Cold hard cash, investments, real estate, or legacy insurance. How best can we leave inheritance for our children?
Which option has the highest ROI when it comes to leaving an inheritance?
Cash
Cash is arguably the most painful way of leaving an inheritance as there is practically zero leveraging. This means if we decide to leave $1m inheritance for our children, that is $1m that we cannot spend on ourselves for retirement. Even if we leave the $1m in a SG savings bond (SSB) at an average 10-year return of 3.5%, we will only earn $35k of interest a year. That is equivalent to only ~$1,200 of today’s real dollar value, hardly enough to live a worry-free life that we deserve when we finally get to retire.
Investments
While investments on the other hand, have the potential for capital growth, here are some important points to bear in mind:
#1: The investment market fluctuates. If we die during a bear run, will our children liquidate our investments even when they are making a loss? Because they probably will not know how much money we invested in the first place. So any money they receive from selling our investments, will be “profit” to them anyway.
#2: How will we know whether our children will be knowledgeable in investments? Do we want to take the risk that they might make bad choices and ruin our investment portfolio and hence ruin their inheritance?
Property
Many of us see property as the ultimate inheritance to leave for our children. But is it really worth it?
Plateauing is common due to the remaining no. of years left on the condo, and the outdated and older condition of the estate. There is no rental income to be earned as you and your family
would have been staying in the condo as your residential home.
Legacy Insurance
Legacy insurance aka term insurance, is commonly known to be one of the most cost
effective ways to leave an inheritance for our children. Let’s continue with the condo case study.
Assume we take up a term policy with the same $1.8m value as the condo unit, and that the term policy will also similarly double in value to $3.6m after 20 years, like the condo unit. Even if we pass away at the ripe old age of 100, our ‘profit’ is $2.7m, almost 4x of the $700k ‘profit’ on the condo!
With more and more resale HDBs costing $1m, and COE costing $150k, leaving an inheritance for our children is turning into a necessity and no longer a luxury. The big question is: Have you
found the safest and most cost-effective way to do so?
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