Top 5 CPF Decisions To Be A CPF Millionaire

Top 5 CPF Decisions To Be A CPF Millionaire

Top 5 CPF Decisions To Be A CPF Millionaire

Top 5 CPF Decisions To Be A CPF Millionaire

CPF remains one of the main cornerstone of wealth management in Singapore. There are tons of information regarding the CPF on the web and I’m happy to see that CPF is having a purposeful outreach to the retirees and even the younger crowd. I do notice a better acceptance of the CPF during my 9 years in financial services and I do hope this trend continues.

Previously, I have spoken about 5 Things You Need To Know About Your CPF. This stems from 5 mistakes people make using their CPF that I have written in the last year. One of my friend then asked me why not write about the best advice that I will give with regards to CPF.

I have reservations about using the word “advice” because this assumes that I understand the situations, the profile, the life stage and risk tolerance, etc about that individual. Hence, this article is not about best advice but perhaps best decisions you can make if it fits your situation.

If you wish to find out more, I’m organising a CPF webinar on 29th April 2021. Limited seats only. Click here to join us.

 

#1: Transfer money from OA to SA

This is a pretty easy one. Currently, the floor rate of CPF-OA is 2.5% and the floor rate of CPF-SA is 4%. You would want to put more money into an account with higher interest with all things kept constant.

Top 5 CPF Decisions To Be A CPF Millionaire Compounding Effect

Top 5 CPF Decisions To Be A CPF Millionaire Compounding Effect

For the same $20,000, you would have $68K in your CPF-OA and $142K in your CPF-SA after 50 years. This is a difference of $73K. However, I do acknowledge that some might need to use the monies in the OA for your housing loan or downpayment. If you do not have “extra” monies in your CPF-OA, you can consider to transfer it to your SA.

Please note that this process is irreversible.

 

#2: CPF-SA Shielding

At the age of 54, you might want to consider CPF-SA shielding. In a nutshell, it means keeping your monies in your CPF-SA account to get a higher interest. This is because at age of 55, the formation of your RA (retirement account) starts from your CPF-SA and than your CPF-OA.

Top 5 CPF Decisions To Be A CPF Millionaire CPF SA No Shielding

Top 5 CPF Decisions To Be A CPF Millionaire CPF SA No Shielding

This is an example of no shielding. All your CPF-SA ($150K) will be transferred in the creation of you CPF-RA account leaving $0 in your CPF-SA after age of 55.

Top 5 CPF Decisions To Be A CPF Millionaire CPF SA Shielding

Top 5 CPF Decisions To Be A CPF Millionaire CPF SA Shielding

With CPF-SA shielding, you temporarily transfer out you CPF-SA into a “safe” investment. $40,000 is left in the CPF-SA due to the rules of the CPF. At age 55, during the creation of the CPF-RA account, only $40K is transferred from CPF-SA and the rest will be transferred from CPF-OA. You then transfer the monies back to your CPF-SA which is giving 4% interest.

Remember that the crust of this is to keep your monies in the higher interest account.

 

#3: Upgrade your Medishield Life to an Integrated Shield Plan

I cannot emphasize more on the importance of medical insurance. With the new adoption of the co-payment structure of our medical plan, you can also interpret it as medical costs are getting more and more expensive.

It is important to get a medical plan that suits your needs especially during retirement age where the chances of hospitalisation are a lot higher. Having a strong medical plan is a risk management to help you remain a CPF millionaire.

 

#4: Choosing The Appropriate CPF-Life Option

Big shoutout to families here. Do you know that you can increase the amount of money you leave behind to your loved ones if you select the appropriate CPF-Life option?

Top 5 CPF Decisions To Be A CPF Millionaire CPF Life Bequest

Top 5 CPF Decisions To Be A CPF Millionaire CPF Life Bequest

If you don’t select the CPF-Life option, it will be a standard plan. Let’s look at the difference between the standard plan vs the basic plan.

Difference Between Standard Plan and Basic Plan Monthly: $124 (taking the lower estimate)

Difference Between Standard Plan and Basic Plan from Age 65 to 83: $26,784

The reason I’m using age 83 is because that is the accepted mortality age in Singapore at the moment. This is means that we are expected to live until age 83 (life is short isn’t it). For an extra $124 a month (the cost of one meal a month), your family might lose out potentially $84,368 (because $111,152 – $26,784) worth of bequest. This “extra” bequest may help your loved ones become a CPF Millionaire.

