A Personal Finance and Investment Arm of The Business Times


Tired of working: Set up your own pension fund?

Involuntary retirement?

I have been a volunteer doing financial counselling for about a decade now. One of the most common cases that we come across, are people who have lost their jobs, their business has to be discontinued for reasons other than business financial failure that may typically consume most of their assets, or people who may feel that they are tired of working and need a long break.

A case study

I shall share one typical case as a case study.

Ms Lee, age 50 was retrenched about 2 years ago. She has not been able to find a job that is acceptable to her, and is becoming rather anxious as to her future. Her 4-room HDB flat is fully paid for.

Her monthly expenses are about $1,500.

Her assets are as follows:

CPF: $200,000

Insurance cash values: $100,000

Bank balance: $100,000

Total: $400,000

She has a CPF approved medical insurance plan and a rider to cover the deductible and co-insurance, in the event of hospitalisation.

Assuming an average rate of return of 6 per cent on her total assets and 2 per cent inflation, she needs a capital of $355,403 to generate $1,500 monthly income, increasing at 2 per cent per annum (indexed for inflation) for 38 years. from age 50 to 88.

So, she has an excess capital or buffer of $44,597 ($400,000 assets minus $355,403 capital required to generate the monthly retirement income).

The life expectancy of females in Singapore is age 83. Most studies indicate that as one advances in age beyond the 70s, the monthly expenses tend to decline in real terms by about 15 per cent per every 10 years or so.

She keeps about 6 months of her expenses in the bank - $10,000, and sets up a portfolio of approximately 30% equity, 30% bonds, 20% commodities and 20% property - comprising 7 funds for her CPF Ordinary Account (OA) balance (Note: the first $20,000 cannot be invested under the CPFIS (CPF Investment Scheme) and the first $40,000 under the CPFIS (Special Account)) and the balance of her cash.

Her 7 funds portfolio are as follows:

Global Property fund - 20%

Global Commodities fund - 20%

Global Bond fund - 15%

Asian Bond fund - 15%

Global Technology fund - 10%

Emerging Markets Equity fund - 10%

Asian Equity fund - 10%

Monthly drawdown from por

After about 3 to 6 months - she will start to withdraw about $1,500 monthly from her portfolio - by selling the fund (out of the 7 funds) that has increased the most.
She has in effect, set up her own pension fund.

Robin Han
Leong Sze Hian

Dr Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, has authored 4 books, quoted over 1500 times in the media , has been host of a money radio show, a daily newspaper column, Wharton Fellow, SEACeM Fellow, acting managing editor and columnist for theonlinecitizen, columnist for Malaysiakini, a Member on the CIFA International Advisory Board, executive  producer of the movie Ilo Ilo (8 international awards), treasurer of Maruah, and invited to speak more than 100 times in more than 25 countries on 5 continents. He has served as Honorary Consul of Jamaica and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.