Tuesday, 16 October 2018

What should the sandwiched generation do?

So your parents didn't plan their finances or save for their retirement. They were so caught up in giving you the best of what they could (bless their hearts) that they forgot to think about themselves, and now you find yourself caught in the middle as you worry if you have enough money to take care of your parents while also providing for your children. 

What should you do?

In the aftermath of the viral "Worst Parents in the World" ad, I've been receiving a number of readers' questions on what I think would be good action steps for those who were not savvy enough to be like the parents in the video when it comes to planning their retirement.

Is it too late now?

It doesn't have to be. While nothing will beat a plan that was set up decades ago and has been running since (time in investments is a powerful thing), I believe a plan set in place now will still outdo not having any plan at all. 

I've recently shared a heartwarming reader's story here about how her parents failed to plan as well, so when she grew up and got married, she decided to take things into her own hands and managed to turn things around. Today, she's adequately prepared for what the future might hold for her family. You can read what she did here, but of course, not everyone may be able to execute her methods, given our differing life circumstances. 

I know I can't, but that doesn't mean it is still a dead end for folks like us. So here are some options:

Disclaimer: For the purpose of simplicity in this article, I'm only looking at general solutions and the products offered by NTUC Income - the folks behind the viral ad itself.

1. Outsource your biggest financial risks to an insurer 

Hospitalisation Insurance
If your parents are still young enough (i.e. under 75 years of age) and in good health, get a hospitalisation plan for them so that you can offset the risk of (and emotional burden of having to handle) large hospital bills to an insurer.

This was one of the key things I did for my in-laws since my husband is their only child, and they had zero insurance coverage for themselves before I stepped in.

You can find out more on how integrated shield plans (IPs) work in a previous article I've written here, and then compare against all the current IPs in the market to find which is the most suitable for your parents (or for you, if you'll be paying for it). IncomeShield remains a favourite among many Singaporeans for their affordability, and you can review their premiums here.

Critical Illness / Disability / Income Replacement Insurance
Depending on your income and affordability, you may also wish to consider whether to add on insurance coverage for critical illnesses and/or disability. These policies work such that in the event that you become physically ill, you can get either a lump-sum or monthly/yearly cash payouts to help you defer against outpatient healthcare costs and/or loss of income.

Personally, we've gotten critical illness coverage upon learning that we'll soon be parents. We've not opted for disability insurance at this moment due to liquidity issues, but will consider adding it on later when our finances permit the extra expenditure.

2. Build up your cash savings

You can do this either by 

(i) diligently accumulating your own savings and parking it either in a high-yield bank savings account, fixed deposits or investments, and then drawing down from this sum later on throughout your retirement years or 
(ii) parking your savings with an insurer, especially if you've no faith to manage your own money well to last you throughout

For instance, if you find it hard to be disciplined in doing your own savings, then perhaps turning to an insurer might work better for you instead. For instance, Income's Limited Pay RevoSave was designed for such a group of people, who are looking to save up money by paying premiums for a limited duration, and then receiving the cash payout after 2 policy years till the end of the selected policy term. Contrast this to traditional endowment plans, where your money tends to be locked in for a much longer duration. 

If you and/or your parents have financial liquidity right now and would like to buffer against the future while taking self-discipline out of the picture, then such plans where the premiums will be invested in the underlying PAR funds to give both guaranteed and non-guaranteed returns could be options to consider.

Getting retirement cash payouts

For Singaporeans/PRs, don't forget that CPF Life payouts can also be a good tool to rely upon if you're looking for monthly retirement monies. But the question is, will it be enough to cope with rising costs of living?

If you don't require the cash liquidity of Income's Limited Pay RevoSave so early, another product would be RevoRetire, which offers monthly cash payouts only from your selected retirement age onwards (so there's more time to accumulate cash value before starting your payouts). It also comes with a disability care benefit by giving you an additional one month of cash benefit on top of each monthly payout in the event that you're diagnosed with a disability and need extra cash to pay for treatment or caretakers.

If your parents are 60 years or younger with at least $10,000 in cash savings, but neither you nor them are inclined to invest it on your own and take on the risk, SAIL might just be suitable as you get to:
  • Pay in one single premium today
  • Choose your desired retirement age from the choices available
  • Get regular retirement income over 20 years
Thus, if your parents have some cash lying around without any idea of what to do with it (and you don't wish to take on any investing risks), you can choose to use this (or your SRS monies) to pay the lump sum premium which is then used by Income to invest in their participating funds to generate returns, which are then returned to you for your retirement later. Even if they lose money, you have a guaranteed buffer of getting at least your capital back (vs. when you invest on your own, you stomach your own capital losses), provided you at least hold until the stipulated period.

And when you reach your specified retirement age, you can either convert your plan into a stream of regular retirement income over 20 years then, or receive a lump-sum cash payout. Additionally, you'll also be covered for total and permanent disability before age 70 and death.

