Annuities For Your Retirement in Singapore: What Are Your Options?
When you retire, you will stop receiving a regular monthly income. But your expenses will continue. One way in which you can address this issue is to use your retirement savings.
Another option that is available to you is the purchase of an annuity. This is essentially an insurance product that pays out an income on a regular basis. You can view it as a substitute for your salary in your retirement years.
In fact, many Singaporeans have to compulsorily participate in the CPF LIFE Scheme. LIFE is an acronym for Lifelong Income For The Elderly and this describes the product very well.
The Central Provident Fund Board’s LIFE scheme functions as an annuity that uses the balance in your CPF Retirement Account to pay you a regular monthly income for the rest of your life.
However, there are certain limits on how much you can receive every month from CPF LIFE. It is possible to supplement this amount by purchasing an annuity from a private insurer. There is a host of schemes that are available from different companies.
Here is a brief description of how CPF LIFE works and some details of two prominent private annuity schemes that you can buy.
Singapore citizens and Permanent Residents who meet certain age criteria and who have the required amount in their CPF Retirement Account have to join CPF LIFE.
If you meet the following conditions, membership in the government’s annuity plan is compulsory:
You can start receiving payouts anytime between the age of 65 and 70.
There are three CPF LIFE plans that are available. You have the freedom to opt for any one of them.
- Standard plan – this gives you a higher level of monthly payout and leaves a lower sum for your heirs.
- Basic plan – monthly payouts are lower, but the amount that you will leave behind will be more.
- Escalating plan – you start off with a lower monthly amount and receive a greater sum in later years. The yearly increase is of the order of 2%.
In dollar terms, what is the amount that you can expect to receive? Obviously, that depends on the balance in your Retirement Account and the age at which your payout starts. Your Retirement Account could have the Basic Retirement Sum of S$83,000, the Full Retirement Sum of S$166,000, or the Enhanced Retirement Sum of S$249,000.
The following table tells you the amount that you would receive in each of these scenarios. It is assumed that the Retirement Account savings are available at age 55 and that your monthly payout starts at age 65. The amounts are estimates for the year 2017 and are based on the CPF LIFE Standard plan.
|Balance in Retirement Account||Monthly payout|
|S$83,000||S$700 – S$750|
|S$166,000||S$1,280 – S$1,380|
|S$249,000||S$1,860 – S$2,000|
Want a higher monthly payout? Simply top up your Retirement account. But remember that the maximum balance permissible is S$249,000.
Another way in which you can increase your payout is to opt to start receiving monthly payments later. For every year that you delay the initial payout, you will increase the monthly sum by 7%. But you have to initiate the payouts by age 70 at the latest.
Private annuity plan 1 – NTUC Income’s Guaranteed Life Annuity
Buying NTUC Income’s Guaranteed Life Annuity can be a good way to supplement your CPF LIFE payments. The scheme offers several attractive features.
You will be entitled to receive a regular payment from a pre-decided date. You can opt to receive the sum every month, every quarter, or on a half-yearly or yearly basis. This is a guaranteed sum that will be paid to you regardless of the performance of the fund in which your investment amount is deployed.
The Guaranteed Life Annuity scheme also has another component. Your payment could be supplemented by a non-guaranteed portion that will be calculated based on the performance of the fund in which your money is invested.
How much can you receive under this scheme? INTUC Income has provided an illustrative calculation for a person who pays a single premium of S$100,000 at age 55 and opts to receive an annuity starting from age 65.
Private annuity plan 2 – Manulife RetireReady
Manulife’s RetireReady annuity plan has several unique features. It offers an attractive insurance element by including the payment of double the amount of the regular guaranteed monthly income in the event of “loss of independence”.
[Loss of independence is defined as a situation when the customer is unable to perform any three of six specified activities – washing, dressing, feeding etc.]
There are several other types of flexibility that have been built into the annuity. For example, you can opt to receive payments until the age of 80, 90, or for life. The premium that you pay for purchasing the annuity can be paid over a period of 5, 10, or 20 years. It is also possible to pay a single premium.
How much will you receive as a payout in Manulife’s RetireReady annuity plan? In the example provided by the company, a 40-year-old person who pays a monthly premium of S$2,066 for 20 years will receive a guaranteed monthly income of S$3,000 up to the age of 90. Payments would start at age 65.
In addition to this amount, there would be certain sums payable as a cash bonus and additional monthly income. But these would be based on the performance of the fund in which the investment amount has been deployed. There is no guarantee for the payment of these amounts.
Precautions to take when selecting a plan
There is a wide variation in the terms of the annuity plans offered by private insurers. It is advisable to carry out a careful review before making your selection. The factors that you should consider are the amount of income that you need, the age at which you want to start receiving the payouts, and the number of years for which you think that you will require the income.
Each of these variables will affect the sum that you will pay to purchase your annuity. A plan that promises a greater guaranteed payout will usually cost more than one which provides a variable return.