I need some help. I am planning for my son's financial future! Should we go for endowment, annuity, POSB saver, medisave or all the combinations? - Seedly
 

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Asked by Anonymous

Asked on 13 May 2019

I need some help. I am planning for my son's financial future! Should we go for endowment, annuity, POSB saver, medisave or all the combinations?

My son 26 had a severe head injury due to an accident. He became TPD & lost his short memory & he can't work. My wife & me 56 no retirement fund in CPF. She working, I caregiver. Will ask Sntc.org to arrange our 180k CPF & cash to him when we pass away. My son has 20k medisave & using 300/mth for rehab. My 2 agents ask me to buy PruWealth & Prime reward 17+3 & top up his medisave too.What we have for him now. 150 cash, SSB 70k 10y 2.57%,FD 70k 5y 2.7%, 50k 1y 1.75%. He has a 70k pay out at 46.Tks

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Hey there. I am sorry to hear of what happened to your son. I pray that things will get better with time.

To start off, please check if your son is Insured under Dependants Protection Scheme or not. If he is that will be a 46,000 payout. https://blog.seedly.sg/dependants-protection-scheme-dps-singapore/

and if he has any other insurance plans. All of these will help.

When it comes to planning, for your son. Besides your wife and you that are taking care of him, is there anyone that can help if both of you are not able to? Does he have siblings that will be able to take up the mantle if required?

All these factors are important for planning. Forget which plans to get for a moment and really focus on the planning that is to be done. Here are some considerations for the planning that is to be done.

a) If your son is fully dependant on your wife and you now. Then who is to take care of him in the event where two of you are not able to? Planning for this should be done.

b) Take time out to plan for both your wife and you still. The two of you are his only provider now (it seems). Planning for income replacement, medical expenses coverage (Please get an integrated shield plan asap if both of you do not have it), caregiver expenses, etc should be considered. Don’t skip your retirement fund planning too.

c) Once planning for the two of you are done. You can start planning for your child. He will need income, so that needs to be done. And also if he is not able to independently support himself (as mentioned above) a caregiver or an institution must be planned to come in when the two of you are not able to (the costs for such needs to be plan for too)

There are really many other areas that need to be considered but I do not fully know of your family environment hence the simpler 3 points above. The point is to focus on the planning that needs to be done and not which plans to get. When the planning is done right, the plans come in naturally.

Do not neglect the planning for your wife and you. The two of you are crucial towards his planning and future.

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Question Poster

15 May 2019

Thanks for the information.
Clarence Chua
Clarence Chua

16 May 2019

Most welcome.

Hi Anon, I can't imagine what you're going through right now. And I hope for the best for your family.

Here's some advice I may have.

Right now you're stuck in the middle of planning to retire one day and yet needing to take care of your child.

And I'm sure you've decided this, but you'll have to delay your retirement until it may be physically impossible for you to stop work.

If you are insurable, I'd suggest to get a small term policy to either age 80 or 100 because you need to protect your income.

I'll convert as much resources I have to annuities and bonds that will guarantee a stream of income for the family for life.

No equity investments as you don't want to handle that, you want as much guaranteed as possible.

I'll top up his Medisave account to maximum as well. Hopefully that will be able to sustain his medical bills for as long as possible.

You may want to consider down sizing your house as well if it gives you a excess cash. Not sure if you have already done a property pledge, if you have then you'll need to consider this properly.

Earn as much extra income as possible during this time as well.

In summary, protect your ability to earn an income for the family, gather as much resources as possible, convert these resources into a guaranteed income for life that doesn't require any management for your son. You will be tapping on this income after you stop working as well.

Lastly, and I'm not the expert here, but speak to a social worker to find all the available grants or support our government has in this situation.

I wish your family all the support you can have in this time.

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Hariz Arthur Maloy
Hariz Arthur Maloy

14 May 2019

You can do lumpsum but no need to max out. The interest earned on MA will grow faster than the increasing cap on the account.
Question Poster

15 May 2019

Ok thanks.
Eric Chia
Eric Chia, Senior Financial Consultant at Prudential
Level 6. Master
Updated on 12 Jun 2019

Hi Anon, sorry to hear about your situation. I'll be giving some calculations here for your consideration. I hope the calculations give you a better picture of your expectations.

