Wednesday, July 04, 2007

Return from a life annuity

I said that the return from a life annuity from NTUC Income is likely to be 4-5% per annum.

This comprises of the following:

* guaranteed rate of 2.5% used to calculate the basic amount of the annuity
* an average bonus of 1.5% to 2.5% added to the annuity yearly (based on past records)
* total is 4-5% per annum.

The life annuity has an element of pooling of risk. Those who live longer will get a better return. Those who die younger will get a lower return.
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1 comment:

Anonymous said...

Mr Tan,

http://www.income.com.sg/insurance/clannuity/

Let’s do the math based on the table listed in the FAQ. The average life expectancy for a male is 78. If the male policyholder receives only guaranteed payout from 62 till 78, he merely breaks even in nominal term. In real term, he loses money.

Where does the 2.5% guaranteed return come from?

July 04, 2007 2:13 PM

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