Some people thought that I must be very rich to have sufficient money to last 100 years. This is not really the case. It depends on how much you need to live comfortably.
If you have a house that is fully paid for, and your children are working, you will find $1,000 a month to be sufficient for 1 person or $1,500 for a couple.
If you can earn 4% per annum, a capital sum of $450,000 can give $1,500 a month forever. The money will not run out. It can last for more than 100 years.
A capital sum of $300,000 can provide $1,000 a month forever.
The problem is: $1,500 may drop in value year by year, due to inflation.
Here is how you can deal with inflation. You have a larger capital sum of, say $900,000. If you can earn 4% a year, you can draw out $1,500 a month, and this amount can increase yearly at the rate of about 2% per annum. This should be sufficient to keep pace with inflation, and preserve the real value of your monthly income.
This is how the participating annuity plan works. It pays a smaller sum (compared to a non-participating plan) and pays a bonus each year to keep up with inflation.
You can earn an average of more than 4% per annum, if you invest in a large, well diversified low cost fund that is mainly invested in equities. Read this FAQ.
In summary:
1. You only need a capital sum of $900,000 to provide a monthly income forever.
2. This allows you to draw a monthly sum of $1,500 increasing by 2% yearly,
Monday, August 27, 2007
How to buy term insurance
If you wish to buy term insurance, you have to call the insurance company directly. You can try NTUC Income, Aviva and AXA.
Give them your age, the sum insured and the number of years of coverage. I suggest that you take a 20 or 30 year term. Ask for a quote on level and decreasing term.
Compare the premium rates. Ask the insurance company to explain their coverage. Ask for a FAQ.
You can also qet a quote from their website.
It is all right to approach an adviser. But, you have to be alert that the adviser does not steer you to take an expensive policy (for which they can earn a higher commission).
As the adviser does not earn much from selling the term insurance policy, you should try to handle the transaction over the telephone.
Give them your age, the sum insured and the number of years of coverage. I suggest that you take a 20 or 30 year term. Ask for a quote on level and decreasing term.
Compare the premium rates. Ask the insurance company to explain their coverage. Ask for a FAQ.
You can also qet a quote from their website.
It is all right to approach an adviser. But, you have to be alert that the adviser does not steer you to take an expensive policy (for which they can earn a higher commission).
As the adviser does not earn much from selling the term insurance policy, you should try to handle the transaction over the telephone.
Talk on Managing Your Finance
I gave a talk on Managing Your Finance for young teachers. Here are some of the questions asked by them.
1. Please explain the products - bonds, equities, blue chips
2. Any advice on investing CPF savings?
3. How much is the fee of an independent financial adviser? Any tips on selecting a good adviser?
4. If I buy term insurance directly, do I still need to pay commission?
5. What are the risks of investing in properties at this time?
6. I have invested in a fund which is losing money year after year. Is it better to withdraw from this fund (cut loss) and invest in another fund?
7. What is an education policy? I was told by my agent that I should buy a living policy for my child instead of an education policy as it serves the same function and have life coverage.
8. Do you advise us to buy critical illness policy? Does the medical benefits for teachers cover critical illness?
9. How can I buy the STI Trakker fund? Is it a good buy at this time?
10. I am 51 years old. Is it too expensive to buy term insurance now?
11. I am on a pension scheme. Should I buy insurance?
12. Why are there no encouragement for older government servants to enjoy the fruits of their labour, instead of work, work. Older teachers like to continue to stay for the long term ,but most cannot cope with the stress .Why should there be so much stress for older teachers who have already worked for 30 yers? They have already stressed a lot when they were young.
13. I presently have a few living policies paying about $2,000 yearly for each policy. Should I terminate them and convert them to term insurance policies?
14. I want to buy a medical insurance to cover H&S for my daughter (20 years old). What kind of insurance should I buy for her. Is Medishield insurance good enough? What insurance plan would your recommend? she is a NUS undergraduate.
15. STI Trakker fund is not liquid. To buy or sell it is a hassle. Why do you recommend it?
16. What are some institutions I should start investing with? POSB? DBS? NTUC Income? others?
17. My son had a heart operation when he was 5 months old. He is now 7 years old and is well and healthy. However, I was not able to get any insurance for him. Any advice?
18. Do you think that the sub-prime turmoil is approaching its end?
19. Currently, I intend to buy an insurance plan. I asked for 2 quotations. Both are similar in terms. Monthly premium $120 for 20/ 30 years. Covers death, total permanent disability ,terminal illness. Return of $99,000 after 20/30 years. Is this a good plan?
20. What is the minimum amount that can be invested in the STI Trakker fund?
21. What do you think of land investment like Canada land Investment by Walton?
12. What do you think of Eldershield policy for medical coverage? Can you comment on the Eldershield Plus that is coming?
I shall answer them in separate postings.
1. Please explain the products - bonds, equities, blue chips
2. Any advice on investing CPF savings?
3. How much is the fee of an independent financial adviser? Any tips on selecting a good adviser?
4. If I buy term insurance directly, do I still need to pay commission?
5. What are the risks of investing in properties at this time?
6. I have invested in a fund which is losing money year after year. Is it better to withdraw from this fund (cut loss) and invest in another fund?
7. What is an education policy? I was told by my agent that I should buy a living policy for my child instead of an education policy as it serves the same function and have life coverage.
8. Do you advise us to buy critical illness policy? Does the medical benefits for teachers cover critical illness?
9. How can I buy the STI Trakker fund? Is it a good buy at this time?
10. I am 51 years old. Is it too expensive to buy term insurance now?
11. I am on a pension scheme. Should I buy insurance?
12. Why are there no encouragement for older government servants to enjoy the fruits of their labour, instead of work, work. Older teachers like to continue to stay for the long term ,but most cannot cope with the stress .Why should there be so much stress for older teachers who have already worked for 30 yers? They have already stressed a lot when they were young.
13. I presently have a few living policies paying about $2,000 yearly for each policy. Should I terminate them and convert them to term insurance policies?
14. I want to buy a medical insurance to cover H&S for my daughter (20 years old). What kind of insurance should I buy for her. Is Medishield insurance good enough? What insurance plan would your recommend? she is a NUS undergraduate.
15. STI Trakker fund is not liquid. To buy or sell it is a hassle. Why do you recommend it?
16. What are some institutions I should start investing with? POSB? DBS? NTUC Income? others?
17. My son had a heart operation when he was 5 months old. He is now 7 years old and is well and healthy. However, I was not able to get any insurance for him. Any advice?
18. Do you think that the sub-prime turmoil is approaching its end?
19. Currently, I intend to buy an insurance plan. I asked for 2 quotations. Both are similar in terms. Monthly premium $120 for 20/ 30 years. Covers death, total permanent disability ,terminal illness. Return of $99,000 after 20/30 years. Is this a good plan?
20. What is the minimum amount that can be invested in the STI Trakker fund?
21. What do you think of land investment like Canada land Investment by Walton?
12. What do you think of Eldershield policy for medical coverage? Can you comment on the Eldershield Plus that is coming?
I shall answer them in separate postings.
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