Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Friday, 10 July 2015

Disadvantages of Using Private Annuity instead of CPF LIFE

Today's post: Disadvantages of using Private Annuity Plan instead of CPF LIFE.
Although this post title is "Disadvantage", but we included some "Advantage" of Private Annuity against CPF LIFE too below.

From what we have found, Private Annuity Plans available in the market tend to supplement CPF LIFE instead of replacing the CPF LIFE.

Instead, Private Annuity Plans can be used together with CPF LIFE to
1) Boost your monthly retirement income.
2) Help you withdraw out a portion or the whole of your Retirement Sum.

1) Potentially higher returns (Annuity plans invest your money into unit trust which can bring high potential returns. However, this depends a lot on the trusts that the insurance company invests in).
2) May comes with rider benefits (Eg; cheaper insurance premiums if you buy other INSURANCE from the same insurance company you bought your annuity plan).

It is fairly difficult to plan for your  Private Annuity Plan to replace your CPF LIFE.
We made some comparison on our previous post HERE
1) Returns not as great as what CPF can provide.
2) Returns are not guaranteed - 4.25% is not definitely a 4.25% every year. Returns are determined by underlying investments (usually unit trust, which has a history of not performing well)
3) Might not have bequest left over for your children
4) Unable to plan accurately your future annuity monthly payouts*

*Your CPF LIFE cost (Retirement Sum) and its future monthly pay out to you is determined when you reach age 55. The 2 figures will keep changing every year. Thus it is very hard to accurately plan your annuity plan to match its monthly payout against the CPF LIFE's future monthly payout.
This difficulty to match payouts might make you under-sized your future annuity payout and hence unable to withdraw your Retirement Sum out from the CPF fully.

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