What should a couple do with their savings & investments in order to save up for their family and retirement? - Seedly
 

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Asked by Anonymous

Asked on 05 Aug 2019

What should a couple do with their savings & investments in order to save up for their family and retirement?

We're a couple, both aged 40, with 2 kids aged 9 & 12. We're starting to do some financial planning for our kids and retirement. What should we do with our savings and/or investments? Where should we park our money after growing it?

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A quick health check up prior to starting your planning would mean that you need to

1) Ensure sufficient death coverage to take care of liabilities and critical illness coverage to ensure that funds are available to ensure your income stream doesn't stop due to illnesses.

2) Have a hospitalization plan to take care of hospital bills

3) Ensure your long term care coverage upgraded to improve the payout and payout duration

4) Have an emergency fund of at least a year of expenses for unexpected events

If these points are in place, planning for your kids and retirement has actually no right or wrong answer. The market is awash in options but I will highlight a number of options that are commonly undertaken by my clients with similar situations as you, based on their preferences and risk appetite:

For kids:

  • Conservative but guaranteed endowments to grow funds safely and prepare for the tuition bill

  • A combined Bond/Equity UT portfolio to grow capital

  • Defensive equities to have cash flow for future uni expenses

  • Some parents get a Whole Life critical illness plan for their kids as a gift, as premiums are drastically lower when they are younger. This shouldn't be at the expense of their education or your own retirement however

For your own retirement:

  • A balanced portfolio of guaranteed and variable assets to provide room for growth with a safety net

  • These can include an equity/bond portfolio, ETFs, UTs, for both capital gain, and income generation

  • Annuities to preserve capital and convert your money into guaranteed income streams when you retire, immune to market shock

  • CPF SA and SRS top ups to maximise tax savings and let compounding (in the case of SA) work for you

When you've build your wealth, remember that the best asset is pure income. When you have to manage assets in retirement (e.g. watch over your stock and UT portfolio), these assets can become somewhat of a liability. So plan to slowly convert your variable income flows into guaranteed income through the course of your life cycle.

Ultimately, weigh all options and decide what works best for you. The best strategy will be a mixture of what suits you, and what you are comfortable with.

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Sarah Chan
Sarah Chan, Business Administration at NUS
Level 6. Master
Updated on 10 Aug 2019

Hi anon! Let’s break down your current situation bit by bit and see what you should do moving forward. The first half of this answer tackles your first question on financial planning for your 2 financial goals - family and retirement. The second half of this answer will tackle your other question on what to do with your funds from your savings & investments.

TL;DR: A simple guide to achieving your financial goals and managing your funds is to:

  1. Prepare to set aside approximately $363,156 for your family’s finances and $342,775 for your retirement finances.

  2. To achieve these figures, you can follow the 50-20-5-25 income allocation ratio.

  3. With your existing funds, you should manage them by: continuously growing them through investments, keeping the liquid funds in a suitable savings account, and ensuring you & your family are on the right insurance policies for protection.

#1 How much to save up for your 2 financial goals:

Goal 1: Family - kids' future education

  • Secondary school: At least $184,800

  • Tertiary education. Assuming your kids are heading for Junior College, you would need to save approximately $29,842 per child. Assuming your kids are heading for Polytechnic instead, you would need to save approximately $10,500 per child.

  • University. Assuming your kids are heading for local universities, e.g. NUS, you would need to save approximately $50,236 - $59,336 per child.

(P.S. These figures are all calculated on approximation. Do let me know if you’d like to see a break down of the costs I used in this calculation!)

Now let’s calculate the maximum amount you would need to save (still an approximation) for both kids to best prepare yourself for the future. Assuming both of your kids headed for Junior College and took on the costliest degree at NUS, you would need to save up a total of $363,156 for the two of them.

Goal 2: Retirement - how to retire comfortably

From our Seedly article on how much you need to save in order to retire and meet your basic needs, a married male and female Singaporean that would like to retire at age 64 would have to prepare at least $134,007 and $208,768 respectively (do alter this figure based on your lifestyle, needs and preferences). This means that both of you have to ensure there is a total of $342,775 for your collective retirement.

Overall, you would need to save up a total of at least $704,413 in your CPF & savings account in order to achieve both of your financial goals.

#2 What should you do to save up for it

Here at Seedly, we typically recommend the 50-30-20 income allocation ratio for young adults. But given that you two are parents instead, we suggest tweaking the ratios a little to cater to your needs. You can consider this new ratio instead: 50% expenses, 20% savings for retirement, 5% savings for your children & 25% investments.

#3 What to do with the funds from your savings & investments

a) Keep growing your finances through investments

It’s great that you guys are already investing, but what you should be paying attention to would be the allocation of your investible funds. Based on our Age vs Risk Seedly article, your risk appetite should be slightly lower now compared to your prime investing days. I’d say invest 60% (or less) of your available funds in riskier assets like stocks, with the rest being invested in bonds. b) Safe keep your liquid funds in the right savings account

Investments aside, do ensure the rest of your funds (the more liquid ones) are placed in the right savings account that can provide you with advantageous interest rates. I’d highly recommend going with the DBS Multiplier Account. I’m sure at the age of 40, you guys can easily hit the highest (or higher) tiers of interest rates based on your account balance and categories of eligible transactions. So go take advantage of that 3.8% p.a. rate!

c) Protect yourself and your family with the right insurance policies

For sure you would’ve gotten some insurance policies for yourself and the family but are you on the right plans? Take 30mins of your time to do some planning using our Seedly article breaking down the various types of insurance. At the end of the day, do ensure you’ve gotten health + life insurance for yourself and the family. Personal accident would be a good add-on if your family needs it.

That’s my two cents worth of opinion! At the end of the day, you know your finances and financial position best so do adapt the advice accordingly! I suggest doing more research and gathering more advice before making any major decisions. The community here on Seedly is here to help too! #powerofcommunity Do seek the help of a financial planner/advisor as well if you feel that you can’t DIY things on your own or need additional support. I hope this summary provides a rough template for your financial planning. All the best in achieving your financial goals :-)

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Veronica Kok
Veronica Kok

10 Aug 2019

Hi mind to share how did you get the figure $363k? Thanks
Question Poster

10 Aug 2019

This is so helpful 👍

Hi there! You should be saving 20% of your combined income in a balanced portfolio of around 50% Equities, 30% Fixed Income, 10% Property, 10% Commodities (Gold/Silver/Etc).

Another 5% for both children's education, using a guaranteed product like CPF OA (if going local Uni) or an endowment or conservative portfolio for the next 10 years.

At this time the family should also hold a year's worth of expenses as emergency cash reserve in a high interest savings account.

But before all that, make sure you're well protected in the event of death and illness for 10 X your annual income and 5 X your annual income respectively.

I'd make sure to upgrade my Eldershield to a 3k/mth payout with an easier to claim criteria as well as upgrade to an Integrated Shield Plan for the whole family if not yet done already (I expect this to be done years ago).

If you read my profile, I work almost exclusively with couples in their 40s. 95% of all my clients are your profile. These are things I do and work on day in day out. If you find my advice useful, I'd love to have the chance to take a closer look with you.

I might introduce tax savings with SRS, CPF Planning, as well as being charitable.

The focus here should be family should be taken care of if anyone prematurely passes away, falls ill, a guaranteed stream of income when you decide to stop work, as well as a solid foundation for your 2 children.

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