Financial Planning

An Illustration

Here is an sample Financial Plan for Mr and Mrs Chan, age 30, with a combined annual income of $50,000.

The Chans have no savings in the CPF as they has withdrawn it entirely to buy an HDB flat. They have $5,000 of private savings (cash and shares). Mr Chan has a life insurance policy which is expected to have a cash value of $60,000 in 30 years time.

They currently save $18,000 a year in CPF savings and $3000 in private savings, after deducting their living expenditure and payment for their housing loan and life insurance. When the housing loan is fully repaid in 20 years time, they will increase his annual savings by $10,000.

The Chans plan to withdraw $70,000 (current expenses plus future inflation) for the tertiary education of their children. They would also like to withdraw $15,000 for travel. They wish to buy a car in 5 years time, assuming that the down payment to be made is $24,000. In addition, the Chans would like to reserve $20,000 for an unexpected emergency, such as major illness or temporary loss of employment.

This financial plan shows that the outcome of two options available to the Chans to invest their CPF and private savings:

a) invest in a low risk fund (100% bonds) that is expected to earn 4% p.a.
b) invest in a moderate risk fund (60% equity, 40% bond) that is expected to earn 6% p.a.

This financial plan shows that, by investing in a low risk fund, the Chans can expect to have a monthly income of about $3,410 (adjusted for inflation) on retirement at age 60. If they choose to retire at 65, the monthly income is expected to increase to about $4,610 (adjusted for inflation).

The Chans can opt to invest in a moderate risk fund to get a higher return, ie $4,700 at age 60 or $6,780 at age 65. In both cases, the monthly income is much higher. The investments may perform better or worse than expected. The financial plan shows the effect of a fluctuation of 20%.

In their case, a moderate risk fund is likely to help them enjoy a more comfortable retirement.

The financial plan also shows the monthly income that is necessary for a basic, adequate, comfortable and luxurious lifestyle for the Chans, living in a full paid-for home. These figures are based on a recent survey of the cost of living for retirees.

It shows that the Chans can afford an adequate or comfortable lifestyle, depending on his choice of retirement age and how his savings are invested.

If you are interested to find out about your personal Financial Plan, you will need to have your own figures ready. You can then click here to get our calculator. If you do not have some of the figures, you can leave them out from the calculations for the time being, or just use an estimate.

If you like to have the assistance of a financial planner, you can send us an e-mail. The financial planner will also advise you on how you can invest your CPF and personal savings in a low or medium risk fund available from NTUC Income.