3. Leave behind cash for your children and/or loved ones

Choose between Whole Life Insurance or BTIR.

Whole Life Insurance
The debate against term and whole life insurance continues to wage on, but I'm of the stand that when it comes to which is better, this really depends on what you want and prioritise. Term life has lower premiums (but you'll have to pay all the way until the policy matures, and for some term policies, the accumulated total premiums paid over the policy lifetime can actually be HIGHER than a limited-pay whole life plan) and also typically has no cash value when the policy terminates. 

On the other hand, a number of whole life plans offer you an option to pay for a limited period and then enjoying the coverage for the rest of your life (vs continuing to pay even when you're retired or jobless). If you decide to terminate a whole life plan later on (after the breakeven point, please), you'll also get a lump-sum cash payout, in contrast to term plans where you may get absolutely nothing.

Some people also see whole life insurance as a legacy i.e. they leave a sum of money behind for their loved ones in the event that they pass away. 

Buy Term Invest the Rest
The reason why I still favour term is because I prefer to pay cheaper premiums right now and invest the rest, since I'm already actively investing and spend a significant amount of time analysing investment opportunities as you can see from past articles like here, here and here. However, I recognise that not everyone might be able or want to do the same. As a DIY investor, you'll need a few things:

  • effort (opening a brokerage account, setting up your investments, studying and monitoring your investments, etc)
  • emotional competency (to stomach the wild market rides of fluctuating stock prices)
  • time in the market (for compound interest to set in and work to your benefit. Generally, the older you are, the lesser risks you can take as well)
  • recognise that any capital losses is on YOU
As I've always maintained, choose between either BTIR (Buy Term and Invest the Rest by yourself) or get whole life insurance and outsource this part of your finances to someone else, for a fee. The first option requires two steps while the second requires only one.

The problem I've observed is that some people who read about this debate online then decide to terminate their whole life policies and switch to term insurance simply because its premiums are lower, but they fail to invest the difference in premiums (which is the entire concept of why BTIR is superior)! In this case, these folks might have been better off simply holding on to their whole life insurance in the first place. Sorry but that's the hard truth.

If you fall into this category, then VivoCash Prime is one possible whole life plan to consider. Its key benefits include:

You could technically even use this policy to plan for 3 generations:

  • Yourself : get TPD coverage in the form of a premium waiver benefit i.e. you continue to receive cash payouts even without paying premiums for your later years in the event that you're diagnosed with TPD
  • Your child : insure your newborn and accumulate the yearly cash payouts for your child's education, or for use later as you/they wish once you transfer the ownership over
  • Your grandchildren : the centennial maturity benefit paid when your child reaches 100 years of age, or death benefit if he passes on later, can be handed on to your grandchildren


Here's a quick summary again of the solutions I feel can be used to address the conundrums featured in the ad:

Used up and have little money left for future needs, especially if physical illness strikes
Outsource your biggest financial risks by getting a:
-       Hospitalisation plan (to protect against large hospital bills)
-       Disability / income replacement plan (to replace your loss of income when you can no longer work)
-       Critical illness plan (for cash payouts to help with healthcare treatments, care and living expenses)
Insufficient cash for living expenses during retirement
Build up your cash savings by:
-       diligently accumulating and investing
-       take up a savings plan with an insurer to be reclaimed later
Leave behind cash for your children and/or loved ones
-       Buy term invest the rest (and ensure that the investment monies can be easily withdrawn by your loved ones in the event that you pass away before you can do the transfer)


-       Whole life insurance plan 

If your parents didn't plan their finances well and are relying on you as their retirement plan, what's YOUR plan from here?

Disclaimer: This article is written in collaboration with Income. All opinions are that of my own. You should NEVER purchase any insurance plan first based purely on information found online. For more information in assessing whether the mentioned products will be suitable for you, please speak directly with a financial advisor for more details.

Thursday, 11 October 2018

An Open Letter to the Insurance Agent(s)

(A letter to all the insurance agents I've ever encountered and what I wish I could tell them.)

Dear insurance agent(s),

Please stop hounding us at MRT stations and bus interchanges. We really are not interested, especially when we're rushing to get to our next destination or to our next appointment. It really isn't nice to stop us in our tracks when we're rushing, and no, following us around doesn't make you look any better. 

Image source: Hardwarezone
Please stop trying to entice us with "freebies" or hiring pretty "xiao mei meis" to ask us to do a "survey". We're not stupid, we know there's no free lunch in the world and you're just trying to get us to sit down for a consultation. We understand you're having a long and hard day doing your roadshows, but we're not the right leads you're looking for either. And a short-term freebie in exchange for a long-term (more expensive) plan isn't a good deal for me, no matter how you market it.

Please don't call me out on the pretext of "catching up" with an old friend if you're simply trying to suss me out and sell me insurance. We're all adults now, so let's not waste each other's time. If you genuinely value our friendship and wish to catch up, I'll be honored(and it'll be great if you could help me with my insurance gaps too), but there's nothing wrong with telling me that you'll like to share with me more about your new job in insurance too so I can decide whether I want to meet up with you. No one likes feeling cheated, particularly by an "old friend". 

