There were only two things certain in life Death and Taxes

How Much Is My Income Taxes [2021 Edition]

It is the tax season for 2021. If you had an income in 2020, filing of your income tax starts 1st March 2021. You will NEED to file it by 18 April 2021 (e-filing) or 15 April 2021 (paper filing). If you don’t, it could lead to a fine or even a court summon. Don’t say you have not been warned.

We don’t really talk about taxes in 6 Levels Wealth Karate Methodology. In a simple gist, taxes are bittersweet to me. On one hand, I don’t like to pay taxes as it is an expenses to me. On the other hand, if I pay higher taxes, it would mean that my income is higher! I’m just glad that in Singapore, we have a really attractive tax program and we pay significantly lesser taxes as compared to people in other countries. Without going too deep into that, here’s how how much to pay for your income taxes in 2021.

 

Do you need to pay taxes or not?

Yes. You only pay income taxes if your chargeable income is greater than $20,000. Some income are chargeable and some are not. Fun fact: your winning from your TOTO/4D is not a chargeable income. Check out the full list here.

If your chargeable income in 2020 is above $20,000, you will be taxed with the progressive income tax system. Singapore follows a progressive income tax system. This means that the higher your income, the more you pay in taxes. The resident tax rates are as follows.

How To Reduce My Income Taxes Resident Tax Rates

How To Reduce My Income Taxes Resident Tax Rates

However, this does not show the effective income taxes for your income. When I first saw this table, I thought that if I earn $80,000, my tax bracket would be 7% or $5,600. This is untrue.

How To Reduce My Income Taxes Effective Income Tax Rates

How To Reduce My Income Taxes Effective Income Tax Rates

If you are earning $80,000, you will be paying $3,350 in taxes which means my effective income tax rates are 4.19%. Personally, I think it is quite fair. With the same $80,000, you would be paying $23,571 or 29.46% effective income taxes in USA.

 

Is it automatic?

If you received a letter/SMS/form that tells you to file your income tax, you will have to log in and file it yourself. This sms below is one that I received from IRAS. Typically, most of my income have already be pre-filed as I’m a self-employed working with AIA.

Income Tax 2021 Filing

Income Tax 2021 Filing

 

If you received a letter/SMS/form that tells you NOT to file your income tax, you don’t have to do it. But please verify if your information is correct and accurate.

If you didn’t receive anything from IRAS, you will still need to file a tax return if your:

  • annual net business income exceeded $6,000, OR
  • annual income (inclusive of rental income) was more than $22,000 last year

 

Tax Deductibles

Since 2020 is over, you can’t really do much changes into your deductibles. You can start planning for 2021 instead. In Singapore, we have a list of deductibles given to encourage social and economic objectives such as filial piety, family formation and the advancement of skills.

Income – Deductibles = Chargeable Income

As mentioned above, you will pay taxes on your chargeable income. This means that deductibles will play a big role in the taxes you are paying.

IRAS has created a personal income relief checker to see how much deductible you are allowed. These deductible includes SRS Top Ups, CPF cash Top Ups, just to mention a few. There is a maximum of $80,000 tax reliefs.

 

Final thoughts by Wealthdojo

There were only two things certain in life Death and Taxes

There were only two things certain in life Death and Taxes

Co-incidentally, these two can be well managed by proper financial planning or using insurance tools to achieve your financial goals. This article is meant to be a general article on how to pay taxes in Singapore. If you would like to know more, just comment on this post or contact me and I would love to have a conversation with you on the above.

Stay healthy. Stay Safe and pay your taxes.

Thank you for your contribution to nation building.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

Planning for Medical Expenses After Changes In Full-Rider IP Copayment

Planning for Medical Expenses After Changes In Full-Rider IP

It was a tough change. It is no secret that medical inflation is raising in Singapore and is showing no signs of slowing down. Medical inflation is expected to rise to 10.1 per cent in 2020. In the midst of finding fault with greedy doctors, overpaid agents or kiasu parents, I prefer to find a solution to plan for medical expenses after 1st April 2021.

To provide some context to this, the MOH has welcomed insurer’s move adjust terms for full-rider IPs, require co-payment of hospital bills. This would mean that the day will come when there is no longer 100% coverage hospital plan. This will change the way we plan for our retirement and the associated hidden costs.

