I have often been asked, "Is it better to leave the minimum sum with the Central Provident Fund to earn 4% per annum, or to buy a life annuity"?
My reply, "Both options are suitable". The return from a participating life annuity from NTUC Income is more than 4% per annum (if the current rate of bonus is included). The life annuity also play a useful role of spreading the longevity risk.
The return of 4% paid by CPF is very attractive, and it does not carry any risk. For most people, keeping the money in CPF is a good choice.
For your cash savings (ie not the CPF minimum sum), it make sense to invest in a life annuity (as the alternative investment options, which have low risk, offer less than 3% per annum).
My suggestion:
1. Keep your minimum sum in CPF to earn 4%
2. Invest $100,000 of your cash savings to buy a life annuity
3. Invest the balance of your cash savings in a large, well diversified fund
Read this FAQ.
That is good diversification for your retirement funds. In this current environment put little in annuity because of low interest rate. Expose more to a well diversified portfolio
ReplyDeletefor growth to beat inflation.
Technically, we can get better retuns via investment.
ReplyDeleteHowever there are many seniors not investing their life savings properly.
They love punting in the stock market or visit Genting or Leisure World.
If someone around you belongs to this group, better convince them to take up annuity to save future problem.
I have some friends who express that job is at stressful level and they want to retire in about 2 to 3 years time. They will be age 55 then, and mostly professionals.
ReplyDeleteI believe many would like to retire early but many also have not been able to save enough to "hang loose" early.
Personally, I think it is a crazy idea to work to age 65.
There is more to life than work.
It is good to be prudent to save enough to retire.
- Thomas Phua