22 October 2005
I refer to the letter "Buying annuity ? No need to rush, can wait till 61" by Mr Dennis Ng Kah Wan (ST, 20 Oct 2005)
Mr Ng said that in the current low interest environment, it is better to leave the CPF Minimum Sum in the retirement account to earn guaranteed interest of 4% per annum. There is no need to decide whether to convert the minimum sum into annuity at age 55.
I agree that the guaranteed interest paid by CPF is attractive. The retiree also has the choice to decide on buying the annuity at any time between 55 and 62. Many of them are aware about this choice, if they speak to our insurance adviser.
As stated in my previous letter, if $90,000 is used to buy a life annuity at age 55, we expect to pay a monthly sum of $543 from age 62, comprising of a guaranteed sum of $473 and an estimated bonus of $70. The bonus amount will depend on our investment yield in future years and is not guaranteed.
If the $90,000 were to be kept in CPF Retirement Account up to age 61 years and 11 months, the sum will grow to about $118,000. Using the sum to purchase an annuity then, the monthly payout from age 62 will only be $528. Based on this example, an earlier purchase of an annuity is a better decision.
I will let each retiree decide on whether it is better to buy the annuity earlier or later. If you buy the annuity later, you will have to take the risk that the plan may not be available at that time, or the terms may change.
For people who are interested to know more about the annuity plan, I suggest that they attend our educational seminar. I will be happy to make a presentation and to answer questions from the floor.
Tan Kin Lian
Chief Executive Officer
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