MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl

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MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
FINANCIAL
                          PLANNING
                            FOR THE

                      MERDEKA
                     GENERATION
Author
MoneyOwl Solutions Team
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
CONTENTS
SYNOPSIS                                         3

CHAPTER 1
YOUR HOME                                        4

CHAPTER 2
SHOULD YOU RETIRE NOW?                           8

CHAPTER 3
CPF PAYOUTS- YOUR SAFE RETIREMENT INCOME FLOOR   11

CHAPTER 4
ADDITIONAL INCOME IN RETIREMENT                  15

CHAPTER 5
A MEDICAL SAFETY NET                             20

CHAPTER 6
ESTATE DISTRIBUTION                              28
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
SYNOPSIS
    We all know someone from the Merdeka Generation perhaps a parent, neighbour,
    colleague or even yourself. Born in the 1950s, each has a story to tell - stories of how one
    lived through the independence struggle of the nation, joined the workforce early and
    experienced serving National Service as one of the earliest batches. These are men and
    women who contributed to the early nation building of Singapore.

    As a tribute to our nation builders, MoneyOwl has put together this e-book to help you
    better prepare for retirement. A common worry you may have is retirement adequacy,
    i.e. whether there is enough money for living expenses and medical needs in your golden
    years. The question of “enough” is a subjective one and is dependent on your financial
    situation and expectation. However, regardless of your expectation, a good retirement plan
    should provide you with these 3 Must-Haves:

                                                  $
           A home to stay in            Monthly retirement              Medical safety net
                                          income for life

    In this e-book, we will explore each of these Must-Haves, as well as highlight the planning
    considerations you may face. In line with MoneyOwl social mission to help the man on
    the street achieve greater financial security to live fulfilling lives, we consciously integrate
    national schemes into our planning approach. Hence we will also discuss national schemes
    like CPF LIFE, MediShield Life, ElderShield/CareShield Life, Lease Buyback Scheme and
    how they can support your retirement needs. We wrap up with how you can distribute
    your estate to your loved ones according to your wishes upon demise. This is an important
    step as it will end your financial journey on a good note.
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
1
CHAPTER 1 | YOUR HOME                                                                                              5

YOUR HOME
                    1.1 A FULLY PAID HOME                            One option is to monetise your property, i.e.
                                                                     unlocking it to supplement your retirement
                                                                     needs. There are a few ways to go about
                    We all need a place to stay, a place we call     it and the ultimate decision boils down to
                    home, where lives and memories are built.        personal preference.
                    All thanks to our housing policy, most
                    households here (more than 90%) owns
                    a property.
                                                                     1.2 MONETISE BY RENTING
                    A 3-room flat in Toa Payoh in the 1970's
                    was only around $8,000. Even with one's
                                                                         OUT SPARE ROOM OR
                    meagre salary, he/she will be able to                WHOLE FLAT
                    fully repay the home loan quite easily.
                    Some, however, continue to upgrade their         Do you have a spare bedroom or have
                    houses and added more to their loans             alternative accommodation arrangement
                    in the process. The guess is most of the         such as staying with your children? If so,
                    Merdeka Generation would have repaid             renting out the excess space for income is
                    their mortgages by now, but if for some          not a bad idea. Renting out excess space
                    reasons one has not, the immediate goal          rewards them with the extra money to
                    is to review the finances and try to pay it      enjoy their retirement. A spare room can
                    off as soon as possible in preparation for       typically fetch about $600 to $1,200 in
                    retirement. There is psychological bliss, a      rental income depending on location
                    peace of mind, from being debt-free.             and condition.

                    What if there are difficulties in clearing the   The benefits of this option include keeping
                    loan? Or if one is caught in an asset-rich,      your property (and your neighbours),
                    cash-poor dilemma? What should you do?           receiving rental income and continuing
                                                                     to participate in the appreciation of your
                    There are no easy answers but suffice to         property value.
                    say that you need to review your assets,
                    optimise your savings, CPF and estimate
                    how much is needed for your retirement.
                    We will cover more of that in the
                    next chapter.
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
CHAPTER 1 | YOUR HOME                                                                                                                         6

                                1.3 MONETISE BY                                                 Besides receiving extra money from down-
                                                                                                sizing, you could also save on running cost
                                    DOWN-SIZING                                                 from lower conservancy charges, property
                                                                                                tax and lower upkeep of a smaller unit.
                                But what if you do not wish to share your
                                property with others? Or find that the
                                current house is now too big to upkeep                          1.4 MONETISE BY LEASE
                                as your children or family members have
                                moved out. In such cases, perhaps down-                             BUYBACK SCHEME (LBS)
                                sizing or right-sizing is a consideration. This
                                option allows you own the entire unit, albeit                   Finally, what if you prefer to age in place,
                                a smaller one, but with extra money from                        because you love the neighbourhood or you
                                the exercise.                                                   just cannot accept the idea of renting out
                                                                                                your rooms? In that case, there is the Lease
                                One affordable option of a smaller flat is the                  Buyback Scheme (LBS).
                                2-room flexi unit from HDB. You can select
                                how long a lease you need. The shorter the                      In LBS, you are essentially selling the tail-
                                lease, the smaller the property price.                          end lease of your flat back to the HDB for
                                                                                                money. In this way, the lease of your flat
                                Seniors who are aged 55 and above can                           is now shortened. There are conditions
                                take up a lease of between 15 and 45 years                      on the sales proceeds, which requires one
                                as long as it must cover the age of the                         use the money to first do a top up into
                                applicants up to 95 or more.                                    your CPF Retirement Account (RA); any
                                                                                                remaining balance would then be available
                                Such a flat is quite attractively priced.                       for cash spending. The whole idea of the
                                According to HDB as of April 2018, such                         top-up is for you to join CPF LIFE which will
                                a flat is priced around $150,000 in the                         then provide a stream of income for your
                                matured estate and $90,000 in the non-                          retirement for life.
                                matured estate for a 40-year lease1. These
                                flats are getting quite popular in recent                       Perhaps the following example from HDB
                                years and HDB has been ramping up supply                        website2 can help us understand how the
                                of such units to meet demand.                                   LBS works.

                                                                         How can Mr & Mrs Lim unlock the
                                                                         value of their flat with the Lease
                                                                         Buyback Scheme?

                                                                         Couple profile
                                                                         Mr & Mrs Lim both 65 years old
                                                                         Joint owners of fully paid 5-room flat

                                                                                                                               CPF
                                                                                                                               RA
                                                                             Flat value: $520,000                          Mr Lim $20,000
                                                                             Lease left: 65 years                          Mrs Lim $5,000

1.   Source: HDB data dated 24 Apr 2018, https://www.hdb.gov.sg/cs/infoweb/various-options-for-seniors-to-monetise-hdb-flats
2.   Source: http://www.hdb.gov.sg/cs/infoweb/img/top-up-worked-example.jpg
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
CHAPTER 1 | YOUR HOME                                                                                                                                      7

                              In this example, Mr & Mrs Lim, both age 65, own a fully paid 5-room flat, valued at
                              $520,000 with a remaining lease of 65 years. Their CPF-RA savings stand at $20,000
                              and $5,000 respectively. With such low CPF savings, their combined CPF LIFE payout
                              (assuming Standard plan) is about $1603 monthly. This is obviously insufficient for their
                              retirement needs if that is all they have.