Image credits
Please stop calling yourself an "expert", because every single agent out there claims the same for themselves. Just get to the point, or you could focus on how many clients you've served, how many years you've been in the business, or tell me about difficult claims that you've successfully been able to get for your clients recently. Let me be the judge of whether you're truly an "expert" or not and whether I want you to serve me on my policies, and not the other way round.

Please stop making me sit through your MDRT / customer testimonials at the start of your every pitch. No one likes being forced to listen to someone else boast. Yes, your MDRT status might be difficult to achieve, but all I see is million dollar round table = you earned a lot of commissions from selling products to many clients. Will you really have my interests at heart, or if you really have that many clients, will you then have the time to properly serve me on my claims when I need you?

Please stop trying to sell us high-commission plans. We know you're just trying to make a living and feed your family, but to do so at the expense of our trust and money isn't the right way to earn your keep. Just like yours, our money is hard-earned too, you know.

Please don't ask me to switch my policies just because you've just changed companies, unless you really think it is better than that last policy you sold me. And if that's really the case, then my next question is, why did you sell me that policy instead of this one back then?

Please be a real adviser, and not one in disguise as a salesperson. There's a world of difference between a salesperson, a product-pusher, and a real financial adviser. The reason why we consumers come to you is because we either don't know how or have no time to look at all the different market offerings by ourselves. We look to you for advice, so please don't break that trust.

Please identify my protection gaps, instead of identifying sales gaps for you to take advantage of. Yes, I may not have any investment-linked or endowment plans, but that doesn't mean it is an opportunity for YOU to sell me one. Because, you know, maybe the reason why I don't have them is because I'm doing my own investments and savings and don't see a need to pay you / your insurer for you to manage it for me.

Please stop making wild claims and putting me down. If I say I don't want an investment-linked plan (especially when I do my own insurance and am satisfied with my own performance thus far), that doesn't mean you should come in and make wild claims like how you can earn 30% per annum for your clients. I'm not stupid, and neither are you Warren Buffett. 

Please stop claiming your company's policy is THE best, especially when you're so ill-informed of the other choices out there. It is your job to educate us, and not the other way around. Plus, do you know how ignorant you appear when you simply reiterate that yours is the best without concrete evidence or comparative factors to back up your claims?

Please really get to know your T&Cs. It looks bad on you when we spot something that you didn't tell us about. (I spotted a $30k claim limit on an insurance policy that an agent sold me for $90k only after the free-look period...and I wasn't informed about it at all, or I wouldn't have bothered adding the multiplier).

Please don't join the profession if you're only in it for the money. Insurance is a noble job, but it is also one of the most challenging in today's retail markets. And if you're only in it for the money, you're more likely to give up and switch jobs once a better opportunity comes along. What happens to all the customers you leave hanging behind, then?

Please do think more highly of yourself and your profession. Insurance and protection are like firefighters - we (consumers) all need them, but we also tend to think we can put out the fire ourselves (until it gets too big for us to handle). 

Please don't be afraid of the robo-advisers or AI; there's no way they can ever replace your role. A robot cannot identify and relate to my emotional needs, but you can. As a child and parent yourself, you'll be able to understand why I need and want to prioritise certain financial goals ahead of others. You'll be able to tell me otherwise when I think I know better about what I need and want, when in reality I'm not doing what's best for me at all (because I'm not trained like you!). No robot or AI will ever be able to do that.

Please put my needs above yours. That's what your job is ultimately about - helping me identify and fill my gaps in my personal finance journey, and not mainly about filling your own pockets. And when you do my policies right, I'll not only stick with you for a longer time, but also recommend my friends and family members to you. That's the hallmark of a good agent.

Last but not least, please don't give up. I know that day in and day out you're faced with multiple rejections and that surely cannot be easy for anyone. Sometimes you get rude and unkind customers too. But remember why you joined in the first place - to save and protect people from becoming financially ruined. That, will take you through the toughest days.

And I promise, when you do your job (of advising us) well, we really do appreciate it.

Sidenote: I shared these sentiments with DIYInsurance recently as well, and they told me that they're planning something to address this feedback and consumer wishes. While there's been more talk about robo-advisers and artificial intelligence coming in to disrupt the insurance space, and possibly taking over the role of insurance agents and financial advisers, I remain skeptical. DIYInsurance has therefore told me that they're in the midst of launching something that will offer the best of both worlds - to make use of technology to do what humans cannot do as well, while allowing human advisers to continue doing what humans do best (and what robots cannot). I don't know exactly what they have up their sleeves yet, but it does sound like something big, so I guess we will know by next month?

I'm excited, and am looking forward to see if what DIYInsurance will be unveiling will truly be a gamechanger in this space! Let's wait and see.

With love,
Budget Babe