Reaching FRS in a few years, so is endowment plan for child needed?

I'm hopeful to reach FRS in a couple of years time in my SA account, and I have a newborn baby. Given that baby should be 20 by the time I reached 55, do you think if endowment/education/savings plan is needed for my little one especially for the fact that I think I should be able to draw down a decent sum from CPF (assuming everything remains status quo, withdrawal age 55) for his education as such?

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Elijah Lee

23 Nov 2019

Senior Financial Services Manager at Phillip Securities (Jurong East)

Hi Hwee Kian,

I would not assume status quo with CPF. CPF numbers will change, even if the withdrawal age of 55 remains. Also, in 20 years time, if you need funds for more pressing or immediate needs, that will dash the plans of your child to go to university.

Aim to instead build a seperate, liquid, accessible pot of assets for your child's future education. The assets inside this pot can be anything, but an endowment for the big ticket items (the school fees) is always a very safe option since they are immune to market movement at the point of maturity; your reversionary bonuses are safe and terminal ones may not be that badly affected due to smoothening. I would not want to be the person delivering the news to my child that he or she can't go to university because I lost the school fee monies in a market crash. You can also consider assets like equity and UTs to provide cashflow to settle your child's day to day expenses.

I'd do a mixture of both, since 20 years is a relatively long horizon. With an endowment, part of my allocation is protected. With the other asset classes, I have a steady cashflow. And if my kid doesn't need the money in the end due to a scholarship or equivalent, the entire pot is still mine to do as I wish.

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Pang Zhe Liang

23 Nov 2019

Lead of Research & Solutions at Havend Pte Ltd

It is a trade off that you need consider. If you use the money for your child's education, then do you have sufficient cash for retirement?

Next, if you have surplus in the bank or from your monthly cashflow, then do comprehensive financial planning and decide if you should be setting aside a sum of money for your child's education.

At the end of 20 years, even if you end up not using the money for education, you will still have financial improvement over time for your own needs, e.g. for business, family trips, or to even supplement your retirement.

In any case, the best way to do this is to do a comprehensive calculation on the entire situation. This way, it will be clear on what to do next that makes the most mathematical sense.

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