Karen Tang, CFP®: Certified Financial Planner in Singapore

  • Do you wish to sustain your lifestyle when you stop working?
  • Are stability and predictability what you seek in a financial product when it comes to your income stream during your golden years?
  • Do you want to have peace of mind knowing that your retirement payouts are guaranteed?
  • Do you prefer to have flexibility in the way you contribute to the plan, and withdraw from it?
  • Do you also wish to provide for your dependents in the event of death?
  • Would you like long term care protection in the form of additional guaranteed income?

Whether you are a young working adult, a parent with young children, someone close to retirement or an investment-savvy person, an annuity or a retirement income plan has an important supplementary role to play in your retirement plan.

Here are 6 reasons why they are so pivotal:

Just like how whole life protection and health insurance serve as the bedrock of your risk management, an annuity forms the foundation of your retirement plan.

1. Principal Protection / Capital Guaranteed:
There is no investment risk. This ensures that your money is safe and does not fluctuate like investments due to volatlity.

2. Guaranteed Income Payouts:
A stream of stable income. You know for sure you will be receiving a fixed guaranteed payout on a regular basis.

3. Flexibility:
Most plans offer some form of flexibility.

  • Option to take a lump sum or regular payouts: Before payouts commence, you can decide whether to take a lump sum or go with the regular income payouts.
  • Option to surrender plan during the payout period: Even when you have started to receive regular income payouts, you have the option to surrender the plan and cash out a lump sum. A good retirement income plan should guarantee the capital by the time payouts start. This is important because things may change in the future and such flexibility ensures that you can have access to funds.
  • Funding method: The savings required to fund your retirement income plan can be in the form of a lump sum (usually for people who have excess cash lying around) or allocating a small amount regularly (for example, monthly or yearly) so that it is less demanding on your cash flow.
  • Payout Duration: Optimise your income stream according to your retirement lifestyle. Most plans give you the option to select the payout duration, for example, 10 years, 15 years, 20 years and above. If lifelong income is your concern, consider a retirement plan that pays out for as long as you live. This reduces longevity risk, ensuring that you do not outlive your resources.

4. Potentially Higher Interest:
A huge amount of savings idling in the bank account may not be good news – this is because inflation can erode its value over time. Inflation refers to the cost of goods increasing every year and sometimes you do not see or feel it. For instance, a cup of local coffee cost $1.30 five years ago. Now, you pay $1.90 for that same cup of coffee. That’s a 46% jump!

The returns you get from annuities or retirement income plans are not rocket high. But at least your money is protected and growing at a rate higher than what a bank savings account gives. And along with the non-guaranteed cash bonus, the total returns could potentially hedge against inflation and reward you with more.

5. Diversification:
Bank accounts give safety and liquidity, but that is all. ​Investments give potentially higher interest but are subject to market volatility. And if you are managing your own investment portfolio, you need to have both time and resources. Don’t get me wrong – I am not saying you should put all your hard earned money in bank accounts or investments. But striking a balance is crucial. Diversification is key to ensure that risks are spread out in different baskets of assets.

6. Long-term Care Protection:
Payout an additional stream of income for disability during your retirement years. With old age, comes increased financial cost for medical and personal care. Instead of burning your finances on long-term care needs, seek out retirement plans that provide increased income payout upon disability. Insurers may have their own terms such as failing to perform 2 or 3 out of 6 Activities of Daily Living or specific conditions.

A Strong Foundation that provides the ‘Best of Both Worlds’
A retirement income plan or annuity provides safety, surety and stability. It delivers:

  • Predictable income stream through guaranteed payouts.
  • Low risk investment gains through non-guaranteed cash bonus.

Once this foundation is put in place, you can then afford to take a little more risk in growing your money.

Finding The Best Retirement Income Plan:
What you can take up depends on your age and requirements. Retirement planning ought to be approached from a holistic view, where every aspect of a well fortified retirement plan is given due consideration.

Depending on your needs, you may require one or more plans to achieve the desired outcome you have in mind. A retirement plan can be structured using multiple annuities or retirement income plans to cover all your financial needs and objectives upon your retirement. Call me today to secure a retirement income plan that fits your needs!

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