How to Boost your Financial Resilience

By Irene Yee, CFP®

With increased uncertainty brought about by an unprecedented global pandemic, it is essential for everyone to boost one’s lifetime financial resilience by supplementing current national protection plans or financial schemes with financial solutions available from established financial institutions.

The key areas of personal finance to review include:

1) Hospitalisation and surgery expenses

Hospitalisation and surgery expenses should ideally be managed with not only MediShield Life but also with private Hospitalisation & Surgery (H&S) Shield plans.

MediShield Life provides the Insured with lifetime health insurance including pre-existing health conditions, without a maximum entry age to the national health insurance. This is available for all Singapore citizens and permanent residents.

This national insurance is tailored for subsidized treatment in public hospitals and pegged at B2/ C-type wards; if you choose to stay in an A/B1 type ward or in a private hospital, for example, you will still be covered by MediShield Life, but it will cover only a portion of your hospital bill. You will need to draw from CPF Medisave and/or cash to pay the balance.

Likewise, you can expect to pay out-of-pocket for various types of surgery due to Medishield Life’s sub-limits for surgeries for each procedure. To mitigate these out-of-pocket payments using Medisave or cash, you have the option to take up additional cover through the private H&S Shield plans. Premiums for such an insurance can be partially paid with CPF Medisave ranging from $300 to $900 per year, depending on the age of the insured.

2) Long-term care insurance

Long-term care insurance was implemented with ElderShield, an opt-out long-term insurance that covers severe disabilities or the inability to perform 3 of 6 Activities of Daily Living (ie. ADL) such as walking, toileting and feeding.

As the current ElderShield covers $400 per month for 6 years if severe disability strikes, this national plan can and should be supplemented with private long-term care insurances for lengthened or even lifetime payout in the event of severe disability. This type of private supplement can be partially paid with up to $600/ year from CPF Medisave. You may ask, “Why are private supplements still necessary since the ElderShield is already in place?”

Consider this: Since long-term care payouts usually occur due to ageing-related conditions, nursing home or home-nursing expenses is a significant longterm care expense. Since current nursing home expenses is in the range of $2500/month, ElderShield needs to be boosted with private supplements to mitigate expected future long-term expenses.

3) Some essential financial resources

in the event of Death, Terminal Illness or TPD The Dependents’ Protection Scheme (or “DPS”) is a basic term-life insurance that provides CPF members and their families with basic coverage of $46,000 should the insured member pass away, suffer from Terminal Illness or Total Permanent Disability. The 2 key reasons to enhance or supplement this cover are: (1) DPS covers the insured until age 60 despite Singaporeans’ increasing life expectancy, and (2) TPD definitions are more generous in the recent term insurance for TPD, eg. payout in the event of insured’s inability to perform 3 out of 6 Activities of Living (ADLs) before age 70, compared to DPS’s definitions of TPD.

4) Retirement cashflow planning

a) CPF Life Did you know that about 50% of Singaporeans will live beyond age 85, and that 1 in 3 will live beyond age 90?

As more Singaporeans live longer lives, it is critical that retirement cashflow planning be done so that there are adequate financial resources for a longer retirement life.

Assuming the Full Retirement Sum (FRS) is met by age 55 for 2020, ie. $181000 set aside without a property pledge, CPF Life will provide lifetime monthly income ranging from $1,390 - $1,490 in the default Standard Plan. These are monthly esimates for members who turn 65 in 2030 (Source: CPF Board) To increase your retirement cashflow to say a minimum $2000 to $3000, supplement this lifetime cashflow plan with private retirement cashflow plan to meet your expected individual retirement lifestyle needs.

b) SRS savings The Supplementary Retirement Scheme (or “SRS”) is a voluntary savings scheme that can help you boost savings for your retirement years, while giving you tax relief for the same year of the SRS contribution.

The SRS complements CPF savings which are intended to provide for basic living needs after retirement, in addition to current housing and medical needs. Participation in SRS, however, is voluntary. SRS members can opt to contribute up to the annual capped amount, ie. $15,300 for Singapore citizens and PRs for FY2020. SRS contributions may be used to purchase various investment instruments, including private retirement cashflow plans to boost your retirement savings.

Investment returns are accumulated tax-free and only 50% of the withdrawals from SRS are taxable at retirement, ie. there is a 50% tax concession.

Note that withdrawals before applicable statutory retirement age is subject to 100% tax, plus 5% penalty. And that 50% tax concession only applies to withdrawals from the current statutory retirement age of 62, over a 10-year withdrawal window.

It is timely and wise to review your personal financial matters now; this will help you find ways to boost your financial resilience by leveraging on available national plans or schemes, and supplementing them with relevant financial solutions from established private providers. Discuss this financial life planning matter with an experienced and reliable Certified Financial Planner who offers you options of financial solutions from different financial institutions to suit your circumstances and needs.