private annuities

[Mecisteus]

Instead of buying an annuity, why not create a bond ladder with SGS Bonds?

Buy $X worth of 30Y SGS bonds annually for the next Y years.

Plan in such a way that the last bond is estimated to mature when you are 100 or 110 years old.

Pros:
1) Your yield is guaranteed at the point of purchase
2) You can choose to redeem any time you like
3) Cut down on middle man costs

The only negative is you need to manage quite a number of bonds yourself unlike a single annuity plan.

 

[Prof. Utonium]

Beyond 14 days
Guaranteed portion is 1.5%+
Think I will just leave it. Any non G will be a bonus
Need that to complement CPF life

Is that the total payout at end of maturity?


What's your guaranteed monthly payout vs premiums?

 

[Nofear40]

Is that the total payout at end of maturity?


What's your guaranteed monthly payout vs premiums?

Annual premium for 10 years: $10,098.03
Guaranteed income: $6303 per year in policy year 20th increasing at about 3.5% for the next 15 years

Lol
I just checked my policy - guaranteed is only 0.8%

 

[JuniorLion]

Annual premium for 10 years: $10,098.03
Guaranteed income: $6303 per year in policy year 20th increasing at about 3.5% for the next 15 years

There's also maturity benefit.

 

[Nofear40]

There's also maturity benefit.

The NG portion? Can choose to accumulate or cash out together with the annual payout

 

[Prof. Utonium]

Annual premium for 10 years: $10,098.03
Guaranteed income: $6303 per year in policy year 20th increasing at about 3.5% for the next 15 years

Lol
I just checked my policy - guaranteed is only 0.8%

Nah, I am just looking at the simple figures.


Total premiums to be paid is $100,980.30. With 3.5% escalating, I think the total payout is about $126K (total of 15 years).



Provided the NG portion performs, should be ok.

 

[Nofear40]

Nah, I am just looking at the simple figures.


Total premiums to be paid is $100,980.30. With 3.5% escalating, I think the total payout is about $126K (total of 15 years).



Provided the NG portion performs, should be ok.

Total G payout is $122k, close to your 126k
Total projected payout = $218k if payout or $273k if accumulated
Why do you say "should be ok"?

 

[Nofear40]

Instead of buying an annuity, why not create a bond ladder with SGS Bonds?

Buy $X worth of 30Y SGS bonds annually for the next Y years.

Plan in such a way that the last bond is estimated to mature when you are 100 or 110 years old.

Pros:
1) Your yield is guaranteed at the point of purchase
2) You can choose to redeem any time you like
3) Cut down on middle man costs

The only negative is you need to manage quite a number of bonds yourself unlike a single annuity plan.

Just check the website- the coupon rate is only released after successful application?

 

[Mecisteus]

Just check the website- the coupon rate is only released after successful application?

Disclaimer: I have never bought a SGS Bond before. I know where to buy and how bonds work.

Coupon rate should be made known to you. I think you meant the YTM. This will depend on the price that you bid or buy in the primary or secondary market.

Once bought, your YTM or guaranteed returns is locked at the start. The longer dated SGS bonds are already yielding ~2.5% pa.

You don't need to worry about NG or whatsover.

 

[mSnooze]

Beyond 14 days
Guaranteed portion is 1.5%+
Think I will just leave it. Any non G will be a bonus
Need that to complement CPF life

Beyond 14 days still can cancel, many ways to do it. See only if your agent want to help you or not.

 

[a4973]

Beyond 14 days still can cancel, many ways to do it. See only if your agent want to help you or not.

With what type of loss?

Sent from Nextbit ROBIN using GAGT

 

[BBCWatcher]

Instead of buying an annuity, why not create a bond ladder with SGS Bonds?

Because it’s extremely difficult to do that. The long bond is only auctioned once or maybe (if you’re lucky) twice per year....

Buy $X worth of 30Y SGS bonds annually for the next Y years.

....and there’s no guarantee whatsoever that you’ll get the current 30 year bond rate at the next auction, much less next year. What happens when the 30 year bond rate falls to 1%?

1) Your yield is guaranteed at the point of purchase

At the then current auction rate, which can easily be dismal.

2) You can choose to redeem any time you like

With absolutely no guarantee your bond will fetch a particular price on the secondary market, and at considerable cost since even SGSes don’t have a big/efficient secondary market in Singapore.

3) Cut down on middle man costs

No, not if you’re selling long bonds on the secondary market. That’s expensive. So is the cost of stocking up on safe/low yielding assets to last to age 110 or more. In other words, you have to bear the full cost of “worst case” longevity risk (best case lifespan) on your own, and that’s quite expensive.

