Dealing with Inflation and Higher Taxes: Taking Charge of our Lives

11/20/2018

The Singapore Budget 2018 was unveiled this week in Parliament. The rise in GST from 7% to 9% probably got more air time than other matters. It led me to think about how inflation and taxes will impact our clients, who come from higher income households.

For sure, those who are financially challenged will receive the assistance from the government in terms of rebate and GST Vouchers. The "super rich" will be able to take care of themselves and continue with their lifestyle.

The upper middle income individuals and families will have to face hurdles as we implement our financial plan, in which funding our retirement is a non-negotiable component. What are these hurdles we need to cross?

  • In general, the cost of living will rise. We call this phenomenon inflation. When GST is added to some of our goods and services we consume, then our living expenses will certainly go up.
  • Our above-average earnings must keep up with inflation. Some of us may lose our jobs through redundancy. For others, our skills may not match market demand. If our income earning capacity is compromised, in an environment of rising costs, it's very discouraging.
  • Interest rates are moving up. That is another burden to bear if we are borrowing for consumption or for financing our homes.
  • Income taxes are poised to rise. Those earning more will pay higher individual income taxes, in addition to the GST.

The question then is: Can we maintain the level of savings each month in absolute dollars as well as a percentage of our income? My estimates indicate that living expenses will rise by about 4% pa in the medium term. In order to maintain our savings capacity, we must earn more, spend less or work longer.

The financial planning levers we do NOT control are: Inflation, Longevity and Investment Returns.

The financial plan must address these issues in this dynamic external environment. Speak to your adviser. Take charge of your life.