Retiring right...and picking a plan that fits you

Insurers have jumped on the retirement bandwagon in recent years, launching a myriad of plans that provide regular payouts - and giving consumers even more choices.

Such products are expected to continue to proliferate, given that the retirement market is a lucrative one and Singapore is among the fastest-ageing societies in the world.

Figures have indicated that by 2030, nearly one million people here will be above the age of 60.

Mr Lance Tay, chief executive officer of Tokio Marine Life Insurance Singapore (TM), says our retirement or Central Provident Fund (CPF) savings should ideally be supplemented with complementary insurance plans.

"An income sandwich is our recommended approach to retirement planning. This involves using multiple layers to build up retirement income, including CPF, personal savings and a retirement insurance plan," he says. In such a crowded market, differentiating your product becomes crucial, as some firms are demonstrating.

Generally, these kinds of retirement plans offer a mix of single or regular premium payment periods as well as regular payouts over 10 to 30 years to provide income to supplement your retirement and living expenses.

Understanding your needs

Retirement planning goes beyond just number-crunching on the size of the nest egg and the estimated number of your golden years.

It requires you to delve deeper into it - planning the lifestyle you would like to engage in - in order to determine how much you really need to spend your sunset years purposefully.

5 dangerous retirement myths that Singaporeans believe

  • The cost of healthcare and insurance will increase. Don't assume that, just because the mortgage is paid up, the extra cash will cover the difference.
  • You also have to factor the cost of replacing stuff every three to five years: you'll need cash for home maintenance, replacing your guitar / computer / TV etc. Tabulate the cost of all that, and you'll realise even $1,500 a month is a dangerously tight sum to retire on.
  • The good news is Singapore's property values tend to head up over time. And at present, the government has a $15,000 silver housing bonus.
  • If you want to ensure a luxurious retirement, invest in other asset classes besides your house. You might also want to follow us on Facebook for the next 30+ years, as we track the state of home prices in Singapore.
  • The CPI is an annual gauge of how much the prices of goods have risen. So a CPI of 4 per cent means that, over the year, the prices of everything went up by 4 per cent. That's why a cup of kopi cost your grandma about a cent, and costs you around $1.20.
  • In effect, the money you have is worth 4 per cent less. And every year, Singapore's CPI reaches around 3 per cent to 4 per cent. Over the course of 20 to 30 years, you can expect inflation (the CPI) to utterly destroy your wealth if all you do is save.
  • In general, safer assets tend to have lower returns. Take, for example, a safe investment option like your CPF: the returns are guaranteed, but they only yield 2.5 per cent for the ordinary account, and 4 per cent for the special account. Likewise, bank fixed deposits tend to hover around 1 per cent, even though they're safe as fortresses.
  • In effect, your investment guarantees may just be guarantees of poor returns. A more reasonable approach would be to diversify your portfolio: mix low and medium risk investments. The riskier investments provide higher returns, while the safer ones offset any losses.
  • Some people retire at 62, some people retire at 70, and I know a lucky few who retire in their 30's. If you start to manage your finances as early as possible, you don't have to base everything on your CPF draw-down age.
  • When you insist on thinking of 62 as the magic age, you tend to put off your financial education. You don't bother learning about stocks and bonds, you don't build your emergency fund, you don't invest, etc.

Mr Eddy Cheong, head of DIYInsurance, a Web portal by wealth management firm Providend, strongly advocates consumers should understand their needs first before zooming in.

He notes that there are many retirement-related insurance products and it is an uphill task to compare them since every insurer tries to be different. Here's a checklist recommended by Mr Cheong to help you identify your needs and sieve out the more suitable products.

HOW MUCH YOU WANT AND WHEN

•How much income payout do you need?

•When do you want to begin receiving the income?

•Do you need the income to pay for limited years (for example, for 10, 15 or 20 years) or a lifetime?

•Do you need the annual payout to be fixed (guaranteed), fixed with a variable component, or increasing over time to mitigate inflation?

•Do you need an additional maturity payout at the end of the policy?

PAYMENT METHOD

•By cash or Supplementary Retirement Scheme (SRS)?

•Premium duration, for example, single (one-time payment) or over a number of years

Mr Daniel Lum, director of product and marketing at Aviva Singapore, notes that most retirees would find it hardest to move from a monthly income to having none after they stop work, so monthly payouts - especially in the initial retirement period - would help with the transition.

Generally, the higher the level of capital protection, the more costly the plan will be.

Mr Cheong says: "If you are risk-averse and desire your income payout to be fully guaranteed, the premium for that plan will generally cost more than that of a variable income plan."

