Single women have a greater tendency to overspend as they generally have less financial commitments than married ones. Overspending will come at the expense of a comfortable retirement future. In this final segment of our financial planning series for women, we look at how single women can assess their spending patterns and plan for retirement.
By Kenice Tay
 
Profile One
 
Our candidate is a 35-year-old producer of TV documentaries. Her annual paycheck is about $84,000 (including two months’ bonus), or $6,000 per month (excluding the bonus). She is single and supports her ageing parents. Every month, she gives them $800 and spends about $3,000 on herself. She recently chalked up a credit card debt of $15,000 from her trip to Europe. Before the trip, she purchased a $103,000 continental car and has to service the outstanding car loan of $72,000. Realising that she may not be financially stable, she decides to seek help from a financial planner.
 
Her financial assets seem ample with the bulk tied to stocks. She has invested about $50,000 in tech stocks and $10,000 in unit trusts exposed to the biotech sector. She has $5,000 in her bank account. The volatility in global stock markets had a negative impact on her equities investments. Her stock investments have lost about 30% in value. Similarly, her unit trusts are now down 20% from her original cost. She hopes to liquidate her stocks and readjust her portfolio.
 
There are no property loans to worry about as she stays with her parents. However, she has plans to purchase her own apartment in three years’ time. There is about $50,000 left in her CPF account after using some funds to finance her post-graduate degree. She has a simple insurance policy, providing a coverage of $50,000. The monthly premium is $150. She also has plans to set up a cyber café business and has budgeted $75,000 for this venture. She hopes to retire at age 50.
 
The plan
 
From Kelvin Tan, financial consultant from BenchmarQ Consultancy:
  • Firstly, we have to figure out how much she can save a month. After deducting the 20% CPF contribution from her gross monthly income of $6,000, her net income is $4,800. Her monthly expenses also total $4,800. This includes her personal expenses of $3,000, car loan payments of $850, an insurance premium of $150 and the $800 given to her parents.
  • It is alarming that she is unable to have any monthly savings. Her only savings come from the two-month bonus of $9,600. It is recommended that she reduce her monthly expenses by at least 33%. In this way, she may be able to save $1,000 a month and chalk up a cash surplus of $21,600 in a year, after including her bonus. 
  • Her investment exposure to technology stocks is too high. She should liquidate some tech stock investments to pay off her credit card debts. While credit card companies charge an annual rate of 24%, the high cost of credit outweighs the cost of holding her tech stock investments. She should maintain her existing portfolio of unit trusts to capitalise on future capital gains.
  • The $50,000 insurance policy is insufficient. Her annual contribution to her family is about $9,600. To continue providing this amount till she retires at 50, she will need a policy that provides at least $144,000 insurance coverage. She should place aside about $200 every month for the insurance premium. Health insurance for her family and herself should also be looked into. For example, Medishield insurance may be bought using her CPF monies.
  • She may want to consider purchasing a new five-room HDB flat that cost about $300,000. At this time, she should have at least $120,000 in her CPF ordinary account. After the 20% down payment, she would be left with $60,000. The monthly housing installment is estimated to be about $960 and is easily taken care of as her monthly CPF contribution is $1,560. She should also purchase mortgage insurance.
  • The annual surplus of $10,320 in her CPF ordinary account can be invested in CPF-approved investment products like bonds that yield about 5% per annum till she retires. This investment should be realised only after she has bought her HDB flat. In 12 years’ time, her investments in bonds will be about $164,200. 
  • Assuming her monthly expenditure is reduced, she should be able to save about $21,600 after one year. After saving that amount, she can consider investing in unit trusts with a 30:70 portfolio mix comprising global bonds and equities. Such a portfolio will yield about 10% over the long term.
  • Starting her cyber café business at age 45 with a capital of $75,000 can be achieved. This will come from her investments in unit trusts and tech stocks. For example, if she invests her one-year savings of $21,600 in unit trusts yielding 10%, she would have about $344,300 in 10 years’ time. Her existing $8,000 investment in unit trusts yielding 12% can also be maintained for the next 10 years, and she would have about $24,800 by the time she is 45. Moreover, she has invested in tech stocks using $15,000. After a decade, she would have made $60,600. Therefore, she will be richer by $429,700 from her investments in unit trusts and stocks at 45. She will then be able to withdraw $75,000 for her business. She should sell her risky tech stocks first to raise the required $75,000. The balance of $354,700 in her investment portfolio can remain invested for the next five years till she reaches 50.
  • At her retirement age of 50, she will have $164,200 in her CPF account. Her insurance policies will give her a cash value of $110,000 assuming she bought her first insurance policy at age 25. Her equity investments will total $536,100. This sums up to $810,300 which would be enough for her retirement. Assuming that she lives a further 25 years till 75 and her funds yield 4% per annum, she would receive $4,320 monthly from her retirement fund.
Tips to survive:
 
Single women with the propensity to spend lavishly, can have quite extravagant lifestyles as they have fewer financial commitments. Says Penny Low, a financial consultant with IPP Capital Planning, “The main concern is that few of these women have any financial plans to ensure a comfortable retirement.”  
Here are some tips for single women: 
  • Adopt a disciplined approach to savings. Ms Low practices a principle that she calls “pay myself first” – every month a portion of her paycheck is channeled into her bank deposit. The remaining cash can then be safely used for entertainment, clothes, transportation et cetera.
  • If one does not have spare cash, then don’t dabble in equity investments. 
  • Insurance is important for single women. The main forms of policies to consider should be those providing coverage for major critical illnesses and permanent disability. One should at least be insured five times one’s annual income.
  • Keeping all your cash only in bank deposits is not entirely wise as one is looking at a 2% growth annually. Consider investments that may yield higher returns as well, Ms Low concludes.