Case Study: Financial Goals of a Malaysian working in Singapore

I’ve received a lot of emails nowadays asking for personal finance guidance. I hope to share some discussion that I think will be helpful and inspiring. As usual, all identities are kept secret. Please find my reply in italic.

This is an email from a reader:

Dear KC,

    I have been following your blog and other PF blogs for quite some time now and would like to seek your advice on my current financial position.
    At 30 this year, I have been working for a while in Singapore and with high cost of living and I can’t exactly qualify as a frugal person, I  think I did pretty well in saving and managing my finances. Currently living as a single person,my concerns are as follows:

    1. Is my insurance coverage sufficient?
    2. Possibility of early retirement.
    3. Parents and their retirement.

Financial standing
    1. INSURANCE : I bought a term insurance in Singapore that covers for S$350k – death, PD and CI. Its mainly for PD since I thought I should protect myself against the likelihood of such event. However there is a limit to term insurance and wonder when and how much should  cover myself under life policy later in life. I don’t believe in using insurance for savings and investment – its just a protection tool for me. Oh.. btw I am paying S$600 annually. I have health insurance too.

To determine whether your insurance coverage is adequate, we need to do an analysis:

1. Death benefit – this is solely for the benefit of your dependents (your parents). For simple calculation, let’s say you pay RM20,000/year to your parents. Let’s say they might live another 30 years. The coverage is RM20k x 30  = RM600k (assume return rate = inflation rate).

2. PD – there are two kinds of PD – first is the TPD (total PD). This is the most severe case because the victim still alive and may live for many years, but can’t earn a living.  This coverage should be equal to 10 times a person’s annual earning. Let’s say you earn RM100k annually, the adequate coverage should be a million ringgit. There is another way to buy this coverage (I don’t know if it is available in Singapore) – the income replacement benefit in case of TPD where you will get maximum RM50k/year until age 65. This is the most economical way to get insured with TPD. The 2nd PD is the Partial PD( where only fingers chopped off or one limb etc). This can be insured easily using the Personal Accident plan (PA) cost about RM100/year for RM100k coverage.

3. CI – this coverage should be about 3 years worth of your current income.

Yes, term insurance is limited to a certain period only. You might want to check your policy for the year it will expire. It is crucial to get covered with CI for whole life. Death benefit will depends on your commitment from time to time.
 

2. Retiring early
It may sound insane at my age (at least for most of my friends) but I don’t mean to  quit working completely but I just want to have the freedom to fire my boss anytime I want and not go hungry or homeless. I have tested numerous retirement calculators and read endless blogs and other  articles on retirement, but none actually come close to what I am experiencing. The closest were Jacob@EarlyRetirementExtreme and your entry about this graduate who wanna retire in 8 years. Although Jacob’s blog is great but some of the variables are too Americanized and I was hoping to get some advice that is more suited to M’sia-Sg way of life.

Ok, Let’s run some numbers now. With savings and active investments for years now,  I am sitting on S$300k/ RM700k.  If I am to retire I’ll go back to M’sia and stay with my parents and hence I have not considered buying a  property as yet.I can survive on $1k/RM2.3k since I have no debts and not much of fixed  expenses. Hence, whenever I run the numbers on the calculator at 8% per annum and 5% inflation, congratulatory message will appear! I am not convinced since a lot of them again includes Social Security and other variables that are not relevant here. What do you think? Is it really possible?

Actually, the calculation is very simple. If you stop working now and only depends on your investment return to pay your living expenses. Assume you can only spend 3% return ( 8% return minus 5% inflation), you already have RM700k x 3% = RM21,000 per year. This is equal to RM1750/month.

You can either increase your rate of return to 9% or save another RM220k as your retirement fund.
In fact, I think you are frugal. You can come home to Malaysia now and get retired. But just be wise with your investment.
 

If its not sufficient, how much do I need to save per annum and for how long more?  And btw is RM2300 reasonable for living expenses in M’sia? I have not travelled extensively enough to know how much it cost to travel around…. I am open to budget airlines,couchsurfing,hostel and  cheap food while on the go. Will another RM20-30k p.a. sufficient for 3-4 trips?

Human being is highly flexible. Yes, you can go a trip for RM4-5k, even to Europe. The biggist expense is airfair and accomodation. If you can go for budget airline and troublesome transit, or odd boarding hour, and also budget hostel, RM4-5k is more than enough for 2 weeks trip.

Malaysian food is cheap. The only major expense is car – so, don’t buy a new car and you will be very rich.

Parents
Since I have no plans to be married anytime soon, my only concern will be my parents.  I have a fairly clear idea of their financial position, fully paid house and car, all siblings to be independant in 4 years time. They are both about 60 this year. I figured  getting by using their own  funds and four of us supporting them along the way is a pretty safe retirement path for them. But I would like to find out more about annuity and what products are the insurance companies in M’sia offering. I think annuity is definitely applicable since my late grandma passed away at 90 y-o and my surviving grandparents are gonna celebrate their 80th birthday soon. One more thing that worries me, they are not on any health insurance, can I  still buy on their behalf at their age? My last check a year ago at 55 y-o is abt  RM2500 per year. Do you think its wise to purchase or save the money separately?

They can’t qualify for health insurance if they are born in 1948 or earlier (over 60 years old).
The most common annuity product in Malaysia is something like Great Income Advantage.

The return is roughly 4.5% to 5% p.a. And it is not really an annuity plan although the feature is similar with annual income.
My suggestion is to buy health insurance for them if they are still eligible. If not, 36 CI policy is the next best thing to have.

I will put it this way, you save money in  a 36 CI policy, if the parent make a claim, you gain. If not, that means they live old age. The policy will still pay for death claim later. You can use that for funeral expenses. Another worry is about the medical bills that children need to pay for the parents. If they have a CI/life policy, at least the children will get back the compensation when the parents passed away.

It is very common for Malaysians to work in Singapore. Saving hards for years and come back to retire. If you have the opportunity to buy a property in Singapore, it may also serve as a great investment. You can sell it to fund your retirement when you are back to Malaysia.

Are you working in Singapore? Would you consider coming back to Malaysia for good? Please share your view in the comment section.