One way to lower your premium and still enjoy higher payouts is to delay the payout start age, he adds.

Ms Kwek-Perroy Li Choo, chief marketing officer at AXA Life Insurance Singapore, says a good retirement plan should also guarantee the customers' capital in case they wish to withdraw money at the retirement age. This means that the plan's surrender value should not fall below the total premiums paid.

CPF: Knowing the problem is the start of finding a solution

  • Fundamentally the CPF is more a savings plan, not really an investment plan. It pays you a fixed interest which is no doubt generous in today's environment
  • The CPF needs to be looked at. It may well be that we go down the road of a private industry like in Chile or Sweden.
  • Basically, you want to find a solution along the lines of a collective DC (defined contribution) system.
  • If you can pool the money together, it gives you economies of scale and helps to bring down the cost of investment. With interest rates so low and returns so low, a good part of returns will be eroded by costs.
  • So the challenge is to find a model which creates enough scale to lower costs, pool the risk and offer life cycle solutions for people of different demographic profiles.
  • It's quite clear that given that future rates on investment products will be lower than in the past, if you look for the same amount of retirement benefits in the future, you will need to save more.
  • This is basic arithmetic and not rocket science. But it needs to be explained to people because the tendency is to look to the past and believe that it's representative of the future.
  • If you put your money in case, it's as good as saying you're not able to protect your savings against inflation.
  • The current debate in Singapore about retirement security is welcome because it heightens people's consciousness.
  • Understanding the problem is the beginning of finding a solution.

Retirement insurance products

The Sunday Times highlights the differentiating features of some retirement insurance products.

AXA RETIRE HAPPY

With Retire Happy, consumers can choose between "level" and "inflated" payouts. With Retire Happy (level), the customer can receive a guaranteed stream of fixed income annually to support his retirement.

With Retire Happy (inflated), the retirement income will increase at a guaranteed rate of 3.5 per cent each year after retirement, to help the customer cope with inflation and keep up with the rising cost of living.

Ms Kwek-Perroy says customers are ensured a guaranteed capital at retirement age.

She notes: "Customers are asked to save early, and... their surrender value will not be below their total premiums paid if they withdraw from their plan at retirement age."

AXA Retire Happy also provides potential upsize returns that come with the Longevity Benefit - a lump-sum payout at the end of the policy term.

Since the launch in 2013, AXA has enhanced its flagship Retire Happy product to add more flexible retirement options for customers, for example, from five retirement ages to eight (ages 35, 40, 45, 50, 55, 60, 65 or 70 years old).

Furthermore, there are six pre- mium options. These are single premiums using cash or SRS or via regular premiums over five, 10, 15, 20 or 25 years. Customers can choose to receive retirement income over 15 or 20 years.

Because the plan allows withdrawal from age 35, it also caters to young professionals who want a savings plan that provides regular income towards their savings target.

"For example, a 25-year-old who is given a lump-sum amount by his parents, can invest this amount into Axa Retire Happy to receive a stream of regular payouts starting from age 35, to fund his own property purchase," says Ms Kwek-Perroy.

AVIVA MYRETIREMENT AND MYRETIREMENT

PLUS Launched in 2012, MyRetirement offers guaranteed monthly income payouts for 10 years while Aviva MyRetirement Plus - launched four years later - offers guaranteed income payouts for 20 years from your chosen retirement age.

The Aviva MyRetirement Plus has an added feature that cushions the impact of inflation as the payouts increase at 3.5 per cent per year.

Policyholders of both plans can look forward to additional non- guaranteed lump-sum payouts at maturity.

As the plans are capital-guaranteed at the selected retirement age, customers have the flexibility to choose a lump-sum withdrawal with the certainty of getting back all the premiums and more.

Customers also have the option to do a partial lump-sum withdrawal or leave the funds with Aviva to continue growing their wealth.

The guaranteed annual returns for MyRetirement plan are up to 2.38 per cent, while those of MyRetirement Plus are up to 2.5 per cent

MyRetirement Plus offers a unique accidental fracture rider that provides additional coverage during your golden years when you might be more vulnerable to fractures or dislocation. This pays up to 100 per cent of your sum assured and covers physiotherapy treatment.

Mr Lum advises that customers may want to include a cancer premium waiver rider.

"In the event that the policyholder is diagnosed with a covered cancer, the insurer will take over premium payments on behalf of the policyholder, so that the savings plan continues to accumulate for the policyholder," he says.

