Leveraged annuity

[BBCWatcher]

The risk is lower to me as there are guaranteed portion to the income and capital.

Manulife is the guarantor (and the SDIC to a limited extent), and then only in nominal (not real) Singapore dollars. There are still risks in those elements.

Then there’s the significant question whether the nominal Singapore dollar income stream is even needed. Usually prime age working adults don’t need an income stream because they already have one, often with a surplus (i.e. net savings).

Interestingly you could buy a government guaranteed plan and a lot of it: CPF. To buy it you’d deposit up to $37,740 into a child’s MediSave account and $186,000 into a child’s Special Account (2021 figures). Then in 2022 you’d deposit another $37,740 primarily into the child’s MA, rounding up to that amount with an “all three account” Voluntary Contribution for the remainder. Then you make CPF Annual Limit “all three account” Voluntary Contributions annually thereafter. In exchange your child gets gobs of funding and liquidity for housing, education, and medical-related expenses in Singapore, many investment choices if he/she wishes, effectively what is serious disability insurance, effectively whole life insurance, age 55+ lump sum withdrawal options, and age 65+ lifetime pension income, all protected against hostile creditors and court judgments, all invested and defended by a high quality government, all principal guaranteed. Premiums start at $1, and you can modify premiums going forward in any amount, so you have full premium flexibility. There’s no salesperson to deal with, no contract to review or sign, no medical exam, and you can start now from your smartphone with PayNow QR. (Although the end of the month is better timing to get started.) All you need is the beneficiary’s NRIC number and $1 or more.

If you’re in the market for this sort of thing, what’s not to like?

 

[abcde83]

Manulife is the guarantor (and the SDIC to a limited extent), and then only in nominal (not real) Singapore dollars. There are still risks in those elements.

Then there’s the significant question whether the nominal Singapore dollar income stream is even needed. Usually prime age working adults don’t need an income stream because they already have one, often with a surplus (i.e. net savings).

Interestingly you could buy a government guaranteed plan and a lot of it: CPF. To buy it you’d deposit up to $37,740 into a child’s MediSave account and $186,000 into a child’s Special Account (2021 figures). Then in 2022 you’d deposit another $37,740 primarily into the child’s MA, rounding up to that amount with an “all three account” Voluntary Contribution for the remainder. Then you make CPF Annual Limit “all three account” Voluntary Contributions annually thereafter. In exchange your child gets gobs of funding and liquidity for housing, education, and medical-related expenses in Singapore, many investment choices if he/she wishes, effectively what is serious disability insurance, effectively whole life insurance, age 55+ lump sum withdrawal options, and age 65+ lifetime pension income, all protected against hostile creditors and court judgments, all invested and defended by a high quality government, all principal guaranteed. Premiums start at $1, and you can modify premiums going forward in any amount, so you have full premium flexibility. There’s no salesperson to deal with, no contract to review or sign, no medical exam, and you can start now from your smartphone with PayNow QR. (Although the end of the month is better timing to get started.) All you need is the beneficiary’s NRIC number and $1 or more.

If you’re in the market for this sort of thing, what’s not to like?

Pruss 1.....
10cc

 

[JuniorLion]

Manulife is the guarantor (and the SDIC to a limited extent), and then only in nominal (not real) Singapore dollars. There are still risks in those elements.

Then there’s the significant question whether the nominal Singapore dollar income stream is even needed. Usually prime age working adults don’t need an income stream because they already have one, often with a surplus (i.e. net savings).

Interestingly you could buy a government guaranteed plan and a lot of it: CPF. To buy it you’d deposit up to $37,740 into a child’s MediSave account and $186,000 into a child’s Special Account (2021 figures). Then in 2022 you’d deposit another $37,740 primarily into the child’s MA, rounding up to that amount with an “all three account” Voluntary Contribution for the remainder. Then you make CPF Annual Limit “all three account” Voluntary Contributions annually thereafter. In exchange your child gets gobs of funding and liquidity for housing, education, and medical-related expenses in Singapore, many investment choices if he/she wishes, effectively what is serious disability insurance, effectively whole life insurance, age 55+ lump sum withdrawal options, and age 65+ lifetime pension income, all protected against hostile creditors and court judgments, all invested and defended by a high quality government, all principal guaranteed. Premiums start at $1, and you can modify premiums going forward in any amount, so you have full premium flexibility. There’s no salesperson to deal with, no contract to review or sign, no medical exam, and you can start now from your smartphone with PayNow QR. (Although the end of the month is better timing to get started.) All you need is the beneficiary’s NRIC number and $1 or more.

