Friday, September 19, 2014

CPF Life and Annuities: Some thoughts and some interesting products



I came across this article by Wilfred Ling from The IFA On Duty and it is about the difference between the 2 CPF Life plans.

The quick summary for most people? Don't go with the default Standard plan. Instead choose the Basic plan.

The Standard plan pays out more, while the Basic pays less but leaves a bigger bequeath. Basically, if you think you're going to leave really long and/or you have no dependents, the Standard plan is for you.

If you have any dependents, pick the Basic plan. Make sure you don't go to the default plan!

So that got me thinking about retirement and annuities. Yes, I am only 24 years old. Why am I thinking about retirement? Beats me. I will just think about it anyway. If I get it all figured out now at the age of 24, I can live at peace with myself knowing that I know exactly what to do, when to do it and how I should do it. A day of planning today will be worth years of time in the future. I worry if my mind will still be as sharp when I get older, haha.

So while I was reading about his CPF Life comparison, I casually found another page where he was comparing single premium retirement products. I find his analysis very thorough and his comparison points very relevant. Longevity risk is the biggest risk that retirees will face, which is why it should be removed and annuities are seeked. I agree with his conclusion that the NTUC annuity is a good one. It is the most basic and simple annuity there is, which makes it very easy to deconstruct and compare.

Browsing around some more, I found another comparison that he did between Tokio Marine's Retirement Paycheck and PurGolden Income and a few other retirement products. Conclusion? They do not meet the test because they fail in protecting against longevity risk.

GE has annuity products but only for customers who are nearing retirement. Aviva, AXA and Prudential has no annuity options.

I have found 5 other products by Manulife and Tokio Marine which I find interesting.

Manulife I-Gen (Brochure)- 10 years of premiums, lifetime coupons of 2% guaranteed and 1.87% non-guaranteed, reinvest at 3% rate, death benefit (+ bonus if any) and no medical underwriting, ages 0-60

Manulife 3G (Brochure)- 10 years of premiums, lifetime coupons of 2% guaranteed and 1.87% non-guaranteed, reinvest at 3%, reinvest at 3% rate, death, TPD, terminal illness benefit (+ bonus if any), medical underwriting needed, ages 0-60

TM Retirement PaycheckLife - 5/10/15 years of premiums, lifetime payments starts at age 55/60/65 with guaranteed and non-guaranteed portion, reducing death benefit, can reinvest at an unknown rate, can add optional riders (cancer), no medical underwriting

TM Retirement GIO - 5/10/15 years of premiums, lifetime payments starts at age 55/60/65 with guaranteed and non-guaranteed portion, death benefit (+ bonus if any) , can reinvest at an unknown rate, no medical underwriting

TM Infinite VIP - lump sum single premium, lifetime coupons of 1.5% guaranteed and 3.0% non-guaranteed, immediate 80% surrender benefit that increases to 100% at year 10, death benefit of 105% from year 5 onwards, no medical underwriting, ages 1-70
*The minimum single premium amount is S$133,350 (for a total monthly cash benefit of S$500 )

Personally, I like these 5 products because they offer a lifetime of payments. Even though I am quite a hands-on investor and I understand that the gains to be had in the market can be much higher, I think annuities and even preference shares and perpetual bonds can have a useful role to play in an investor's toolkit. So as much as I don't like most of the products that come out of insurance companies, I do recognize that different products have their different uses and they are catering for the needs of different people.

Manulife I-Gen vs 3G: The only difference is if you want TPD/CI insurance built-into your product. If you do, then medical underwriting is needed.

TM Retirement PaycheckLife vs GIO: The difference to me is based on a few factors:
Surrendering Flexibility: GIO allows surrendering, while PaycheckLife does not
Final death benefit: GIO has a guaranteed death benefit + bonus while PaycheckLife is reducing
Optional riders: PaycheckLife has optional riders, while GIO does not

TM Infinite VIP seems exactly like Manulife I-Gen to me, with some slight differences:
Surrendering Flexibility: TM allows surrendering, while Manulife does not
Coupon Payments: TM starts from 5th policy year, while Manulife starts from 10th
Premium Payment: TM is single lump sum, while Manulife is over 10 years

One of the things that I found interesting was Tokio Marine's interpretation that having multiple sources of income will help ensure a stable retirement.


Although I am young, I like the thought of having CPF Life payments, along with an annuity plan that pays out a guaranteed and non-guaranteed portion lifetime coupon payments, and finally dividend/coupon income from my investment portfolio. These different streams of income can really provide a robust retirement plan that offers you peace of mind knowing that the downside risk is very low, while opportunities to participate in the upside is still present.

Against my common sense and better judgement, I have went on to both Manulife and Tokio Marine websites and voluntarily handed over my contact information to them. I hope this doesn't come back and haunt me. On the bright side, fingers crossed for a young and pretty agent to work out the numbers with me!

1 comment:

  1. Many individuals steer clear of getting life insurance simply because picture that it must be too much of some sort of hustle specially when these people try to assess all the policies and also service providers. Unfortunately, this kind of actually is a bad strategy specially when you think that with the effects of the breadwinner's dying with a youthful spouse and children. When you choosed to buy life insurance, it helps to discover the easiest solution.insurance News

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