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"It is a horrific investment!"
This blog post is actually a reply to Kenneth Chua, who left very thoughtful comments regarding how whole life insurance has worked for him: here.
Since not many readers visit the comments section, I thought I should bring the comments section in as a blog post especially when I believe I have something important to talk to myself about:
Hi Kenneth,
Yes, times have changed and there are many more options available to us now in Singapore to help us plan for retirement.
When I am in my 60s, I could be amazed by how things might be different just like how my parents find how things are more complicated nowadays compared to the time when they were in their 20s. Life was simpler then.
Well, we are lucky that we have a paternalistic government who, most of the time, do the right things. We still have to try to grow our savings to ensure retirement adequacy on top of what the government is trying to do for us.
With Singapore's core inflation at about 3% per annum, the whole life policies which I have are only tracking inflation with returns of about 3% per annum. While it helps to know that my wealth is not shrinking, it is not growing either.
When the time comes to draw upon the policies (i.e. cashing out at 65 like you said), the sum of money would start shrinking rapidly, both in nominal and real terms due to its utilisation and a lack of growth.
A solution would be to buy an annuity then but, of course, the money would be locked up again. Although most people would not like to have their money locked up, this is a good hedge against longevity risk for people who are not investment savvy.
For me, however, the better solution is to ensure our wealth grows at a faster rate than inflation and the sooner we achieve this, the better. Apart from saving a good portion of our earned income from active employment, investing in income producing assets that will grow in value is my preferred method.
The nice thing about this is that when I reach 65, I wouldn't have to cash out. Hopefully, these assets would still be generating income for me and this would help fund my retirement till my final day in this world.
Thanks so much for sharing. Keep the comments coming.
AK
I also replied to another reader on Universal Life Insurance recently. If you are interested in this, please read comments: here.
Related posts:
1. Inflation! What to do?
2. To retire by age 45, start with a plan.
3. The best insurance to have in life.
4. An annuity: A case study.
5. Matthew Seah explains Blue Chip Investment Plan.
"The amount that is going into insurance goes up every year and the amount that is going into investment goes down every year. This doesn't work. It is a way of investing money poorly."
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