Insure against longevity risk but not like this.

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?

Life insurance a heavy financial burden. What to do?

Reader says...
I would like to seek your self talk on whether a person should continue paying premiums for his whole life insurance policy.

Person A initiated a whole life policy with the premium payment duration for 25 years.

After 4 years, the surrender value is now around 20% of the total premium payment till date.









As the monthly premium is occupying a huge part of his monthly cash flow, he is considering to replace the whole life insurance with a term life insurance to "cut losses".

In addition, he is also considering to terminate his child's whole life policy which was initiated in 2016.

After spending time getting himself educated, he realised there might not a need for his child to have a whole life policy.

In addition, the sum assured may also be not that significant in the future, given the inflation rate.

What self talk would you give yourself if you imagine yourself to be Person A in the given scenario?












AK says...
In a nutshell, we need life insurance if we have dependents.

If we do not have dependents, we don't need life insurance.

We can get adequate life insurance and keep the cost of insurance significantly lower by buying term.

Whole life insurance is relatively expensive life insurance but it has a saving or investment component which might appeal to some people.

However, for people with budgetary considerations, term life is the best option.







We need life insurance because bad things do happen but we do not need whole life insurance.

Before terminating your existing whole life insurance, make sure that you get term life insurance of equivalent coverage first.

Ideally, your term life insurance should be for as many years as you think you would have dependents.

I cannot and would not give specific advice but I hope that talking to myself has helped to throw light on the matter.










Related posts:
1. Holistic approach to financial freedom.
2. Insurance weakened family balance sheet.

QAF's earnings down but cash increased. What is this?

Reader says...
Thanks for talking to yourself!

Really helpful in terms of long term planning for FI.

Just wanted to get some of your thoughts on QAF..






Latest results show much lower earnings (~60% less), and the stock price took a hit..

However, i see that their cash on hand has increased quite a lot.

With all the other news about it i.e. IPO not proceeding..

Could you talk to yourself on this?

AK says...
The weakness in earnings is probably cyclical (due to oversupply of pork in Australia).

So, I am waiting to buy more if Mr. Market should go into a depression.

You might want to read the related posts at the end of this blog.







Reader says...
How would you define a depression for them, and how would you conclude that their mgmt is taking the right steps? Thanks!

AK says...
If we accept that the weakness is cyclical and not structural, then, we understand that earnings will recover. 

It could take months or years but it will recover.


To be able to weather cyclical downturns, a company must have a strong balance sheet. 

This is what Marco Polo Marine has taught me. 

QAF has a strong balance sheet.





A company could become more valuable over the years but due to downturns which could be prolonged, its stock could trade at relatively low prices. 

That would be a good time to accumulate. 

This is what Wilmar has taught me.

QAF is more valuable today than it was a few years ago.

As for the management, I let their track record speak for them. 

Holding a relatively large controlling stake, they are driven to make QAF more and not less valuable.





Reader says...
I'm still young and willing to wait for recovery, just want to be certain of my decisions 🙂

1) Could i ask why you believe the downturn is cyclical?

Thanks for your time!

AK says...
The primary production business is a commodity business.

This is similar to Wilmar's businesses in agriculture.

This is a cyclical business.

I am referring to QAF's pork business in Australia, of course.

Related posts:
1. Plunging earnings at QAF.
2. Wondering about QAF.

ComfortDelgro's 51% stake in LCR good or bad?

I was wondering whether to blog about this but still feeling rather lazy, I just made a few comments in my blog's comments section and on my Facebook wall.

OK, if you don't know about the proposed acquisition, read the article: HERE.

"Taxi giant ComfortDelGro announced on Friday (Dec 8) its intention to acquire a 51 per cent stake in the Uber-owned rental fleet business, Lion City Rentals."

As things turned out, I received an email from a reader on the matter and I decided to do a little bit of "work" to share it in my blog.

Bad AK! Bad AK!

Reader's email:

I like your reply to your reader Lee Jiahui that CDG's deal with Uber will "stem the loss of drivers" and this is already helping CDG.

I also like your reply to your reader Kevin that "car rental business is actually a good business and CDG is an old hand at fleet management and they should be able to do a better job of managing LCR's fleet and reap some benefits." 

I am also glad that CDG did not invest in Uber and I also believe that the CDG's proposed majority stake in LCR is not a bad idea.





I would like to share the following:

1. CDG is paying S$295 million for a 51% stake in LCR.

2. It involves only 12,450 cars out of LCR's fleet of about 14,000 cars.

3. The NAV of the 12,450 cars is about S$642 million.

4. If utilisation rate of the fleet goes up in future, CDG would pay for more cars in the fleet.






So, although it is true that CDG is paying for depreciating assets, they are only paying for productive depreciating assets.

This is nothing new. 

Taxis are depreciating assets too but if they are put to work, they are productive assets.

Hack, 99 years, 60 years, 30 years leasehold properties are all depreciating assets.

Should investors avoid them?







Like you always say,

"All investments are good investments at the right price."

If we understand this, understand that this deal with Uber would lead to an increase in earnings for CDG in their car leasing department.

Also, we should expect CDG's engineering department's earnings to benefit.

So, is this really a bad deal?

(End)

From the comments here in my blog and on my FB wall, it is clear that not everyone is convinced that this is a good deal for ComfortDelgro.

However, to expect a fantastic offer from Uber to give away something precious to ComfortDelgro on a silver platter would be unrealistic.

As an investor, I try not to be overly optimistic or overly pessimistic. 

I try to be pragmatic.

Realistically, we cannot predict what Mr. Market is going to do next week.

However, as investors for income, all we need to do is to determine what is a fair price to pay and wait for offers from Mr. Market.

We can do it for fun but we are not in the business of predicting price movements.

We are in the business of preparing to buy from Mr. Market when he is feeling depressed.

If you just popped by, this is one of those rare days with more than one blog published in ASSI.

Read the blog published earlier today: HERE.

Related post:
Incomplete analysis of ComfortDeglro.