                              Suppose they decide to participate in LBS, this is how it works:
                              • Sell off 35 years of their flat’s lease to HDB for $219,300
                              • Sales proceeds to top-up their respective CPF-RA up to the
                                Basic Retirement Sum of $88,000
                              • $151,000 is required to do the top up; ($88,000 – $20,000 + $88,000 – $5,000)
                              • Net proceeds left after CPF top-up is $68,300 ($219,300 – $151,000)
                              • Receive a $5,000 LBS Cash Bonus, since the CPF top up is more than $60,000

                                                        Total value unlocked by Mr & Mrs Lim

                                           LBS                                   CPF LIFE Payout                                  LBS
                                      Cash Proceeds                              (per month, for life)                         Cash Bonus

                                    $68,300                                        $1,000                                     $5,000
                                                                              Based on $151,000 top-up to
                                                                              the couple's CPF RA account

                                     Mr & Mrs Lim both 65 years old, retains their flat with 30 years of lease remaining.

                              Benefits of LBS
                              The couple could now receive a lump sum cash payout of $73,300(LBS cash proceeds
                              $68,300 + LBS cash bonus $5,000) and a monthly income stream from CPF LIFE of $1,000.
                              Not bad considering that before this, the couple could only enjoy about $160 monthly from
                              their CPF LIFE.

                              The key drawback of LBS is the once in the scheme, you are not allowed to sell the flat in
                              the open market or rent out the whole flat. In other words, you are not able to participate in
                              the potential appreciation of the property value.

                              What if you outlived the lease period, e.g., beyond age 95? HDB assures you that in such
                              a situation, you will not be left without a home. HDB will review your circumstances on
                              a case-by-case basis taking in factors such as family support, health conditions and
                              financial status and work out an appropriate housing arrangement with you.

                                 For more info on LBS, please check out
                                 https://www.hdb.gov.sg/cs/infoweb/residential/living-in-an-hdb-flat/for-our-seniors/
                                 lease-buyback-scheme

  Source: This amount is estimated from the CPF LIFE Estimator. Mr Lim is estimated to receive $$126 to $133 monthly and $29 to $31 monthly for Mrs Lim.
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
2
SHOULD YOU
RETIRE NOW
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
2
CHAPTER 2 | SHOULD YOU RETIRE NOW                                                                                                           9

SHOULD YOU
RETIRE NOW?
The second Must-Have in retirement is a monthly
retirement income for life to cover our expenses.

                                It is no coincidence that those belonging to           expectancy of 84 years – that is as long as
                                the Merdeka Generation are at one of the               half our economically productive years!
                                important milestones of their retirement
                                planning – crossing the statutory retirement           In 2018, more than 53% of those aged 60
                                age of 62, CPF payout eligibility age of               to 69 are employed.4 Some may continue
                                between 63-65 and re-employment age                    working due to lack of choice, but perhaps
                                of 67.                                                 many do so to remain physically, mentally
                                                                                       and socially active. If you have ever taken
                                But before we talk about retirement income,            a gap year in your work, you would realise
                                let us talk about whether one should seek              how quickly one runs out of things to do
                                to retire in his or her 60s.                           after a few months and the emotional and
                                                                                       psychological complexities of that.
                                You’ve worked and saved hard for most
                                part of your life and finally, retirement is           Indeed, what is often underestimated is the
                                in view. But retirement is not a destination           emotional journey of a retiree.
                                but rather another phase of your life.                 According to the New Retirement
                                Retirement can stretch for as long as 15-              Mindscape II study (Ameriprise Financial
                                20 years in view of today’s average life               Inc), there are six stages in this journey:

 IMAGINATION               HESITATION              ANTICIPATION       REALISATION           REORIENTATION          RECONCILIATION

 6 to 15 years prior       3 to 5 years prior         2 years prior   Retirement day and     2 to 15 years after   16 years or more after
 to Retirement Day                                                     the year following

3.   Based on MOM’s Labour Force Survey, 2018 (Table 4)
MERDEKA GENERATION - FINANCIAL PLANNING FOR THE - Advice by MoneyOwl
CHAPTER 2 | SHOULD YOU RETIRE NOW                                                                                                 10

                                    As a member of the Merdeka Generation,          What this means is that your employer
                                    you may be either in the Imagination            can choose to terminate your employment
                                    stage, where you might feel unprepared          without compensation when you turn 62
                                    for retirement or the Hesitation stage,         years old. But in view of our tight labour
                                    when you are actively seeking advice and        market, decreasing fertility rate and
                                    the ability to cover your healthcare costs      increasing life expectancy (60 is the new
                                    becomes a particularly important concern        50), the Re-employment Act was passed
                                    for you. This is also why the Merdeka           in 2012. With this in place, your employer
                                    General Package focuses on help for             will need to offer you (subject to eligibility
                                    medical expenses, the coverage of which         criteria) re-employment beyond 62 years
                                    is our third Must-Have, of which we will        old, on an annual basis, up to age 67. There
                                    write more in a future part of this series.     are also recent policy changes to increase
                                    Or, you might be in Anticipation, which is      CPF contribution rates and an additional
                                    the happiest stage of the six stages. A few     1% interest rate is now paid on CPF
                                    might have just retired and the Realisation     savings for workers aged 55 and above.
                                    or feeling of being a little let down can be
                                    hard, the most difficult being the loss of      In addition, the government also announced
                                    income, and this emotional stage improves       that the Tripartite Workgroup on Older
                                    only upon some Reorientation.                   Workers will be looking into further
                                                                                    changes to the CPF contribution rates. As
                                    Retirement is thus not all sun, sand            announced in Budget 2019, the Workfare
                                    and laughter, emotionally or otherwise.         Income Supplement Scheme will also
                                    Retirement can only be truly fulfilling if      be enhanced from 2020. The qualifying
                                    you are active and doing something that         income cap will be raised to $2,300 and the
                                    is of meaning to you. Financially also, you     maximum annual payouts will be increased
                                    need to consider if you would benefit from      by $400. So, if you continue to work, you
                                    delaying retirement. As you are your Most       can potentially get up to $4,000 per year in
                                    Important Financial Asset , don’t discount      income supplements.
                                    how you can still contribute to your own
                                    well-being monetarily or otherwise. With        Nonetheless, whether you choose to
                                    the $100 top up to your PAssion Silver Card     continue working, knowing that you have
                                    from the Merdeka Generation Package,            a retirement plan in place will provide you
                                    don’t miss out on the various courses and       with a peace of mind. Based on a recent
                                    activities that you can sign up for at your     survey of baby boomers, the top three
                                    local community centre.                         sources of retirement income are CPF
                                                                                    (78%), savings/investments (55%) and
                                    The Government has been improving the           work (37%)5. We will explore these
                                    infrastructure to help those who are able       sources of retirement income in our next
                                    and willing, to work longer. The statutory      few chapters.
                                    retirement age in Singapore is 62 years old.

                                                          Example of sources of income
                           Payout

                                               Work

                                                                         Savings/
                                                                       Investment

                                                                          CPF

                                                                                                                        Age

4.   Manulife 3-Gen Survey, Nov 2018
3CPF PAYOUTS:
  YOUR SAFE
  RETIREMENT
INCOME FLOOR
3
CHAPTER 3 | CPF PAYOUTS: YOUR SAFE RETIREMENT INCOME FLOOR                                                        12

CPF PAYOUTS:
YOUR SAFE RETIREMENT
INCOME FLOOR
In this third chapter, we explore how CPF, specifically,
CPF LIFE forms the foundation of your retirement
plan by providing you with a stream of income for life.
A retirement income that covers daily expenses is the
second Must-Have in retirement, alongside a home to
stay in and a medical safety net.

