Retirement cash and comfort: investment issues for Americans

Retirement cash and comfort: investment issues for Americans

nnn After 35 years of being a salary man, I decided to leave and do something on my own. But I am 58 and near retirement age and need to look for health insurance for the self-employed. Can you give me some tips on what to look for in terms of coverage at an affordable cost? Is there anything I should acknowledge before making a decision?

—Patee


Answered by... Teera Phutrakul CFP

The first step in buying health insurance is to decide what kind of healthcare you will likely need. The choice depends very much on what you can afford. Once you've decided on the level of room rates and choice of hospitals and doctors, then you can proceed to select the right health insurance policy. In Thailand, there are two main types of health insurance: a stand-alone policy from an assurance company; and a term rider from a life insurance company.

There are three main factors that will determine the level of your premium:

� Your profession. People in less adventurous jobs will, of course, pay less.

� Your age will have a direct bearing on how much your insurance premium is going to be.

� Your gender. Women live longer than men, so their premiums will be higher.

Personally, I prefer a stand-alone policy for its transparency and simplicity. People in the 61-65 age group should expect to pay an annual premium of about 70,000 to 135,000 baht depending on the package.

Statistics show 80% of your lifetime medical expenses will come due during the final two years of your life, so health insurance will give you only some of this protection. Most people will have to rely on retirement savings to cover medical expenses as well.

Finally, one hour of exercise a day is the best insurance you can buy. Not only is it free but also it will keep the doctors away and save you a bundle in the long run.

nnn My wife and I plan to retire in Thailand in the next few years. We have been living and working overseas for 21 years. We have savings of about US$150,000 that we would like to invest in Thailand. Are there any issues I have to be aware of about my wife being American?

Do you have any recommendations regarding the type of investment we might be able to buy? Also, are there are any suggestions about what returns we should expect from our savings? We plan to rely on returns for daily expenses.

Any suggestions would be greatly appreciated.

—Manop


Answered by...Teera Phutrakul  CFP

I am assuming you've held on to your Thai citizenship. Being American is hard these days. Many financial institutions in Thailand are reluctant to accept US clients due to stringent reporting requirements under the Foreign Account Tax Compliance Act. So it may make more sense for you to use only your name to open accounts here.

According to the US Social Security Administration, 65-year-olds who retire in 2015 will face 17 to 21 years of post-career life on average, with more than one in four living at least 25 years beyond 65. As a result, today's retirees are basically stuck between a rock and a hard place: low interest rates, volatile stock markets and unprecedented longevity.

In an ideal world, I would suggest that you adopt the "4% rule" — that is, if you invest in a moderately risky portfolio of 60% stocks and 40% bonds, you can initially withdraw 4% of your assets, increase that amount in subsequent years to keep pace with inflation and still have a 90% probability of not running out of money over a 30-year retirement. But to be on the safe side, you may want to keep some of your investments in the US for greater diversification.

nnn I currently earn 120,000 baht a month before taxes and LTF purchases. After personal expenses and other deductions I have 50,000 a month net. I also have 2 million baht mostly in cash and a few stocks. I have 13 years left to save up.

I'd like your advice on where I can invest my money so I can retire in comfort. Currently, I can live on 20,000 or 30,000 a month easily.

How much do I need to save until retirement and what assets should I invest in? Should I sell some of the LTFs to invest in something else?

—T.


Answered by...Teera Phutrakul CFP

Why forgo a free lunch from the Revenue Department? If I were you, I would go for the low hanging fruit in the form of tax-deductible mutual funds and life insurance annuities.

When investing in these tax-deductible mutual funds there are three major factors you need to consider:

� Tax Deductions: Both LTFs and RMFs offer generous tax deduction benefits — 500,000 baht or a maximum of 15% of your gross annual income for each type of fund, but the limit on RMFs also includes other provident fund contributions. If your cash flow permits, I would recommend that you maximise your tax deductions by buying both types of funds.

� Time Horizon: The letter 'L' in LTF stands for 'Long' Term Equity Fund, and the 'R' in RMF stands for 'Retirement' Mutual Fund, so in either case you need to invest for the long term.

� With an RMF you cannot cash out until you hit 55 at the earliest, but for an LTF you can cash out after five years. Ideally you should not cash out until you need the money.

Investment Performance and Total Expense Ratio (TER): Quite often investors in these funds do not even look at the TER because they are only interested in the tax-deduction aspect of the product. But this is where long-term performance will suffer due to excessive fees.

Let's say that you have 100,000 baht to invest in three mutual funds with total expense ratios of 1%, 2% and 3%, respectively. Let's also suppose that all three funds enjoy the same annualised return of 6.5%.

After 30 years, the fund with the 1% TER would have grown to 500,000 baht, while the fund with the 3% TER would have grown to only 280,000 baht.

Having compared the TER of the RMFs that are sold in Thailand and their counterparts in the US,the  401(k) plans, I am astonished at how expensive our RMFs are. For example, the TER of an equity 401(k) plan would typically be 0.8%, whereas in Thailand local investors would pay 1.8% on average for an RMF. Bear this in mind and whenever possible go for low-cost index funds.


The Thai Financial Planners Association is the Certified Financial Planner (CFP) trademark licensing authority in Thailand. It is a self-regulated, non-profit group of financial advisers and experts from various organisations set up to give advice to investors. Questions can be submitted through wealthcare@bangkokpost.co.th or the TFPA webboard, www.tfpa.or.th

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