According to Straits Times, an elderly lady lost all her life savings of $400,000 in a con job. It took her 60 years of hard work and disciplined savings to save up that money, but all that got swindled away in less than half a day.
An Elderly Cleaner Cleaning At a Hawker Centre
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Work Hard and Save
Madam Goh got the first part of the financial plan to build wealth right, which is to work hard and save money. She worked multiple jobs, 7 days a week and saved between 50 to 70 percent of her monthly pay. Being able to save so much despite low income jobs such as cleaning puts many of us to shame. Who says that 20 percent savings ratio is difficult to achieve?
Invest to Make Money Work Harder
The next part of the financial plan is to invest the savings to make the money work harder. Madam Goh invested all the money into fixed deposits, which was a typical strategy employed in the past. Given the higher interest rates in the past, the fixed deposit returns may seem relatively attractive. However, a diversified investment portfolio including stocks and bonds would definitely see a much higher return especially after so many years of compounding.
Have a Retirement Plan and Try to Spend Income Derived From Investments
An ideal retirement would be to have the investments generate sufficient income to cover retirement expenses. However, having all the money in fixed deposits would make it difficult at periods of low interest rates. Another thing is that if the money were invested in different instruments such as bonds, it wouldn’t be as easy for Madam Goh to liquidate the investments and hence would be less likely to cheated of her entire savings.
CPF Minimum Sum
Working back her age, it is likely that the CPF Minimum Sum policy was not implemented yet when she hit retirement age as CPF Minimum Sum started in 1987. If the CPF Minimum Sum was in place, Madam Goh would probably still have some savings in the CPF RA to fund some of her retirement expenses. If CPF Life had existed, it would have be another part of her investment portfolio generating returns for retirement. Unfortunately, none of these policies were around, hence without any savings Madam Goh continues work as a part time cleaner earning a meagre salary of $700.
About the Author
Calvin Yeo, CFA, CFP is the Managing Director of Doctor Wealth Pte Ltd (www.drwealth.com), which is is revolutionizing the financial advisory industry by building an online platform to provide high quality and comprehensive financial advice for free.