                     The age at which you can start your CPF monthly payout is based on your year of birth.

                              Year born                1950 - 51              1952 - 53         1954 and after

                       Payout eligibility age               63                    64                     65

                     Arriving at the Payout Eligibility Age comes with a list of decisions. These are:
                     • Should I join CPF LIFE if I am on the Retirement Sum Scheme?
                     • Should I start my CPF LIFE payouts now?
                     • Should I make a lump sum withdrawal from my Retirement Account (RA)?
                     • Which CPF LIFE plan should I choose?

                     To answer these questions, it would be useful to have a gauge of what percentage of your
                     retirement needs would be funded by your CPF savings and consequently, how much you
                     may need to supplement with other income sources.

                     At MoneyOwl, we advocate that all retirement plans comprise an annuity as a base. An
                     annuity is a stream of income that pays for life and hedges against longevity risk, i.e., the
                     risk of outliving one’s assets. CPF LIFE is the best annuity in the Singapore market, all else
                     being equal, in terms of payout versus capital, return and risk. It is thus well placed to form
                     the Safe Retirement Income Floor for all Singaporeans. This Safe Retirement Income Floor
                     is a “die die must have” level of income to fund a basic level of retirement lifestyle.
CHAPTER 3 | CPF PAYOUTS: YOUR SAFE RETIREMENT INCOME FLOOR                                                                          13

                     Based on the Household Expenditure                        If you do not own a property, you should
                     Survey 2012/13, we know that a retiree                    have the Full Retirement Sum (FRS) that
                     household in the second quintile of                       is double of BRS, because the need to
                     expenditure spends on average $518                        rent a room on top of paying for basic
                     per month in 2013 on food, transport                      necessities can cause monthly expenses in
                     and other goods and services excluding                    retirement to double. For those whose Safe
                     accommodation. This is enough to                          Retirement Income Floor is even higher,
                     support a basic standard of living                        there is the option of topping up your RA to
                     (excluding rental of a place to stay) and is              the Enhanced Retirement Sum (ERS) which
                     the basis on which the Basic Retirement                   provides an even higher level of payout.
                     Sum (BRS) under CPF LIFE is set – the BRS
                     provides for a payout under CPF LIFE that                 For CPF members who turn 55 in year
                     is close to $518 in 2013 dollars, adjusted                2019 (who are not Merdeka generation),
                     for inflation. This is also the reason why                the current BRS, FRS and ERS are $88,000,
                     you can choose to set aside the BRS                       $176,000 and $264,000 respectively. In 10
                     only if you own a property as the payout                  years’ time, these would provide payouts
                     corresponding to BRS assumes you do not                   that are, in today’s dollars, roughly $600+,
                     need to rent a place to stay.                             $1,100+ and $1,600+.

                     For Merdeka Generation members who turn 65 this year and start their payouts, the
                     amount you need to have in your RA to generate a corresponding monthly income today is
                     shown in the table below:

                          Monthly lifetime payout
                                                                         $600                 $1,100                 $1,600
                            from 65 years old

                           RA balance required at                    $100,000 -             $200,000 -            $300,000 -
                               65 years old                           $110,000               $210,000              $310,000

                     *Payout figures are estimates, based on the CPF LIFE Standard Plan and computed as of 2019. If you choose
                     to top up to your RA, the top up limit is the current Enhanced Retirement Sum less your RA savings excluding
                     interest earned and government grants.

                     You can use the CPF LIFE Payout Estimator on the CPF website for your own projection
                     based on your current RA balances.

                     Now that you have a sense of how much your CPF savings will contribute to your
                     retirement income, we can start to address these questions.

                      3.1 SHOULD I JOIN CPF LIFE IF I AM ON THE RETIREMENT
                          SUM SCHEME?
                     Before CPF LIFE, CPF members receive their monthly payouts from the savings in their
                     Retirement Account until it is depleted under the Retirement Sum Scheme (RSS). With
                     Singaporeans living longer, the risk of retirees outliving their savings is becoming very real.
                     Hence, CPF LIFE, our national annuity plan, was introduced in 2009 and made mandatory
                     in 2013 to protect against this longevity risk. If you are born 1958 or later and have at least
                     $60,000 in your RA when you turn 65 years old, you will be placed on CPF LIFE instead of
                     the RSS.

                     If you are on the RSS, you can also choose to join CPF LIFE before your 80th birthday. The
                     question is, should you? Ideally, you should have a retirement plan that pays you for life
                     because the last thing you want is to go back to work when you are in your 80s or hope
                     that your children can support you when they are already in their 60s. It would be better to
                     age with dignity with assurance of a lifelong income. Nonetheless, there are scenarios that
                     CPF LIFE is not suitable, i.e., very old members or those with very low RA balances, as you
                     may end up with a very small monthly payout that is not meaningful. In comparison, the
                     RSS gives a minimum payout of $250 per month.
CHAPTER 3 | CPF PAYOUTS: YOUR SAFE RETIREMENT INCOME FLOOR                                                                                                                  14

                                    3.2 SHOULD I START MY CPF                                               Based on a current payout of $600 a month,
                                                                                                            making a 20% withdrawal will reduce your
                                        LIFE PAYOUTS NOW?                                                   payout to $490 per month on the Standard
                                                                                                            plan. It is important to decide if the reduction
                                    Since 2016, you can choose to defer your                                of the monthly payout is worthwhile and
                                    payout start age up to 70 years old. For                                would lend to a more meaningful life. In
                                    every year you defer, your monthly payout                               addition, you don’t have to withdraw the
                                    will increase by 6 – 7% more. For example,                              20% in a lump sum, it can be done so in
                                    if your payout is $600 per month if you start                           parts and even after your Payout Eligibility
                                    at 65 years old, delaying the payout till 70                            Age. So, if you don’t have immediate use for
                                    years old will increase it to about $800 per                            the money, why not treat this as some sort
                                    month for life. If you are still working or have                        of emergency funds instead?
                                    other sources of income, this is one way for
                                    you to increase your payouts without having
                                    to put more money in your CPF.
                                                                                                            3.4 WHICH CPF LIFE PLAN
                                                                                                                SHOULD I CHOOSE?
                                    3.3 SHOULD I MAKE A LUMP
                                                                                                            There are currently 3 CPF LIFE plans you
                                        SUM WITHDRAWAL AT                                                   can choose from – the Standard, Basic or
                                        PAYOUT ELIGIBILITY AGE?                                             Escalating plan, each catering to those with
                                                                                                            different priorities. For those who want to
                                    If you were born after 1957, you have                                   enjoy the highest payout, Standard plan is
                                    the option to make an unconditional                                     for you. For those who are more concerned
                                    withdrawal of up to 20% of your RA                                      with leaving behind a legacy, Basic plan
                                    balances (excluding top-ups and grants)                                 could be more suitable. Lastly, if you are
                                    when you reach your Payout Eligibility Age.                             concerned about rising cost of living, you
                                    While such a withdrawal option provides                                 can also consider the Escalating plan which
                                    you with flexibility to fulfil some lifelong                            starts with a lower payout but increases by
                                    wish upon retirement, the effect of this                                2% per year.
                                    withdrawal reduces your monthly payout.
                                    Here is a comparison of the payouts across the three plans.

