Key points:
- Annual reviews help you evaluate if your wealth plan still has the right solutions for your success.
- It involves understanding: Life goals and milestones, changes to income and expenses levels, and key risks to watch out for.
- And just like a vehicle servicing report, it should conclude with remedial action and optimal risk management.
It’s easy to neglect the car dashboard when our focus is on getting to the next pitstop. But when something goes wrong, the inconvenience could be greater than regular vehicle servicing.
The same principle applies to our wealth. With a regular financial review (we recommend at least annually), you can evaluate if the solutions in your wealth plan are still the right ones for you to arrive at a successful outcome.
Here’s how you can prepare for these annual review discussions with your Relationship Manager. Clue: it all starts with the numbers in your financial health report.
1. It starts with assessing the key indicators of your financial health
Just as the vehicle maintenance log tells the condition that the car is in, some financial ratios are crucial as indicators of your financial health. These ratios help to measure your progress towards the longer-term goals by determining your money strengths and weaknesses, identifying potential pitfalls, and assisting you to make informed financial decisions.
Financial Ratio | Why is it important? | What’s healthy |
|---|---|---|
Basic Liquidity Ratio | Determines if you have enough cash reserves to cover your expenses in the event of an emergency and you stop drawing an income. | At least 3-6 months of expenses |
Savings Ratio | Portion of your monthly income that you save. | At least 10% |
Debt to Asset Ratio | By knowing how much of your assets are being funded by debt, you’ll know if you have borrowed more than you should. | 50% or less |
Total Debt Service Ratio | Amount of monthly salary you’re using to repay your debt. | 35% or less |
Net Invested Assets to Net Worth Ratio | Amount of assets (excluding your home) that are effectively being used to accumulate wealth for you for the long-term. | 50% or more |
2. Next: Revisit your goals and investment strategy
Because your goals might change over the years as your priorities change, the next step involves getting a clear picture of your goals, income flows, sources, as well as assets and abilities. With this information, you can assess:
- Any changes to your healthcare expectations and long-term care preference in the event of disability
- If additional savings and protection is required for additional dependants
- If there are any changes to your liabilities
- Whether your initial asset allocation is still appropriate
- How volatile or stable your investments are
- If there are other risks to protect against
In general, those who are younger are likely to focus on building wealth and purchasing assets, and this can involve taking on debt. Their need is to ensure that the debt can continue to be repaid even if their income is disrupted by unexpected events.
For those who are more senior, their concerns would probably be around taxation, liquidity planning and setting up a plan for the distribution of wealth to their loved ones.
3. Analyse whether you are maximising your savings and tax efficiency
While there are multiple avenues to optimise tax payments, not everyone leverages them.
CPF cash top-ups
Cash top-ups to CPF give you equivalent amount of tax relief in each calendar year. You can get up to $8,000 of tax reliefs if you make a top-up to yourself, and an additional $8,000 of tax reliefs if you make a cash top-up to your loved ones’ CPF accounts.
For Singaporeans below 55 years old, the cash top-ups you make to your CPF Special Account (SA) also keeps up with inflation, by providing more interest. If you’re younger than 55, you can make top-ups until your CPF SA reaches the prevailing Full Retirement Sum of S$205,800.
If you’re 55 and older and wish to receive higher CPF LIFE payouts, you can make CPF or cash top-ups to your Retirement Account (RA). Under the Retirement Sum Topping-Up (RSTU) scheme, you can do so until the RA reaches the prevailing Enhanced Retirement Sum.
Interest earned on CPF
- CPF Ordinary Account: Up to 3.5% pa
- CPF Special Account: Up to 5% pa
- CPF Retirement Account: Up to 6% pa
SRS contributions
Supplementary Retirement Scheme (SRS) is a voluntary savings programme that offers tax benefits. For each dollar that you top up to your SRS account, you’ll get a dollar’s worth of tax relief, which reduces your chargeable income.
You can make SRS contributions as many times as you like in a year, up to an annual limit of:
- S$15,300 for Singapore Citizens/PRs
- S$35,700 for Foreigners
Beyond the tax benefits, you can further optimise the savings in your SRS account by investing it.
(Read more: Strategies to make your SRS savings work for you.)
Making donations
When you donate to Community Chest or any approved Institution of a Public Character (IPC), you can enjoy tax deductions of 2.5 times of the qualifying donation amount during the next tax season.
4. Consider if your wealth is safeguarded for future generations
Preserving the wealth that you’ve accumulated is vital. Fundamentally, it involves ensuring that your asset plan is updated and checking that the beneficiaries of your insurance plans are still in accordance with your wishes.
With an increasingly global and mobile workforce, it’s important for Asian affluents to have wealth and succession planning strategies that work equally well wherever you and your children are, industry leaders noted at a Hubbis conference1. This is because Asian affluents don’t usually account for gift and estate taxes as few Asian countries impose such taxes.
While trust structures are one way of minimising estate taxes and preserving the value of your wealth, life insurance has been growing in popularity in recent years1, whether as a store of wealth, or to provide liquidity for inheritance taxes elsewhere, such as on inherited property in London.
5. Crafting actionable solutions during your annual financial review
Vehicle servicing usually comes with repairs. Similarly, a financial check-up would conclude with an action plan that includes the optimal remedial action and risk management for you.
At DBS Treasures, your Relationship Manager will be able to work through these considerations with you, to achieve personalised solutions that are tailored to you and your family’s needs.
To work through these crucial questions and find wealth solutions that fit your family’s unique needs, don’t hesitate to reach out to us.
Footnotes:
1 1291 Group for Hubbis Digital Dialogue Series, 23 Feb 2023. Life Insurance and the Wealthy Private Client – Why, What, When and How?
Disclaimers and Important Notices
This article is for information only and should not be relied upon as financial advice. Any views, opinions or recommendation expressed in this article does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability. This article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$100,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$100,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
