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Old 12-10-2016, 11:50 AM
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Default Inflation and meagre interest rates

Yesterday's news on the HDB/URA car park fees increase starting 1 Dec 2016 is yet another reminder that inflation is ever present. Parking at HDB/URA car parks will go up to $1.20 per hour or $110pm for season parking. The 20cts increase may not be much in absolute terms, but it represented a 20% increase from the current fees. Who said inflation rate was low? This is only one example where inflation rate was double digit. Many other examples can be seen especially in food prices - bread, milk, vegetables etc... I used to pay $2 for my usual vegetarian beehoon for breakfast. 2 months ago, it went up to $2.20 per packet. 10% increase just like that.

Thus for retirement sustenance and planning, it will be prudent to factor in a high inflation rate (say 5% at least) in your calculations. I had been using 3% inflation in my calculations, but I will have to review it with a 5% inflation rate. Already at 3% inflation rate and to sustain our retirement expenses of $84k pa (or $7k pm) over 30 years, we would need $2.5m.

The situation is made worse by the fact that bank interest rates at all time lows. Normal savings interest rates are at 0.05% while FDs are not much better at below 2% (with conditions)

We always hold about $120k to $150k in savings deposits for emergency and unplanned expenses. This amount earns us a measely $30 to $50 a year in interest. However, thanks to a tip off from a colleague, we opened 2 DBS multiplier accounts and deposited $50k into each account. Other than opening the accounts we didn't have to do anything else.

We were already using the 4 types of transactions stipulated by DBS to earn extra interests - credit monthly salary into DBS/POSB account, use DBS/POSB credit cards, credit dividends into the DBS/POSB accounts and take DBS/POSB housing loans. My wife and i were able to meet the criteria for the top 2 tier of interest interest payments at 2.68% and 2.08% respectively.

Nowadays instead of earning $5 a month in interest per person, we are earning $110 and $88 per person per month without any effort. This was a small windfall for us as suddenly the car park fees were taken care of and then some! This was even better the SSB!
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