Using Insurance to Supplement Retirement Funding Needs

I came across an article titled “Growing Your Wealth With Insurance” in the Business Times on 3 March 2016.

This article is another timely reminder for us all to ensure that we have given due attention to retirement planning. The topic of retirement planning never goes ‘out of fashion’. Why? Because, at the end of the day, the ultimate goal of financial planning is to truly be able to enjoy a comfortable retirement lifestyle.

Article: “While many Singaporeans are aware of the need to plan for their retirement, many have yet to start the process of doing so.”

#1 My comments: What is stopping people from planning for their retirement?
While the media and the government are doing their part to constantly remind Singaporeans to plan for retirement, it is interesting to note only 56% of Singaporeans have started saving specifically for retirement (source: Aviva Consumer Attitudes to Savings study conducted in November 2015). A good majority of Singaporeans worry about whether they will have sufficient money to provide for an adequate standard of living.

Is it procrastination? Is it inertia, laziness? Is it lack of money resources? Is it because they don’t trust financial planners or don’t know who to approach? Or do they think that CPF money alone can see them through retirement? With the younger working adults, instant gratification and present needs tend to take precedence over planning for the future.

Yes, having to face up to one’s finances, especially when not in good shape, is a tough thing to do. But what is worse is that without clarity and a specific goal, one would not know what direction to take!

Article: “Insurance can address the varying needs of an investor pertaining to savings and investment (wealth accumulation), legacy planning (wealth distribution and preservation) and wealth protection.

#2 My comments: It is a great idea to incorporate endowment solutions in one’s retirement planning
I have done so myself in my own planning. Endowment plans are a good supplement to CPF and other investments as part of a diversified investment portfolio for retirement planning. This is because:

• They provide a systematic approach to accumulate wealth for retirement.
• They provide certainty i.e. you know the guaranteed cash value/payouts and when money will be made available to you.
• Certain endowment solutions are specifically designed to provide cash flow during retirement. Some plans provide flexibility to receive regular guaranteed payouts starting from the selected retirement age or to withdraw a lump sum or to reinvest with the insurer at a non-guaranteed interest rate. The total guaranteed payouts more than meet the initial savings amount many times over. Some even have the feature of hedging the regular payouts to inflation at 3.5%! The choice of insurance product would depend on affordability, your desired retirement payout age, the preferred payout duration and the guaranteed and non-guaranteed cash values.
• Capital is guaranteed (depending on the plan and insurer)
• Your money is growing at a rate that is higher than savings account (around 0.25% p.a.)
• There is peace of mind (as compared to the emotional roller coaster associated with investments)

Article: “It is important to safeguard against the threat of high medical cots and recuperation expenses.”

#3 My comments: Do not under estimate health care costs during your golden years

• Get comprehensive health insurance cover while you are still healthy
  – My mantra is this: If nothing else, get the best hospitalisation plan ((i.e. Integrated Shield Plan) that you can afford. This is a vital building block of your financial plan. With higher Medisave withdrawal limits, we need not use cash to pay for it till much later. Click here to understand what Integrated Shield Plan is all about.
  – This is something you should never ever cancel! You can downgrade when premiums are too costly but not do without it totally. Would you want to sacrifice or even wipe out your hard earned nest egg to pay for costly medical expenses?
• Enhance your basic Long Term Care protection
  In the event of a disability, long term care can be very costly and it often lasts for a prolonged period of time. Hiring a domestic helper takes money. Staying in a nursing home will easily be a 4-figure sum every month.

Article: Investment-linked plan would appeal to customers who wish to enjoy high flexibility, make decisions on choice of funds to invest in for potential upside from financial markets.”

#4 My comments: Be wary of ILPs! Do not mix insurance with investments.
ILPs are my pet peeve because I had suffered losses of having 3 regular premium ILPs. I never knew the ‘hidden costs’ and caveats till I became a financial planner myself.

I do not support the idea of investing in ILPs for retirement planning. Read about the dangers of ILPs here. In my entire career as a financial planner, I’ve only recommended ILPs twice and that was because the clients wanted it.

• What is the cost of having flexibility?
  Before signing on the dotted line, please make it a point to ask your insurance agent questions about the increasing mortality charges (particularly for regular premium ILPs) and how they impact the returns on your investments from age 50 onwards. I am quite certain that many do not disclose this or are not familiar with the charges table in the benefit illustration.
• Non-ILP endowment plans can provide flexibility too, without the investment risk and escalating mortality charges!

To sum it up:

Retirement planning is not a DIY project. It requires professional advice and guidance – accurate planning calculations will give you clarity on your retirement funding goal, taking into account your assets, income sources and liabilities.

A qualified financial planner will also take a holistic view of your entire financial planning and advice you on your insurance needs during retirement.

Don’t leave your retirement to chance! Engage qualified help, preferably a Certified Financial Planner representing an organisation that partners with multiple life insurers and asset management companies in the market.

Note: Tied agents who represent only one single’s company’s products will not be able to give you an objective perspective of the various solutions out there in the market.

Moral of the story: Those who have a financial plan in place tend to save more and are able to retire with certainty.