Singaporeans financially unprepared for retirement

  • Retirement can seem a long way off when you are young. Nevertheless, it is crucial to start making retirement plans as early as you can.
  • Start thinking about the kind of lifestyle you want when you retire and how much you will need to fund it.
  • It is easy for retirement savings to suffer when times are hard. With the worst of the global economic downturn behind us, start looking for advice on how to replenish any depleted funds in your retirement pot.
  • Unforeseen life events can damage your retirement savings. No one can see into the future, but do consider what could happen and how this will impact your financial planning.
  • According to the HSBC-commissioned independent research study into global retirement trends, future retirees in Singapore foresee their savings to last only 13 out of an average of 23 years in retirement.
  • More than 53 per cent of working-age Singapore respondents said they are unable to retire comfortably with 15 per cent believing they will never be able to fully retire.
  • The most pressing issue was that almost a third of those aged 45 and above or nearing retirement, are either not saving or have no plans to do so.
  • 53 per cent of working-age Singapore respondents said paying off their mortgage and other debts remains the biggest barrier preventing them from saving enough for their old age.
  • The global report also showed that if people were to plan ahead and do things differently prior to retiring, chances are their future standard of living would improve.
  • 40 per cent of retirees believe that retirement planning should start at the latest by the age of 30 so as to save enough to live on comfortably.

MANULIFE RETIREREADY

Launched last month, this plan offers a guaranteed monthly retirement income. Its unique feature is the doubling of the guaranteed monthly income payout if the insured person loses independence during the income payout period.

Mr Naveed Irshad, president and chief executive of Manulife Singapore, says: "With Manulife RetireReady's loss of independence benefit, customers will be ready for unexpected events in life. Their guaranteed monthly income will be doubled if they lose their independence and become unable to perform three or more out of six activities of daily living (such as washing, dressing and feeding)."

Customers have the flexibility to choose from a range of plan options, such as the desired retirement age, desired monthly income, payment term and income payout period. The plan offers an income payout period of up to age 80, 90 or for life, which gives customers the assurance of a stable income stream for as long as they need it.

At the selected retirement age, customers can choose to receive any accumulated annual bonus as a lump sum to fund a holiday or for other purposes or convert it into an additional monthly payout to boost their guaranteed monthly income.

Mr Irshad adds that the product is suitable for customers looking for the certainty of a guaranteed income when they retire, as well as financial peace of mind in the event that they lose their independence during their retirement years.

NTUC INCOME SINGLE-PREMIUM SAIL AND FLEXRETIRE

Both retirement products provide regular streams of income to policyholders during their retirement with competitive returns, says Income's life insurance general manager, Mr Andrew Yeo.

Single Premium (SP) Sail, launched in 2009, offers regular payouts for a fixed period of 20 years while FlexRetire, a regular premium product, offers regular payouts for 10 to 30 years.

Mr Yeo says that single-premium products, like SP Sail, are generally more suitable for people who have a lump sum of money at their disposal that they can use to plan for their retirement. So it is suitable for people who have accumulated funds over the years either through cash savings or SRS that they want to invest to provide regular payouts in retirement.

On the other hand, FlexRetire, launched last year, is a regular premium savings plan suitable for people who are just starting out in life and are able to put aside an amount of money each month over a stipulated accumulation period and enjoy the regular payouts at the end of the duration.

Mr Yeo says: "If a lump-sum payout is the preference, endowment plans like RevoSecure or RevoSave, whose maturity is tied to retirement age, may be more suitable. Alternatively, one can purchase an annuity that gives a monthly payment for as long as he or she lives."

TM RETIREMENT SECURE

For those above 50, TM Retirement Secure, launched in January, is the only retirement plan in the market to provide an almost immediate retirement income after premium payment.

This assures policyholders that they can start enjoying their golden years as soon as they complete paying their premiums.

The plan provides 100 per cent guaranteed annual retirement income for 10, 20 or even 30 years. It also offers an optional cancer income rider and cancer waiver rider.

If major cancers are diagnosed, the cancer income rider provides a stream of annual income while the cancer waiver rider waives future premiums.

Other TM retirement plans include TM Retirement PaycheckLife, which is the only joint-life option retirement plan in the market providing the same income stream for the surviving spouse.

Mr Tay says this plan would help women who, apart from living longer, also leave the workforce prematurely to take care of their families, thereby leaving them more vulnerable to the danger of inadequate funds for their retirement or old age.

The firm also offers TM Retirement@63, which can be funded by SRS or cash. It has a unique recurring single-premium option feature that is penalty-free if the customer does not want to contribute further premiums.

The plan provides customers with 10-year annual payouts for their retirement, which ties in with the SRS drawdown period, so withdrawals made during this period will enjoy tax savings.


This article was first published on April 17, 2016.
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