                                                                                                Standard                        Basic                   Escalating

                                                                                                                                                        $680 @ 65
                                       Based on $150,000 in RA at
                                                                                                    $860                         $780                   $830 @ 75
                                            age 65 years old
                                                                                                                                                       $1010 @ 85

                                    *Payout figures are estimates, based on a male member and computed as of 2019.

                                    All CPF LIFE plans comes with a bequest feature, which means the monies used to join
                                    CPF LIFE which was not paid out to you in monthly payouts by the time you pass on,
                                    will be returned to your loved ones. The payouts, while stable, are not guaranteed as it is
                                    subject to changes in CPF interest rates6 and mortality experiences.

                                    Perhaps the easiest way to decide between the three plans is to check if the $100 per
                                    month difference in payout between the plans is important to you, as the main objective in
                                    any annuity is to provide an income stream. If yes, you may want to consider the Standard
                                    plan to maximise your payouts today or the Escalating plan to maximise your payouts
                                    in future. If no, the Basic plan could be more suitable as it would leave behind a larger
                                    bequest for your beneficiaries.

                                    What if you do not manage to actively take any of the above decisions? Have no fear. If
                                    you do nothing, you will by default start your payout when you turn 70 years old on the
                                    CPF LIFE Standard plan. This combination will give you the highest payout for life based on
                                    your RA balances.
5.   Interest on your Special, Medisave and Retirement Accounts is either the current floor rate of 4% p.a. or the 12-month average yield of 10-year Singapore Government
     Securities (10YSGS) plus 1%, whichever is higher. The floor rate of 4% is reviewed annually by the government. Current(2019) average yield of the 10YSGS plus 1% is 3.38%.
4
ADDITIONAL
 INCOME IN
RETIREMENT
4
CHAPTER 4 | ADDITIONAL INCOME IN RETIREMENT                                                                     16

ADDITIONAL
INCOME IN
RETIREMENT
Strategies a Merdeka Generation senior can employ in
building a second layer of retirement income.

                     THE 5 RISKS FACED BY RETIREES
                     Retirement planning for retirees is more complicated than for accumulators because of the
                     combination of 5 risks that retirees need to deal with:
                     1. Longevity risk – living too long
                     2. Inflation risk – things becoming more expensive
                     3. Investing risk – assets value rise and fall
                     4. Over-spending risk – unsustainable spending
                     5. Healthcare risk – huge medical expenses

                     The combination of these risks poses a conundrum for retirees. While an annuity like CPF
                     LIFE takes care of longevity risk to some extent, rising costs (inflation risk) mean that
                     a much bigger retirement fund is required to maintain your current standard of living.
                     Leaving your money in the bank to earn fixed deposit interest rates is unlikely (going/
                     able) to support your retirement spending and hence there is a need to invest for higher
                     returns on your savings. However, investing carries risk (investing risk) and too much
                     volatility on your investment might become uncomfortable for retirees to accept. At the
                     same time, if left unchecked, excessive spending (over-spending risk) especially in the early
                     years of retirement could deplete their savings faster. Finally, as we age, our medical cost
                     (healthcare risk) increases and this will put further strain on the retirement funds.

                     A good retirement plan needs to try and reconcile these 5 risks for the retiree.
                     Here are some instruments you can consider using to build an additional layer of retirement
                     income, on top of CPF payouts:
CHAPTER 4 | ADDITIONAL INCOME IN RETIREMENT                                                                                   17

                        4.1 INVEST IN SUITABLE LOW-COST, WELL-DIVERSIFIED,
                            MARKET-BASED PORTFOLIOS TO STRETCH YOUR
                            SAVINGS, WHILE SETTING WITHDRAWAL RULES
                        Contrary to popular intuition, you can still invest in markets during your retirement years.
                        Your investment decision should be a combination of the need to take risk (what return you
                        need), your ability to take risk and your willingness to do so.

                        The need to take risk includes your need for income and your need to overcome longevity
                        and inflation risks. As for your ability to take risk, consider your financial situation, such
                        as whether you have an emergency fund and the time horizons that are relevant to you.
                        Given that an average retirement can span 15 to 20 years today, you certainly have the
                        time horizon to invest at least a portion of your savings that you do not immediately need.
                        However, you need to be willing to accept some volatility because staying invested is key
                        to capturing market return.

                        Unless you have a large enough pool of capital to be able to spend only the return, you
                        should also set a retirement withdrawal rule at between 2.5% to 4.0% of initial invested
                        capital, to help mitigate the negative impact of sequence of returns risk in investing. This is
                        the risk of experiencing negative market returns at the beginning of your drawdown, such
                        that you would deplete your capital base quickly if you are drawing down a fixed amount
                        (or an amount that is adjusted for inflation yearly), compared to a situation in which the
                        returns are positive at the start of your drawdown period. Alternatively, you can bucket
                        your investments according to different time horizons and invest later “buckets” into higher
                        risk portfolios earlier “buckets” into low-risk instruments.

                                     Sequence of returns matter in retirement

                  ACCUMULATOR                                                        RETIREE
       No withdrawals / Starting value: $100,000                     5% annual withdrawal of starting value
                                                                         ($684,848) inflation-adjusted
         Annual    Portfolio A      Annual       Portfolio B          Annual     Portfolio A      Annual        Portfolio B
 Age                                                           Age
         Return   Year-End Value    Return   Year-End Value           Return    Year-End Value    Return   Year-End Value
  41      -12%       $87,695          29%         $129,491     66      -12%        $566,337         29%          $852,571
  42      -21%       $69,426          18%         $152,281     67      -21%        $413,086         18%          $967,355
  43      -14%       $59,707          25%         $189,590     68      -14%        $318,927         25%         $1,168,029
  44       22%       $72,984          -6%         $178,404     69      22%         $352,432         -6%         $1,061,698
  45       10%       $80,136          15%         $204,272     70      10%         $348,431         15%         $1,177,105
  46       4%        $83,595          8%          $221,183     71       4%         $323,772         8%          $1,234,855
  47       11%       $92,707          27%         $281,124     72      11%         $318,176         27%         $1,525,614
  48       3%        $95,210          -2%         $274,939     73       3%         $284,653         -2%         $1,452,871
  49       -3%       $92,155          15%         $315,355     74      -3%         $232,143         15%         $1,623,066
  50       21%       $111,507         19%         $375,272     75      21%         $236,215         19%         $1,886,771
  51       17%       $130,129         33%         $498,737     76      17%         $194,417         33%         $2,461,500
  52       5%        $137,026         11%         $554,097     77       5%         $194,417         11%         $2,687,327
  53      -10%       $123,597        -10%         $499,795     78      -10%        $126,543        -10%         $2,375,148
  54       11%       $137,316         5%          $526,284     79      11%         $90,304          5%          $2,450,746
  55       33%       $182,493         17%         $614,174     80      33%         $68,219          17%         $2,808,226
  56       19%       $217,167         21%         $743,150     81      19%         $27,833          21%         $3,344,606
  57       15%       $249,091         -3%         $719,305     82      15%           $0             -3%         $3,182,338
  58       -2%       $243,611         3%          $738,726     83      -2%           $0             3%          $3,211,664
  59       27%       $309,629         11%         $819,247     84      27%           $0             11%         $3,503,440
  60       8%        $335,262         4%          $854,602     85       8%           $0             4%          $3,594,592
  61       15%       $383,875         10%         $938,354     86      15%           $0             10%         $3,885,017
  62       -6%       $361,226         22%        $1,147,022    87      -6%           $0             22%         $4,685,527
  63       25%       $449,727        -14%         $986,439     88      25%           $0            -14%         $3,963,710
  64       18%       $528,878        -21%         $780,941     89      18%           $0            -21%         $3,070,398
  65       29%       $684,848        -12%         $684,848     90      29%           $0            -12%         $2,622,984
           8%       $684,848          8%         $684,848              8%            $0             8%      $2,622,984

