Monday, October 17, 2005

Two ways to buy a life annuity with your CPF

A CPF member is required to keep $90,000 in the CPF to be withdrawn in monthly installments. He can buy a life annuity with this sum.

Here are two ways to buy the life annuity:

- buy at age 55, and receive the monthly payment from 62 years.
- keep in CPF to earn 4% per annum, and to buy the annuity at age 62

Which is better?

If you buy the annuity at age 55, we pay you a guaranteed interest of 2.5% and bonus that depends on the earnings of our insurance fund. Based on our past record, we expect the bonus to vary from 1% to 3%, but this is not guaranteed.

If you keep in the CPF, you will get a guaranteed return of 4% per annum, which is quite attractive. You can invest in the life annuity after age 62. The amount that you can get depends on your age, gender and the amount invested.

Generally, our life annuity gives a guaranteed return of 2.5% plus a bonus that depends on the earnings of our insurance fund. We also give a higher payout, as the capital sum is consumed during your lifetime.

Many people find it quite attractive to buy an annuity at age 55. The guaranteed return of 2.5% plus the bonus (assuming 2% per annum) will be better than keeping the money in CPF.
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8 comments:

sharon tay said...

Mr. Tan has put his ideas across in a very clear and concise manner.

The life annuity by NTUC Income is indeed attractive in terms of competitive prices, lifetime payout, and possible increased payout from bonus

October 08, 2005 12:35 PM
rakyat said...

Dear Mr Tan,
The annuity pays $543 at 62 and $984 at 92. Is it possible to explore annuity that pays $984 at 62 and $543 at 92?

Many do not live past 82 and less will will make it past 92. Why not allow for more monthly income when they are 62, when they are more active and will need the money for transportation etc ?

October 16, 2005 2:18 PM
aiyoyo said...

hi Mr Tan,

What is the maximum and minimum % of your salary is able to put into the SRS?

October 16, 2005 7:29 PM
Christopher Loh said...

Purpose of an annuity is to prevent one from outliving his/her resource. The higher payout is not guaranteed and the idea of an annuity is to make sure you will not die being hungry. If you get more now, your money will not be able to grow fast enough to last you shall you live longer.

Imagine you are past 82, and your CPF money is all used up, no other saving. Who do you think will pay for you? The govt? Who will then fund the govt's budget which in turn fund you?

Then I believe there will be an increase of GST to a point that it is like paying Income Tax in USA. Cost of living will become higher and higher, which will have a snowball effect on the future economy.

Unfortunately, annuity is for the less savvy in investment, or those who do not know how to manage their money to generate enough funds. It is also for those who do not have a lot of retirement money. If everyone knows how to invest wisely and be disciplined in their investments, annuity is not needed mostof the time.

October 17, 2005 10:01 AM
sharon tay said...

“If everyone knows how to invest wisely and be disciplined in their investments, annuity is not needed most of the time.”

Chris,

I think the main objective of the annuity is to provide one with a stable, long-term income supplement to the annuitant.

For individuals with solid financial planning, it can be the additional icing on the cake.

For people who do not have generous retirement monies, this will be a good boost to their monthly income.

So contrary to your view, I think annuity is necessary.

October 21, 2005 2:33 PM
Tan Kin Lian said...

Dear Rakyat,
It is not possible to design the annuity payment in the manner that you have suggested.

Dear Aiyoyo,
You can refer to the SRS website. I am not sure where it is. Maybe under the IRAS website, or M of Finance website.

October 22, 2005 1:11 AM
Christopher Loh said...

Dear Sharon Tay,

Saying that an annuity is necessary is irresponsible. Buying a product is not because the product is good, rather because the product is best suited to that individual.

I had already mentioned why annuity is here for. It is up to individuals to decide for themselves whether they can have other alternatives that gives them more return compared to an annuity.

Annuity is NOT an one size fits all product. If this is so, why NTUC Income would need agents in order to allow one to buy such product. NTUC Income can just simply give another option to allow anyone who does not want to have an agent buy the annuity.

End of the day, there are risks involved in buying an annuity, even from NTUC Income. Who dares to say nothing will happen to NTUC Income?

October 23, 2005 1:57 AM
sharon tay said...

In my opinion, annuity is necessary. I do not see any irresponsibility in sharing my thoughts.

Like I have mentioned earlier – it provides individuals with sound financial security an additional income. For those without much reserve, annuity can be a timely cash injection.

“Annuity is NOT an one size fits all product. If this is so, why NTUC Income would need agents in order to allow one to buy such product.”

This is my take – advisors are needed due to the competitive nature of the consumer market (which arises from a very healthy demand).

“End of the day, there are risks involved in buying an annuity, even from NTUC Income. Who dares to say nothing will happen to NTUC Income?”

I believe that the benefits of buying the annuity tip the scale.

This is my personal opinion - Yes, I dare say that NTUC Income will still be standing strong. Under Mr. Tan’s strong guidance and robust leadership, it can only take NTUC Income to a greater paradigm.

October 24, 2005 5:45 PM

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