Poor deal from a life annuity

A consumer was given a proposal to pay a large annual premium for 5 years, keep the money until age 65 and withdraw an annual payment for life. The benefit illustration was confusing, even to me. I was not sure if this is a life annuity or withdrawal from an accumulation account.

I asked the consumer to use Excel and do the same projection, if he invested the money on his own to earn 3%, 4% and 5% in a low cost investment fund. He found that the DIY option gave him a large balance at age 91 - which is significantly higher than shown in the benefit illustration. The simple calculation gave an obvious answer to him - he should invest on his own.

He asked, "where do I get a low cost investment fund?" I recommended the STI ETF available on the Singapore Exchange (SGX). The investment risk can be managed by diversification (in this single fund) and investing for the long term to average out the good and bad year. This is explained in my book on financial planning (available at www.tankinlian.com/ishop).

This simple advice could save the consumer several hundred thousand dollars! Do not buy a bad financial product (or life insurance policy) that can take away so much of your accumulated savings. You can DIY.

Tan Kin Lian