                                 No difference                                                 Big difference
CHAPTER 4 | ADDITIONAL INCOME IN RETIREMENT                                                                     18

  To compare         4.2 CONSIDER RETIREMENT                           Retirement income plans provide a monthly
                                                                       payout over a fixed period. The payout
  the different          INCOME PRODUCTS                               comprises both a guaranteed and non-
  retirement
                                                                       guaranteed portion depending on the
  income plans in    For those who prefer not to make portfolio        performance of the underlying fund. It is
  the market, try    investments, you may wish to consider             important to take note that a portion of
  MoneyOwl’s         retirement income products offered by local       the return is not guaranteed. Compared
  Insurance          insurers. When CPF LIFE was introduced,           to portfolio investments, Retirement
  Robo.              it effectively killed off the private annuities   income products generally present less
                     market as it was close to impossible to           visible volatility as the payouts depend on
                     match the returns, all else being equal.          the insurer’s ability to make the different
                     Nevertheless, the insurance companies             threshold of investment returns in the
                     have reinvented this product range as             insurance fund. In terms of disadvantages,
                     retirement income products which now              you may find the capital outlay large
                     offer themselves as a complement to CPF           relative to the return.
                     LIFE, especially if you have already hit the
                     CPF top-up limit.

                                      Retirement income plans

                                    Yearly income payouts

                                                                                            Non-guaranteed
                                                                                               amount

                                                                                              Guaranteed
                                                                                               amount

     Payout age                        Retirement years                               Age

                     4.3 PARK YOUR LIQUID FUNDS IN SINGAPORE SAVINGS
                         BONDS (SSB)
                     Singapore Savings Bonds are more savings than investment instruments. For retirees (or
                     anyone, actually), they can be a very good place to park your liquid funds. They are flexible
                     alternatives to fixed deposit accounts, but without penalty for redemption. These bonds
                     are backed by the Singapore government and principal is guaranteed.

                     The SSB has a full tenure of 10 years and its interest is tied to that of Singapore
                     Government Securities (SGS). You get a coupon every 6 months. You receive less interest
                     at the start, but the interest steps up over time. The coupons and effective interest rates
                     you will receive are all announced prior to your investment. If you hold your SSB for the
                     full 10 years, your return will match the average 10-year SGS yield the month before your
                     investment.

                     The difference between SSBs and SGS is that you have the flexibility to redeem the bond
                     at any time, with a maximum waiting period of one month, without price risks. You always
                     get back your full principal even if you sell before the 10 years is up. In this regard, SSBs
                     are unlike Singapore Government Securities (SGS), which have to be sold on the secondary
                     market if you want to redeem them early. The price at which you can sell the SGS is
                     dependent on market factors. If the interest on newer issues of SGS has gone up, buyers
                     will ask for a lower price to compensate for the opportunity cost. If market forces move
                     the other way, the price of SGS can go up as well. Not so for SSBs. You get back what you
                     invested, no more, no less, and of course you keep the coupons you have already clipped.
                     In terms of overall return, an investor who holds an SSB for a given number of years would
CHAPTER 4 | ADDITIONAL INCOME IN RETIREMENT                                                                                        19

                                         have an average return similar to that of an SGS of the same tenure. You even know what
                                         this return is ahead of time!

                                         SSBs deal with the risk of investing loss (given that they are not really a traditional
                                         investment), but not inflation or other risks faced by retirees. They can complement your
                                         retirement plan in two ways. The first is to receive the coupons, but these are not high. The
                                         coupon rate for March 2019 issues are 1.95% in the first 12 months and step up to 2.55%
                                         for a 10-year period. Assuming you buy into $100,000 worth of these SSBs and hold it till
                                         maturity, you can expect to receive an average of just under $1,100 in coupons every 6
                                         months. The second way is to draw down your SSBs by redeeming them gradually over set
                                         time intervals or when you have unforeseen emergencies.

                                 INTEREST FOR $100,000 INVESTED IN MARCH 2019 SSB

                                                                                                                           2550
                                                                                                                 2480
                         25000                                                                         2390
                                                                                              2300
                                                                                     2200
                                                                          2130
                                                                2050
                                  1950       1950      1970
   Annual Interest ($)

                          2000

                          1500

                          1000

                           500

                             0
                                   1           2         3         4        5            6      7         8        9        10

                                                                                 Years

                                         You can buy SSBs through one of our three local banks – DBS/POSB, OCBC or UOB, via
                                         the ATM or internet banking. You will need either a CDP account or an SRS account and
                                         there is an administrative charge of $2 per application. The minimum investment amount
                                         is $500, capped at a maximum holding level of $200,000. In months when the SSBs are
                                         oversubscribed, you may not get your full allocation.

                                         4.4 OTHER SOURCES OF INCOME
                                         In an earlier chapter, we had talked about monetising your home for additional income
                                         in retirement. In the event of severe disability in retirement, there may be payouts from
                                         ElderShield or the upcoming CareShield Life to help in long-term care expenses, in addition
                                         to what you may have from CPF LIFE/ Retirement Sum Scheme and investments.
                                         We will cover this in our next chapter.

                                         The saying goes that the journey of thousand miles begins with a single step.
                                         So does a 20, 25 or 30-year retirement. We’ve listed down several ways you can
                                         supplement your income for a more secure and purposeful retirement.
                                         We hope you are encouraged to take them.
5
A MEDICAL
SAFETY NET
5
CHAPTER 5 | A MEDICAL SAFETY NET                                                                              21

A MEDICAL
SAFETY NET
The third Must-Have for Retirement – a strong healthcare
safety net that takes care of your healthcare needs.

                     Ageing is inescapable and as we age, our body’s healing ability declines significantly,
                     especially in the silver years. We become more susceptible to illnesses and injuries which
                     may eventually lead to some forms of disability. The Ministry of Health (MOH) estimated
                     that one in two healthy Singaporeans age 65 could become severely disabled in their
                     lifetime and may need long-term care. Furthermore, 3 in 10 severely disabled persons
                     remain disabled for 10 years or more. With rising medical costs and longer life expectancy,
                     it is no wonder that healthcare cost is an increasing concern among the seniors.

                     The cost of healthcare can come from 3 areas;

                         Outpatient treatments               Hospitalisation              Long-term care

                     Retirees should have a strong medical safety net in the form of savings and medical
                     insurance that can support their healthcare needs without compromising their standard
                     of living.

                     With the generous benefits under the Merdeka Generation Package, Merdeka Generation
                     seniors can now be more assured of their healthcare funding. Let us look at how Merdeka
                     Generation seniors can manage their healthcare funding in the following areas.
CHAPTER 5 | A MEDICAL SAFETY NET                                                                                  22

                     5.1 FIRST SAFETY NET – OUTPATIENT TREATMENTS
                     These are treatments for common ailments (e.g. cough and colds), dental care as well
                     as chronic conditions like hypertension and diabetes. The cost of treatment at GPs or
                     even specialist clinics are generally manageable but the on-going follow-ups for chronic
                     conditions can be a burden.