If you’re in the market for this sort of thing, what’s not to like?

If your child is 1 year old right now, you need to wait 54years to even touch anything.

Moreover, even if you are still alive by then, note that the money belongs to your child and not you.

CPF is a good deal but it doesn't solve everything under the sun eh. Life is not a 1 single solution option.

 

[BBCWatcher]

If your child is 1 year old right now, you need to wait 54years to even touch anything.

No, that’s not true. A substantial and increasing amount is fully liquid for housing, education, and qualified medical expenses in Singapore — and with penny granularity, too. The Manulife plan is effectively locked longer and far less granular.

For example, how does this child, as a young adult, buy a house with the Manulife plan? That’d be a reasonable thing to do at that stage of life, wouldn’t it? With gobs of CPF OA (the formula I outlined) the young adult just buys the house, with tremendous flexibility in how much or how little mortgage to take. (Perhaps no mortgage!)

Moreover, even if you are still alive by then, note that the money belongs to your child and not you.

The money belongs to the account holder, correct. That might be an actual problem if you don’t love your child.

CPF is a good deal but it doesn't solve everything under the sun eh. Life is not a 1 single solution option.

Agreed, but I’m pointing out, quite fairly and correctly, that CPF better addresses a broad range of financial security objectives that this Manulife plan purports to address. If what seems “insane” is actually more sane, then maybe the original idea isn’t sensible?

 

[reddevil0728]

Manulife is the guarantor (and the SDIC to a limited extent), and then only in nominal (not real) Singapore dollars. There are still risks in those elements.

Then there’s the significant question whether the nominal Singapore dollar income stream is even needed. Usually prime age working adults don’t need an income stream because they already have one, often with a surplus (i.e. net savings).

Interestingly you could buy a government guaranteed plan and a lot of it: CPF. To buy it you’d deposit up to $37,740 into a child’s MediSave account and $186,000 into a child’s Special Account (2021 figures). Then in 2022 you’d deposit another $37,740 primarily into the child’s MA, rounding up to that amount with an “all three account” Voluntary Contribution for the remainder. Then you make CPF Annual Limit “all three account” Voluntary Contributions annually thereafter. In exchange your child gets gobs of funding and liquidity for housing, education, and medical-related expenses in Singapore, many investment choices if he/she wishes, effectively what is serious disability insurance, effectively whole life insurance, age 55+ lump sum withdrawal options, and age 65+ lifetime pension income, all protected against hostile creditors and court judgments, all invested and defended by a high quality government, all principal guaranteed. Premiums start at $1, and you can modify premiums going forward in any amount, so you have full premium flexibility. There’s no salesperson to deal with, no contract to review or sign, no medical exam, and you can start now from your smartphone with PayNow QR. (Although the end of the month is better timing to get started.) All you need is the beneficiary’s NRIC number and $1 or more.

If you’re in the market for this sort of thing, what’s not to like?

If your child is 1 year old right now, you need to wait 54years to even touch anything.

Moreover, even if you are still alive by then, note that the money belongs to your child and not you.

CPF is a good deal but it doesn't solve everything under the sun eh. Life is not a 1 single solution option.

that's like so true. poster already said "Exploring this as a legacy planning tool + income instead of just pure legacy planning tool in the form of a UL where we wouldn't be able to use the money."

meaning poster still wants to access the cash one leaving it as a legacy to the kids. think poster would be in the grave when the kids are of cpf payout age.

tbh, I just realised that given that BBCW isn't a Singapore citizen and kids pushing CPF. I wonder if there is some sort of political agenda. I though non citizens aren't allowed to meddle in Singapore's political affair?

