• All blog entries
    • Calculators
    • Case studies
    • Cost of living
    • CPF Are You Ready?
    • CPF Matters
    • Credit Management
    • e-Learning
    • Estate Planning
    • Events
    • Financial advisers
    • High Networth
    • Insurance
    • Investments
    • Letters to the Press
    • Magazines
    • Others
    • Retirement Planning
    • Scams
    • Surveys
    • Tragic Stories
    • Unethical sales process
    • Videos
  • Legal
  • Testimonies
    • Individual testimonies
    • Gallery
  • My Account
Hi, looking for a fee-based financial planner in Singapore? Read this article now!
  • Home
  • About
    • About Wilfred Ling
    • Why do you run your own professional financial planning practice?
  • FAQs
    • FAQs on Wilfred Ling’s Financial Services
    • FAQs on Financial Planning
    • FAQs on Investments
    • FAQs on Insurance
    • FAQs on Estate Planning
  • Services
    • Overview
    • Create a financially secure plan for your young family (package details)
    • Retirement Planning
    • Investment Portfolio Management
    • Insurance Planning
  • Fees
  • Cool Tools
  • Contact
  • Subscribe
You are here: Home / Retirement Planning / High networth asking govt for help because of poor financial planning

High networth asking govt for help because of poor financial planning

25, February 2017 by Wilfred Ling 4 Comments

There was a letter written to the Sunday Times on 19th February 2017 about a high networth (or at least behaving like one) who was so cash scrapped that she asked whether the government can help her. Here is the letter:

A few facts that can be directly derived from the letter:

  1. The writer is a retiree.
  2. The writer has two housing loans.
  3. The writer refinanced the two loans to get a lower interest rate.
  4. However, the new loans are at a shorter tenure because of regulation.
  5. The previous monthly mortgage installment was $11,245 and $5,269.
  6. The new interest rate after refinancing is 2.7%.

The following can be inferred from the letter:

  1. The writer has a passive income of at least 11245+5269 = $16,514 a month otherwise she cannot support the monthly loan.
  2. Taking into account of the need to support her own expense, she has a passive income of at least $20,000 a month.
  3. She has at least two investment properties. This means probably having three properties including the residential one.
  4. The interest rate of 2.7% looks really high even after refinancing. Perhaps it has to do with her poor credit rating.

My speculation is that this is actually a retiree who is a high networth but has overleveraged. My guess is that majority of her passive income is derived from rental income. As the current rental yield is around 3.5%, her assets are worth at least 12*20000/0.035 = $6.8m.

Given that she says she is cash strapped, this is typically an asset rich cash poor retiree.

The following are my general comments:

Poor financial literacy

I have come across countless clients who are in the same boat. The balance sheet looks nice in terms of assets but actually the balance sheets are terrible. If the balance sheet represents a listed company, its stock price would probably be trading at $0 and be delisted long ago.

Typically the balance sheet for such an individual has a super duper high gearing ratio.

Secondly, the balance sheet has a huge amount in illiquid assets like private properties and commercial properties. Thirdly, the yield is either around 3%pa or negative. The yield is negative when the property cannot be rental out but yet still need to pay for maintenance and property tax.

The root cause of why this happens has to do with poor financial literacy of not wanting to learn how to manage a proper investment portfolio. One can create a diversified portfolio of investments at 3% at a much lower risk than properties.

Too many biasness

I have also come across many clients who has too much biasness to the extent that it actually cripples them to make proper retirement planning decisions. Here are some examples:

  1. “If the property cannot be rented out or sold, at least I still can feel it physically unlike financial assets like stocks.” (My response: Can you eat the bricks?).
  2. “I lost so much money in XYZ and I never going to touch it again. (Typically XYZ is unit trusts.)” (When I checked further, I discovered they did not even know what they bought. They blame the products instead of themselves.).
  3. As long as I don’t sell ABC, I am ok because at least I get dividends. (When I checked, they already lost 90% of the original capital).
  4. “The product proposed has such a low return.” (But they would be more contended to leave their money in the bank earning negative interest after inflation).
  5. “I want to remain liquid just in case.” (Just in case? Normally they don’t do anything for the next 20 years because they don’t know what is a good investment opportunity when it does come by. The only investment opportunity they are looking out for is property.)