                     There are affordable options. Pioneer Generation (PG) and Singaporeans with low to
                     middle-income can enjoy subsidies at clinics participating in the Community Health
                     Assist Scheme (CHAS). With Budget 2019, this scheme is now extended to all Merdeka
                     Generation Singaporeans regardless of income:

                     • Special CHAS subsidies at CHAS GP and dental clinics, which are higher than CHAS
                       Blue subsidies (the more subsidised of the two CHAS tiers, for persons whose per
                       capital household income is
CHAPTER 5 | A MEDICAL SAFETY NET                                                                                                                               23

      Age next                MediShield                  Estimated MediShield Life Premium (2019 rates) after existing
      birthday               Life Premium                   subsidy based on household income and additional 5/10%
                            before subsidy                            discount for the Merdeka Generation

                                                        Lower income8               Lower middle               Upper middle               High income11
                                                                                      income9                    income10

        61-65                        755                        453                        491                         528                        717

        66-70                        815                        489                        530                         570                        774

        71-73                        885                        531                        576                         620                        841

        74-75                        975                        585                        634                         682                        926

        76-78                       1130                        565                        622                         678                       1017

        79-80                       1175                        588                        647                         706                       1058

        81-83                       1250                        625                        688                         750                       1125

        84-85                       1430                        715                        787                         858                       1287
The table above is applicable for Singaporeans living in residences with an Annual Value of $13,000 or less, which covers all persons living in
HDB flats.7

                                 The overall discount on the MediShield Life premium for the Merdeka Generation is quite
                                 significant especially for the lower income. You can estimate your MediShield Life premium
                                 by using the Premium Calculator on MOH’s website12 (before the 5%/10% Merdeka
                                 Generation premium discount).

                                 Is MediShield Life adequate for you?
                                 MSHL is catered for those who will stay at Class B2 or C wards at restructured hospitals.
                                 These are heavily subsidised wards with basic amenities and no flexibility to choose your
                                 preferred doctors.

                                 Those who prefer amenities such as air-conditioning, attached TVs and toilets or choice of
                                 own doctors, may upgrade to an Integrated Shield Plan (IP) for:
                                 • Restructured hospital in B1 ward
                                 • Restructured hospital in A ward
                                 • Private hospitals
                                                          WITH IP                                              NO IP

                                     Private hospitals                  A/B1 ward

                                 Interestingly, more than 6 in 10 people in Singapore own an IP and about half of them are
                                 catered for private hospitals. With rising IP premiums, some may find it no
                                 longer affordable.

6.  Refer here for subsidies rate for Permanent Residents and those living in larger properties. https://www.moh.gov.sg/MediShield-life/medishield-life-premiums-
    and-subsidies/premium-subsidy-tables
7. Lower-income refers to individuals with a household monthly income per person of $1,100 or less.
8. Lower-middle-income refers to individuals with a household monthly income per person of $1,101 to $1,800.
9. Upper-middle-income refers to individuals with a household monthly income per person of $1,801 to $2,600.
10. High-income refers to individuals with a household monthly income per person of more than $2,600.
11. https://www.moh.gov.sg/MediShield-life/medishield-life-premiums-and-subsidies/medishield-life-premium-calculator#
CHAPTER 5 | A MEDICAL SAFETY NET                                                                                                             24

                             Upgrading or downgrading your IP
                             Before making changes to your MediShield Life or IP, you should consider the following.

                                                                   A F FOR DA B I L I T Y
                             The premium for MSHL/IP increases over time. Consider the current and future premium.

        Age next                MediShield Life                        Premium range of IPs in the market
        birthday                  Premium                          (MSHL premium + Additional Insurer premium)

                                  Restructured                 Restructured                 Restructured              Private hospitals
                                   B2/C ward                     B1 ward                      A ward

          61-65                         755                    1063 - 1235                  1229 - 1528                  1874 - 2712

          66-70                         815                    1292 - 1534                  1727 - 2102                  2639 - 3589

          71-73                         885                    1610 - 2036                  2163 - 2691                  3337 - 4635

          74-75                         975                    1834 - 2316                 2519 - 3082                   3744 - 5376

          76-78                        1130                    2156 - 3042                  2877 - 3868                  4602 - 6503

          79-80                        1175                    2337 - 3099                  3132 - 4143                  4924 - 7166

          81-83                        1250                    2525 - 3800                  3443 - 4974                  5237 - 7780

          84-85                        1430                    2897 - 4001                  3884 - 5216                  6176 - 8579

(Source: MOH website. The range of premium pertains to IP plans currently available for purchase. The premium does not include any plan
rider.) The MediShield Life Premiums shown above are before any subsidy given based on household income as well as the 5%/10% premium
discount for the Merdeka Generation (refer to the previous table for reference). With these subsidy and discount, the IP premium will be lower
than reflected above.

                             Note that you can pay the MediShield Life premium fully using Medisave.
   Compare IP
                             For IP, you can only use Medisave to pay the additional insurer premium up to these caps:
   plans here:
                             • $300 if you are 40 years old or younger on your next birthday.
   https://www.
                             • $600 if you are 41 to 70 years old on your next birthday.
   moneyowl.com.
                             • $900 if you are 71 years or older on your next birthday
   sg/#/direct
                             If you must upgrade or downgrade your IP, the golden rule is to make changes within
                             the current insurer. If you switch to a different insurance company, the new insurer could
                             impose exclusion on pre-existing conditions that you may have. What this means is that
                             you cannot make any claims on the IP that is related to the excluded pre-existing condition.

                             5.3 THIRD SAFETY NET – LONG-TERM CARE
                             Many will require long-term care due to severe disability in old age. A person is severely
                             disabled if he or she is unable to perform at least 3 Activities of Daily Living (ADLs)
                             independently, namely, feeding, dressing, toileting, washing, mobility and transferring.
                             When it happens, caregiving is needed.
CHAPTER 5 | A MEDICAL SAFETY NET                                                                                                                                  25

                                  ElderShield was launched in 2002 to address the financial concern of long-term care.
                                  Being a non-compulsory scheme, a significant number of people chose to opt-out
                                  especially when it first started. The benefits of ElderShield are kept low for affordability.
                                  Monthly payouts are either $300 for up to 5 years or $400 for up to 6 years.

   Read our
                                  CareShield Life
   commentary                     From 2020, CareShield Life (an improvement from ElderShield) will be launched. Not only
   on CareShield                  does it provide higher payouts of at least $600 (which increases till age 67 or when a claim
   Life here                      is made, whichever earlier), the payouts are for life as long as severe disability persists.
   https://advice.                Severe disability can be due to a physical injury, illness or even severe mental impairment.
   moneyowl.
   com.sg/a-                      Merdeka Generation seniors who are not severely disabled can join CareShield Life in
   singaporeans-                  2021. To encourage Merdeka Generation seniors to join CareShield Life, an additional
   help-                          participation incentive of $1,500 is given to join the scheme. This is on top of a previously
   singaporeans-                  announced $2,500 sum, making it a total of $4,000 discount to offset CareShield Life
   scheme/                        premium. This is in addition to current means-tested premium subsidies.

