private annuities

[foozgarden]

Let's get the thread back on topic - this thread is on private annuities.

Personally, I'm a fan of combining CPF ERS with SRS Private annuities (at this moment NTUC Guaranteed Life Annuity) to ensure I enjoy my life at my golden years; assuming I stay alive till then.

yes, this is the combi that i am looking towards too.
ERS + annuity.

what is the reason u choose ntuc GLA, instead of other annuities?

iirc, ntuc has one of the highest, if not highest guaranteed amt?

 

[JuniorLion]

yes, this is the combi that i am looking towards too.
ERS + annuity.

what is the reason u choose ntuc GLA, instead of other annuities?

iirc, ntuc has one of the highest, if not highest guaranteed amt?

Manulife has the highest guaranteed amount. However, once accounting for non-guaranteed amount, and sum over 20 years, NTUC GLA gives higher total amount.

 

[foozgarden]

Manulife has the highest guaranteed amount. However, once accounting for non-guaranteed amount, and sum over 20 years, NTUC GLA gives higher total amount.

and this was the reason for choosing GLA over the others?
should we look at total ROI as the only factor?

btw, did u start payout @65?

 

[JuniorLion]

and this was the reason for choosing GLA over the others?
should we look at total ROI as the only factor?

btw, did u start payout @65?

I look at ROI. Not sure about other people.

And no, I'm not 65 yet.

 

[cscs3]

I cannot comprehend people who enjoys making sweeping statements.

Example 1: "All life insurance policies suck"
Fact 1: I've held an endowment plan (in my own name, and commissions are paid by me), and the XIRR over 30 years is in fact 4.55% nett.

Example 2: CPF monies is not yours
Fact 2: My relative has been withdrawing money from his CPF life for 2 years now. Everything is as written on the website.


So people should stop all the scare tactics, as though everything is scam except for property.

Confirmed your Fact 2 is correct.
As for Fact 1. Many people forget this.
Interest paid for insurance plan os fix rate and not compounded. So when the plan say 4.55% effective rate is less 5han that. Also, do take note interest paid is usually variable depending on company performance. In long run, insurance plan can never catch up the so call leaving standard - if this is what you are looking for from a insurance plan.

 

[JuniorLion]

Confirmed your Fact 2 is correct.
As for Fact 1. Many people forget this.
Interest paid for insurance plan os fix rate and not compounded. So when the plan say 4.55% effective rate is less 5han that. Also, do take note interest paid is usually variable depending on company performance. In long run, insurance plan can never catch up the so call leaving standard - if this is what you are looking for from a insurance plan.

4.55% is nett. I computed using XIRR formula, if you know what that is.

 

[henrylbh]

4.55% is nett. I computed using XIRR formula, if you know what that is.

4.55% for policy that has matured?

 

[JuniorLion]

4.55% for policy that has matured?

Yes, and that is nett of fees/commissions.

 

[henrylbh]

Yes, and that is nett of fees/commissions.

Very rare to have that rate of return for endowment policy unless the policy matured many years ago as old policies pay better rates. My 15yrs policy paid 3.45% only although BI that time was 5.75%.

 

[lifeafter41]

That's a perfectly reasonable combination. Both are tax advantaged (CPF LIFE up to FRS), and there's absolutely nothing wrong with enjoying some tax savings while achieving one's goals.

Note that you are evidently allowed to use a big SRS to buy a qualified life annuity then opt out of CPF LIFE. If you do that, your Retirement Account continues to collect the prevailing interest, as I understand it. And that could be an interesting play if you think the CPF LIFE plus private annuity payouts will be "too much." Furthermore, I think you're allowed to change your mind and hop back into CPF LIFE as long as you do it strictly before your 80th birthday. But please check all that carefully if it interests you.

Just took a quick look into CPF Life 3 plans, why is there such a big difference in terms of the bequest, especially with basic.
Standard and escalating is quite minimal.

Payout between basic and standard is around 200 per month.’why is this so??

 

[xtwis7]

Some people just want Low risk high returns.

So in your case, others may claim that you were ‘lucky’ to have gotten quite a good effective yield

4.55% for policy that has matured?

 

[007Mi6]

Hi, may I propose something as an alternative to buying private annuity (assuming from SRS)?

Assuming $1m in SRS at 62yo.

1st year withdraw $640k (taxable amount $320k or a tax of $40550).
2nd to 10th year withdraw $40k tax free totaling $360k

Tac is 4.055% on principal of $1m

Use the balance of $599450 to buy an income generating UT like JPMorgan that gives about 4.5-5% income which is again tax free. The additional $40k a year withdrawn to buy more into the UT.


If the total SRS amount is $600k, first year withdrawal of $240k, incurring a tax of $5650. Tax on $600k is 0.94%

May also back load the withdrawal (eg last year do the lump sum withdrawal while vested in UT that provides income). Or flatten out the withdrawal tax.

 

[tangent314]

Just took a quick look into CPF Life 3 plans, why is there such a big difference in terms of the bequest, especially with basic.
Standard and escalating is quite minimal.

Payout between basic and standard is around 200 per month.’why is this so??

Multiply that 200 by 12 months and by some number of years and include interest, it adds up to quite a bit of difference in the bequests.

 

[maple96]

Just took a quick look into CPF Life 3 plans, why is there such a big difference in terms of the bequest, especially with basic.
Standard and escalating is quite minimal.