I hope this word gets out to more families out there.

 

#5: Using cash to pay for your mortgage

CPF was set up years ago as a retirement vehicle. In 1968, the government finally allowed the use of CPF for the downpayment and to service the monthly mortgage loan instalment. This means that less will go into your intended retirement (not taking accrued interest into account).

Using more cash to pay for your mortgage will leave more money that will be compounded for your retirement so that you can become a CPF Millionaire.

 

Final Thoughts By Wealthdojo

The decisions above serves as a guide and shouldn’t be taken as advice. The main emphasize is to consult an expert to see if any of the decisions above serves you. Most of the decisions circle around keeping the monies in the higher interest account (which is CPF-SA) at the moment to let it compound for the future.

Wishing you all the best to be a CPF Millionaire.

If you would like to benefit from CPF more, I have put together a free webinar to share my knowledge on it. Limited seats only. Join us with the link here.

 

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.

How Integrated Shield Plans Affect You (All Insurer Edition)

How Integrated Shield Plans Affect You (All Insurer Edition)

Our Integrated Shield Plan (ISP) affects you greatly. It affects whether you have a good medical coverage now. It affects whether you can have affordable healthcare in future. More importantly, it affects if you need to continue working to sustaining your premiums in future.

This is not an April Fool’s Joke. It is real. My readers would already have known about this since last year. If you are lost or do not have a financial consultant to update you on your ISP, the bold statement is a summary of the change in the ISP structure.

Existing ISP supplementary plans will have a co-payment structure.

This means that there won’t be a 100% coverage/reimbursement anymore. Customers will have to pay a XX% co-payment (depending on the terms and conditions of your policy). You can read about co-payment and how to plan for it here.

 

But First: Medishield Life Premiums Increase

How Integrated Shield Plans Affect You (All Insurer Edition)

How Integrated Shield Plans Affect You (All Insurer Edition)

Following the announcement of 21st Dec 2020 new release from the MOH, claim limits will increase. At the same time, there will be premium adjustments to support the rising number of claims and payouts as well as the benefit changes. You will see this reflected in your renewal because Medishield Life is a component of your ISP.

 

Integrated Shield Plan Changes (All Insurer Edition)

In Singapore, there are seven health insurance providers. Each of them have adjusted their premiums and benefits accordingly. You should be more interested in what your existing rider has changed to. Here is a summary for the 7 health insurer in no particular order. These are all public available information and I will be putting a link of each insurer here.

How Integrated Shield Plans Affect You (All Insurer Edition)

How Integrated Shield Plans Affect You (All Insurer Edition)

AIA Singapore

  1. Premium increase for HealthShield Gold Max A
  2. Premium increase for Max VitalHealth A rider
  3. Max Essential riders to be converted to riders with co-payment
    – Essential A convert to Max VitalCare
    – Essential A Saver convert to VitalHealth A with EOCB Booster
    – Essential B convert to VitalHealth B
    – Essential B Lite  convert to Vital Health B Lite
    – Essential C (no conversion but there will be premium reduction)

View the changes in AIA Singapore Shield Support here.

AXA Singapore

  1. Increase in Premiums for AXA Shield Plan A and Enhanced Care Plan A rider
  2. Existing Basic Care, General Care and Home Care riders will no longer be available. All of them will be switched to Enhanced Care Rider.

View the the Enhanced Care Rider.

AVIVA Singapore

  1. Premium reduction for MyHealthPlus rider (Option B-II and Option C-II) attached to Plan 1
  2. Premium reduction for MyHealthPlus rider (Option A, B and C) attached to Plan 1, 2 & 3.

View the MyHealthPlus here.

Great Eastern Singapore

  1. Premium changes for SupremeHealth P PlusA Plus and B Plus
  2. Premium/Benefit changes for TotalCare riders
  3. Premium increase for TotalCare Plus riders

View Great Eastern Enhancement here.

NTUC Singapore

  1. Premium reduction for Enhanced IncomeShield on Preferred, Advantage, Basic and Enhanced C plans.
  2. Premium reduction for Plus & Assist Riders on Preferred, Advantage and Basic plans.

View NTUC changes here.

Raffles Medical

Raffles shield was launched on 1st Aug 2018. Ministry of Health (MOH) directed insurers in March 2018 to stop offering 100% coverage plans so I believe their riders are already on a co-payment basis already.

