If you aren't already confused about all the different insurance plans available, here's a new type of plan to befuddle you further: retirement savings plans.
AXA, Manulife and Tokio Marine are just some of the insurers who have launched new plans to cater to the growing demand for retirement products in Singapore. The plans generally promise regular payouts over 10 to 30 years to provide you with income that can supplement your retirement expenses. The main difference between the plans which you probably need to consider lie in their type of payout (fixed, variable or increasing) and the duration of premiums paid.
With the fixed payouts under the AXA RetireHappy plan, for instance, you pay $76,140 over 15 years and get an aggregate cash payout of $6,000 a year when you hit 60 to 80. The total amount you get back will therefore work out to be $120,000.
While that does sound attractive, remember that money naturally grows over time when you factor in compounded interest. Your CPF and index investing are 2 other options that can yield pretty good returns thanks to the magic of compound interest at work. Considering how most of these retirement saving plans come with a projected yield column as well, could these plans be another form of Investment-Linked Plans (ILPs)? I'll probably have to delve deeper into the calculations, fees and benefits of the policy before I know for sure.
Rather than focusing on the $120,000 and how you can gain $43,860 on the AXA RetireHappy plan by not doing anything after you've paid your premiums in full, look at it this way: $6k a year works out to be only $500 a month.
If you're 28 this year, you'll only start receiving your payouts in 2048. By then, I bet $500 will be peanuts; there's a low chance you can possibly get by with just $500 a month. If you were thinking of relying solely on this plan at these projected figures for your golden years, ask yourself if $500 a month will be enough.
One advice I would give to you is to look beyond the numbers. Many Singaporeans tell me that they reckon they need $1.5 million to $2 million in order to retire, but when I ask them where they got such a figure, the answer is always "oh, my FA told me".
Remember that the best financial policy you can get for yourself is one that benefits YOU; not your agent nor your insurer.
You also need to think of other factors including: how long you think you can reasonably live for, projecting your possible state of health when you're older (if you think your body is physically weaker, then your retirement expenses will probably go up in order to account for medical treatments), and the lifestyle that you'll be happy with.
If you can't even survive on $500 a month now (let's factor out family expenses for now), I doubt the sum will be enough for you in the year 2048 and later.
So before you rush to commit to these plans because they look and sound attractive, do your own homework first.