It is about market timing for good, bad and ugly investment performance.
If we managed to buy STI ETF at $1.49 which was lowest in 2009. Good!
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21 minutes ago
Hi CreateWealth8888, what are your thoughts about using annuity as an alternative divestment during retirement?
ReplyDeletehttps://thekaching.com/risk-management-during-retirement/
What the FA recommended is more of an endowment than annuity.
DeleteAnyway, the XIRR of that insurance product if sustained till maturity (20 years) is 2.8%pa.
This is based on the assumption of the non-guaranteed maturity portion ($624,087) being achieved using the upper limit of 4.75% as in the Benefit Illustration.
If use the lower limit of 3.25% being achieved by the insurance company in their Par Fund, then the non-guaranteed amount will be $467,698.
This will reduce the overall XIRR to 2.2% :)
Now, some people are willing to accept 2.2%-2.8% for "peace of mind". But even then I don't think it should involve 80% of your assets as told by the FA in his story ($1.2M out of $1.5M).
The fact that your XIRR is 2.8% even if the insurance company achieves 4.75% CAGR in it's Par Fund means that a VERY LARGE amount is makaned by the insurance company/insurance agent. ;)
You already have a good annuity via CPF Life. If you want annuity, you can max CPF out first. For sure the XIRR as well as the amount "makaned" by CPF is much better than commercial insurance companies! LOL!!
Commercial or government is the lesser evil for social pooling insurance scheme?
DeleteHi Uncle8888,
DeleteLet's see how much CPF makaned from CPF Life shall we? ;) ;)
Assume 55 this year and willing to go for Enhanced Retirement Sum ($264,000) and go for Standard Plan.
CPF Life Calculator shows monthly payout from 65 of $1972-$2178 (based on 3.75%-4.25% CAGR of pooled fund).
Let's take middle road of $2075 per month i.e. CAGR of 4% by pooled fund.
Assume live until 85 yrs ... hence collect $24,900 per year for 20 yrs. By 85 zero bequest.
XIRR is 3.4% p.a.
Hence 0.6% p.a. chooried by CPF Life ... still better than commercial lah LOL!
Hi Spur,
ReplyDeleteThe article actually did mentioned that Mr Tan has already max out his CPF-SA i.e. CPF Life. Thus, I am very curious what you guys think about adding the annuity / endowment as a form of diversification. If it's a good alternative, what is a right % distribution in a portfolio of 1.5 mil. Also, I think the difference between an annuity / endowment is the bequest / death benefit. Commercial gives better death benefit / bequest? CPF Life is a drawdown?
The endowment shld have some death benefit but since not spelled out in FA's story hence cannot calculate "returns" if die prematurely. :P
DeleteAnnuity including CPF Life means pay until die, even if it's 150 yrs old. :)
Both commercial annuity and CPF Life will have bequest if die within XX years. XX depends on how big the initial premium & how big the monthly payouts & the projected CAGR of pooled funds & mortality of annuitants. This vary from company to company, and plan to plan.
XIRR is the best way to compare financial returns by different products on apple to apple basis. ;)
Frankly with IRR of 2.2%-2.8%, might as well max out OA, SA, RA, CPF Life with interests from 2.5% to 6%? ;) ;)
Sometimes Occam's Razor is the best. Lol!
Seriously, if the amounts involved are 100s of thousands or millions, better to pay $2k for an independent advisor (who won't get commission/reward whether you buy or not) to analyse the insurance/investment products together in the context of your financial situation. ;)
For the last part, the question has to be directed back to the consumer , whether anot are they willing to pay such fee(supposingly the advisor is competent in such area.)
DeleteFee based advisory is growing in sg, and still it may not be suitable for most retail customers.
Meaning, if you have 1.5 million, you will deposit all into CPF OA / RA then draw down from there from 65 onwards? How easy is the draw down process? Can treat it like a banking account during retirement?
ReplyDeleteLet's just say that if I'm as uncertain of managing my money as Mr Tan (otherwise he wouldn't be putting $1.2M into an endowment with expense ratio of 1.95%), I'd rather have built up the $1.2M in CPF LOL!