                                  Your CareShield Life premium is dependent on several factors including your age, gender,
                                  citizenship, monthly per capita household income, residential property and whether you
                                  are currently on ElderShield plan or not.

                Estimated CareShield Life Premium Table for selected Merdeka Generation ages
                                        (currently with ElderShield 300 and staying in an HDB flat)

                                      Additional total premiums payable for 10 years - Male

     Age           Without             SC - With all subsidy and incentives^                                       PR - With subsidy
                   subsidies
                                        $0 -         $1101 - $1801 -                  Above            $0 -         $1101 - $1801 -                  Above
                                       $1100          $1800   $2600                   $2601           $1100          $1800   $2600                   $2601
      62              7313              1374            1697           2020            3313            6344           6505            6667            7313
      67              7490              1594            1910           2226            3490            6542           6700            6858            7490

                                    Additional total premiums payable for 10 years - Female

     Age           Without             SC - With all subsidy and incentives^                                       PR - With subsidy
                   subsidies
                                        $0 -         $1101 - $1801 -                  Above            $0 -         $1101 - $1801 -                  Above
                                       $1100          $1800   $2600                   $2601           $1100          $1800   $2600                   $2601
      62              9699              3125            3554           3983            5699            8412           8627            8841            9699
      67             10,200             3608            4040           4472            6200            8904           9120            9336          10,200
Source: MOH website      ^
                             Incentives include both Participation Incentive and Additional Participation Incentive for MG

                                  For a male, age 62, Singaporean, whose monthly per capita household income falls within
                                  the $1,101 to $1,800 range, his CareShield Life premium is estimated at $1,697 after
                                  subsidy and incentives for ten years. This works out to less than $170 per year.
                                  Premium without subsidy is estimated at $7,313, or about $731 per year.

                                  For full details on CareShield Life and estimate your premium using the CareShield Life
                                  Premium Calculator, you can refer to https://www.moh.gov.sg/careshieldlife/about-
                                  careshield-life.

12. https://www.moh.gov.sg/careshieldlife/about-careshield-life/careshield-life-premium-calculator
13. If you have ever opted out and re-joined ElderShield, have a single or 10-year ElderShield premium payment plan or have a paid-up policy, your personalised
    premiums will be available closer to 2021.
CHAPTER 5 | A MEDICAL SAFETY NET                                                                                          26

                           Those who opted out of ElderShield can either wait till 2021 to sign up for CareShield Life
                           or get immediate coverage by first applying for ElderShield provided they are not older
                           than 64 and are not severely disabled.

                           Should I switch from ElderShield to CareShield Life?
                           Monthly payouts of $300 to $400 under ElderShield are insufficient to meet long-term
                           care cost, especially as severe disability is likely to last longer than the 5-6 years after
                           occurrence.

                           While you may have income from CPF LIFE payouts, it can be a strain to pay for long-term
                           care costs out of these payouts.

                           Long-term care options include staying in a nursing home, being looked after by a helper or
                           family member at home, or a combination of day care and homecare. The cost can easily
                           range from $1,000 to over $3,000 per month before subsidies. Even after means-tested
                           subsidies and CareShield Life payouts of $600, there will still be a cost that has to be borne
                           out of one’s retirement income.

                           5.3 ESTIMATED COSTS OF LONG-TERM CARE OPTIONS
                               FOR LOWER-MIDDLE-INCOME SINGAPOREANS AFTER
                               SUBSIDY AND CARESHIELD LIFE PAYOUTS

Source: ElderShield Review Committee Report, 25 May 2018
CHAPTER 5 | A MEDICAL SAFETY NET                                                                                       27

Source: ElderShield Review Committee Report, 25 May 2018

                           Given the high probability of severe disability, the duration of disability should it happen
  Compare                  and the strain of long-term care costs on the family, Merdeka Generation seniors who are
  long-term care           not yet severely disabled should consider joining CareShield Life early to take advantage
  plans here               of the Participation Incentives, if they are able to afford the premiums. This will provide a
  https://www.             better safety net for long-term care.
  moneyowl.com.
  sg/#/direct              You can further enhance the payouts by adding a supplementary Long-Term Care Plan (or
                           ElderShield Supplement) from a private insurer.
6  ESTATE
DISTRIBUTION
6
CHAPTER 6 | ESTATE DISTRIBUTION                                                                                       29

ESTATE
DISTRIBUTION
In this sixth and final chapter in the Merdeka
Generation series, we will be exploring estate
planning – one of the most important aspects of
financial planning that may often be overlooked by
seniors and younger people alike. Indeed, everyone
needs to plan ahead and take actions while they
still have mental capacity, as one never knows
when something may happen. For seniors in the
Merdeka Generation, there may be a heightened
sense of urgency as one starts to age.

                      Estate planning concerns the loved ones left behind upon your eventual passing, how you
                      can provide them with your hard-earned assets – leaving a legacy for your family and
                      loved ones, a final act of love.

                      So, what happens to our assets when we pass on? How would these assets be distributed
                      and who gets what? These are important questions that should be decided by none other
                      than you – the owner of your assets – and distributed in accordance with your wishes.
                      Without proper planning, we could be leaving a financial mess for our loved ones to pick
                      up after our passing.

                      Distribution of assets upon death – or estate distribution – need not be difficult. A better
                      understanding of the estate rules governing common assets such as property, CPF
                      savings, life insurance, and the benefits of having a will, and taking action thereafter, can
                      ensure that our assets will go to our intended beneficiaries without unnecessary hassle.
CHAPTER 6 | ESTATE DISTRIBUTION                                                                                                30

                            6.1 HOME PROPERTY
                            How your share of the property gets transferred upon death depends on how it is being
                            held, whether joint-tenancy or tenancy-in-common.

  Most                                                        How your property will be distributed upon death
  properties are
  held under                                                  When one of the joint tenants dies, the decease's interest
                                     Joint-tenancy
  joint-tenancy.                                               in the property will automatically be transferred to the
                                    (Most common)
  You can find                                                              remaining surviving owners.
  out your
  property                                                     Each tenant holds a separate and distinct share of the
  ownership                                                   property and can transfer his or her share of the property
                                 Tenancy-in-common
  status here.                                               to others via a will or, in the absence of a will, according to
                                                                              Intestate Succession Act.

                            Take, for example, Mr and Mrs Tan who are joint-tenants of a property, and if, say, Mr Tan
                            passes on, the surviving spouse (Mrs. Tan) will inherit and become the sole owner of the
                            property. As the property is under joint-tenancy, Mr Tan cannot create a will to distribute
                            away his share. However, if the property is held under tenancy-in-common, Mr Tan could
                            write a will to distribute away his share to others.

                            What if yours is a HDB flat?
                            HDB flat can only be retained if the beneficiaries fulfil certain eligibility criteria including
                            Singapore Citizenship or Singapore Permanent Residency and are at least 21 years of age;
                            otherwise, it must be sold.

                            6.2 CPF SAVINGS
                            You should make a CPF nomination to specify how your CPF savings should be distributed.
                            In the absence of a CPF nomination, your CPF savings will be transferred to the Public
                            Trustee’s Office for distribution to your family under the Intestate Succession Act or the
                            Inheritance Certificate (for Muslims).

                            Your CPF savings cannot be distributed via a will.

                            The process of disbursement via CPF nomination is swift, and I have personal experience
                            in this regard. When my father passed on a few years ago, the CPF Board disbursed the
                            CPF monies to my mum (the nominee) very quickly within 3 weeks because my late father
                            did a CPF nomination. To my mum, it was not so much the money she inherited, but the
                            expediency of settling such matters did help to bring about a closure sooner.