The fact that Singaporeans have too much biasness to the extend they cannot make proper investment decisions anymore.

Too late to make retirement plan

Most of the clients I met spend too much of their working life doing everything except building up their financial knowledge. As a result, when they are near to their retirement, they no longer have the ability to make proper retirement planning decisions. It is strange that people spend most of their life earning money but they don’t spend sufficient time to learn how to manage it?

Why do I say its too late for them to learn financial planning? A huge portion of financial planning is investment planning. Different people has different risk appetite and ability to take risk. The only way to truly understand one’s risk appetite is to invest and start learning when young. This requires a learning curve of a few decades (because you need to go through a few business cycles to figure it out).

This is where I come in. Unfortunately, I can only suggest solutions. As it is too late for them to learn about financial planning, they usually will find it very hard to implement my solutions. Their difficulty is understanding the retirement solutions. If they cannot understand, they cannot implement.

My retirement solutions are not a trade secret.  Here are the things I will recommend to a typical client approaching retirement:

  1. If your largest asset is the house, I will tell you to monetise such as downgrading or sell. If you don’t downgrade, you cannot retire. Simple. Normally the client will not want to downgrade or give excuses they will downgrade X years later (which I know will not be true because they have fallen in love with the property).
  2. If you have held to a small portfolio of stocks forever, I will tell you to sell everything. Reason: you are not investing as the approach is more like buy and forget. Moreover, the small portfolio does not produce significant income for retirement. Most clients will not follow this advice because they don’t want to cut lost. Usually the buy and forget stock portfolio are made up of mostly loss making stocks.
  3. If you are confident with the government, I will tell you to top-up your CPF to the maximum allowed to create a life long annuity income from CPF Life. If you are not confident with the government, I will tell you not to top-up. Normally the client will not want to top-up (regardless of their political inclination) because they want to use all the cash they have to buy properties.
  4. For those who are more than 65 years old, I’ve nothing to recommend other than investments. But if the risk profile is conservative or there is no ability to take risk, I really have no products to recommend. So there is no need to consult a financial planner.

Best age to start retirement planning

The best age to start retirement planning is when you just finish school. But the problem at this age is usually lack of budget because there will be other more pressing needs such as getting married, buying the first property, kids etc.

Thus, the next best age to plan for retirement planning in a really big way is in early 40s. This is the age when your income is stable and cash flow is significantly higher. Clients at this age are still more adventurous and their number of biasness they have developed are few. I have the greatest fulfillment in handling clients in this age range.

The most frustrating age range to do retirement planning is 50 and above. Usually, most of my recommendations will not be implemented. Sometimes it’s because there are hardly any good products for this age range. The older a person is, the fewer the available retirement products. Sometimes the clients have already developed too many biasness that they no longer have the capability to make proper investment decisions.

Conclusions

Best age to plan for retirement is when just finish school. But budget will be a limiting factor.

Next best age to plan for retirement is early 40s.

Those above 65 need not plan for retirement as it is too late. Their retirement plan is to work as cleaners and sell tissues.

Those 50s can plan for retirement but they have likely lost their investment decisions capability.

For those who fell in love with their properties, their retirement plan is to eat bricks off their properties.

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

Share this:

  • Tweet
  • Print

Related

Filed Under: Featured, Retirement Planning Tagged With: hnw

Comments

  1. xyz says

    26, February 2017 at 4:26 pm

    So early already got retiree writing to ST to complain about property cooling measures affecting retirement. I thought it would be at least 2018. I guess there’s a whole bunch of different retirees & investors with different circumstances. https://www.ifa.sg/is-property-still-a-good-retirement-investment/#comment-20082

    Timing is still too early for govt to ease cooling measures. Not until at least -20% drop for general property indices, OR if souring pty loans start seriously impacting our 3 banks.