Payout between basic and standard is around 200 per month.’why is this so??

CPF Life is not a bequest lottery nor a betting centre!

We make decisions on which CPF Life Plan to adopt based on facts, based on what we know/understand how CPF Life works for us, based on our knowledge of our family lifespan, our health history etc.

This is my view: if I estimate my lifespan is unlikely to pass 90 (I am healthy but my parents died 83 to 91 and my siblings 70, I do not have dependents but has siblings), I will choose the Basic Plan starting payout at 65.

Basic Plan Benefits:

1. only 10-20% (depending on age and "circumstances" defined by CPFB at the then 65) of RA goes to CPF Life Pool as premium. It will not earn u guaranteed interest of 4% but u get to enjoy this 4% in the pool if u live long enough beyond 95 (estimated). I will try to reduce this premium by withdrawing whatever I am entitled at 65. Unused CPF premium when u exit CPF Life will be refunded. If u die before 90, unused CPF premium will likely be same as what u put in initially, ie u get your money back (no 4% interest).

2. Balance of 80-90% will remain in RA, earning 4+2% interest compounded. This will account for the bulk of the money in the bequest amount if u exit CPF Life earlier than expected.

3. Higher mthly payout compared to Escalating but lower than Standard (about 100-200). This small amt of difference (compared to Standard) does not matter to me as I have other means to "compensate" for the difference. This slightly lower payout does contribute to the higher bequest amt (as compare to Standard) if u exit CPF Life earlier than expected, but the bulk of the monies come directly/indirectly from the compounded interest in 2 above.

read above on what makes up the bequest amt for Basic Plan.

 

[henrylbh]

Hi, may I propose something as an alternative to buying private annuity (assuming from SRS)?

Assuming $1m in SRS at 62yo.

1st year withdraw $640k (taxable amount $320k or a tax of $40550).
2nd to 10th year withdraw $40k tax free totaling $360k

Tac is 4.055% on principal of $1m

Use the balance of $599450 to buy an income generating UT like JPMorgan that gives about 4.5-5% income which is again tax free. The additional $40k a year withdrawn to buy more into the UT.


If the total SRS amount is $600k, first year withdrawal of $240k, incurring a tax of $5650. Tax on $600k is 0.94%

May also back load the withdrawal (eg last year do the lump sum withdrawal while vested in UT that provides income). Or flatten out the withdrawal tax.

Full of holes in your alternative Think harder.

 

[007Mi6]

Full of holes in your alternative Think harder.

I made wrong calculations or assumptions? Maybe you would like to point out?

Annuities are good in their rights. I believe that Annuities will have guaranteed 3.5-4% lifetime payout of the principal sum (6%++ if looking at illustrated investment return of 4.75%), but little to no bequest left at the end.

Retirees to be may also look at alternatives which can also provide decent payout while maintaining their capital sum at certain level. Of course this alternatives I share has downside risks.

 

[henrylbh]

I made wrong calculations or assumptions? Maybe you would like to point out?

Annuities are good in their rights. I believe that Annuities will have guaranteed 3.5-4% lifetime payout of the principal sum (6%++ if looking at illustrated investment return of 4.75%), but little to no bequest left at the end.

Retirees to be may also look at alternatives which can also provide decent payout while maintaining their capital sum at certain level. Of course this alternatives I share has downside risks.

I didn't bother with the calculation but the ideas.

Ok, one flaw is you assumed the remaining 360k over 9 withdrawal doesn't grow while the amount withdrawn and invested in UT can generate 4.5% to 5%.

Other ideas can also be faulted.

 

[007Mi6]

Well, every idea has their short coming. If we wish to keep to annuity only discussion, I can stay away from the alternatives.

I am not going to write a whole article if there is no interest in alternatives to annuity. Ideas should be simple to generate interest before going into technical parts. The UT part, I am prepared to take a 40% downside risk for calculation purpose.

If we do not use relative assumptions, we should just look at guaranteed payout for comparison.

 

[henrylbh]

Well, every idea has their short coming. If we wish to keep to annuity only discussion, I can stay away from the alternatives.

I am not going to write a whole article if there is no interest in alternatives to annuity. Ideas should be simple to generate interest before going into technical parts. The UT part, I am prepared to take a 40% downside risk for calculation purpose.

If we do not use relative assumptions, we should just look at guaranteed payout for comparison.

Withdraw 640k at one go assumes you can easily convert SRS investments into cash for withdrawal, though I remember can also convert SRS investments into personal. And pay 44,550 tax is assuming there is no other chargeable income.

Withdraw 100k per annum, the tax is deferred and it's only 3,950 pa assuming no chargeable income and totalled $39,500 against immediate payment $44,550, again leaving interest element out of the equation. Aand assuming balance not drawn stops growing? Can also decline if investment turn sour

 

[foozgarden]

I made wrong calculations or assumptions? Maybe you would like to point out?

Annuities are good in their rights. I believe that Annuities will have guaranteed 3.5-4% lifetime payout of the principal sum (6%++ if looking at illustrated investment return of 4.75%), but little to no bequest left at the end.

Retirees to be may also look at alternatives which can also provide decent payout while maintaining their capital sum at certain level. Of course this alternatives I share has downside risks.

i am curious, which pte annuity has a guaranteed 3.5-4% lifetime payout.
we are refering to guranteed right?
not the total (guaranteed + non-guaranteed)