The only negative is you need to manage quite a number of bonds yourself unlike a single annuity plan.

That’s not the only negative.

It mystifies me why one of the oldest forms of insurance humankind has ever invented, longevity insurance, is so “controversial” in some quarters in Singapore. This type of insurance was invented literally centuries ago.

I’m not suggesting you pour all or even most of your wealth into an escalating life annuity. (Who is suggesting that? Not me.) But as a foundation of retirement planning it’s a perfectly ordinary, necessary, well established element (with a few minor exceptions, such as terminal illness diagnoses). It’s the “SHTF” part of retirement financial planning, and it’s important. WTF is wrong with so many people on this? I don’t get it. It’s just a freakin’ pension, an ancient concept in financial/economic history, except you might be purchasing it instead of your employer (but that’s also ancient). Why are so many people opposed to even modest escalating pensions for foundational retirement income? I don’t get it.

 

[Mecisteus]

BBC so what makes you say endowments and whole life policies are bad but longevity insurances are good?

 

[Mecisteus]

Who cares if it's a century old insurance plan.

When buying such products, you need to look at the returns. This should be the main consideration.

Is there any value to it? Or just buy for the sake of future income stream?

You pay premiums and the insurance companies have to invest for you. If future bonds and equities yields fall, your payouts will be affected too.

The insurance companies cannot magically give you more than market returns.

 

[maple96]

BBC so what makes you say endowments and whole life policies are bad but longevity insurances are good?

Who cares if it's a century old insurance plan.

When buying such products, you need to look at the returns. This should be the main consideration.

Is there any value to it? Or just buy for the sake of future income stream?

You pay premiums and the insurance companies have to invest for you. If future bonds and equities yields fall, your payouts will be affected too.

The insurance companies cannot magically give you more than market returns.

Spot on!

He already explained to your other question: one reason he is recommending annuity is so those people who have too much money in SRS can avoid tax, regardless of whether the annuities give u good returns!

Nonsense, I would prefer to get good returns for investing my monies! I buy 5 year endowment with guaranteed 2.7% return, 2.5% return, anytime better than annuity, then see what better "investments" are available, then put my monies there. I dun have alot of SRS, I buy 5 year endowment with guaranteed returns, bought another almost guaranteed 4% returns

 

[tangent314]

Investment rate of return is important, yes. But when it comes to life annuities, it is more important to look at the individual needs.

A lot people are going to retire with a decent sum of money, say somewhere between FRS and ERS range. The question on their mind should be, "How do I make this sum of money last for the rest of my life while enjoying my remaining years as best as I can?"

Without a life annuity, you will have to come up with your own drawdown strategy, and you will run into a dilemma. If you are too conservative with your drawdown, you won't be enjoying your retirement years as much as you would like before you depart this world. If you are too indulgent with your drawdown, you will likely end up running out of money at some age before you die and you will then have to depend on the charity of others.

And this is where life annuities come in - they take the guess work out of your drawdown strategy by applying actuarial principles and the pooling of funds. They charge a bit for the service and in return you get the peace of mind that you will receive a 'just right" regular income for the rest of your life that is somewhere between the two extremes I have described earlier.

Of course, not everyone will need life annuities. For quite a lot of people, they are happy to take a conservative drawdown because they have more money than their retirement lifestyle requires so they will never run out of money barring certain unforeseen circumstances. In this case, it will make more sense to try to maximize your IRR so you can pass more money on to your loved ones after you depart.

However CPF Life does provide additional value to people in this group, in that the money is guaranteed by government securities and protected from lawsuits, creditors and bankruptcy. If I say something wrong about the wrong people and get sued until my pants drop, the people coming for me can take away all my money in the bank and my investments but they cannot away my CPF Life. I'm not sure if they can liquidate anyone's private life annuities, perhaps that would depend on their surrender value.

For me, I project myself to have a sum of money substantially above the ERS when I retire, and I have more or less worked out that my best strategy will be to maximize the payouts of my CPF Life by topping it up to my ERS, delaying payouts until 70 and taking the escalating plan. With my remaining cash, I plan to enjoy my retirement by traveling and perhaps indulging in some more extravagant stuff, safe in the knowledge that even if I overspend and run out of cash, I still have my CPF Life to fallback into which should have escalated past the standard payout by the time I have run out of cash. If I die early, well my CPF Life may well have been a loss, but I won't be too troubled by that as a pile of ash, and my benefactors will still have a significant amount of my leftover cash to share among themselves.