DeleteAs for ease & using it like bank a/c, I'm sure you know ;)
It's only those who can't even meet the Retirement Sum who would say it's hard! :P
Read? Turning 55 - and enjoying financial freedom (9)
DeleteSharing something I read from www.areyouready.sg.
ReplyDeleteA bequest refers to the unused annuity premium and retirement account savings, if any after death. This will be paid to your beneficiaries along with your remaining CPF savings.
However, interest earned on annuity premiums does not form part of the individual member’s bequest as it is paid into the lifelong income fund to provide lifelong monthly payouts to all members under CPF Life
Yup, that's the socialist price you pay for CPF Life to give you higher payouts than comparable commercial annuities. ;)
DeleteHi Spur, correct me if I am wrong. Means if I have 256K at age 55 in my CPF-SA, it would be used to pay the CPF Life annuity premiums. I get 1.9K - 2K per mth from 65 until I die, but the 4% interest earned on the CPF-SA will not be passed on to my kids when I die. Means my kids will only get whatever I have drawn down from 256K ? i.e. the bequest amount will only be < 256K ?
DeleteAll money leftover after meeting FRS in CPF OA and SA are yours and can be withdraw at anytime
DeleteAt 55, $x will be xfer from SA & OA to RA. $x depends whether you opt for BRS, FRS or ERS.
DeleteFrom 55 to 65, your initial $x in RA will still earn the 4+% p.a.
At 65, your (initial $x + compounded interests) in RA will be used to "buy" CPF Life. From this time on, the interests generated by CPF Life will not be part of your bequest.
Your nominees entitled to whatever unused portion of (initial $x + compounded interests).
You can use the CPFLife estimator to view how much payout and bequest.
Deletehttps://www.cpf.gov.sg/eSvc/Web/Schemes/LifePayoutEstimator/LifePayoutEstimator
Hi CreateWealth8888,
ReplyDeleteAll the money leftover after meeting FRS sitting in CPF OA and SA, do they still continue to enjoy the 2.x interest rate? How do you go about withdrawing? e.g. if u want to draw 2k per month from it? Electronic transfer or ATM?
You can do it online or visit CPF branch.
DeleteOnline
My Requests --> Retirement (eg. Retirement Sum & Age 55 applications) -->
Withdraw my CPF (For members 55 and above) - Payment via Interbank GIRO
Withdraw my CPF (For members 55 and above) - Payment via PayNow New!
Applicable only if you have registered under PayNow and linked your Singapore NRIC as your proxy. To learn more about PayNow, please click here.
My first year withdrawal of $23K was done at CPF branch.
DeleteSecond year withdrawal of $24K was done via online by Paynow. Received $24K to bank account almost instant. Instant Cash!
Learning at first hand is the best learning experience
DeleteThanks for the generous sharing :)
DeleteFeel free to ask here.
DeleteYou can see the reply from Spur! Great sharing!
Agree ! Great sharing Spur.
DeleteUncle8888 .... LOL Instant 💰Cash💰 ... I like!! 👍🤑
DeleteI can't convince my elder relatives to use Paynow with mobile app ... I teach them use online via Giro already vomit blood! 😜
BTW..I have one more question..how do you plan to pass your stock portfolio to your kids. Did you give them some investing coaching to make sure they can inherit your portfolio ?
ReplyDeleteMy investment portfolio is under joint CDP account with wife.
DeleteRead? No More Earned Income From Human Asset. It Is All About Sustainable Retirement Income For Life Till 2038 (2)
Carpe Diem,
DeleteGreat question! How to handover investment portfolio to loved ones if they're not so savvy or interested in investing? Even if you provide instructions e.g. don't panic sell, don't draw out more than 4% annually, do annual re-balancing, they may not follow. 🤔
Unless you have Uncle8888's yield of dreams portfolio then no worries .... just tell your family to sit back & collect fat ultra-strong panadols! LOL!
Setting a private trust is a $5m question
DeleteWe should ask NTUC to set up low cost social enterprise private trust for us
ReplyDeleteHi Temperament, if u appoint a Kong hee church to become a trustee, then Gong Xi Fa Cai liao :-)
ReplyDelete