 

Final Thoughts By Wealthdojo

I believe this will not be the first or the last change when it comes to medical cost. It is therefore, important to have a trusted advisor who communicates the changes in a timely manner and navigate your retirement accordingly. As a financial consultant, I believe that this communication is vital because we never know such treatment and the affordability will arise.

Wishing you the best in your day ahead.

 

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.

The hidden cost of retirement

The Hidden Cost Of Retirement: Healthcare

Many of us look forward to retirement. It is the time when we can finally enjoy our lives and the fruits of our labor. We envision that we can use the hard-earned money that we have save and invest in our wealth management journey to spend on the finer things in life.

The hidden cost of retirement

The hidden cost of retirement: I wonder why are retirement photos all at the beach.

However, as we grow older, there is this cost that keeps creeping up. If uncareful, may derail our retirement.

(This is a joint-post together with Life Finance. Do check them out. I think the quality of their article are great. They are certainly one of the better writers out there and I’m happy that there is someone like them writing on these important topics)

 

Healthcare costs in retirement

Healthcare costs will form a significant part of retirement spending. In Life Finance previous article, he documented that healthcare costs will shoot up from a bit less than 7% of household spending for a typical household before retirement to more than 12% after retirement. This is on top of health insurance spending. This 12% of overall spending is made up of the deductibles, co-payments and other outpatient expenses tat actually comes out of the retirees’ pockets (or Medisave account).

The hidden cost of retirement healthcare cost

The hidden cost of retirement healthcare cost

The higher percentage does not mean that a retired household spends less on everything else. In fact, once household size and inflation are accounted for, retired households actually spend the same amount after retirement as they do before. Hence planning for higher healthcare costs is crucial as part of retirement planning.

 

Why does healthcare costs go up in retirement?

It is no secret that while inflation has moderated for most goods and services in the past few years with slowing economic growth, healthcare inflation has continued unabated. But the rate at it is going up is not well known. Let’s look at some data.

From the data.gov website, we can see that healthcare inflation has outpaced general inflation, in the last few years.

The hidden cost of retirement healthcare inflation

The hidden cost of retirement healthcare: Inflation

But this chart gives a relatively benign view of healthcare cost inflation, showing that it is still manageable. This is however, not true at the patient level, especially for retirees. As life expectancy increases, Singaporeans are also seeing an increase in the number of years spent in ill health to more than 10 years out of a lifespan of 84 years. This means that the corresponding bills for healthcare will increase, as hospital stays becomes longer, and procedures become more complex.

To get a better sense of the increase in healthcare costs at the patient level, we can look at the Ministry of Health’s Fee Benchmarks Committee Report from 2018. While Class A public hospital bills grew by 4.9% per year between 2007 and 2017, private hospital bills grew by 9% a year in that same period!

The hidden cost of retirement healthcare bills

The hidden cost of retirement healthcare bills

Beyond that, healthcare costs have kept increasing. Mercer in 2019 indicated that in 2018, Singapore healthcare cost inflation was 10% and the same is projected for 2019 and 2020

In addition to hospital bills and healthcare costs going up, retirees are faced with the fact that the frequency of their hospital stays will also increase. The likelihood of hospitalization in any year will go up from between 20% – 27% for retirees in their late 60’s and early 70’s, to a staggering 70% – 80% when they reach their mid 80’s, or a three-fold increase at a minimum.

The hidden cost of retirement healthcare hospitalisation episodes

The hidden cost of retirement healthcare hospitalisation episodes

A three-fold increase over 20 years corresponds to a growth rate of hospitalization of 7% per year.

Hence, to get the true rate of healthcare cost increase in the retirement years, we need to consider both:
a) The higher frequency of hospitalization and healthcare needs
b) The growing rate of healthcare inflation

Putting both these figures together:

• Retiree patients in Class A wards in public hospitals will be faced with a 12% increase in healthcare costs per year (4.9% and 7%)
• Retiree patients using Private hospitals will be faced with a 18% rise in healthcare costs on a year-on-year basis

While it is true that with healthcare insurance, such as Medishield Life or an Integrated Shield plan, much of these rising costs can be transferred to the insurer, the retiree patient is still faced with the prospect of rising co-payments and other out of pocket costs. Furthermore, rising healthcare costs will ultimately be reflected in higher insurance premiums as well, which is what we discuss next.

