Planning for Their Sunset Years 16 Jan 2011

[Dennis Ng]

http://admpreview.straitstimes.com:90/v ... 35010aRCRD

Jan 16, 2011
Planning for their sunset years
Lighten your financial load by managing your ageing parents' financial needs intelligently
By Lorna Tan, Senior Correspondent
-- PHOTO: ASSOCIATED PRESS

Recent changes to the Maintenance of Parents Act mean parents now have more avenues for ironing out disputes over claims for their children to provide them with financial support.

Under the Act, parents aged 60 and over who are unable to subsist can seek help for basic living expenses from their children. The changes make it compulsory for both parents and children locked in dispute to attend conciliation sessions. If children who refuse to provide financial support cite poverty as a reason, the Commissioner for the Maintenance of Parents can go through government records to check if the claims are true. The commissioner would also have the power to access data from government agencies such as the CPF Board to locate missing children and assess their means to pay.

Any decent-minded person would hope that parents would never have to sue their child for financial support. Still, the changes to the legislation drive home the message, sometimes forgotten, that financially capable children have a social obligation to care for their parents. How much is enough?

Indeed, most people would agree that the act of filial piety extends beyond monetary benefits. Money, while necessary, is hardly the best measure of love for a parent. Being around to take care of your parents when they need you is perhaps a more potent show of love.

Still, the money side of things remains a sensitive issue. While paying out the monthly parents' allowance, children have to balance their own financial needs so that they are not too overly burdened. At the same time, aged parents need to maintain a decent standard of living.

The Sunday Times polled three financial experts on how much an elderly couple would require per month, assuming there is no mortgage.

They worked out that the monthly figure would range from $720 - for a spartan lifestyle - to $2,000, for both parents. Included in the calculations are expenses for utilities, food, transport, medical, telecommunication and miscellaneous services.

Mr Albert Lam, IPP Financial Advisers' investment director, said that the firm recommends its clients to allocate a monthly sum of at least $1,500 to $1,700 for both their parents, in order for them to retire comfortably.

Mr Patrick Lim, associate director at financial advisory company PromiseLand Independent, believes the estimated figure ranges between $720 and about $1,200 while Mr Dennis Ng, founder of Financial Education portal www.MasterYourFinance. com, thinks that each parent easily requires at least $1,000 each month.

Mr Ng recommends that the No. 1 priority for elderly retirees is capital preservation. Depending on the parents' age, their nest eggs could be diversified into different investments to take care of inflationary pressures so that at least the capital is kept intact.

OCBC Bank's vice-president of wealth management, Singapore, Ms Anne Tay, emphasised that a well-diversified retirement portfolio, consisting of investments in equities, bonds, commodities as well as fixed deposit savings, will provide retirees with staggered income streams during their golden years.

'The proportion you place in each asset class will depend on the investment risk you are willing and able to take,' she said.

Here are some tips on how you can help manage your parents' finances.


Preserve capital

The No. 1 priority for elderly retirees is capital preservation... their nest eggs could be diversified into different investments to take care of inflationary pressures so that at least the capital is kept intact.

MR DENNIS NG, founder of Financial Education portal, www.MasterYourFinance.com

1 Medical insurance

Financial experts recommend some form of medical insurance for parents so as to hedge against potential and future health-care costs.

DBS Bank's managing director and head of consumer banking group (Singapore), Mr Jeremy Soo, advises people not to stint on insurance cover.

This is because many people have often lamented their lack of adequate insurance coverage when misfortune or accidents occur.

'Ensure you are sufficiently protected against financially debilitating events like major accidents or illnesses. Insure your family and yourself against the loss of major assets like your home or your ability to work and earn an income,' he said.

At the basic level, a basic MediShield plan is recommended. For those with more money, you may want to consider upgrading the basic MediShield plan to a Medisave-approved integrated hospitalisation Shield plan. There are five such providers: AIA, Aviva, Great Eastern, NTUC Income and Prudential.

'This will give parents more choices in terms of physicians/ specialists/surgeons and treatments. More importantly, it also addresses longevity risks as the current basic MediShield plan does not provide coverage beyond age 85 years,' said Mr Patrick Lim, associate director at financial advisory company PromiseLand Independent.

2 OCBC SmartSenior programme

Working children can use the OCBC SmartSenior programme to channel a regular flow of allowances to their parents.

Set up in 2009, it is a scheme that offers banking solutions and perks, such as FairPrice vouchers, to meet the individual's financial and other lifestyle needs during retirement.

In addition, the account comes with an eAlerts feature that sends SMS notifications when banking transactions are carried out from the account.

OCBC customer Ricky Ho said: 'I like the fact that my children are able to give me the monthly allowance in a convenient manner via the programme. I don't have to ask and feel embarrassed when my children are late.

'It is a face thing for me and I don't want to be seen as desperate.'

Mr Ho is married and he has two sons in their 30s who provide enough to cover most of his monthly household expenditure.

3 Concessionary incentives

There are benefits to being a senior citizen and elderly parents should take advantage of them, said Mr Albert Lam, IPP Financial Advisers' investment director.

For instance, those who turn 60 may apply for a concession card which entitles them to discounted fares on public transport.

Retailers have begun chipping in too. In November last year, supermarket FairPrice launched a six-month-long promotion allowing seniors to benefit from a 2 per cent discount every Tuesday. Even local theatres offer senior citizens discounted rates for movie screenings.