Agreed, but I’m pointing out, quite fairly and correctly, that CPF better addresses a broad range of financial security objectives that this Manulife plan purports to address. If what seems “insane” is actually more sane, then maybe the original idea isn’t sensible?

as you mentioned it is a broad range of financial security objectives, but poster has a very specific objective, so why use a broad brush to address it?

 

[JuniorLion]

He is just being his usual 1-track mind. After you max the kids' SA, the kids wouldn't able to maximize their tax reliefs subsequently.

 

[reddevil0728]

He is just being his usual 1-track mind. After you max the kids' SA, the kids wouldn't able to maximize their tax reliefs subsequently.

one-trick pony? Tbh, it is never ideal when we are doing things on the extreme.

He will make the argument that once you have topped up the kids CPF to the max, the effect of the interest compound will render any potential tax reliefs the kids can get immaterial which is a fair argument, but that is not addressing poster's objective.

it's like poster asking about ABC, he address it in XYZ. cannot compute.

 

[focus1974]

Only leverage you should engAge in is Property loans.

 

[reddevil0728]

Only leverage you should engAge in is Property loans.

actually why so?

 

[BBCWatcher]

Noted on credit risk. But I don't think it is feasible to be insured against all risk in the world especially sovereign default regardless of how remotely it might be.

Not every risk, true. You cannot insure against a space rock colliding with our planet, at least not if the space rock is big enough. However, you can effectively insure against insurer or even sovereign default. You do that via reasonable global diversification.

To be clear, I don't think Manulife is likely to default. However, we cannot rule it out, and it's much more likely to happen than a Government of Singapore default.

In this context, as mentioned, it is more of having a balance between leaving behind a legacy and at the same time can touch the money through regular income if necessary. So I see it more as an additional income stream for spouse and myself rather than just getting a Universal Life where we will never see the money any more and only the kids will benefit when we are gone. That's not inline with our objective, i.e. we want to both leave behind a legacy and at the same time still be able to use the money.

Right, OK. These are separate but related objectives. The problem with conflating these objectives is that you may risk jeopardizing both objectives. That's the single party risk problem.

First of all, I'm not a big fan of bequests as such. I don't think it makes much sense at all to require people I care about to wait until I'm dead in order to fulfill a particular lifestyle objective they have. In other words, having full freedom to be philanthropic is much more interesting to me. It does my heir no good if he/she has to wait until age 50 for help to fund a university tuition that should have been funded when he/she was age 20, for example.

OK, that said, whether lifetime gifts or bequests (or both), it's pretty easy to have high assurance you'll be able to convey them. If your living expenses are taken care of for the rest of your live(s) and no matter what (with maximum attainable assurance), everything remaining is available for gifts and bequests. Some separation is merited, then.

tbh i feel that this is quite an unfair comment to make. If I don't love my kids, i wouldn't be doing all these. But loving my kids don't mean i should put all the cash into their CPF and i myself can't use it for the next 30-40 year before they reach their payout eligibility age. unless there's some breakthrough in medical technology, we will be long gone.

If it's a guaranteed bequest or gift, then you're definitely not going to spend it. I was/am being flippant, of course, but there's a serious element of truth here. Do you want conditional or unconditional generosity? They're both valid, but they're also different.

Unconditional generosity is quite possible! For example, you buy the biggest CPF LIFE Escalating Plans you can get, bridge to/augment those income streams if necessary with finite savings and/or one or a couple additional escalating life annuities from high quality insurers, and then give everything else away. And/or maintain a pile of wealth of size X in age and risk appropriate, well diversified vehicles...and give everything else away. Nothing particularly exotic is required, especially when it's expensive.

In flippant shorthand, do you love your kids? I assume you do! So what's stopping you from transferring (more) substantial wealth to them now -- that they then spend, save, and invest in optimum ways (you assume)?

 

[JuniorLion]

He has nothing else to add, so throwing in all sorts of psychology into the debate. Love? Conditional?

