Simulating Annuity Plan Payout

[JuniorLion]

Now that NTUC Guaranteed Life Annuity is gone, the only other true annuity plan is Manulife RetireReady, which I don't really like as it was said that Manulife has cut bonuses several times before.

Other retirement plans have a last payout date, notably at age 99 or age 100:
1) AXA RetireHappy Plus's last payout date is 99;
2) NTUC Vivowealth's last payout date is 100.

Are there ways to simulate an annuity plan payout that can last you as long as you live?

I'm not talking about CPF Life, so leave that out, please.

 

[BBCWatcher]

Now that NTUC Guaranteed Life Annuity is gone, the only other true annuity plan is Manulife RetireReady....

No, that’s not correct. Manulife is the only company currently selling a fully SRS qualified life annuity, meaning an annuity that effectively extends the 10 year tax advantaged SRS withdrawal window. And for most SRS account holders that feature is only interesting when they have a SRS account that swells to >$400,000, which is not most people.

See this thread for a list of life annuities sold in Singapore.

 

[ELKYme]

Don’t think JL is asking about annuity plans eligible to be purchased using SRS funds.

I’m also not very sure, JL can you clarify your question:

“Are there ways to simulate an annuity plan payout that can last you as long as you live?”

I think it’ll be impossible to do any simulation though:
1) Annuity payouts consists of 2 components (guaranteed & non-guaranteed), the non-guaranteed component is a moving target.

2) “As long as you live” is also a variable (how nice if we know the answer to this).

No, that’s not correct. Manulife is the only company currently selling a fully SRS qualified life annuity, meaning an annuity that effectively extends the 10 year tax advantaged SRS withdrawal window. And for most SRS account holders that feature is only interesting when they have a SRS account that swells to >$400,000, which is not most people.

See this thread for a list of life annuities sold in Singapore.

 

[JuniorLion]

Yes, ELKYme is right in interpretating.

I am not only asking about SRS-qualified.

 

[JuniorLion]

I am also asking about how to simulate annuity plan payout by DIY, instead of relying on insurance companies.

 

[BBCWatcher]

I am also asking about how to simulate annuity plan payout by DIY, instead of relying on insurance companies.

It cannot really be done.

The insurance companies (and governments) offering life annuities are pooling longevity risk, something you cannot do on your own. Lifespan is a variable. Most people cannot predict their death dates with any great precision, but over a large enough population actuaries can calculate life tables and probabilities with excellent precision, then set premiums and payouts based on those aggregates. And back those life annuities further, if necessary, using reinsurance, profits, other assets, and/or general tax revenues, as applicable. You don’t have any of these abilities either.

In the Singapore context, just buy whatever longevity insurance you want to get from the government first (CPF LIFE), in maximally potent longevity insurance form. That’d be a payout start date at age 70, Enhanced Retirement Sum at age 55, Escalating Plan, and your spouse/partner the same. If you want to step outside that particular recipe you can, but that’s the particular recipe that offers the maximum available longevity insurance attributes within that particular program. If you still want more than that amount of longevity insurance, no problem, go find the best deal available among the life annuity providers I’ve listed in the other thread.

To be clear, I do not recommend buying “too much” longevity insurance. That’s not a real world problem with CPF LIFE due to ERS caps, so set that aside. Longevity insurance should be enough to preserve a decent, dignified, real (not nominal) retirement lifestyle for your entire lifetimes (including spouse/partner). But it doesn’t have to be more than that and probably shouldn’t be.

Another interesting question is whether you should rely solely on Singapore dollar denominated longevity insurance. Although the probability is extremely low, I cannot totally rule out a national calamity. Ultra conservative households sometimes decide to nail down a couple life annuity income streams, including one or a couple offshore, for precisely this reason. I have mixed feelings about that since it’s rather expensive, but I can understand the argument.

 

[sanzhu]

Koitiam thank u for the free money

 

[soaresb]

I am also asking about how to simulate annuity plan payout by DIY, instead of relying on insurance companies.

Quite easy. You just set aside the money for a worst case scenario, say, living till 120. If you are 90, then at 20k a year, you need 600k. You then draw down this sum at 20k a year.

 

[ELKYme]

Aiyo, CPF Life discussion again..don’t lah Bro BBC. No point arguing over something that’s mandatory good or bad.

Lucky only 3 choices, if there’s more choices the arguments and disagreements will only get worse.

 

[ELKYme]

The decumulation calculation you stated is a little too simplistic, it is a lot more complex as the funds are likely spread between various asset classes with different annual performance, how to account for this yearly fluctuation?

In time to come, Robo-Digital Wealth Decumulation Advisors will be available to assist in this area. IBM is already working on it:

https://www.ibm.com/blogs/insights-...the-retirement-wealth-decumulation-challenge/

Quite easy. You just set aside the money for a worst case scenario, say, living till 120. If you are 90, then at 20k a year, you need 600k. You then draw down this sum at 20k a year.

 

[soaresb]

The decumulation calculation you stated is a little too simplistic, it is a lot more complex as the funds are likely spread between various asset classes with different annual performance, how to account for this yearly fluctuation?

In time to come, Robo-Digital Wealth Decumulation Advisors will be available to assist in this area. IBM is already working on it:

https://www.ibm.com/blogs/insights-...the-retirement-wealth-decumulation-challenge/

True. Perhaps a more sophisticated method would be to buy a series of bonds with as close a credit rating to the annuity provider you are trying to simulate as possible, and with the cash flows mimicking the payouts. Spreading funds into various asset classes and timing the decumulation would introduce investment/reinvestment risks etc., and that would technically not replicate a guaranteed annuity because an annuity buyer is exposed only to credit risk of the provider (disregarding things such as political risk etc.).

 

[BBCWatcher]

It’s just flat out very expensive to self-insure against all longevity risk. You’d need a big(ger) pile of high quality sovereign bonds, highly preferably real return bonds which (sadly) don’t actually exist in Singapore dollar denominated form.

There’s another approach that a few people attempt, and I’m referring here to the “preppers.” The principles they follow have some logic, which is that they’re trying to insure against extreme downside risks, including longevity risks, through better assurance of a real, long-term, baseline lifestyle — a survivalist lifestyle. So, for example, they stock up on ~30+ year shelf stable foods, medical kits and skills, housing (hidden bunkers), clean water supplies, greenhouses, and so forth. It’s very expensive and time consuming to do all this, but they understand the basic reality that money only has value in what it can buy. (A lot of people seem confused about that point. The money/the number as such is meaningless. All that matters is purchasing ability and power, now and in the future.) In a national existential crisis money might become worthless, but food won’t be. The “preppers” would never pick Singapore, though. Obviously I’m not a “prepper,” not in these ways.

I’ve kind of “stumbled into” the multi-sovereign longevity insurance approach, and I like it. That approach should do fine even in the extremely unlikely event of a national existential crisis. In a global existential crisis, the “preppers” have a leg up on me. Or not. If the space rock is big enough, their bunkers won’t be good enough.

 

[JuniorLion]

What's multi-sovereign longevity insurance? If it is not CPF Life, then I would love to find out more.

 

[tangent314]

There are 3 different approaches I can see.

1. Longevity insurance
2. Safe withdrawal rate
3. Drawing only up to interest/dividends from investments and maintaining a fixed (or possibly increasing) principle.

If you want to DIY without involving an insurance company, then you only have options 2 and 3. There is no way to DIY option 1 just like you cannot DIY term life insurance. SWR holds the risk that if your chosen rate is too high and you live too long and your investment returns are lower than projected, then you can possibly run out of money. Option 3 will give you the lowest regular payout.

 

[JuniorLion]

There are 3 different approaches I can see.

1. Longevity insurance
2. Safe withdrawal rate
3. Drawing only up to interest/dividends from investments and maintaining a fixed (or possibly increasing) principle.

If you want to DIY without involving an insurance company, then you only have options 2 and 3. There is no way to DIY option 1 just like you cannot DIY term life insurance. SWR holds the risk that if your chosen rate is too high and you live too long and your investment returns are lower than projected, then you can possibly run out of money. Option 3 will give you the lowest regular payout.

So for 3, can you go all-balls in equities funds and then just draw the dividends per year? Since equities fund spread risks over multiple stocks and is generally safer than just all-balls into single stocks/selected stocks you pick.

 

[Geeezz]

I would like to know if it's better to buy bonds/ preferred shares or annuity plan fr retirement payout? I get that I will have to keep some in equity as well.

 

[JuniorLion]

Let's take a look at NTUC Vivowealth Solitaire.

How does one simulate the payouts of NTUC Vivowealth Solitaire via DIY? Through 100% in equities-fund and then drawing out the dividends.

 

[ELKYme]

JL, isn’t it too troublesome to do all these?

In your retirement, I’m sure you would want to be carefree, worry-free and spend time traveling and doing stuff that you like.

Why bog yourself down by having to calculate, rebalance your portfolio with higher yielding assets, do research and so forth just to save that little that the insurance company makes?

As you’ve already made it in life, buy that annuity that pays out sufficiently to have that carefree lifestyle. Kick back, relax and enjoy life!

Let your banker and estate planner provide suggestions and options on how to set up that trust fund to fullfill your wishes to leave a legacy for generations to come.

Let's take a look at NTUC Vivowealth Solitaire.

How does one simulate the payouts of NTUC Vivowealth Solitaire via DIY? Through 100% in equities-fund and then drawing out the dividends.

 

[BBCWatcher]

What's multi-sovereign longevity insurance? If it is not CPF Life, then I would love to find out more.

That means two or more life annuities from different governments, or at least from life insurers in more than one country that have different government backstops. Which is not easy to arrange, but it’s occasionally possible.

There’s a small group of people who believe in what they call “flag theory,” and what I’m describing bears some faint resemblance to their way of thinking. However, I think they’re way too extreme. I think international diversification to a reasonable degree is important, but you don’t have to go overboard.

So for 3, can you go all-balls in equities funds and then just draw the dividends per year? Since equities fund spread risks over multiple stocks and is generally safer than just all-balls into single stocks/selected stocks you pick.

Dividends are by no means guaranteed, and we’ve had long spells of depressed stock valuations and low dividends. The Great Depression was such an example. High quality sovereign bonds, preferably real return bonds, are important within an income-oriented protfolio.

Let's take a look at NTUC Vivowealth Solitaire.

NTUC Income’s Vivowealth Solitaire is not a life annuity. I linked to the list of genuine life annuities that are currently offered in Singapore. There are several choices, but that’s not one of them.

 

[BBCWatcher]

JL, isn’t it too troublesome to do all these?
In your retirement, I’m sure you would want to be carefree, worry-free and spend time traveling and doing stuff that you like....

I agree with this.

It’s really all about balance. I don’t think it’s necessary to have much high quality longevity insurance, but I would pick some level of real lifetime income (from a high quality insurer, such as a high credit rating government) that could support a dignified, basic lifestyle. It’s “SHTF” stuff, and it’s not expensive. Then you can manage your savings and investments above that baseline however you wish, hopefully prudently.

Money has absolutely no meaning except in terms of the goods and services it can buy, now and in the future. Life isn’t a video game, and nobody cares (or at least nobody should care) about whether your dead body’s “score” is 5 cubits higher or not. Enjoy life, reliably and securely, and shower your children, grandchildren, nieces, and nephews with affection (and university tuition payments, for example) while you’re still around to enjoy life with them. If you can do that, it’s fabulous. A baseline amount of longevity insurance is quite helpful as part of the formula.