Leveraged annuity

[Janiston]

Seeking opinion whether leveraging to purchase annuity is a good idea even though I do have the premium on hand to pay for a plan. Understand that it does maximise the returns but there r some risks.

My agent is recommending this annuity product with loan from rhb. What should I take note ?

Did u go with RHB in the end? A banker from SCB also offered me leverage. I set aside 70k, bank lends me 180k. Total of 250k place into prudential wealth III endowment plan for 20Y or more. For the bank’s 180k, I need to service annual interest rate of 0.6% + daily Sora (currently ard 0.12%, will fluctuate).

 

[boredboiboi]

Did u go with RHB in the end? A banker from SCB also offered me leverage. I set aside 70k, bank lends me 180k. Total of 250k place into prudential wealth III endowment plan for 20Y or more. For the bank’s 180k, I need to service annual interest rate of 0.6% + daily Sora (currently ard 0.12%, will fluctuate).

Why that plan? The plan is not even annuity. The capital guaranteed breakeven is about year 15 if i not wrong. To earn money from it maybe more than 10-20 years because u have to offset the interest u pay.

 

[Janiston]

Why that plan? The plan is not even annuity. The capital guaranteed breakeven is about year 15 if i not wrong. To earn money from it maybe more than 10-20 years because u have to offset the interest u pay.

Think the bank offered endowment or insurance products in general, cos don’t want clients to use leverage to go into something risky and go bankrupt (potentially even losing the leverage). Once the client sets aside 70k and gets leverage of 180k to put total of 250k into the endowment, upon maturity 20Y later, the policy’s surrender value is ~400k (assume ~4% pa returns). Deduct 20Y of interest, to b conservative, say 2%pa of 180k (or 72k over 20Y) and return 180k loan back to bank, client should pocket up to ~S$140k. This is based on S$70k of original capital.


Banker also suggested I put in 30k into a China high yield fund (apparently 10% pa returns but not guaranteed) and use the dividends to pay off the annual bank interest, any extra dividend goes into the bank account. So just put aside 100k away for 20y and “do nothing”.

 

[boredboiboi]

Think the bank offered endowment or insurance products in general, cos don’t want clients to use leverage to go into something risky and go bankrupt (potentially even losing the leverage). Once the client sets aside 70k and gets leverage of 180k to put total of 250k into the endowment, upon maturity 20Y later, the policy’s surrender value is ~400k (assume ~4% pa returns). Deduct 20Y of interest, to b conservative, say 2%pa of 180k (or 72k over 20Y) and return 180k loan back to bank, client should pocket up to ~S$140k. This is based on S$70k of original capital.


Banker also suggested I put in 30k into a China high yield fund (apparently 10% pa returns but not guaranteed) and use the dividends to pay off the annual bank interest, any extra dividend goes into the bank account. So just put aside 100k away for 20y and “do nothing”.

I mean leverage is more to annuity plans and not to endownment plans. Annuity pays you income and for life and even for generations, and the income to offset the interest. Endownment if bonus cut andcut and in the end you only take back capital, arent you going to lose out to all the interest paid? Even if u look at their highest return of 4.25% return, its going to be around 2% per annum at most for 20 years. First time i see people leverage on endownment.

 

[mummynew]

Did u go with RHB in the end? A banker from SCB also offered me leverage. I set aside 70k, bank lends me 180k. Total of 250k place into prudential wealth III endowment plan for 20Y or more. For the bank’s 180k, I need to service annual interest rate of 0.6% + daily Sora (currently ard 0.12%, will fluctuate).

If you are seriously considering going into leveraged annuity product, try to do comparisons among banks.

About 2 years ago, I helped a friend to study BIs from CIMB for NTUC and Manulife annuity leverage products along side with SCB's Prudential.

At the end, she bought two policies (split her sum into two) to spread her risks - one with NTUC and one with Manulife. (vaguely remember Prudential had a longer breakeven years comparatively speaking and so you may want to also look at this as well in the event that you have to surrender it 10 - 20 years down the road for whatsoever reasons. The three insurers' PROJECTED returns with the interest rate charged then will be more comparable around 30th year.)

Do some comparison work with updated BIs and interest rates from various banks/insurers before making the final decision.