Should Singaporeans look into buying a private annuity plan?

Hi anon,

This does depend on many factors.

For example, when do you wish to retire?

If you wish to retire at 65, then CPF LIFE will likely be the best annuity for you. You should focus on maximizing it (i.e. maximizing OA/SA); no other private annuity comes close to the guaranteed payouts of CPF LIFE. If you are on track to maximize it, then you may consider looking at a private annuity next if your concern is to build more streams of guaranteed income

If you wish to retire before 65, then you will need to start building income streams as early as possible. It isn't a far fetched idea to start preparing for retirement when young, my youngest client approached the idea of retirement planning with me when she was 21. The idea is that the more time you have, the more an annuity can compound and then eventually offer a decent payout. After all, CPF LIFE starts compounding the day you make your first contribution to SA. However, do ensure that CPF continues to build, after all, you will one day get your payouts, even if it is after your private annuity starts paying you.

Look for annuities that can offer a payout, but allow you to retain the payout to get non-guaranteed interest. This way, if your first payout was due at, say age 40, you can just let it accumulate in the plan if you decide that instead of retiring at 40, you changed your mind and wanted to retire at 50 instead. Other factors include a good guaranteed return, good projected returns, as well as the flexibility of the plan to be tailored made for you.

Personally, I know that I am on track for CPF ERS and I am also very aware that CPF ERS will form the basics of my retirement. However, I do have an annuity starting at age 60 so that I don't have to wait for CPF LIFE should I want an early, or partial retirement.

In summary, I'd say that CPF should be the focus first, but one can always start building up capital in a private annuity concurrently. If one wants to retire earlier, then an annuity is probably the only option that can create a stream of income at an early age, and there would be more urgency to start one. If one is ok to retire at the age when CPF LIFE starts paying, then there is still a case to be had in getting a private annuity, provided one is confident of meeting at least CPF FRS.

Hi there,

It really depends largely on your risk appetite and time horizon and objective. If you're looking at something to complement your CPF payout when you hit 65, then an annuity will work since it gives monthly payouts. For some people, they may be unsure of the potential for change in retirement age or the CPF payout they are getting. For annuities, it's capital guaranteed and some insurers offer bonuses on top of the guaranteed capital.

People usually should dial down their risk appetite in their wealth accumulation approach when they hit a particular age since retirement planning should be the end goal then. Thats where annuities come into play. The younger you get it, the more you can compound the interest as well So it depends largely on your end goal.

Financial planning is an integral part of life. You can reach me here to find out more.