Coming back to private annuities, I do not plan to get one as I expect the maximized CPF Life payout will be sufficient to support the minimum standard of living that I want to have. For people where the CPF Life payout is insufficient, I would say private life annuities are a good idea to set aside a sum so that the payouts on top of your CPF Life will support the standard of living that you need, and you can happily indulge away whatever money you have remaining.

So in conclusion, private life annuities are not useless. There are people for which this is a suitable and makes sense.

 

[Mecisteus]

So in conclusion, private life annuities are not useless. There are people for which this is a suitable and makes sense.

It is suitable for those who have millions of dollars and don't know what else to do with their money. These products are suitable for those who don't seek value in their purchase. Just buy and whack for the sake of payouts till 120 or more.

For the mass majority of people, CPF Life should be sufficient.

For those who seek value and need more than CPF Life, you can actually rely on other source of passive income without going through insurance companies.

 

[BBCWatcher]

It is suitable for those who have millions of dollars and don't know what else to do with their money. These products are suitable for those who don't seek value in their purchase. Just buy and whack for the sake of payouts till 120 or more.

I disagree. You're overgeneralizing.

For the mass majority of people, CPF Life should be sufficient.

There are about 1.64 million people living in Singapore (29.2% of the population) who are not CPF members and who do not have any access to CPF LIFE. Many of them will retire in countries and currency zones that don't offer high quality longevity insurance in quality currencies. Singapore does.

Some private annuities are available with joint/survivor terms, and one of these annuities can be quite helpful layered on top of a pair of CPF LIFE annuities (if eligible) in order to protect your spouse/partner and vice versa. The joint/survivor construction offers some cost efficiencies, actually. For example, if the monthly payouts are approximately one third your CPF LIFE, one third your spouse's CPF LIFE, and one third a private joint/survivor annuity, then when the first one of you passes on household annuity income doesn't drop by half (50%); it only drops by one third. This arrangement can be a perfectly reasonable, cost-effective one. The exact numbers will vary, but there's a lot of financial and insurance sense in it.(*)

Manulife can help you withdraw from your Supplementary Retirement Scheme account tax free (or at least tax reduced) beyond the 10 year withdrawal window, and you will surely have that "happy problem" if you merely contribute the $15,300 maximum (citizen/PR) allowed per year for 30 years into, for example, ES3.

Relatedly, if you retire in another country (outside Singapore) there are tax, estate, and inheritance considerations that often make life annuities quite interesting.

....I keep an open mind about these and other aspects. Sometimes insurance, the pooling of risk, is quite important.

(*) It's rather weird, actually, that CPF LIFE doesn't offer this feature yet. The government certainly has a strong bias in favor of marriage, as with HDB policies for example. It's one area where CPF LIFE could be improved, and I think it'd be fairly straightforward to do it. Probably what you'd do is allow any two adult CPF members age 55 and older to join together in a CPF LIFE partnership under the Escalating Plan -- call it the "Partner Plan." The payout would be calculated based on the combined participation level (e.g. FRSx2) and would be paid out for as long as at least one of the partners is still alive. The payout start date would be based on the age of the older partner and could be from age 65 to age 70, as today. If the younger partner is younger than age 62 when the older partner dies, then payouts would be suspended until the younger partner reaches his/her 62nd birthday. (I think I'd set it at 62.) Something like this set of rules would make a "Partner Plan" work, and it'd be a very nice offer such a plan to CPF members who are trying to assure their joint financial security as a couple.

 

[Prof. Utonium]

It depends on lifestyle.

I got myself an annuity as I intend to retire earlier that age of 55 which is earlier than when I can get my CPF benefits. Though i planned in such that the duration lasts till my CPF kicks in.

Though this is risky as I have more than 3 decades before this happened. It is either I am still alive and there would be changes to when I can get or I am already dead.

Plan wisely but don't reply.

As of now, CPF annuity is much better.

 

[ELKYme]

Tangent314 wrote:
The question on their mind should be, "How do I make this sum of money last for the rest of my life while enjoying my remaining years as best as I can?"

This is indeed on my mind and I’m pretty sure, on many others as well. After working for so many years, all of us would want to enjoy our retirement but worry whether we have sufficient funds to enjoy and still have enough to last us till our last breadth.

Though many of us would have ERS and other decent assets, many of us do not have the many millions to buy enough lifetime annuity to achieve this throughout our lifetime.

Based on this article, the go-go years typically lasts till age 75 and I tend to agree (still in relatively good health and have the mobility to travel).

http://cascadebusnews.com/three-stages-retirement-go-go-slow-go-no-go/

Perhaps a retirement plan with a limited payout period (targeted retirement age till 75 or 80 is a good middle ground.