Planning for Medical Expenses After Changes In Full-Rider IP Copayment

Planning for Medical Expenses After Changes In Full-Rider IP Copayment

 

The Current Situation

Planning for Medical Expenses After Changes In Full-Rider IP Insurance Companies

Planning for Medical Expenses After Changes In Full-Rider IP Insurance Companies

The official news are already in. Majority of the companies are transitioning their customers to the co-payment riders.

Shield Plans Underwriting Profits And Losses Singapore

Shield Plans Underwriting Profits And Losses Singapore

Reviewing the Integrated Shield Plan underwriting losses from Business Times, GE has the greatest underwriting losses in 2019 and it is likely for them to have the incentive to transit their customers to a co-payment plan. AIA has roughly the same underwriting losses with AXA. Although both companies have not officially reported the change (at least to the press), I believe they would have a strong incentive to do so.

For the people like you and me, we have to embrace the Co-Payment nature of the policy moving forward.

 

What is Co-Payment?

A co-payment basically it is out-of-pocket amount paid by an insured. In the context of shield rider in Singapore, there may be other conditions like going to list of panel doctors, pre-authorisation, deductive waiver pass etc. For discussion, we will assumed that those requirements are fulfilled (please check with your financial consultant for those requirements).

5% Co-payment for every bill, up to $3000 per policy year.

Case #1

First Bill is $10,000. No other claims in the policy year.

Client pays $500 (5% of $10,000)

Case #2

First Bill is $100,000. Second Bill is $100,000 in the same policy year.

Client pays $3000 for first bill. (Although 5% of $100,000 is $5,000, there is cap of $3,000 per policy year). Client pays $0 for second bill (max payment per year is $3,000).

Having a copayment will further encourage prudent use of healthcare services as the patient will pay part of the bill. It is worth noting that the maximum a patient will pay per year (assume the requirements are satisfied) is $3000. This should be incorporated into your emergency funds.

 

How to fund co-payment?

There are a couple of ways to pay for co-payment and these are 4 possible ways that you can consider.

#1: Medisave: There is a limit which you can pay using Medisave.

#2: Company Insurance: This is only applicable if you are currently employed.

#3: Accident Plan (Accidental Medical Reimbursements): For hospitalisation arising from accidents, the accidental medical reimbursement helps with the co-payment payment.

#4: Emergency Funds: It is important to set this up as soon as possible.

 

Final thoughts by Wealthdojo

Hopefully, this will be one of the final time that there is such a major change in medical insurance scene. This will definitely affect the way we plan for our retirement and also our emergency funds.

Please note that the terms and conditions for your IP may vary. It is best to talk to me or your preferred financial consultant on the upcoming changes on 1st April 2021 (if any).

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Fees

3 Brutal Truths about Investment Linked Policy You Wish You Knew

Investment Linked Policies or ILPs have been an ideal target to be bashed by many personal finance groups and investment gurus. In your wealth management journey, perhaps an agent might have ethically (common assumption used by those groups/gurus) told you or sold you an ILP before. Hence, you might start to think whether the ILP does make sense for you.

These Groups/Gurus’ bottom line: Cancel Your ILPs. The fees are expensive. Buy term, invest the rest. You can get better investment returns.

Wealthdojo’s bottom line: ILP is suitable if you are looking for a booster in coverage for a short period of time and plan to accumulate shares/units in a systematic way. You have a more passive approach to investment. An ILP works ideally when you are younger.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Confused

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Confused

So what now? Disclaimer aside, I hope to share with you 3 brutal truths on ILP and the current narration on ILP in the market.

 

Short Recap

Investment Linked Plans are policies that have life insurance coverage and investment components. Your premiums are used to pay for units in one or more sub-funds of your choice. Some of the units purchased are then sold to pay for insurance and other charges, while the rest remain invested. (Moneysense Definition)

In a layman structure, it looks like this.

Pay Premium > Buy units of the funds at today’s price > Some units are sold to pay for insurance > Wait for next month premium

The units accumulates every month via dollar cost averaging and will build up substantially in a long run. Let’s go on to the brutal truths for ILP.

 

Truth #1: You will pay fees.

This reminds me of a story of a man buying cake for his son’s birthday. After looking at various cakes, his eyes soon fell on a 7-inch strawberry fresh cream cake that stood at the center of the display. This shop is famous for their fresh cream and his son loves fresh cream.

