Question: 

Hi, I’m Mr. Lai, a 62-year old retiree living in Ipoh. I’m residing in a terrace house which is fully paid with Ling, my wife. We have two daughters, Laila and Rachel, aged 28 and 25 respectively. Both of them work and live in Petaling Jaya. Today, I have the following: 


a. RM 500,000 in EPF monies. 

b. RM 500,000 in cash and FDs. 

c. Life insurance policies with a total sum assured of RM 500,000. 

d. A fully-paid terrace house in Ipoh worth RM 500,000. 


I’m concerned about my retirement for I’m not sure if I have enough to last both my wife and myself for as long as we live. Presently, we spend about RM 75,000 in annual living expenses and we supplemented it with part-time works that will bring us around RM 50,000 in annual income. We plan to carry on our works for as long as we are physically able. 

Lately, I was recommended to invest in unit trusts and stocks to boost my return of my EPF monies, cash and FDs. This is in view of low FD rates currently offered by local banks. But, my concern is that I’m not a savvy investor and do not know much or have the interest to study them. So, my question is this: 

‘How should I invest my retirement funds to get better returns safely?’ 


Answer: 

First, let me reiterate that the answer below is catered to people who don’t see themselves as savvy investors. While it is possible to make greater returns from investing in stocks, these returns are produced as a result of careful studies and homeworks done by investors themselves. It is a fallacy to believe that anybody can attain sustainable investment returns without any knowledge on investing. 

As mentioned, Mr. Lai is not a savvy investor. So, I’m going to exclude the use of stocks, ETFs, unit trusts, and properties as choices of his investment vehicles. In his case, the question is, ‘Is it still possible for Mr. Lai to do the following: 


a. Take care of himself and his wife while they are alive? 

b. Leave behind a long lasting legacy for his loved ones? 


My answer to Mr. Lai is a big resounding yes. 

It is possible for Mr. Lai to sustain his lifestyle and even better still, leave behind a huge golden goose worth RM 2 million to all his loved ones, if he passes on in the future. Obviously, the size of his golden goose shall depend on when Mr. Lai passes on and his actions taken to preserve his retirement assets. 

Here, I’m going to assume that I’m Mr. Lai, work on the numbers and discuss on possible strategies for him to do the above: 


1. How to Manage RM 500,000 in Cash and FDs? 

From above, Mr. Lai and his wife’s annual income is RM 50,000 and their annual expense is RM 75,000. Hence, their shortfall is RM 25,000 a year. So, if Mr. Lai is conservative, he may put RM 250,000 in cash & FDs to cover their shortfall over the next 10 years. This allows Mr. Lai to use RM 250,000 to get better returns to boost his retirement funds. 

But, if Mr. Lai does not know how to invest, he could consider setting up a living trust and place RM 250,000 into it. Subject to his choice of trust corporations, it is possible for Mr. Lai to get about 5% in cash yields per annum from placing his RM 250,000 in a living trust. The prerequisite is that he must not touch his cash placed within for the next 3 years. 


2. But, Why Place Money in a Living Trust? 

This is because, unlike cash & FDs, the monies placed within a living trust would not be frozen in the event, if Mr. Lai passes on in the future. This is because the trustee is able to pay out the cash from his trust to Mr. Lai’s beneficiaries in just 7 days and thus, allowing his beneficiaries to pay for his funeral expenses, legal fees to administer his estates and to fund their living expenses as they wait for Mr. Lai’s will to be expedited. 


3. Next, Establish an Insurance Trust 

It is possible for Mr. Lai to assign his insurance policies to an insurance trust. He can set up his trust deed in such a way, where the trustee could pay for medical bills and living expenses if Mr. Lai is critically ill or TPD. Mr. Lai could elect either his wife and / or his daughters to claim the money from the trustee to fund any of the above purposes. Likewise, Mr. Lai could also determine how his money is to be managed and distributed in the insurance trust if he passed on. 


4. How Will I Manage My EPF Money? 

If I’m Mr. Lai, I would retain my EPF money for I’m already getting 5%-6% a year without much hassle. Thus, I could choose to elect my beneficiaries through an EPF nomination form. 


5. What about My Terrace House in Ipoh? 

I would elect my wife to be the ‘life tenant’ of my property in Ipoh. This ensures a permanent place for my wife to live in for the rest of her life. This is done with creating a testamentary trust in my will. 

Subsequently, I’ll instruct the executor of my will to sell off the terrace house as soon as my wife passes on in the future. Its proceeds would then be distributed evenly to both of my daughters. This is the cleanest and the most effective way to administer a property as my beneficiaries don’t need to decide on issues like keeping, renting, renovating or selling off the property in the future. 


6. What Happens 10 Years Later? 

10 years later, Mr. Lai will turn 72. Before I move on, here is a quick recap of his retirement plan:


Let’s assume the following:


1. Mr. Lai passed on at age 72. 

2. He had fully exhausted all his cash & FDs of RM 250,000 

3. We excluded all insurance cash values paid to Mr. Lai’s trust. 

4. We assumed all insurance cash values are used to pay for his funeral. 

5. His EPF money has grown at a compounded rate of 5% per annum. 

6. His living trust makes a flat 5% a year and it is renewable every 3 years once. 

7. Mr. Lai renews his living trust every 3 years once together with its cash yield. 

8. His terrace house in Ipoh has appreciated by 2% per annum. 


In 10 years, Mr. Lai’s trusts (living trust, insurance trust, and testamentary trust) will, in total, be worth:

So, if Mr. Lai passes on, he will leave behind RM 2.32 million to his loved ones. 


So, Will You Create a Golden Goose for Your Next Generation? 

If you are interested to preserve what you’d spent decades building for the long term, you will need to do retirement and estate planning.

As such, you could start by filling up the details below and book yourself an appointment to brainstorm, discuss, and explore ideas as to how you could do the same below:


Jocelline Chee
Jocelline Chee

As a Full-time Senior Professional Estate Planner, Jocelline seeks to understand every client’s unique asset holdings and legacy wishes, before recommending a suitable Will and/or Trust structure to meet their needs. She is well-equipped to point out various blindspots in Legacy Planning, that her clients may have. With Jocelline, you can be assured that your legacy planning journey will feel more like having an open-hearted coffee session with a trusted friend, as compared to a formal and awkward session with an equipped advisor.

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