Sunday, 17 April 2016

Retirement Saving Plans in Singapore - A Good Deal Or No?

If you aren't already confused about all the different insurance plans available, here's a new type of plan to befuddle you further: retirement savings plans.

AXA, Manulife and Tokio Marine are just some of the insurers who have launched new plans to cater to the growing demand for retirement products in Singapore. The plans generally promise regular payouts over 10 to 30 years to provide you with income that can supplement your retirement expenses. The main difference between the plans which you probably need to consider lie in their type of payout (fixed, variable or increasing) and the duration of premiums paid.

Source: DIY Insurance & The Straits Times. Click here for a bigger image.
With the fixed payouts under the AXA RetireHappy plan, for instance, you pay $76,140 over 15 years and get an aggregate cash payout of $6,000 a year when you hit 60 to 80. The total amount you get back will therefore work out to be $120,000.

While that does sound attractive, remember that money naturally grows over time when you factor in compounded interest. Your CPF and index investing are 2 other options that can yield pretty good returns thanks to the magic of compound interest at work. Considering how most of these retirement saving plans come with a projected yield column as well, could these plans be another form of Investment-Linked Plans (ILPs)? I'll probably have to delve deeper into the calculations, fees and benefits of the policy before I know for sure.

Rather than focusing on the $120,000 and how you can gain $43,860 on the AXA RetireHappy plan by not doing anything after you've paid your premiums in full, look at it this way: $6k a year works out to be only $500 a month.

If you're 28 this year, you'll only start receiving your payouts in 2048. By then, I bet $500 will be peanuts; there's a low chance you can possibly get by with just $500 a month. If you were thinking of relying solely on this plan at these projected figures for your golden years, ask yourself if $500 a month will be enough.

One advice I would give to you is to look beyond the numbers. Many Singaporeans tell me that they reckon they need $1.5 million to $2 million in order to retire, but when I ask them where they got such a figure, the answer is always "oh, my FA told me".

Remember that the best financial policy you can get for yourself is one that benefits YOU; not your agent nor your insurer.

You also need to think of other factors including: how long you think you can reasonably live for, projecting your possible state of health when you're older (if you think your body is physically weaker, then your retirement expenses will probably go up in order to account for medical treatments), and the lifestyle that you'll be happy with.

If you can't even survive on $500 a month now (let's factor out family expenses for now), I doubt the sum will be enough for you in the year 2048 and later.

So before you rush to commit to these plans because they look and sound attractive, do your own homework first.

With love,
Budget Babe


  1. Instead of buying these convoluted products, one can just do voluntary contribution to his CPF account to the annual limit. After setting aside the FRS at 55, the remaining monies in the OA and SA still continue to attract interest rates of at least 2.5% and 4% respectively. Monies in the OA and SA can be withdrawn once a year after 55. Depending on your lifestyle and how long you expect to live, you can decide how much to withdraw every year.

    Just sharing my two cents' worth. Feel free to share your view points and exchange ideas.

    1. What a word "convoluted", haha! That's a good recommendation, and it'll be something I would personally do as well. But I can think of a few who are super against topping up their CPF, though I don't share their concerns :/

    2. Those concerns about topping CPF are not without grounds. The CPF LIFE payouts looks good but that is because of the higher rates of return which by themselves are due to the fact that monies are locked away far longer than a private annuity plan. Furthermore, and this is the one thing most people don't realise, the streams of payments are stretched to an extent that under the standard plan one has to live to 90 in order to fully use up the annuity. In other words, the vast of majority of us (live pass 80 but not 90) will leave money behind as operating surplus to CPF.

  2. According to CPFB, you can withdrawn the fund multiple times in a year from SA first follow by OA after 55 years old.

  3. For people who have no time to manage their money or take no action, it might better to buy such plans rather than leave it in the saving account.

    1. Exactly. Although I would rather advise them to put it in their CPF where the returns are pretty good, but then again, there are many Singaporeans who don't really like the idea of locking up their money in CPF, so to each their own!

  4. Many ILP or similar insurance plan is a blackbox. Meaning you are at the MERCY of the insurance company willingnessto give you after funding the plan for decades. This can't be regulated. So beware.

    1. Apparently in some of the plans at least your principal sum (in premiums paid) is guaranteed back, although I would argue that this is hardly enough because $70k in 30 years will be worth less than $70k today thanks to the rising cost of living. But at least there's a little reassurance there, which might be useful for some consumers.

      I'll take the projected yield returns with a pinch of salt. Never trusted those anyway after I got tricked to buy my ILP with the 8% projected yield returns when I was still a noob.

  5. i think you got to expand your scope on wealth management a fair bit. there are every bit a need for perhaps some of these products.

    one could easily say just go invest in STI ETF, and then see their assets go nowhere for the past 9 years.

    it is true that in the future 500 is not enough. in that case, contribute more and you will have a bigger sum.

    1. Hi Kytih, indeed, if one is bad at self-discipline, I could see the need for such a retirement saving plan where they can be assured of their money waiting for them once they hit 60.

      My point exactly, which was why I said if one is thinking of relying SOLELY on this plan (and at such levels), the amount can hardly be enough. It makes a little more sense if such plans are used to supplement one's retirement savings, rather than acting as a substitute for the act altogether.

      I would potentially recommend something like this to my mom, who is terrible at saving (she recently just loaned a huge sum to my sister to pay off her TFL to the bank) for herself. But not for my dad, since he already has the habit of paying himself first and saving for his own golden years.

    2. Kyith ur an agent? If one steadily invests in a low cost index fund regardless of market conditions his returns will be far superior to any insurance product

    3. Why does it matter whether i am an agent. try investing in a low cost sti etf from 2007 and dca to today. and see if it beats 2.5% to 3.5% xirr.

  6. Although I'm not a supporter of such retirement product, one point the FA is roughly correct. The amount needed for your retirement is close to that amount. You can calculate it simply with this formula:

    1. Take your Expenses each month (right now) + 300 (medical bill in future)

    2. Multiply by 12 to get amount needed per year.

    3. Take 1.03 (3 percent inflation), to the power of the no. of years to your retirement. If its 40 years to your retirement, you take 1.03^40.

    4. Take your results from 3, and multiple it with result from 2. That's the amount you need per year in your retirement year, after inflation.

    5. Take your result from 4, multiply it by 20 years for female (65-85), or 17 for male (65-82). (average lifespan)

    Most people will hit a figure of 1.5million, and a huge percentage will choose to ignore it or diminish the importance of such a figure due to large figure blindness. Also remember, such a figure doesn't include all the free and spare time for different activities you may want to do, which probably cost money. (Such as travelling etc)

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