Man: “This cake looks beautiful. How much is this cake?”

Baker: “It costs $97 sir”

Man started to be agitated: “That’s ridiculous. It is just a bunch of strawberries, flour, eggs and sugar. This is a rip-off!”

Baker said calmly: “Sir. You are right. Therefore, we have something just for you”

The baker brought him to the corner and showed him a bunch of strawberries, flour, eggs and sugar and said: “Those will be $13”

Man: “I don’t understand. What do I do with a bunch of strawberries, flour, eggs and sugar?”

Baker: “Well, that’s what we are paid to do.”

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Fees

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Fees: Source

The simple truth is that there will be fees. When you enroll into an ILP, you are paying for insurance, you are paying for wealth management and miscellaneous administrative fees which includes commission for the consultant. You are paying to enroll to a service which consist of insurance protection and investment accumulation.

The narration in the market is that an ILP’s charges are expensive and expensive is a subjective word. Perhaps, it is better to put things side by side with insurance and investment.

Let’s take a look at insurance. I will be comparing our National Insurance Dependent Protection Scheme (DPS), as compared to XXX company’s ILP charges per age band (I personally believe the charges are very similar across companies). We will compare using a basis of $46,000 sum assured for Death and Total Permanent Disability (TPD).

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Insurance Charges

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Insurance Charges

As you can see, the charges for XXX’s company is lower than DPS for all ages except for 55 to 59. This shows that rates are quite competitive. As you become older, you pay more for insurance as the chances of you suffering from Death and TPD increases.

You can also see an element of the popular advice buy term invest the rest here. On an ILP, we contribute a premium monthly. Part of it is used to pay insurance. In the table, we pay for the required insurance charges at that age and the rest goes into investment. If you add on other unit deducting riders like critical illness and early critical illness, you should pay more premium so that you won’t have too little going into investment.

Note: DPS is due for a change and there could be a chance the insurance companies might follow as well.

 

Let’s talk about investment now. As the strategy for an ILP is mostly passive, it might not be a fair comparison to other investment methods that might be more active. I will give an attempt to compare the fees across various personalities.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Investment Charges

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Investment Charges

The current narrative from investment gurus are that the ILP has high upfront charges of up to 50% of the premium. It is the same for investment courses as well. They do charge a high upfront course fee of around $3000 to $5000. Furthermore, I assume there are no other upsell programs after that.

Another common narrative is that the 1.25% p.a. fund management fee will reduce the investment returns in the long run. This is a true statement as any expenses will reduce your investment returns. Recently, investment courses are also changing to provide continuous support at a fee of $49 to $197 per month. This is akin to having a “fund management fee”.

For those that are self taught investors, he/she might have save on the cost. However, I can only imagine how huge the time commitment he/she dedicated into learning how to invest. One can say to invest in a passive S&P500 index fund with low expense ratio. Then again, how long will you take to reach this decision? How many mistakes might this person make before doing that?

Fees will have to be paid. It is just a matter of to who and how.

Side note: It may not be fair to compare anyway. An investment course does not have insurance coverage. Similarly, an ILP is not an active strategy as compared to some investment courses. The lessons you learn from investment courses are also priceless.

 

Truth #2: If you pay peanuts, you will get peanuts.

Whether it is an ILP, endowment or ETF, if you pay peanuts, you will get peanuts.

This is rather straightforward. I know some people who may have unrealistic expectations on the money they are saving or investing. A $100/month policy or a $100/month ETF is not going to buy you your financial freedom. If you invest $100/month for 30 years with an 10%, you will get $197,392 which is decent but definitely not enough for retirement.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Invest Small

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Invest Small

This year, I presented a few maturity cheques varying from $15,000 to $60,000 to some of my clients. I excitedly told one of my clients that his maturity cheque is coming in August 2020 and told him to look out for it. He took me out for coffee and asked me how much he was getting. After checking my portal, I told him the amount was $22,000.

He took a sip and exclaimed “Why only $22,000? I has been paying for 25 years.”

“Uncle, you were saving $50/month. In total, you saved $15,000. Personally, I think this is a decent return.”

A short while later. He confessed that he should have saved much more when he was younger.

Imagine there is an investment that can give you 100% returns. If you invest $100 in it, the maximum you will get back is $100. $100 in absolute is not a lot. Therefore, it is very important for us to save up our first pot of gold or simply increase the amount of regular contributions every month.

