Dear Mr Tan,
My father is going 58 and has only $30,000 in his retirement account. I was thinking of helping him to purchase either the NTUC Income Classic Annuity or the Growth Plan.
Since both plans require a SRS account, I thought of buying a Growth Plan for my Dad using his retirement account to earn a get a greater return, by registering with one of the SRS operators and subsequently use this SRS account of $29K to buy Growth Plan.
Can I do that? I am not sure because I understand that there is a so called minimum sum required in RA and RA cannot be used to buy anything except annuity.
The money in the CPF Special Account (or Retirement Account) now earns interest at 4% plus a bonus. The return from the Growth plan is likely to be 3% or less. The agent who made this recommendation is probably giving bad advice, either intentionally or by mistake.
Please ask the agent to give you a benefit illustration for the Growth plan and send it to me at email@example.com.
It is better for you to help your father by topping up his CPF Special Account. You will enjoy tax savings on the contribution and allow him to earn a higher rate of return of 4%. When he reach age 62, it is better for your father to buy the CPF Life, instead of a life annuity from an insurance company.
You can read a chapter on life annuity and CPF Life from my book, Practical Guide on Financial Planning, which can be ordered here:
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