fbpx

The financial blindspots millennials ought to prepare for

DISCLAIMER: This post is sponsored by Tiq by Etiqa Insurance.

In Singapore, preparing for the costs to plan a wedding, raise a child, buy a car, or own a condo is a rite of passage.

These are conventional costs imported from the 20th century, often imbued into the sales pitches of financial institutions and repeated ad nauseum.

But new generations have new challenges, and the future is not what it used to be.

More millennials are staying childless, becoming jobless, or getting divorced. Many of us dream of starting new businesses, living a life of overseas exploration.

This is our attempt to see how much these less talked-about life events will cost. Some qualifiers:

  • All costs are what you need in today’s dollars, and have not been accounted for inflation. If you want to calculate how much you’ll need in say, 2040, you’ll need to recalculate these numbers again using stats from that time.
  • The median income ($4,000 take home, $4,680 after employer contribution) in Singapore has been used as a benchmark forcalculations. For that reason, those figures estimated might appear smaller or larger to those who have not-median lives.

Making a career switch or starting a business

With the Fourth industrial revolution looming over us, jobs and careers are starting to die like flies due to disruption.  With the potent cocktail of automation, cheaper foreign labour and artificial intelligence, we expect that an increasing number of millennials might need to make at least one career switch within their lifetime.

We suggest leaving at least a year of living expenses to prepare for such a possibility.

How much you need depends on your lifestyle, obviously. But based on a modest $2,000 per month expenditure, you’ll need at least $24,000 for such an endeavour.

That said, this estimate doesn’t include the costs of possible qualifications/licensing you might need to undertake to become certified for your new career. Neither does it account for any capital needed to kickstart a business.

Getting a critical illness

According to the Singapore Cancer Society, there’s a 25% chance that you’ll get cancer at some point of your life. That’s a one in four chance.

To make matters worse, an increasing number of younger folk are also getting some form of critical illness – heart disease and stroke especially.

The somewhat good news is that survival rate has also increased; in the past cancer might have been a definite death sentence. These days we stand a far better chance of overcoming it versus previous generations.

In case you’re worried about your hospital bills, the combination of Medishield and an Integrated Shield Plan should settle the bulk of the bills.

What people often forget though, is that life goes on after critical illness. Many of us will recover, but the years lost to fighting illnesses might not.

Since most people can’t work whilst having cancer, this will be the time you are unable to provide for yourself and your loved ones.

The guide is to have five years of income to tide you through the period so you can maintain as much normalcy* – a critical illness plan can help you with this.

(*As much normalcy as you can have while fighting for your life, anyway.)

Your Income with employer contribution Your pay (without employee CPF contribution) Five years of income
$3,510 $3,000 $210,600
$4,680 $4,000 $280,800
$7,020 $6,000 $421,200

A good death for your parents

One day, your parents will pass away.

But before they do, there will likely be a prolonged stage of physical and possibly mental deterioration. In all likelihood, your parents might not have prepared for this.

They imagined they would be healthy till their 80s, playing with their grandchildren, then one day, they would pass away peacefully in their sleep.

Reality isn’t so idyllic.

The longer humans live, the more our body starts to break down. And with increased life expectancy, comes old-age-related diseases. Dementia, loss of mobility, and critical illnesses are all likely outcomes.

Ensuring a good death and reducing the pain your parents experience will cost quite a bit, and though there are subsidies, not everyone will qualify.

According to the Agency of Integrated Care (AIC), having your parents in a nursing home is approximately between $2,000 – $3,600 per month.

The other option, which is to hire a live-in caregiver costs about $600 – $1,200 per month, but that excludes their living expenses. The final figure would at least be around $1,500.

Assuming they’ll live in this state for 10 years, you’re looking at anywhere between 180,000 – $300,000.

Monthly cost of looking after parents Over 10 years
$1,500 $180,000
$2,000 $240,000
$2,500 $300,000
$3,000 $360,000
$3,500 $420,000

Outlasting a financial market crash:

Many of us started investing in an unprecedented bull market, where property, stocks or crypto prices only go skywards.

As much as we don’t wish for it to happen, there is a very real possibility that the market suffers a devastating loss during our lifetime. Here’s an article that provides a good overview of what to expect.

It might be 2025, 2030, or even 2050 (we’ll both be 61 by then).

Event %  fall How long it took to go back to its peak
Great Depression (1929) 79% 7 years
Great Recession (2008) + Dot Com bubble 54% 13 years
COVID-19 crash 20% 7 months

Governments and regulators have introduced many measures to make sure (highly unpopular) catastrophic crashes don’t happen again, so we personally don’t expect an event where (regulated) assets lose all their value.

Nevertheless, it’s good to mentally prepare yourself for smaller but still significant dips in the market.

