Thursday, June 23, 2016

Is an annuity good for retirement?

Mr. Tan,
Is an annuity good for retirement?

It depends on the annuity terms offered to you, the investment options that you have, and what your needs are.

If you are talking about the CPF special account, you do not have any choice. You have to buy CPF Life.

If you are talking about your own savings, you can compare the terms offered by the insurance company with the terms offered by CPF Life. If the insurance company can offer terms better than CPF Life, then you can consider the deal, If the terms are far worse than CPF Life, you can forget about it.

You also have the choice of investing the savings in the STI ETF and draw out the dividends each year. If this is not sufficient, you can sell some of the units every year to supplement your income.

There is no simple answer to your question.

The best approach is for you to find a financial adviser and pay for his or her advice and time. Maybe you can set aside $200 to $500 for the advice. If you are investing $50,000, the advice of $500 represents only 1% of your investment. You should pay for it.

If you do not pay for advice, and you invest $50,000 in an annuity, and the insurance company takes away 5% for its expenses and profit, you are actually spending $2,500 on the purchase. If the front end charge is 10%, you are spending $5,000.

Many people make the mistake of buying a bad product and suffering a high front end cost. They can spend much less for good advice, but they have to pay for the advice.

When you are sick and see the doctor, you have to pay the doctor's consultation fee, right? If you do not pay the fee and the doctor makes his margin by selling medicine to you, will they sell you the most expensive medicine, which is not necessary for you, to make a living?

1 comment:

Anonymous said...

CPF Life is the best , No insurance company"s annuity is better than CPFLife if you are looking for an annuity.There are better ways to give higher income than CPF but they come with risk; CPF's has no risk. So don't be conned by any insurance agents. If they try to sell you one run as fast as you can, especially those cash back aka payouts.

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