4 lessons on Wealth Protection from pottery

Pottery-making has many similarities with planning for your future. There’s a grand plan, tools and materials to choose, and adjustments that need to be made along the way. And at the end of it, you have a pot – or financial plan – that is uniquely yours.

Lesson #1

As with pottery, the right tools and knowledge are important in giving you a good base. Once this is in place, you can start preparing for the big financial needs of the future. The sooner you start building your wealth, the more you’ll accumulate.

Start saving and investing

• Plan to get higher returns by setting aside a portion of your salary for investments.
• Your investment portfolio could include endowment plans, unit trusts and exchange traded funds.

Pay down debt

• Maintain a good credit score by repaying your debt
• Start with credit card debts and student loans.

Get health and hospitalisation insurance

• Live the lifestyle you desire by creating stores of reserve income that you can tap on.
• Lock in lower insurance premiums in your prime years, as premiums are generally lower when you’re young and healthy.
  The general thought is that since I’m young and healthy now, I don’t need insurance – it’s money I don’t have to pay for today and I will get it only when I get older. However, the later I buy insurance the more expensive my premiums are going to be.

Lesson #2

As your life changes, your priorities will too. Once you have a home, or if you’ve gotten married and have children, you should reshape your plans to meet these bigger responsibilities. It’s like modifying your pot when it’s not quite looking right. So, consider reviewing, adjusting or upgrading your plans to protect and continue to grow the wealth you’ve built.

For your home

• Take out a home loan while you have a steady income stream, so that you can invest the cash you’ve amassed to grow your wealth.
  While you have taken out a home loan, review it approximately every 3 years. You may be able to refinance it for better terms and conditions , or interest rates.
• Level up your home insurance and get a mortgage insurance to cover the repayment of your outstanding home loan.
  You would already have fire insurance when signing your home loan, but this is not the same as mortgage insurance. Add on mortgage insurance to cover the repayment of your outstanding home loan in unforeseen circumstances.
• Insure your home against burst pipes, theft, and damage. Coverage extends to damage from renovations, loss of rental income, and if you need to find alternative accommodation.

For your children

• Set up endowment plans to start their education and enrichment journey.
• Upgrade your own life insurance to ensure their needs are always taken care of.

For your future

• Protect yourself and your family with disability and critical illnesses plans.
• Continue investing for your retirement, to make the most of the power of compounding.

Lesson #3

With time, your responsibilities could grow even more. Your children want to further their education, your parents may need added care, and your own health could change too. At this stage of life, the focus will be on boosting your plans for solid results, much like pots that are fired in a kiln.

For your spouse

• Secure your family home by using your bonus or spare cash to lower your outstanding mortgage.
• Top up his/her CPF account
  Under the Retirement Sum Topping-Up Scheme (RSTU), you can top up your spouse’s CPF account if they are not working or have low CPF balances. Only cash top ups allow you to enjoy tax relief of up to S$7,000 per year.

For your children

• Fund their tertiary education from the endowment plans you set up for them earlier. If you intend to send them overseas, plan to save more. Start your education fund as early as possible so that time is on your side.
• Consider investing in foreign property if you plan to send your children overseas for their studies.
  This sorts out their accommodation well in advance. It also offers an additional income stream if you rent it out when they’ve completed university.

For your parents

• Check if your parents have re-mortgaged their home or have other loans to repay. Calculate their outstanding debt and work out how to clear it within a reasonable timeframe to avoid paying additional interest.
• Grow their retirement savings through the Retirement Sum Topping-Up Scheme with cash top-ups to your parents’ CPF Retirement Accounts (RA).
  By doing so, your parents will earn interest rates of up to 6% per year in their RA and you can enjoy tax reliefs of up to S$7,000 each year.
• Spend time to understand the insurance coverage your parents have, so you can assess if it’s not meeting their needs or can be enhanced further.
  Top up your MediSave account, which can fund your parents’ MediShield Life premiums. This in turn gives you dollar-for-dollar tax reliefs of up to S$7,000 each year.

For yourself

• Set aside 6 months of your last drawn salary as emergency funds, or a financial cushion against unforeseen events.
• Ensure that your hospitalisation plan is adequate and consider enhancing it.

• Get added protection with long-term care insurance in case of long-term illness.
• Top up your own CPF account in January, you can look forward to getting a full year of compound interest. Also, enjoy an additional tax reliefs of up to $7,000 per year, above the reliefs you can get from topping up your spouse / parents’ CPF accounts.
• Top up your SRS account for extra income in your retirement years, as it can cover your living expenses and medical expenses that your insurance plans or Medisave may not.
  This gives you dollar-for-dollar tax reliefs up till S$15,300 . Upon retirement, you may not even be taxed if you withdraw smaller amounts annually.

Lesson #4

To complete what you’ve created, put on the final touches to preserve your wealth, and build alternative income streams. That’s the way to look forward to a happy and rewarding time in your golden years.

Rebalance your portfolio

• Shift your investment mindset gradually from wealth accumulation to wealth preservation, to match your time horizon. Practically, this means moving your investment portfolio from higher risk instruments (like equities) towards lower risk ones (like bonds, gold, property).

Generate alternative income streams

• Receive regular income by investing in bonds and dividend-yielding investments like unit trusts and stocks, and renting out additional property. Read more on how to rock your golden years.

You are a unique combination of experiences and goals, and your financial plans should reflect as much. And just as the pottery instructor enables you to take home a beautiful piece of pottery, your financial advisor partners you to assess which stage you’re at, and the steps needed to achieve your goals. So, take the first steps.

Disclaimers and Important Notices

This article is meant for information only and should not be relied upon as financial advice. 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.