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This guy has 800K in his CPF. (AK responds to HWZ Forum.)

A reader pointed me to a thread in HWZ Forum which discussed about my CPF savings being more than $800K. He wanted to clarify certain que...

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Insure against longevity risk but not like this.

Thursday, December 21, 2017

Reader says...
Hi need some feedback on annuity plans/rates.

Pay 16k per year for 5 years. 

Payout monthly $800 per mth for 10 yrs. annuity rate is 12% correct?

AK says...
It is not really comparable because this annuity pays only 10 years.

It is more like an endowment than annuity.

So, I think it might be wrong to valuate this like an annuity.

It is more like a savings plan without any insurance component.

An annuity is an insurance against longevity risk.

Reader says...
If like cpflife forever then it is more like wholelife policy?

AK says...
Life insurance is different.

That is more for your dependents.

We don't need life insurance unless we have dependents.

We buy annuity in case we are blessed with long life and it helps to fund our golden years.

Reader says...
U know of any annuity plans that u feel is worth considering?

AK says...
CPF Life 😉

Reader says...
What is the limit for CPF-RA?

AK says...
You will know the limit for your cohort when you turn 55. 😉

Reader says...
Just wondering if its u, wud u buy that plan?

AK says...
Basically, you are just getting back $96K for saving $80K.

That is a $16K gain.

And you are not even getting it in one shot but spread over 10 years.

20% gain and spread over 10 years is 2% per year.

It sounds innocent but it isn't

There is a cost to this.

Instead of paying us 100% all at once (like a regular endowment plan), they hold back and we are paid a very small % monthly over 10 years.

Conservatively, we could be losing another 2% every year because we could have placed the money in a Singapore Savings Bond.

So, what are we making here? Nothing!

They are not giving us more than what we could get from a Singapore Savings Bond.

Add the fact that you actually pay over a 5 year period (i.e. $16K x 5), without considering opportunity cost, you are getting less than 2% a year in return (when the $800 a month payout starts) because the waiting time for the first few $16K payments made is longer (i.e. 1 to 4 years more).

To me, it is rubbish.

We would be better off just placing the money in a Singapore Savings Bond.

This product gives an illusion that it is an annuity when it really isn't and even as a savings plan, it fails miserably.

There, I have said it.

Guess which insurance company is selling this product?

Really, no one cares more about our money than we do.

Don't ask barbers if we need a haircut.

Read another blog on insurance published yesterday:
Life insurance a heavy burden. What to do?

Related posts:

1. Rather have an annuity or not?
2. When to get a private annuity?
3. What is effective annuity rate?


laurence said...

No one cares more about our money than AK.
Always ask AK if we need a "haircut" (on our wealth).

Really, no one cares more about our money than we do.
Don't ask barbers if we need a haircut.

AK71 said...

Hi Laurence,

Oh, no. Not me. I am too lazy to care. -.-"

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