Thursday, August 09, 2007

Buy a life annuity earlier

Dear Mr Tan,

I see from you "Financial Planning for Seniors" that I can get a higher payout, if I buy a life annuity at an older age.

Do you advise me to draw down on my other savings first, and buy the life annuity later, after my other savings have been depleted?


You can read section 9 of this FAQ to get some indicative figure about the amount of your life annuity, based on different entry ages. The annuity payout will increase each year, based on the bonus that is declared by the insurance company (in the case of a participating annuity).

The yield on the participating annuity is about 4% to 4.5% per annum, inclusive of bonus (which is not guaranteed). If you find this yield to be attractive, you can buy your life annuity earlier.

If you are able to earn a better return from other investments, you can wait and buy the annuity when you are older.

If you are not investment savvy or cannot take risk (e.g. if your saving is just adequate for your future needs), it is better to buy a life annuity earlier.

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