 

[reddevil0728]

Not every risk, true. You cannot insure against a space rock colliding with our planet, at least not if the space rock is big enough. However, you can effectively insure against insurer or even sovereign default. You do that via reasonable global diversification.

To be clear, I don't think Manulife is likely to default. However, we cannot rule it out, and it's much more likely to happen than a Government of Singapore default.

--

First of all, I'm not a big fan of bequests as such. I don't think it makes much sense at all to require people I care about to wait until I'm dead in order to fulfill a particular lifestyle objective they have. In other words, having full freedom to be philanthropic is much more interesting to me. It does my heir no good if he/she has to wait until age 50 for help to fund a university tuition that should have been funded when he/she was age 20, for example.

Hmmm on one hand you are suggesting reasonable global diversification to guard against risk, on the other hand you are suggesting all eggs into the CPF basket.

poster said he/she might kick the bucket earlier than the kids reaching payout eligibility age for CPF, so if topping up CPF is done, isn't that doing exactly what you said doesn't make much sense???

He has nothing else to add, so throwing in all sorts of psychology into the debate. Love? Conditional?

ya. seems like that's usually done when someone is losing the plot.

 

[JuniorLion]

actually why so?

Lowest loan %.

 

[reddevil0728]

Lowest loan %.

Means what ah?

 

[JuniorLion]

Means what ah?

Lowest interest rate

 

[reddevil0728]

Lowest interest rate

But why that should be the ONLY loan to take leh

 

[ocs_woodlands]

I was thinking about this.

I currently already have a leveraged annuity under my belt.

want to seek views on the following:

let's say I reach 55 in a few years' time.

I withdraw 100k from OA (after shielding and formation of RA with either FRS or BRS).

borrow 250k.

throw in 100k + 250k into annuity. Maybe interest rate 0.8/0.9 + COF.

Keep 250k in OA.

if annuity gives me 3.6% on 350k, that will be 12.6k pa.
minus interest maybe 1.8% =>4.5k pa. net is 8k.

in the meantime, my 250k is sitting in OA earning 2.5% but ready to deploy anytime to redeem the loan should the interest rise above 2.5%.

anything wrong with this strategy?

 

[BBCWatcher]

in the meantime, my 250k is sitting in OA earning 2.5% but ready to deploy anytime to redeem the loan should the interest rise above 2.5%.

anything wrong with this strategy?

Yes: you cannot withdraw OA funds without first draining SA, which is earning 4.0% interest. Hypothetically you could raise another SA shield, but you cannot shield $40,000 of SA and will still lose at least one month of SA interest. And you cannot redeposit those withdrawn funds, or at least not easily and not quickly.

 

[chrisloh65]

Problem with you plan is: do you think you can get 3.6% p.a. return from annuity? I really doubt so in current low interest rate environment though.

I know some people would say that they had achieved 3.6% p.a. return or more from annuities bought years ago, but that is already history in an era where interest rate is much higher isn't it? That was probably a time when you can get FD of 3% p.a. or more?

I was thinking about this.

I currently already have a leveraged annuity under my belt.

want to seek views on the following:

let's say I reach 55 in a few years' time.

I withdraw 100k from OA (after shielding and formation of RA with either FRS or BRS).

borrow 250k.

throw in 100k + 250k into annuity. Maybe interest rate 0.8/0.9 + COF.

Keep 250k in OA.

if annuity gives me 3.6% on 350k, that will be 12.6k pa.
minus interest maybe 1.8% =>4.5k pa. net is 8k.

in the meantime, my 250k is sitting in OA earning 2.5% but ready to deploy anytime to redeem the loan should the interest rise above 2.5%.

anything wrong with this strategy?

 

[wuming79]

Problem with you plan is: do you think you can get 3.6% p.a. return from annuity? I really doubt so in current low interest rate environment though.

I know some people would say that they had achieved 3.6% p.a. return or more from annuities bought years ago, but that is already history in an era where interest rate is much higher isn't it? That was probably a time when you can get FD of 3% p.a. or more?

I think most of their par fund combinations is sometime like 40 bond 60 equity or the other way round. This combination should be around 4% to 5% per annum averaged out longer term?