In this new, weekly series titled JUST ASK, we invite readers to send in questions on stock investing, and personal finance. We will ask an expert to provide answers. Below is not quite a question from a reader but a lament which was posted in a Channel News Asia forum recently. Well, it looked intriguing enough for us to ask Leong Sze Hian, the President of the Society of Financial Service Professionals, for a comment to put the poor reader in a better frame of mind!
Reader: Working for a MNC can bring a stable income (about $7K a month X 14 months). However, life is tedious.
Am coming to middle-age puzzle. At the age of 40, my salary is still $7K/month.
Invest in stocks, but only made losses. Currently only $400K cash on hold.
Meanwhile, I invested in some small business and can make $2K/month.
I don't have a condo, just a HDB flat. Have about $130K in the CPF. I just feel stressed doing so many things. I wish for an automated machine that can flow money from customers to my pocket, instead of my actively working and working without much time even for sleep.
BASIC & GROSS MONTHLY WAGES (S$) FOR AGE 35-39. Source: Ministry of Manpower, June 2008 survey
|
Leong Sze Hian: I was thinking how I should try to address your concerns. Well, let me start by saying how lucky you really are relative to others.
With your total yearly income of $122,000, you are in the top 10 per cent of income earners.
With $130,000 in your CPF at age 40, you are probably in the top 10 per cent of CPF account holders, in terms of CPF account balance.
According to the Longevity Insurance Committee's report on CPF Life, only 60 per cent are projected to have at least $67,000 at age 55 in 2013.
With a HDB flat, $400,000 cash and stock investments (amount which you have not stated), you are also probably in the top 20 per cent by net worth.
As to having a HDB flat instead of a condo, historically, the rate of return on HDB flats may arguably have been better than for condos, after factoring the interest difference between a HDB concessionary loan and a bank loan, lower monthly maintenance fees, etc.
If you feel stressed, doing so many things, to earn $7,000 a month, consider this – Even if you stop working, you may possibly get a monthly income of $4,500 (assuming a return of six per cent on $400,000 cash, $100,000 (stocks assumed value), plus $2,000 business investment passive income)).
Moreover, your current CPF of $130,000 may grow to about $440,226 by the time you reach age 65 (assuming 5 per cent average rate of return and zero future CPF contributions).
I wouldn't mind being in your shoes!
Recent story: JUST ASK: How to invest a small sum of money?
Email your questions to
Leong Sze Hian has been a Wharton Fellow and alumnus of Harvard University, authored 4 books, quoted over 1,000 times in the media, and invited to speak more than 100 times in about 20 countries on 5 continents.
He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, the UNESCO Leadership Chair Council and founding Advisor to the Financial Planning Association of Brunei and Indonesia.
He has 3 Masters degrees in Financial Planning & Financial Services, 2 Bachelor degrees in Economics & Insurance, and 13 professional qualifications.
Comments
I agree with you, he is lucky. But I think your assumption of 6% return on cash is rather off the mark. Also the average of 5% for CPF is a tad higher than current CPF rate as well.
My suggestion is for him to put aside the $2000 every month, and assuming 2%p.a. return, he should rightfully has around $1.28mn (inclusive of initial $400K). Not too bad, though I hate to say that in present day Singapore $1mn really can't buy you much, sigh...