                            What does a CPF Nomination cover?
                            Not all assets involving CPF are covered by a CPF nomination. Those assets not covered
                            must be addressed separately.

       Cover under CPF Nomination                                  Not covered under CPF Nomination

 1. CPF savings* in your Ordinary, Special,            1. Properties bought using your CPF savings
 MediSave and Retirement accounts
                                                       2. Payouts from Dependants' Protection Scheme (DPS)
 2. Unused CPF LIFE premiums,
                                                       3. Cash and investments held in the CPF Investment Account
 3. Discounted SingTel shares                          under the CPF Investment Scheme-Ordinary Account (CPFIS-OA)

 *CPF savings cannot be included in your Will. They    4. Investments held under the CPF Investment Scheme-Special
 also do not form your estate and are protected from   Account (CPFIS-SA)
 creditor claims on any outstanding debts.
(Source: CPF)
CHAPTER 6 | ESTATE DISTRIBUTION                                                                                 31

                      What are the different types of CPF Nomination?

                      Before making a CPF nomination, do note there are 3 types to choose from depending on
                      your needs.

                      1. Cash Nomination – this is the default option. In this nomination, your nominees will
                      receive the CPF savings in cash. Download the form here (URL: https://www.cpf.gov.sg/
                      Members/Schemes/schemes/other-matters/cpf-nomination-scheme).

                      2. Enhanced Nomination Scheme Nomination – Your nominees will receive the CPF savings
                      in their CPF accounts. You can decide to transfer your CPF savings to their:

                      • MediSave account – for their healthcare needs; or
                      • Special account – for their retirement needs.

                      Visit any of the CPF Service Centres to make this nomination.

                      3. Special Needs Savings Scheme Nomination – this allows parents to nominate their
                      special needs children to receive the CPF savings on a monthly basis. To make this
                      nomination, you would need to work with the Special Needs Trust Company (SNTC) and
                      the CPF Board. More information on this scheme here.

                      6.3 LIFE INSURANCE POLICIES
                      If there are no beneficiaries named in your insurance policies, the proceeds can be
                      distributed by way of a will or, in the absence of a will, by Intestate Succession Act.

                      With effect from 1 September 2009, you can make a revocable nomination or a trust
                      nomination on your insurance policies for your beneficiaries.

                      • A trust nomination – it is irrevocable and is meant to benefit your spouse
                        and/or children.
                      • A revocable nomination – can name any person as a nominee and can be revoked
                        anytime by you.

                      If there are beneficiaries named in your insurance policies before 1 September 2009,
                      there could be some potential issues:

                      • If the named beneficiaries are a spouse and/or children, your policy is now under
                        Section 73 of the Conveyancing and Law of Property Act, essentially you have
                        created a statutory trust. This cannot be revoked unless the named beneficiaries
                        give their consent.
                      • If the beneficiary is anyone other than spouse or children, there may be issues
                        regarding its validity. Hence it may be prudent to remove the named beneficiary and
                        do a revocable nomination or distribute it by way of a will.
CHAPTER 6 | ESTATE DISTRIBUTION                                                                                       32

                      6.4 HAVING A WILL
                      Other than most circumstances as explored above, the decease's estate of a non-Muslim
                      will be distributed either by way of a will or, in its absence, according to the Intestate
                      Succession Act.

                      Death without a Will – Intestate Succession
                      Without a will, the distribution of a decease's estate will follow the priority as set out by
                      the Intestate Succession Act (ISA).

                           Deceased dies intestate leaving:                                    Distribution

                       Spouse                                                   Spouse                           100%
                       (No parents or issue*)

                       Spouse, Issue                                            Spouse                           50%
                       (With or without parents)                                Issue (To be shared equally)     50%

                       Issue                                                    Issue                            100%
                       (No spouse)                                              (To be shared equally)

                       Spouse, Parents                                          Spouse                           50%
                       (No issue)                                               Parents (To be shared equally)   50%

                       Parents                                                  Parents                          100%
                       (No spouse or issue)                                     (To be shared equally)

                       Siblings                                                 Siblings                         100%
                       (No spouse, issue or parents)                            (To be shared equally)

                       Grandparents                                             Grandparents                     100%
                       (No spouse, issue, parents or siblings)                  (To be shared equally)

                       Uncles and Aunts                                         Uncles and Aunts                 100%
                       (No spouse, issue, parents, siblings or                  (To be shared equally)
                       grandparents)

                       None of the above                                        Government                       100%

                      *”issue” – includes children and the descendants of deceased children.

                      Under the ISA, spouse and children take precedence over parents, siblings and other
                      family relationships. While it may seem logical with some, such a distribution order can be
                      problematic, such as:
                      • A married person with children hopes to leave behind something for his or her parents.
                         Under ISA, the parents are excluded.
                      • A single person wishes to provide for both his or her parents and siblings. Siblings are
                         excluded in this case.

                      These issues can be easily solved by having a will.

                      Benefits of a will
                      With a will, you can decide who your beneficiaries are and how much they get. Equally
                      important is the control you exercise to choose whom you trust to be your executors,
                      trustees and guardians. Having a will can also avoid the potential conflicts and disharmony
                      among loved ones who may dispute how the estate should be distributed. Lastly, the
                      process of administrating the estate is generally faster with a will than without one.
CHAPTER 6 | ESTATE DISTRIBUTION                                                                                       33

                      Interestingly, many people do not have a will. Common reasons being the high cost of
                      writing a will, not knowing how to begin, and perhaps the time is not right.

                      With MoneyOwl’s online will writing service, which is complimentary with a promotional
                      code, there is no reason to put off will writing any further. The guided will writing process
                      will help you draft out your will in no time. Get it printed and signed before two witnesses
                      (who cannot be a beneficiary or the spouse of a beneficiary) and your will is legally
                      binding. If you need to make further edits, just come back and use the service again.

                               Start writing your will here                  More info on Why Write a Will?

                      Lasting Power of Attorney (LPA)
                      Finally, do consider making a Lasting Power of Attorney while you have the mental
                      capacity to do so. An LPA basically allows you to appoint one or more people [‘donee(s)’]
                      to manage your personal welfare and property should you (‘donor’) lose mental capacity
                      one day.

                      A donee can be appointed to act in 2 broad areas, whether separately or jointly:
                      • Personal welfare – such as, where and who should donor live with, healthcare matters,
                         what to wear and eat.
                      • Property and affairs – such as dealing with the donor’s property, managing bank
                         accounts, investing and making purchases of equipment for donor’s needs.

                      To make a LPA, you need to:
                      • Fill up a form from the Office of Public Guardian. Till 31 August 2020, the LPA
                         application fee is waived for the more common LPA option (Form 1).
                      • Engage a certificate issuer to sign as a witness and certify that you understand the
                         implications of an LPA. A certificate issuer could be an accredited medical practitioner, a
                         practising lawyer or a registered psychiatrist. The average fee charged by an accredited
                         practitioner is about $50.
                      • Send the form and certificate back to the Office of Public Guardian for registration. If
                         there are no valid objections in the six-week waiting period, your LPA will be registered.
                         The stamp of the Office of Public Guardian will be impressed on the registered LPA. The
                         Office of Public Guardian will send it back to you for safekeeping.
THANK
 YOU!
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