What he needs:

  • medical expenses coverage (saw on other comments he already has medical insurance, so this is one worry off the mind - just have to have enough cash to pay the premiums)

  • rehab expenses $300/month

  • daily expenses $1,000/month (covers your caregiving expenses and both your basic needs)

Total he needs: $1,300 monthly for life (excluding inflation in expenses)

What you and your wife need (please remember you need to plan for yourself and your wife, so both of you can have the option to stay home together while taking care of your son):

  • retirement fund $2,000/month for both of you, simple retirement no fancy stuff, and since you're 56 now, you probably only need this after 4 to 6 years

Total both of you need: $2,000 monthly for life (excluding inflation in expenses)

What you have/ are going to have (in chronological order):

  • $150k cash (is $150 a typo error in your question?) and $30k in CPF (hence total $180k mentioned in your question?)

  • FD $50k 1y 1.75% = $50.8k

  • FD $70k 5y 2.7% = $79.9k

  • SSB $70k 10y 2.57% = $90.2k in 10 years

  • $70k payout at 46yo (20 years from now)

Next is what's interesting is what your agents have proposed - PruWealth and Prime Reward 17+3. This combination of plan actually allows you to get money on a regular basis after 3 years. Prime Rewards 17+3 will pay out until 20 years, then PruWealth will take over to give some money annually for the rest of the life. For PruWealth, please go for single premium option if you have not already buy the plan.

Simply put, these two plans work well together to ensure a payout for your son for the rest of his life. Here's a timeline to illustrate how your money will flow:

Now:

  • set aside $20,000 for first year expenses

  • take up Prime Rewards 17 + 3 and PruWealth

Next year:

  • use payout $50k from FD for Year 2 to Year 3 expenses

Year 4, 5 and 10:

  • start leveraging on Prime Rewards at Year 4

  • taking out $79.9k from your 5-year FD and $90.2k from your 10-year SSG Bond

Year 20:

  • getting payout $70k from your son's policy

  • start leveraging on PruWealth at Year 20

If you plan to go with your agents' suggestion, then you need to consider how much you like to leverage on both the plans proposed. You're lucky because you have $150k in savings and an FD payout after 1 year. What you need for 1 year is $1,300 x 12 months = $15,600. So you can use up to $130,000 in both plans. However, I doubt $130,000 would be sufficient so you'll need to use the payout from FD, SSG Bonds and your son's insurance to top up the balance.

For the top up, however, I'll suggest using more conservative tools, such as fixed deposits and banks with better savings interest, e.g. CIMB FastSaver and UOB Stash (offering about 1%p.a. to 1.5%p.a.). Insurance is better used for long term horizon 10 years. So you can leverage on insurance now for your son's future, and for the short to mid-term, use savings and bank facilities to meet your needs.

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Question Poster

12 Jun 2019

Thanks for your detailed explanation

If I am you, i would try to max out all the 5% / 6% CPF limits of at least minimum 60k in your retirement account each (if you have not done so, though f you guys have combined 180k, it could mean its more than 60k each). If you wish to plan for your retirement well, you may want to throw more into your RA account (to let it compound at 4%) up to ERS (especially if you are not going to use the money much).

And for your child, CPF medisave up to BHS (Basic Healthcare Sum limit and a little in Special Account (total combined at 60k to let it grow at 5%)

SNTC is a great option which you can use to state your intentions for your child. Cost to setup is one time fee of $150, and $40 per annum for activating of the trust.

PruWealth is flexible but require 25 years at least to achieve a decent return of about 4%, which is a cash alternative to CPF SA, may or may not suit your needs, but returns are better than SSB and the FDs. This is more of a long term investment plan.

Prime Rewards is a cash equilavent of a CPF RA payout imho, which is ok (but earns about 3%, and non-gauranteed), and payouts for 17 years.

Do factor in inflation for his daily needs and property for his living.

I do hope for the best in your case.. :)

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Question Poster

14 May 2019

Thanks for the advice.
Colin Lim
Colin Lim
Level 4. Prodigy
Updated on 07 Jun 2019

Quite complicated for execution if you are not around. Why?

If you and your wife are not around and probably your daughter will take care of your son. Is your daughter married now? If she is married and have her own commitement, will she be able to support the bro.

Highly suggest to do trust...

What type of plans are good for your son? Since he cant purchase anymore insurance.. And highly dependable on you.. Suggestion is buying a death coverage on yourself.

Lifetime annuity on your son. I teach you how to manage as all these are highly technical.

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Question Poster

15 May 2019

Thanks for the advice. She was married. We will ask SNTC trust to help up.
Colin Lim
Colin Lim

17 May 2019

Good. I dunnoe your exact situation so this is the best i can suggest. Good luck.