 

Rising healthcare insurance premiums

As healthcare cost increase as explained above, premiums from medical insurance will go up due to the risk pooling nature of insurance policies. From 2015 to 2020, Singapore’s medical insurance premium began its steep incline. The Ministry of Health has stepped in on many initiatives such as co-payment, the use of preferred doctors and also pre-authorisation to help cope the medical inflation rates in Singapore.

The Medishield Life Committee gave their recommendation in 2014 with the proposal of the upgrade from Medishield to Medishield Life. In a nutshell, it means that the scope of coverage will increase and at the same time, the premiums will increase. There were a series of government subsidies over the last 5 years to help Singaporeans cope with the rising cost of medical insurance.

As the Integrated Shield (IP) plan is made up of Medishield (Now Life) and Additional Insurance Coverage from Insurance company, this directly increase the overall premiums that consumers have to pay.

The hidden cost of retirement healthcare medishield life

The hidden cost of retirement healthcare Medishield life

To the same time, insurance companies were making underwriting loses as net claims faced by the insurers outpaced premiums earned, particularly for plans covering private hospitals. Net claims are made up of the absolute cost of healthcare and the frequency of healthcare. The absolute cost of healthcare has gone up over the years as written above. At the same time, with medical advancement, it is more common for people now to seek medical treatment as compared to the past. These has made premiums unsustainable in the long run.

Between the years 2016 and 2019, the premiums of riders and the private insurance component of IP increase on average of 24% and 10% respectively each year. These trends are largely reflective of increases in private hospital insurance claims.

The raise in questionable claims also push up the claims experience of the insurance companies. (Quoted from source almost fully to retain the meaning of the article)

In one example, A 37-year-old woman stayed seven days in hospital for abdominal hernia repair. Of the $46,000 bill, the surgeon’s share was $31,900, or five times the norm. It transpired that while in hospital, she also had her breast augmented, and a tummy tuck with the fat transferred to her buttocks, but since these are not covered by insurance, none of this was stated in the bill.

A second example is for a woman was warded for 42 days for cervical sprain and strain (or pain in the neck) but received treatment only on seven days. She was given physiotherapy and painkillers for the other 35 days, something that could have been done as outpatient treatment. The bill was $84,000.

The combination of Medishield Life premiums increase, healthcare cost inflation, frequency of healthcare and the raise of questionable claims made the previous premiums charged unsustainable. This led to an inevitable increase in medical insurance inflation and also tightening of the claim procedures in the last 5 years.

 

Cost of Hidden Cost of Retirement

Medical insurance is one cost that people don’t usually take into account during retirement. We generally assume we will be well (why will we not) and plan for our living expenses with occasional holiday or two. However, we have to bring this to you to share with you the cost of medical insurance at your age of retirement.

The hidden cost of retirement healthcare great eastern shield

The hidden cost of retirement healthcare great eastern shield

The hidden cost of retirement healthcare great eastern totalcare

The hidden cost of retirement healthcare great eastern totalcare

Taking Great Eastern medical policy as an example (Disclaimer: We are not advocating any insurance policies from any company. We are using Great Eastern as an example for premium calculation. In my experience, the premiums for the other companies should be around the same).

At age of 65, we will need to annual cash premium of $2,226 ($967+$1259) for a private hospital coverage (with 5% co-payment). This comes out to be around $185/month.

In 5 years time, at the age of 70, we will need to pay an annual cash premium of $3,234 ($1695+$1539) which comes out to be around $269/month.

If this don’t scare you, at age of 75, we will need to pay an annual cash premium of $4,685 ($2650+$2035) which comes out to be around $390/month.

In Singapore, our life expantacy is around 85, I cannot imagine how one can afford those premiums when that time happens. All this is assuming that there is no future medical inflation which does not inflate the current premiums now.

PS: If you thinking that you can self-insure and not have any insurance, I hope that I have to burst your bubble.

 

Final Thoughts

The hard truth is that healthcare cost is going to continue to increase due to the factors explained above. The first thing I get my client to plan for is their paycheck. Remember that during retirement, there is a paycheck and a playcheck. The paycheck consist of items such as healthcare cost, phone bills, utilities, basic food and beverages and so on. Usually, we allocate money from “safer” asset class  to take care of those cost because it will have to be paid at whichever market conditions.

The playcheck is the one we are more familiar with. It consist of items such as exotic holidays, a roadtrip, etc.

Whichever the paycheck or playcheck, it is part of our retirement journey.

Thank you Life Finance for your contributions. If you like this article, do comment before and leave a message for me or Life Finance.

 

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 investment, 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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