
In our previous article "Is CPF Life enough for me to retire?", we talked about CPF Life and how the monthly pay-outs can help with our retirement planning. In this article, we continue our discussion on retirement planning and share an alternative to CPF Life.
What are annuities?
To briefly explain annuities, they are:
Private annuities
If you are looking for high returns or high growth options, then an annuity is not for you. This is because annuities are not meant to be used as an investment. However, this is not to say that annuities are inherently bad as while annuities do not provide high returns, there are still certain benefits to using annuities.
(See "How Much Can I Receive From An Annuity?")Private annuities are suitable for my retirement planning if...
#1 I want to receive a regular pay-out in retirement
Private annuities are similar to CPF Life in that they are able to provide individuals with a regular pay-out in retirement. These pay-outs may be given on a monthly or yearly basis and are typically made up of a guaranteed and non-guaranteed component. This means that if you choose a guaranteed monthly income of $1,000, you will receive this guaranteed $1,000 together with a non-guaranteed bonus every month.
With a regular pay-out, annuities can give us financial security with knowledge that we can continue to receive a regular stream of income even after we have retired.
#2 I want some flexibility with my retirement plan
Annuities will require either a one-off premium or regular premiums to be paid. This can be seen as a disciplined way to save as you are “forced” to contribute to your retirement savings. While CPF Life is also an annuity to be used for retirement planning, private annuities offer a more flexible approach. This is because top ups made to CPF Life are irreversible and irrevocable. Therefore, while you may want to top up your CPF Life for a higher pay-out, do plan your finances and only do so if you are comfortable with not being able to withdraw that sum of money even in the event of emergencies.
Additionally, private annuities has a surrender value. This refers to the amount that you are guaranteed withdrawable, thus giving you liquidity should you urgently require cash. Do note that this surrender value will differ between policies and policy year (i.e. you are likely to get a higher surrender value in Year 10 as compared to Year 1 of your policy term).
(See "3 Tips For The Best Retirement Strategy")#3 I want a fuss-free, hands-off approach to retirement planning
With annuities, you do not have to actively manage our portfolio. Instead, what happens is that you make a lump sum payment when purchasing (also known as a single premium) or make regular payments for a specified period of time. The insurance company then take your premiums and pool it together with the rest of their customers to invest. In return, you will get your returns in the form of a guaranteed and non-guaranteed pay-out.
Private annuities also allow you to determine how long we would want to continue receiving pay-outs for and at which age do you want these pay-outs to start. This flexibility is one of the main difference between private annuities and CPF Life with CPF Life dictating that pay-outs can only start earliest age 65 and no later than age 70.
(See "What should I do with my maturing endowment plan?")Annuities available on FSMOne:
Manulife – RetireReady Plus III
NTUC Income – Gro Retire Flex
Manulife RetireReady Plus III |
NTUC Income Gro Retire Flex |
|
Regular pay-outs are given on a... |
Monthly basis. |
Monthly basis. |
Pay-out term |
For life (up to age 120) or over a specified period. |
For life (up to age 100) or over a specified period. |
Type of pay-out |
Has both a guaranteed and non-guaranteed component for pay-outs. |
Has both a guaranteed and non-guaranteed component for pay-outs. |
Starting age for pay-outs |
Age 50, 55, 60, 65, 70 |
Pay-out to start after an accumulation period of 5 to 50 years for single premium plans, or from 10 to 50 years for regular premium plans. |
Flexibility to adjust pay-outs |
Yes, adjust your income payout period at any time up to 2 years before your selected retirement age. |
Yes, you can select and change when to start receiving your monthly cash payouts (10, 20 years or up to age 100). |
Premium payment term |
Single premium, or 5, 10, 15, 20 years. |
Single premium, or 5, 10, 15, 20, 25, 30, 35, 40 years.
Premiums have to be paid up to 5 years before the end of the accumulation period. |
Mode of payment |
Cash or SRS (Supplementary Retirement Scheme). SRS only available for single premium and first party policies. |
Cash or SRS (Supplementary Retirement Scheme). |
FSMOne can help you get on track with your retirement planning
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Available Products on FSMOne Insurance |
Term Life, Whole Life, Critical Illness, Annuity, Health, Endowment, General Insurance (Personal and Commercial) from AIG, Allianz, Chubb, Etiqa Insurance, FWD Insurance, Great Eastern, Manulife, NTUC Income, QBE, Sompo and Tokio Marine Life Insurance *Please check with our advisory team if the product you want is available on FSMOne Insurance |
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