 

Truth #3: Not everyone you meet will be interested in investing

Sometimes, we forget that we look at others with our tinted lens. We tend to judge a decision and call foul when it is a decision that is not consistent to our own belief. In a recent viral article, a young couple in their 30s paid off their $470K HDB loans in 2 years.

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Opinions

3 Brutal Truths about Investment Linked Policy You Wish You Knew ILP Opinions

This is a feat that is not easy to many. However, this sparked off a huge debate on many personal finance groups saying how financial “Illiterate” they are. They could have made use of the low interest environment to pay off their loans and use the money to invest in other things.

First, I would like to congratulate them. They are debt-free and it is something money *ahem* can buy. If their objective in life is to live a life that is debt free, they are already successful.

Not everyone you meet will be interested in investing or willing to spend loads of time to look into investment. Therefore, the ILP gives a simple disciplined dollar-cost-averaging strategy to accumulate the units of the recommended portfolio funds.

If you are a disciplined investor, feel free to buy term and invest the rest. Please do not expect everyone else to think like you.

 

Final thoughts by Wealthdojo

I’m not advocating ILPs. At the end of the day, the ILP is a wealth accumulation and insurance tool that can fit into a certain profile of individuals. It may be suitable for certain groups of individuals. Personally, I feel that the narration of the ILP has been viewed with tinted lens. Those people are right in their own aspects and life stages.

If you are unsure if the ILP is still suitable for you, please feel free to write in to me. I would love to help you understand it together.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

Careshield Life New Updates

Why you shouldn’t pay $200 for your Careshield Life

In 02 Sept 2019, The Singapore Parliament approved Careshield Life. This is the 3rd Shield that Singapore has to prepare our population in this aging economy. We will be covering how will Careshield Life be part of our Wealth Management journey and whether it will be enough.

Careshield Life New Updates

Careshield Life New Updates: My Letter

 

What is Careshield Life?

CareShield Life provides Singapore a Lifetime* payout of $600/month up to $1200/month** in the event of severe disability. The premiums can be fully paid by Medisave. The government ensures that no one will lose their coverage due to financial difficulties. The claim will be eligible if a person is unable to perform at least 3 out of 6 activities of daily living.

Careshield Life New Updates Activities of Daily Living

Careshield Life New Updates Activities of Daily Living

*As long as the insured remain severely disabled
**Estimated payout if increase at 2% a year

 

Why will you need it?

I hope you can agree with me that once a person is unable to perform 3 out of 6 activities of daily living, he/she probably will need help to maintain and sustain his/her life. In the 3 Lessons I Learnt From Critical Illness Survivors and Family Members, I learnt that a family member typically have to help the survivor for at least 6 months or until the treatment is over. If the disability is prolonged, most of them will choose to employ a maid to take care of them.

In recent years, the monthly recurring cost of hiring a maid (excluding the one time cost such as plane tickets, etc) is easily more than $800. This does not include other options like nursing homes, home and community care, transport, consumables and so on.

Based on AVIVA’s Long Term Care Study 2011 showed that claimants on average required about $2,150 per month to pay for a domestic helper or nursing home, transportation to and from the hospital for treatments or physiotherapy, mobility aids, as well as daily expenses and bills.

A Department of Statistics Singapore paper published in 2011 showed that, in Singapore, more than a third of caregivers had been providing care to their recipients for over a decade.

In the Eldershield Review Committee Report in 2018, 1 in 2 healthy Singaporeans aged 65 could become severely disabled in their lifetime.

With the statistics stacked against you, I personally think that the $600/month from Careshield life will not be enough.

 

Careshield Life New Updates Cost

Careshield Life New Updates Cost: Photo Source

 

I already have insurance that covers for TPD. Why make me buy this?

TPD or total permanent disability will only have a payout when it is permanent (As the name suggest. For the avoidance of doubt, please check your individual policies for the definition). If the condition is not serious enough, there may not be a claim from TPD. Careshield Life provides monthly pay outs as long as you are unable to fulfill 3/6 Activities of Daily Living either temporary or permanent. Other common severe disabilities includes the following:

  1. What if there is an amputation that is because of diabetes?
  2. What if there is an accident or degeneration of muscle?
  3. Progression of illnesses such as dementia?

 

What should you do?

