Want To Retire By 55? Here’s How Annuities Can Help

Do you think of retiring or are you prepared to work for the rest of your life? With most Singaporeans wanting to retire by the age of 60, adequate financial and retirement planning is thus important in helping us to achieve this goal.¹ This is because while retirement planning options may work in theory, the reality may differ with the possibility of you prematurely depleting your savings due to unforeseen circumstances. Therefore, should you wish to secure funds for your desired retirement lifestyle, consider annuities for a guaranteed lifetime income.

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Who needs annuities?

Ranked as 5th in the world for life expectancy at birth, Singaporeans are increasingly living a longer life.² This inevitably results in an extended retirement, and thus would require us to have more savings for our retirement

Furthermore, while retirement expenses are currently estimated to be S$1,200, this could possibly inflate to become twice of the current amount 30 years later.³ As such, it is important that we start to plan for our retirement to ensure that we are prepared for these rising costs. Annuities can therefore be used as a solution to a lack of savings with monthly or yearly pay-outs given. This ensures that we receive a steady stream of income during retirement and eliminates the problem of not having enough savings for our retirement.

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What are annuities?

A form of life insurance, annuities are typically purchased for retirement purposes. Paid out upon reaching retirement age, annuities provide a regular stream of income until death. This seeks to reassure, knowing that pay-outs would be received to supplement your retirement savings. Moreover, with the non-guaranteed bonuses, it thus allows for higher pay-outs to be received. The guaranteed acceptance offered for annuities thus makes them available for all to purchase despite having any medical conditions or pre-existing illnesses.

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Where can annuities be purchased?

A variety of annuities are available for purchase with one of such annuities being CPF Life. Utilising our CPF funds, this annuity is purchased at the age of 55 with pay-outs commencing anytime between age 65 and 70.⁴ Alternatively, annuities can also be purchased through FSMOne with our range of available products as shown below.

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When are annuities suitable?

With various types of annuities available, understanding the differences would allow you to choose a policy to suit your needs. For example, if you are worried about outliving your savings and wish for your pay-outs to commence immediately, you should select an immediate annuity. Otherwise, opt for deferred annuities if you only wish to start receiving pay-outs at a later date. Alternatively, should you wish to extend these pay-outs to your spouse, consider a joint-life annuity plan. This would allow the pay-outs to continue for as long as either one is alive.

Annuities are also usually embedded with basic protection with some plans offering coverage for Total Permanent Disability (TPD) or if activities of daily living (ADLs) cannot be carried out. Add-on riders are also available should you wish for a more comprehensive coverage.

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Why should you use annuities?

Providing assurance, pay-outs from annuities eliminates the possibility of outliving your savings by ensuring that you will have enough for your retirement. With pay-outs starting from your specified retirement age, annuities can be used to complement your retirement savings. Additionally, this would also prevent the premature use of your savings as well as allow for the accumulation of non-guaranteed bonuses for higher pay-outs.

An example of annuities would be CPF Life, a government scheme that was developed to help Singaporeans with our retirement planning. While CPF Life provides monthly pay-outs, these may be insufficient with the pay-outs for CPF Life Standard Plan ranging from just S$700 to S$750. As such, an annuity plan could complement these CPF Life pay-outs by providing additional income to supplement your retirement needs.

(See "3 Surprising Facts About CPF Life You Probably Didn't Know")

How FSMOne can help you get on track

Our team of friendly advisers are able to help you review your financial objectives, long term commitments, and offer you investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan, you can contact our advisers at advisory@fundsupermart.com.

^{1Source: http://www.straitstimes.com/business/two-in-three-singaporeans-cant-retire-at-their-desired-age-survey}

^{2Source: https://www.moh.gov.sg/content/dam/moh_web/PressRoom/Highlights/2016/cos/Life%20Expectancy%20in%20Singapore%20Information%20Note_120416.pdf}

^{3Source: http://www.channelnewsasia.com/news/singapore/retirement-planning-how-much-is-enough-8123970}

^{4Source: https://www.cpf.gov.sg/members/schemes/schemes/retirement/cpf-life}

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