Picking A Retirement Plan Which Suits You
Lately, insurance companies have respectively launched Retirement Plans, which is a policy which pays you a stream of income during your retirement. (Note: when we say Retirement Plan here, we mean the product, and not the overall strategic blueprint you develop for your retirement)
A Retirement Plan is basically an Endowment Plan. You save via a policy, while benefitting from higher yield than saving with a savings account. There are benefits to consider such a plan in your overall Retirement Portfolio:
- Higher yield than bank deposits
- Instil discipline to save
- Capital guaranteed
- Complement CPF LIFE to guarantee a minimum of income
- Has the potential to pay you an income for life
Since such a plan is basically an Endowment Savings Plan, you would expect the expected annual yield to be the key consideration when it comes to choosing the “best” plan. In practice, however, it is not that straight-forward.
An ideal plan should best fit your circumstance and retirement plan. There are other practical considerations, which probably matter more than yield. Yield aside, you should also focus on other factors because it is practical to do so.
Factors to consider:
- Premium Term: 1-time / 8 years / 10 years / 15 years / 20 years?
- Mode of funding: Cash / SRS?
- Pay-outs Period: 10 years / 15 years / 20 years / lifetime?
- Depending on your Retirement Drawdown Strategy, you should find certain Pay-outs Period of greater value.
- For example, you are likely to value a plan with lifetime pay-outs, if your planning objective is to enhance CPF Life to create a lifetime annuity for your Essential expenses.
- Expected Cash Flows from Non-guaranteed Pay-outs:
- Some plans disburse the non-guaranteed pay-outs as one lump-sum at maturity, while some plans disburse non-guaranteed pay-outs as part the regular pay-outs.
- Pay-outs Structure: Annual or monthly? Level OR Escalating?
- Additional Features:
- For those with insufficient long-term care coverage will value plans which disburse additional pay-outs, in event of severe disability during retirement
- For those who opt for long premium term will likely find Premium Waiver feature useful in case of disability or major illness while needing to stay committed to the long saving tenure
In an upcoming post, we will summarise a review framework you can use. And highlight the various Retirement Plans available in the market.