    As for proper time for financial planning & implementation, if you are able to do it properly from mid-20s onwards, the income from your investments/assets should be able to cover your expenses by your mid-to-late 40s. In such a situation, after 50 you’re basically financially free.

    Reply
  2. CK says

    28, February 2017 at 11:14 am

    1) don’t want to sell property even though say cash tight – not loose money but cannot make 150-200% return
    2) cash tight not because no money but only have $500K not $1mil….
    3) asking for gov help instead of helping oneself or helping people who are really in need or dire straits…
    4) monthly instalments is more than a a cleaner, low income earner one yr pay…

    need help….Interesting…….but kudos to her/him for asking help even in such a situation stated above. Nothing wrong,

    Reply
  3. Sharon Lee says

    10, March 2017 at 2:53 pm

    I’d think most people want to have their cake and eat it (greed, sigh…). It’s likely no different for this retiree. If she just sells 1 property, she can already live comfortably on a huge pile of money. But I guess selling it to get a lump sum cash is not a priority since she seems to survive okay, even with such high monthly loans!

    Reply
  4. Fred says

    3, June 2017 at 5:36 pm

    Looks like Singapore is going to the dogs. Even rich retirees is asking Govt for help. Our Govt is helping the rich to be richer? I just read this article…after the Govt has tweaked cooling measures to suit rich retirees like her. There are still many poor in our midst and the Govt is only providing peanuts! LKY once remarked that Singapore would be in trouble if the middle income ask for alms! This is worse, the rich ask for help!

    Reply

What do you think? Leave a comment. Cancel reply


WILFRED LING, CFA

WANT TO GET REGULAR TIPS ON FINANCIAL PLANNING?

JOIN with thousands of other subscribers in getting tips on all aspect of financial planning such as "What is the minimum salary required?", "How avoid insurance that is not suitable", etc.


WILFRED LING IN THE NEWS

Click HERE to find out more.


THE KIND OF CLIENTS I AM LOOKING FOR

NEW TO US?

Learn how you can fully benefit from this massive website: HERE

For Registered Users Only (free)

  • How and what to invest now? (Webinar) 28/7/2022
  • How to identify high performing unit trusts in 3 steps (Webinar) 3/9/2021
  • Financial Planning – Christian Perspective Part 2 (Webinar) 14/8/2021
  • How and what to invest now? (Webinar) 22/7/2021
  • Financial Planning – Christian Perspective Part 1 (Webinar) 10/7/2021

View All

For Clients Only

  • Video Message to Clients 30/12/2021
  • Exclusive client-only Investment Update Webinar by Wilfred 26/11/2021
  • JPMorgan Guide to Market Q2 2020 15/4/2020
  • JPMorgan Perspective Q2 2020 15/4/2020
  • JPMorgan Guide to Market Q1 2020 5/2/2020

View All

Top Posts

  • Strange way of how CPF Interest is calculated & retirement planning CPF has a rather strange way of calculating interest. I...
  • Access Information & Sign Up Page
  • Why are your prospects paying expensive investment courses instead of consulting you?   This video is for financial advisers. However...
  • List of all blog articles
  • AIA Pro Achiever 2.0 and my recommendations AIA Pro Achiever 2.0 was a product which someone recent...

Recent comments

  • Sinkie on Why Vanguard Fund Investors Underperformed The Fund Significantly?
  • Sinkie on Why You Always BUY HIGH In Investments?
  • honest_me on Cancer patient ends up with $33,000 bill after insurer refuses to pay for drug & what you must do to avoid this situation
  • susan on Single Premium NTUC Income SAIL
  • susan on Single Premium NTUC Income SAIL
  • LittleTiger on Nomination in insurance policies

To be notified of new blog post, like this facebook page

To be notified of new blog post, like this facebook page

Read articles based on different categories

Investment Login

iFAST Central: Login

iFAST Prestige: Login

Navigator: Login

Chartered Financial Analyst

CFA

Chartered Financial Consultant

ChFC

Featured Blogger

IM$avvy

© Copyright 2006-2022 Wilfred Ling

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore

hollow-nasty
hollow-nasty
hollow-nasty
hollow-nasty