by Nielsen commissioned by NTUC Income. In addition, retirees say that one of their main sources of income is from their children.

Also, among the younger Singaporeans who were surveyed:

• 20% of the 25 to 35 year-olds listed saving for a first property as their main priority, followed by providing money for their daily needs (14%).
• Saving for retirement only becomes a priority for those more than 36 years of age.

The survey stated that among those adults who have yet to plan for their retirement:

• 40% said it’s due to the lack of understanding of the available options.
• 25% do not know how much is needed.

Source: http://www.channelnewsasia.com/news/singapore/1-in-3-young-singaporean/2516136.html

Comments:

Once again, another survey shows that there is something wrong with Singaporeans’ financial well being. The result of the survey is always the same: people are not planning for their retirement.

One of retiree's top sources of income is from children

One of the top sources of income for a retiree is from their children. I personally think that this is not sustainable on a long-run.  When a retiree relies on their children, what they are doing is borrowing from the next generation. Unfortunately such borrowing will not be returned to their children.

With such a high cost of living, the retiree’s children have their own set of problems.

Younger people should never think they can rely on their children as a source of retirement income. In fact, it is likely the next generation will borrow from their parents to help finance the first matrimonial home.

Other priorities besides retirement planning

The survey shows that young people have other priorities but retirement planning becomes important only when they are older.

This is not surprising. In my experience, most people are concerned with the following:

• Career
• Housing
• Loans
• Children’s education

Although these are short-term concerns but they would have taken up majority of one’s resources. There is little left for retirement planning.

That is why I advocate the importance of having a holistic financial planning rather than a narrowly focus.

Holistic planning vs narrowly focused planning

I have often found customers who committed themselves to long locked-in investment products (exceeding 20 years) when they just started work. This kind of long lock-in products are not suitable especially for younger people. At that age, they need to think about saving in low-risk short-term investments for their marriage and home. Even singles need to do that because the amount needed for their first home can be very large. Here are some actual examples of long lock-in products that may not be suitable for younger people:

• PruSelect Vantage $1000 per month for 20 years.
• Zurich Vista $1000 per month for 25 years.
• AXA Polaris $1000 per month for 25 years.

If the financial adviser just narrowly focus on say “retirement planning”, it is very possible that long locked-in products such as the above will be recommended. But if the planning is more holistic taking into consideration of the customer’s aspiration in buying a property, than the long term locked-in products would not be recommended since it is deemed not suitable.

Or take mortgage loans for another example. Many people just pay their mortgages every month but they don’t realise that the longer the loan, the higher the interest they are going to pay accumulatively over the long-run.  The person can pay down the loan or invest the spare cash in hope to earn a higher return. A financial adviser has to take into consideration of these loans so as to recommend an investment product that can do better than the interests of these loans.

Why holistic planning is not popular?

Frankly speaking, even a narrowly focus planning already takes 3 - 4 hours.

For example: insurance planning. The minimum amount of time for fact finding is already at least 1 hour. Another 1 hour is to explain the customer’s existing policies. The final hour is to explain the needs analysis and product recommendations. The paper work required to take up the recommended policy adds to another hour. So we have a whopping 4 hours just to do a narrowly focus planning. This does not include the time ‘behind the scene’ such as liaising with the underwriting department, arrangement for medical checkup and other compliance matters such as AML, PEP, FATCA, etc. Since narrowly focus planning has the disadvantage of buying unsuitable products, it implies a holistic planning can be much more longer!

The industry’s default mode of operation is to push products. Pushing products takes about just at most 1 hour. It is the highest form of productivity because so little effort is required but the ROI is so high. Hence, narrowly focus planning is a rare gem. Holistic planning is even worse. In my personal opinion, pushing product is illegal. But it seems this is widely practice and permitted. This is where I have no idea why there is no enforcement.

A holistic plan has different levels. A young person may want to consider the following items for holistic planning:

• Insurance planning
• Credit management (property)

A middle age person who has children may wish to consider the following for holistic planning:

• Insurance planning for the family.
• Credit management (property)
• Retirement / investment planning.
• Children’s education
• Tax Planning
• Estate planning

A person in their 50s may consider the following for holistic planning:

• Insurance planning (the planning is mainly to examine which existing policies is no longer needed).
• Retirement planning (to generate passive income).
• Estate planning.

Regardless of whether it is narrowly focus planning or holistic planning, both requires a lot of time. Potential clients are not willing to spend so much time on it. Financial advisers are also unwilling to spend so much time on the case since there is a risk of not earning anything from such planning.

Lack of understanding or something else?

The survey stated that among the adults who have yet to plan for their retirement:

• 40% said it’s due to the lack of understanding of the available options.
• 25% do not know how much is needed.

That is where a financial planner can help by clarifying and educating the available options. The amount needed to save or invest for retirement can be calculated by the financial adviser using needs analysis.

So there is really no excuse why people aren’t planning for their retirement.

A few weeks ago, MAS called me to understand more about the fee-based profession. One of the questions they asked me is how to lower the fee for advice so that more people will be more keen to pay a fee to get advice.

My answer to them is simple: The fee for advice right now is $0. Nearly 15,000 insurance agents, banks relationship managers and IFAs offer free advice. The regulator should not be focusing on lowering the fee when it is already $0. Despite the $0 fee environment, why all these surveys keep on telling us that Singaporeans are not planning for their retirement? Why Singaporeans are always underinsured? Why Singaporeans are overleveraged? I suggested to them a few reasons:

• The financial advisory industry lacks creditability. People do not trust the profession.
• Insurance products are sold, not bought. People do not wake up one day to buy insurance. Obviously, nobody will want to pay a fee to buy insurance.
• The same goes for other non-insurance financial planning matters: People cannot be bothered to seek professional advice because they do not feel they have a problem. Because people do not feel they have a problem, they are not going to pay for someone to solve their problems.

In the meantime, are you also like those who cannot be bothered because you do not understand the available options? There is really no excuse because free advice is available everywhere.

Here are some reading materials on how you can get free advice:

1. Bus interchanges
2. IT salesperson
3. Your nearest banks when you open a fixed deposit.
4. Free seminars.
5. SingPost branches (which also offer free gifts).
6. Friends.

Like this article? Subscribe to my newsletter below for more.

Get regular Tips on Financial Planning. Free subscription for 3 years. Covers all aspect of financial planning such as 'How much salary you should have?', 'How to avoid insurance that is not suitable?", 'What are the retirement planning methods?", etc

Name:

Email: