Simulating Annuity Plan Payout

[JuniorLion]

I guess I wasn't clear.

The point about simulating annuity plan payout is to cut out the middleman (insurance company)'s cost.

Point taken about the 'periods of low dividends ala Great Depression', but it suffices to say that when such times happen, even the annuity plans payout is not guaranteed and neither would any sort of SWF payouts.

 

[tangent314]

If SWFs are too risky for you then you are only left with government bonds.
Not necessarily a bad thing. I believe in the UK, annuities are backed by UK government bonds.
So option #3 with government bonds for you?

 

[Mecisteus]

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.

Bankers and insurance companies love retirees like you.

Seriously, I don't see how difficult it is to DIY.

 

[JuniorLion]

If SWFs are too risky for you then you are only left with government bonds.
Not necessarily a bad thing. I believe in the UK, annuities are backed by UK government bonds.
So option #3 with government bonds for you?

Looks like #3 is a viable option.

 

[ELKYme]

Wish I am in that situation...being able to live the luxe life.

You’re completely missing the point bro, it isn’t “how difficult “, it’s about NOT NEEDING to.

Bankers and insurance companies love retirees like you.

Seriously, I don't see how difficult it is to DIY.

 

[BBCWatcher]

The point about simulating annuity plan payout is to cut out the middleman (insurance company)'s cost.

Yes, but everything you do financially involves costs.

As it happens, the most cost efficient solution generally involves having some baseline, high quality longevity insurance while prudently investing the rest, and in allocations that are consistent with having that baseline longevity insurance. Risk pooling provides the insurance company (or government) with some serious cost advantages, and frequently those entities share some of those cost advantages with policyholders.

It’s about balance, JL. Exactly where you draw the line is situational, but zero is the wrong answer.

Point taken about the 'periods of low dividends ala Great Depression', but it suffices to say that when such times happen, even the annuity plans payout is not guaranteed and neither would any sort of SWF payouts.

Actually the income-oriented investments did VERY well amidst the Great Depression.

If you look at the highest quality (highest credit rating) private life annuity providers in the United States, you’ll find two companies: New York Life, founded in 1845, and Northwestern Mutual, founded in 1857. These two companies have the highest credit ratings across all the rating agencies. Both had no particular problems sailing right through the Great Depression, two world wars, the Global Financial Crisis, and even the U.S. Civil War. MassMutual, to pick another example, has a credit rating one notch below the top two and was founded in 1851. Same thing: ultra stable. You pay for this quality, but it’s available.

In Singapore (and in the U.S. for that matter) you don’t start with the private life annuity providers. You start with the government’s (CPF LIFE) and max that out first — and for your spouse/partner, too. Then, if you want more longevity insurance than what CPF LIFE can provide (ERS, age 70 payout start, Escalating Plan), you head elsewhere. “Elsewhere” could be an offshore life annuity in a major currency if you’re concerned about national existential risks. Some conservative people buy Swiss life annuities, for example.

You’re completely missing the point bro, it isn’t “how difficult “, it’s about NOT NEEDING to.

Exactly. I must say it’s really, really nice to be able to sleep well, and I just “stumbled into” this particular situation (a trio of sovereign life annuities in the pipeline). It’s just one less thing to worry about, and that’s worth a lot.

We should also remember that some of us will be less mentally sharp as we age. Will we even have the mental capacity for “simple” investing and asset management? That’s certainly not a given. Will somebody take our assets through either fraud or color of law? Maybe. But if there’s a baseline, inflation-adjusted income flow that’s coming in automatically, for life, then your future self’s basic, dignified lifestyle is well defended.

To repeat, I’m not suggesting you buy “huge” amounts of longevity insurance. Just enough to cover a basic, dignified, real lifestyle, usually.

 

[JuniorLion]

Yes, but everything you do financially involves costs.

As it happens, the most cost efficient solution generally involves having some baseline, high quality longevity insurance while prudently investing the rest, and in allocations that are consistent with having that baseline longevity insurance. Risk pooling provides the insurance company (or government) with some serious cost advantages, and frequently those entities share some of those cost advantages with policyholders.

It’s about balance, JL. Exactly where you draw the line is situational, but zero is the wrong answer.

Even if I want it to be zero, it won't be zero. Investing in mutual funds and getting dividends to simulate the payout also incur cost (WHT, for example).

I'm just trying to make it as optimum as it can be.

 

[BBCWatcher]

I'm just trying to make it as optimum as it can be.

Right, so get “a little” high quality longevity insurance — enough for a dignified, basic, real lifestyle for life — and then prudently invest the rest, with the prudent ability to be a little edgier in your investing since you have that downside protection. In Singapore, start with CPF LIFE, and if that’s not enough in your view (even when maximally configured to have the strongest longevity insurance attributes), go comparison shop elsewhere — possibly overseas.

That’s it! I don’t think it’s any more complicated than that.

 

[blurpandasg2014]

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.

Vivocash prime isit considered annuity

 

[Mecisteus]

Wish I am in that situation...being able to live the luxe life.

You’re completely missing the point bro, it isn’t “how difficult “, it’s about NOT NEEDING to.

When you are retired and out of job, you need to find an activity to keep your mind alive.

I would love to open up my spreadsheet to see some numbers daily.

1M portfolio generating 3% coupons annually through a couple of high quality bonds.

Get your children to manage the portfolio for you instead of paying fees to bankers and middlemen. Does it sound like a tall order?

Don't need to follow BBC. He is an ultra conservative person.

 

[JuniorLion]

Vivocash prime isit considered annuity

Vivocash Prime matures at age 100, so no.

 

[BBCWatcher]

When you are retired and out of job, you need to find an activity to keep your mind alive.

You can still have just as much fun (or “fun”) managing 98.2% of your retirement portfolio. Indeed, you’ll have more fun managing your investment portfolio when you have a basic level of longevity insurance in place. Your analysis and investment decisions will/should properly incorporate that additional factor.

Nobody is recommending putting every dollar of wealth into longevity insurance. At least, that’s not what you ought to aspire to do. (Financial realities might require it if you’re coming up short.)

Get your children to manage the portfolio for you instead of paying fees to bankers and middlemen. Does it sound like a tall order?

What if you don’t have children? What if they’re dead? What if they’re not interested? What if it’s a burden to them?

....But OK, you’ve still got 98.2% of your investment portfolio for them to manage. If you wish.

*All* investing involves fees and “middlemen.” However, under reasonable assumptions, having a basic level of longevity insurance as part of your retirement financial planning is the most cost efficient solution. Otherwise your imperfect attempts to self-insure will incur unnecessary “drag” costs, and that’s an especially big drag on your children and grandchildren because you’ve got to hoard more and more conservative assets. Risk pooling works, and getting a reasonable amount of risk pooling helps keep total costs under tight control.

Balance, folks, balance. Eat a balanced diet, and pursue a balanced retirement financial plan.

Don't need to follow BBC. He is an ultra conservative person.

No, those are the “preppers.” There’s nothing “ultra conservative” about having a basic level of longevity insurance in place during retirement. Practically everybody has that across the developed and much of the developing world, including in Singapore. (Practically everybody with a retirement investment portfolio to manage, anyway.) And how aggressively or conservatively you manage the rest of your investment portfolio in retirement is up to you. Prudence advises you can be a bit more aggressive when you have a basic level of longevity insurance in place.

Vivocash Prime matures at age 100, so no.

NTUC Income’s Vivocash Prime is an annuity. It is not a life annuity, and therefore it is not longevity insurance.

 

[JuniorLion]

Have the maximum allowable govt-related "longevity insurance" in place btw.

 

[BBCWatcher]

As a “fun” aside, for those few U.S. persons in the audience — and for some non-U.S. persons who worked in the United States who have U.S. retirement savings accounts such as 401(k)s and IRAs — there’s an interesting little “trick” you can take advantage of called the “QLAC” (Qualified Longevity Annuity Contract).

