Building nest egg for parents first

Early planning gives both children and parents peace of mind

After he started work, Mr Ibnu, in addition to giving his parents, Mr Nooraman Tukisan and Madam Zaharah Suhaimi, $1,000 monthly, also puts $100 into his mother's Retirement Account every month to help her grow her retirement savings.
After he started work, Mr Ibnu, in addition to giving his parents, Mr Nooraman Tukisan and Madam Zaharah Suhaimi, $1,000 monthly, also puts $100 into his mother's Retirement Account every month to help her grow her retirement savings. ST PHOTO: DESMOND FOO

If you are just starting out in the workforce, chances are you are just taking baby steps while navigating your way through your finances.

The usual plan is to estimate the funds you will need for the next 10 to 20 years and then invest the rest to maximise the early part of your working years.

But two young men have taken financial planning a significant step further by helping their parents plan for their retirement and twilight years.

Mr Ibnu Firdaus Nooraman, 28, the youngest of four siblings, is the only one living with their parents. He started helping his mother, a 66-year-old housewife, by contributing to her Central Provident Fund (CPF) Retirement Account (RA) once he began his career as a nurse.

He started making monthly contributions of $100 to her RA four years ago.

CPF savings go to the Ordinary Account (OA), the Special Account (SA) and the Medisave Account (MA). When you turn 55, money from the Special and Ordinary accounts will be transferred into a newly formed RA.

The CPF Board announced in September that the 4 per cent minimum interest rate on CPF savings in the SA, MA and RA will be extended to Dec 31 next year.

Mr Ibnu said: "I learnt about the RA from my father, who is a retired civil servant. As my mum has never worked, I thought I might as well do it, on top of giving a monthly allowance of $1,000 to my parents."

Even though his mother is covered as a dependant of a former civil servant, Mr Ibnu feels that should not be her only form of security in her golden years.

"Healthcare costs are not cheap, and if something health-related happens, it's sudden and you've to be prepared. Many plan for daily sustenance and living, but they don't plan for what happens when they fall sick," said Mr Ibnu, who is familiar with healthcare costs through his work.

He studied the CPF website and details, such as tax benefits, before he started the monthly contributions, and plans to increase the sum in the future.

He also attended financial talks, and seminars about savings, investments and retirement planning to learn more, and consulted financial advisers.

Mr Ibnu's parents have their own annuity plans. His father gets about $560 a month from a private plan, while his mother gets about

$500, which includes a payout from her RA.

Mr Christopher Tan, chief executive of financial advisory firm Providend, said it is good to start thinking about such issues early, as it is easier to plan for your parents' retirement if you are not planning for yours at the same time.

"More children are finding themselves responsible for their parents in their retirement, whether partially or completely.

"Helping to plan for their retirement ensures that there is some financial stability for them, and it also gives both them and yourself peace of mind, knowing that there's a plan in place," he added.

Be sensitive when talking to parents about money

Telecommunications engineer Soh Sing Heng, 27, started helping his parents before they turned 55.

His mother, who works as a cook at a kindergarten, turned 55 last year, and his father, an enforcement officer, turned 55 this year.

"I first got interested in CPF when a colleague, who was 55, talked about it. He told me about how he transferred funds from the OA to the SA many years ago to earn a higher interest.

"He managed to accumulate quite a sum in his CPF, so I decided to research, and later helped my parents to do the same before they reached 55."

CPF members now earn interest rates of up to 3.5 per cent a year for their OA savings, and up to 5 per cent a year on their Special, Medisave and Retirement accounts until Dec 31. Mr Soh, who also blogs about finance, added that the sum in the SA will be able to earn compound interest.

Although the money from the SA cannot be transferred back to the OA, he noted that his parents have already finished paying off their housing loan, so they do not need the funds.

He also used the online CPF calculators to work out matters such as the payout of the CPF Life annuity scheme for his parents.

Mr Soh, who started investing in 2010, started to discuss stocks with his parents, who initially invested in unit trusts some 10 years ago.

"I recommended that they look at stocks with stable dividends, such as real estate investment trusts and blue chips, to invest for income." Mr Soh helps his mother with her portfolio as his father invests on his own, and her five-figure portfolio now has a yield of about 6 per cent a year.

He asked his parents if they wanted to top up their CPF accounts, but said they were not keen as they preferred to keep cash in case of an emergency.

Mr Ibnu and Mr Soh have open discussions about retirement and planning for it, and they noted it is important to figure out a reasonable monthly sum for retirement.

Mr Tan, who has been speaking at CPF's retirement planning roadshows, said it is important to be sensitive to your parents' feelings and to handle the issue with care as discussing money with your loved ones can be a difficult matter. He said it is good to discuss retirement plans with your parents when they reach 50, but the sooner you start the conversation, the better.

Mr Tan also raised the issue of healthcare: "It might be a little uncomfortable discussing long-term healthcare, but it's important to factor the cost of this in retirement planning."

Mr Ibnu said: "Sometimes, I see how families are unable to afford healthcare and things can get ugly, so I realised I want to do what I can to help my family.

"My friends are more into saving for their own now, and they haven't started thinking about their parents. I tell them it's just a small amount to put aside for their parents, so why not?"

Join ST's Telegram channel and get the latest breaking news delivered to you.

A version of this article appeared in the print edition of The Sunday Times on December 06, 2015, with the headline Building nest egg for parents first. Subscribe