4 Stock investment

Besides giving his mother, Madam Ng Bee Lian, 80, a monthly allowance, Mr Dennis Ng, founder of financial education portal, www.Master YourFinance.com, believes it is important to help parents grow their money through investments, especially if they are not investment- savvy.

In the last two years, Madam Ng has seen her savings grow in line with the stock market performance. This is because her son managed to avoid the market crash in 2008 by selling off her earlier stocks and re-invested in the market only from late 2008. From $80,000, the value of the stock portfolio has risen to $110,000.

'From October 2008 onwards, after the collapse of investment bank Lehman Brothers, I started helping her to re-invest in stocks again. I selected the stocks that are fundamentally strong and which pay dividend yields of 6 per cent or more,' recalled Mr Ng.

For instance, Starhill Global Reit was bought at 40 cents each, StarHub at $1.95, Lippo Mapletree Indonesian Retail Reit at 49 cents, and Suntec Reit at $1, he added.

Mr Ng took pains to explain to his mother what these firms do. For example, Starhill Global Reit's main income would be derived from Wisma Atria and Ngee Ann City. The fact that there are dividend payouts also helps to ease her worries.

5 Traded endowment plans

These are 'second-hand' endowment savings plans from an insurer in Britain. When you invest in traded endowment policies, you are actually buying over existing with-profits endowment policies which were sold by the original policyholders before the maturity date.

They might have been driven to do so because they needed the cash to clear their debts, pay their mortgages, and so on.

The advantage of such policies is that you invest directly in an endowment policy which has surpassed the break-even point and you can derive the maximum benefit at the tail-end of these policies.

This is because the yearly bonuses declared by the insurance firm will provide steady growth for the remaining term of your policy; while at maturity, you may receive a final maturity or terminal bonus that is usually substantially larger than the annual bonuses.

Madam Ng has $100,000 invested in three traded endowment plans which mature in four to five years' time. According to Mr Ng, the expected annual returns are 5 to 6 per cent for such terms. If the tenure is longer, the returns could go up to 8 per cent a year.

One of the risks of such a product is that traded endowment plans are denominated in pound sterling so there may be exchange rate risks. But the good news is that the pound is currently trading at a low against the Singdollar.

Note: Sterling Pounds currently trading at 40 year historical low against S$ since year 1971. For more info, please email to info@TradedEndowment.com or call 6883 2235 or visit www.TradedEndowment.com

6 Rental income

One way to obtain a regular flow of income is through subletting a spare room.

'A single room in an HDB flat can be rented out for up to $1,000 a month, depending on location. This can account for a very steady stream of supplementary income,' noted Mr Lam.

7 Lease Buyback Scheme

The Lease Buyback Scheme allows elderly HDB residents in three-room or smaller flats to monetise their flats to supplement their retirement needs. The scheme involves residents selling part of the remainder of the 99-year lease of their flats back to the Housing Board. They would retain a 30-year lease on their flats, allowing them to stay put in the familiar surroundings of their homes.

For example, if a flat has 70 years left, the HDB buys 40 years of the lease from the owner. It pays the market rate for the 40-year lease and this money goes to the CPF Life national annuity scheme in the flat owner's name.

They can also enjoy a government subsidy of $10,000, subject to certain conditions.

8 Annuity

This is an insurance plan that typically provides a flow of payouts for the life of the insured.

An example is CPF Life which is an annuity scheme administered by the Central Provident Fund (CPF) Board. The regular payouts are dependent on the cash savings CPF members have in their CPF Retirement Accounts.

Mr Lam recommends those who have spare cash to consider buying annuities with private insurers.

Mr Lim likens an annuity to a 'perpetual' bank account. He prefers 'participating' annuities where policyholders are entitled to share in the profits of the insurer, which are paid as bonuses. They are not guaranteed but once declared, they will be added to the guaranteed annuity payout and this becomes cumulative and paid for a lifetime. Non-participating annuities do not share in the insurer's profits so they are not entitled to any bonus payments.

9 Draw up a will

To avoid messy and protracted legal proceedings, Mr Lim advises the children as well as their parents to draw up their wills.

More importantly, the will is a legal document where personal wishes are set out. The will should spell out the names of the people whom you entrust with the responsibility of taking charge of your assets and the proper distribution to the beneficiaries, upon the testator's death.

Bear in mind that those who die without a will run the risk of their savings not going to the people they would have wanted them to go to.

And if you do have fairly substantial assets with significant estate planning needs in mind, Mr Soo said that setting up a trust may be the thing you need to ensure your beneficiaries' well-being.

10 Nomination of CPF proceeds

In the course of his work, Mr Lim has come across CPF members who fail to make a nomination for their CPF proceeds or to re-nominate after marriage. In such cases, the retirement savings of non-Muslim CPF members will be tranferred to the Public Trustee for distribution to his family according to intestacy laws.

11 Lasting Power of Attorney (LPA)

An LPA is a legal document that allows a person who is 21 years or older (also known as donor), and who still has the mental capacity, to voluntarily appoint one or more persons (also known as donee/s), to act and make decisions on his behalf for his personal welfare matters, property and affairs matters or both matters when he lacks mental capacity in the future.

Unlike a General Power of Attorney that generally ceases to have effect when the donor loses his mental capacity, an LPA takes effect when the donor loses capacity. The LPA allows a person to plan for such a possible occurrence.

lorna@sph.com.sg