Traditional 401(k)s and IRAs, funded from pre-tax income from work, have something called “Required Minimum Distributions” (RMDs). Ordinarily the IRS requires you to start withdrawing from those U.S. tax advantaged accounts no later than age 70 1/2. Whereupon you start paying U.S. income tax on the withdrawals, at your then current ordinary U.S. income tax rate — at the higher rate, not at the lower tax rate that applies to capital gains and to qualified dividends.

Some people don’t want to do this. They’d much rather defer the income tax longer if they can and allow these accounts to grow some more. So how can they avoid (or at least reduce) RMDs? They can if they buy a QLAC. The purchase limit is US$130,000 (figure for the 2018 and 2019 tax years). QLACs offer escalating payouts and can be single life, joint/survivor, or joint/contingent. They can be flat nominal or have inflation escalation. And they can have payout start dates as late as age 85.

The QLAC provision in the U.S. tax code is roughly analogous to the rule IRAS has regarding Supplemental Retirement Scheme (SRS) accounts and the ability to elongate the normal maximum 10 year tax advantaged withdrawal window using a fully SRS qualified life annuity. Manulife is currently the only carrier in Singapore that sells fully SRS qualified life annuities, but there are a dozen odd QLAC sellers in the United States, including some really excellent ones like New York Life and Northwestern Mutual.

Anyway, for those of you with traditional U.S. 401(k) and/or traditional IRAs, sometime well before age 70 1/2 take a look at whether a QLAC makes sense for you as a way to generate even more investment gains and to reduce your U.S. income tax bill.

 

[BBCWatcher]

Have the maximum allowable govt-related "longevity insurance" in place btw.

OK, so just for reference a male would get an estimated minimum monthly starting payout of $2,168/month (2034 Singapore dollars) if that male is celebrating his 55th birthday today, pushes his Retirement Account balance up to the Enhanced Retirement Sum today, starts payouts at age 70, and chooses the Escalating Plan. That’s just over $26,000/year (2034 dollars) of lifetime retirement income. And since it’s the Escalating Plan that amount should hold its real purchasing power rather well.

To make this really crystal clear, if inflation over the next 15 years is the same as it was from 2001 to 2016, then $26,000/year on the Escalating Plan from 2034 is going to feel like about S$19,860/year (2019 dollars). That’s the absolute maximum-minimum amount of longevity insurance purchasing power that a single male can get from CPF LIFE. (If you’re younger than age 55 you might be able to get a bit more since the Enhanced Retirement Sum is increasing a little faster than inflation. Round that up to S$20,000 in 2019 dollars if you like.)

....Got all that? With me so far? OK, so consider what about S$20K/year can buy, today, in terms of a basic lifestyle in Singapore. Do you need more longevity insurance than that? “Yes, a little more” would be my answer, as it happens, but you might well have a different answer.

As you can see, CPF LIFE is never lavish. You’re not going to be rolling in caviar and champagne on S$20K/year (2019 dollars). It’s really not possible to buy “too much” CPF LIFE — that isn’t a real world problem. For women it’s even a bit less than that.

I’m using age 70/ERS/Escalating Plan because that’s the maximum longevity insurance you can extract from CPF LIFE. You can choose other parameters if you wish, but other parameters would dilute the longevity insurance characteristics of CPF LIFE.

 

[henrylbh]

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.

No way.

You need the amount in annuity at the start and whether there is subsequent top-ups, the expected life of the annuity payments, the returns the amount can generate etc. If inflation is considered in the annuity payments, calculation become more difficult. There are too many variables that it would be a futile exercise. Forget it lah.

 

[mingyang93]

Annuities

In the long run, i think you would need to first calculate your lifestyle expenses right now and all the miscellaneous expenses which you might have to make and bring those figures into the future where you are going to retire. Your lifestyle might spend lesser as you get older but with inflation rates, you can definitely calculate how much you would need a month and how long you expect to live and then either do some investment which give annual dividends or whatever allows you to continue your lifestyle.

 

[tangent314]

Nah, I find it more sensible to just make as much money as I can right now then when it's time for me to retire, work out how much I can draw down every month, then plan my lifestyle around that income.