Tan Kin Lian's Blog: CPF or life annuity

Tuesday, July 17, 2007

CPF or life annuity

Dear Mr Tan

I am approaching age 55. Should I leave my minimum sum in the CPF to earn 4% per annum, or take it out to buy a life annuity? I am confident that you can give your impartial advice. Thank you.

-----------------------------------

REPLY:

You should take to an insurance adviser from NTUC Income or visit the business center to talk to a salaried adviser. You can compare the difference and make the best decision for yourself.

In my frank view, the life annuity with NTUC Income is likely to earn a long term rate of return of about 4-5% per annum. This should be as good as CPF or slightly better.

However, the life annuity has an element of risk pooling. It guarantees payment of the annuity for as long as you live. You do not have to worry that your money will run out earlier. (In the case of the CPF, the money is expected to run out after 20 years (ie when you reach age 82).

However, if the annuitant dies younger, a part of the principal or interest is left behind in the pool to pay the benefit to those who live longer.

There are also difference in the amount of payment. The life annuity from NTUC Income pays out less during the initial years and increases with bonus. The rate of bonus vary yearly according to the investment yield.

If you are not sure, it is all right to leave the money in the CPF to earn 4% per annum. This is an attractive rate of return.

Do take your time, before you make a decision. Either way, you should be happy with the decision. In both cases, the products give good value to the customer.

7 comments:

Anonymous said...: Do read Income's FAQ.

In the past, while Income might have made a return of 4-5%, the bonuses that the policyholders received were closer to 2%.

The rate of returns were definitely not as high as CPF's 4%.; July 03, 2007 3:54 PM
Anonymous said...: Before making this important decision ask yourself the following questions.
1. How long do I expect to live?
2.How much do I need from my CPF annuity?
Go to the calculator provided by CPF and design what you want.Inform CPF about your decision.
You won't believe that this is the best annuity. Nothing beats this. It is guaranteed at 4%. All those talks about bonuses declared are not guaranteed. Don't be fooled by the "guaranteed for life" annuity.
As i said you can design the annuity you want with CPF.
Check this out or seek a GOOD and HONEST adviser.; July 03, 2007 5:57 PM
Anonymous said...: I also recommend thta you leave your minimum sum with CPF.And if you have spare cash, put it into a variable annuity that is offered by manulife. It is also a guaranteed for life annuity with potential good return.
It is newest annuity in town. Find out before you make your move.; July 03, 2007 9:02 PM
Khiat Han Hwee Adrian said...: The Retirment account monies cannot be used for the Manulife Plan. The manulife plan is actually a packaged Investment Linked Annuity Plan that gives some guaranteed returns.

Why people get the annuity plan using MSS?
1) They believe they are likely to live beyond 82 yrs old.
2) They are not sure if they are able to save and invest their monies before age 82 when CPF monies stop payment.; July 03, 2007 11:44 PM
Anonymous said...: Adrain, i didn't say that minimum sum can be used for Manulife variable plan. I said CASH.This is to supplement CPF annuity.
Not true that CPF annuity can last only till age 82. It can be adjusted until you are 100 years old if you think you will live till this age.Go to CPF website and use the calculator to decide the payout and the duration of payout.These options agents would not want to tell you, because they will have nothing to sell you and therefore no com.; July 03, 2007 11:54 PM
Anonymous said...: Yes , go to Larry Haverkamp's blog and learn something about insurance planning especially about wholelife plan for young people without dependants.; July 04, 2007 12:14 AM
Anonymous said...: Today more people are leaving their minimum sum with CPF to earn a risk free 4%, according to the straits times press on saturday. The fear of outliving their retirement fund is unfounded. CPF's annuity payout is the best.Not only that if you wish to defer your payout or to reduce your payout you can arrange with CPF. So there is no worry of outliving your CPF fund.You can arrange to recieve till 90 years old, if you want to.Is this old enough? Find out from CPF.; July 16, 2007 10:26 PM