If you are age 30 – 40 now, welcome to Careshield Life. It is compulsory. Those that are in eldershield (1979 and before), you can get incentive when you switch over to Careshield Life by by 31 Dec 2023. You can find out more here.

 

Final Thoughts

Personally, I think this is a great initiative by the government to address the needs of the aging population in the years to come. Those who are between 30 to 40 will probably be shocked (or pleasantly surprised) to receive this letter in the next few days.

You shouldn’t be paying only $200 for careshield. I think we should pay more for more benefits.

Long Term Care is part of your Wealth Management, speak to your financial advisors for future clarification.

 

No one will care about your money as much as you do.

In Wealth Management, it is important to Pay yourself first. Beware of scams. Before you invest in any company or popular investment opportunity, be sure to do your own due diligence. If you wish to learn more about Wealth Management, I hope to nurture genuine relationships with all of my readers.

Check out my most popular blog post in 2020 so far: 5 mistakes people make using their CPF.

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OCBC Great Eastern Cashflo Credit Card

OCBC Cashflo Credit Card to affect Great Eastern Insurance Premiums Payment

From 1st October 2020, OCBC Cashflo Credit Card will now impose a 1% processing fee for Great Eastern premiums charged under a 12-month installment plan. If you are using your Cashflo Credit Card to pay for your Great Eastern premiums, this is something that you will want to take note of.

OCBC Great Eastern Cashflo Credit Card

OCBC Great Eastern Cashflo Credit Card

OCBC Cashflo Credit Card Pre-October 2020

To be honest, the OCBC Cashflo credit card has great advantage for Great Eastern policy holders. To summarize, these are the 3 greatest advantage they offer.

  1. Allow the policy owners to be charged annually to get cheaper premiums. (to be explained below)
  2. Allow policy holder to better manage their cashflow / wealth management. (as they will be paying monthly)
  3. Get cash rebates (0.3% cash rebate on your premiums for selected Great Eastern Life and Great Eastern General insurance plans)

To set the context, paying annual premiums for (non-ILP) insurance policy typically gives around 3% discount. Imagine this, the annual premiums for the policy is $12,000. The same insurance policy will cost $1030/month ($12,360/annually) if you decide to pay by monthly mode.

The client saves $360/year by being charged annually using the Cashflo Card. He is able to pay monthly $1000 to manage his cashflow better and get $3/month cash rebate (assuming that the card is only used for this policy.)

Net Benefit: $396 per year ($360 + $36)

OCBC Cashflo Credit Card Pre-October 2020

OCBC Cashflo Credit Card Pre-October 2020

OCBC Cashflo Credit Card Pre-October 2020 Cash Rebates

OCBC Cashflo Credit Card Pre-October 2020 Cash Rebates

OCBC Cashflo Credit Card Post-October 2020

From 1st October 2020, there will now be a 1% processing fee if the policy holder decides to take the option to be charged annually AND cash rebates will no longer be awarded for Great Eastern premiums.

OCBC Cashflo Credit Card Post October 2020 Processing Fee

OCBC Cashflo Credit Card Post October 2020 Processing Fee

OCBC Cashflo Credit Card Post October 2020 Cash Rebates

OCBC Cashflo Credit Card Post October 2020 Cash Rebates

 

What should you do?

Let’s take the above situation again where the policy holder is paying $12,000 annually.

The client saves $360/year by being charged annually using the Cashflo Card. Customer wants to have it via installment and have to pay $120/year for the processing fee. There is no longer any cash rebates.

Net Benefit: $240 per year ($360 – $120)

There is still net saving if you use this method of paying for the premiums.

 

Final Thoughts

It is no fun having your net benefits being slashed especially if you have been reaping the benefits from this for years. However, this is not the first time that credit card’s benefit is being updated to reflect the current market situation.

I believe that this will happen in future as well. Do keep yourself updated on these changes.

Speak to your financial advisors for future clarification.

 

No one will care about your money as much as you do.

In Wealth Management, it is important to Pay yourself first. Beware of scams. Before you invest in any company or popular investment opportunity, be sure to do your own due diligence. If you wish to learn more about Wealth Management, I hope to nurture genuine relationships with all of my readers.

Check out my most popular blog post in 2020 so far: 5 mistakes people make using their CPF.

Please feel free to join my Telegram Channel! Or subscribe to our newsletter now!