There are three elements of this to be prepared for.

  • The first is the actual loss of your assets and whether or not they’ll recover. Individual companies might collapse during a crisis, but generally the broader economies of countries will make a comeback. It’s important to have some money in more ‘safer’ investments; traditionally these are retirement accounts, or stuff such as CPF.
  • The second is how much savings you’ll need to be able to hold out for any possible recovery. Assuming a period of three-five years for recovery, you’ll need $72,000 to $120,000 based on a $2,000 monthly expenditure.
  • The third is whether or not you’ll be able to generate income.

Make no mistake, a financial crash will involve considerable hardship for most people. It is very likely that even people who’ve achieved baseline Financial Independence will be impacted.

We won’t go as far as to tell you that you MUST make preparing for a crisis your priority, but we feel it’s important to temper optimism with caution. This is where living below your means, diversifying across different asset classes, and having multiple sources of income come into play.

Getting scammed of your life savings

We all think we are immune to scammers because we grew up with the internet.  But nah, we’re not. Recent history proves it.

With scams getting more sophisticated and elaborate, it’s possible for even the savviest of us to fall prey (unless you live in extreme paranoia where you only make transactions in-person)

Here are some quick ways to avoid being scammed:

Put your cash in places it cannot be instantly transferred out. This could be anything from an endowment plan, cash management solution, or even a money market fund. This will add additional barriers for scammers to overcome.

Never click on clickable links the bank sends. Assume unsolicited SMSes/emails/winning lucky draws are scams, until proven by snail mail or in app notifications. (If it’s really urgent, they’ll snail mail you.)

Exercise extreme caution with ‘unconventional’ investments. If your best friend tells you of a killer investment, but it can’t be found online, raise the alarm bells. Other red flags to look out for: High guaranteed returns, you can’t liquidate without bringing someone to replace your capital, or if you need to sign an NDA to invest.

A note about preparation

We generally know the risks of being underprepared, but being overprepared can be equally miserable; living life constantly being afraid is not an ideal way to live.

One way of overcoming this is to make use of the known/unknown matrix.

Indeed, there’s no point planning for the unknown unknowns.

If Godzilla somehow emerges from the sea tomorrow and starts tearing down cities one by one, even the best laid financial plans will go to shit anyway. No reasonable person plans for this stuff.

But there’s also stuff we can prepare for: known unknowns, the unknown knowns, and the known knowns. All of what we’ve written above falls firmly into that category.

These are events that generations before us have experienced in some capacity. They’ve happened, and will continue to happen.

Our take?

Preparation through education is less costly than learning through tragedy.

Stay woke, salaryman.

Prepare for the expected with Tiq by Etiqa

No one likes surprises, but not liking something doesn’t mean that we can ignore it altogether.

Based on Etiqa’s latest protection survey report

  • 60% of millennials were concerned about funding their own retirement
  • 48% expressed concerns towards funding the expenses of their ageing parents
  • 45% feared the inability to work due to critical illness

But like the saying goes, you fear what you don’t understand; that’s why having a good grasp on how to prepare for events like economic downturns, the cost of caring for your parents and life during and after critical illness is more important than ever.

If you’re considering closing the gaps in your portfolio and taking care of these things in advance, check out the following solutions:

○   Provides 100% payout with added benefits for the top 3 critical illnesses in Singapore – Cancer (all stages), Heart Attack and Stroke

○      Premiums are kept affordable from $0.24 a day*

○      Plan is yearly renewable – medical checks not required

*Based on sum insured of $30,000 for 17-year old non-smoking male.

○      Provides coverage for death, total and permanent disability and terminal illnesses so that you and your family can have peace of mind when it comes to finances in the event of death, disability or terminal illness

○      Flexible policy term for 5 or 20 years, or till age 65

○      Option to add on a rider for DIRECT-Etiqa term life to protect against critical illnesses.

○      Premiums are kept affordable from $0.08 a day

^Based on sum insured of $50,000 (5-year renewable term plan) for 19-year old non-smoking female.

—-

Terms apply

Age means the age at next birthday.

This policy is underwritten by Etiqa Insurance Pte. Ltd. (Company Reg. No. 201331905K).

As this product has no savings or investment feature, there is no cash value if the policy ends or if the policy is terminated prematurely. You should seek advice from a financial adviser before deciding to purchase the policy. If you choose not to seek advice, you should consider if the policy is suitable for you.

Protected up to specified limits by SDIC.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Information is accurate as of 14 April 2022.

Liked it? Take a second to support thewokesalaryman on Patreon!

Leave a Reply

Follow us on Telegram!

Get updated on our latest posts! Follow us on Telegram at t.me/thewokesalaryman

close-alt close collapse comment ellipsis expand gallery heart lock menu next pinned previous reply search share star