Annuity: your No.1 Asset Class for Retirement

by Christopher Pua

What is an Annuity?

Annuities are plans that allow you to accumulate tax-deferred funds for retirement and then you (the annuitant) can opt to receive a guaranteed income usually payable for life or for a specific period of time. Alternatively, you can call it your retirement income for life. The objective of an annuity plan is to ensure that you will have a continuous stream income during your retirement years and for as long as you are alive. So, it protects you from outliving your resources. Thus a life annuity is a form of longevity insurance, where the uncertainty of the annuitant’s lifespan is transferred to the insurer. And the insurer is able to take on this risk by applying the law of large numbers and hence reduces the uncertainty by pooling many clients. Currently, annuity plans are sold by insurer through their appointed Financial Planners/Advisors or other authorized Financial Institutions under the regulation of the MAS.

Single vs. Regular Payment Annuity.

Typically, there are two modes of payments available to an annuitant. One can either pay a lump sum premium, in which case is called a Single Payment Annuity or choose to pay a series of regular premium, in which case is called a Regular Payment Annuity, prior to the onset of the annuity.

Stages or Phases

There are usually two stages or phases in an annuity plan. The first stage is referred to as the accumulation phase. During the accumulation phase, the annuitant deposits and accumulates money into an account for the plan over a period of time. The second stage is referred to as the distribution phase. During the distribution phase, the insurer starts the annuity and pays out a regular income to the annuitants on a monthly/quarterly/semi-annually/annually basis for as long as the annuitant is alive. Having said these, there is also immediate annuity in which there is no accumulation phase. A lump sum payment is made by the annuitant and the annuity income starts immediately until the annuitant’s death. The annuity plan with both accumulation phase and distribution phase is called a deferred annuity plan.

Types of Annuity Plans

There are many types of annuity plans available in the market. The most common of these are immediate annuities, fixed annuities, equity-indexed annuities and variable annuities. 
Immediate annuities pay owners a set amount of money on a predetermined schedule (monthly, quarterly, annually, semi-annually). 
Fixed annuities are interest-based vehicles similar to bank-issued CDs, but they offer a higher minimum interest rate and are extremely low-risk. They typically offer returns of between 3% - 10% for essentially no risk and hence they are popular choices for conservative investors. Equity Indexed annuities on the other hand, can achieve a greater return than the annual minimum rate because it earns interest that is linked to a stock or other equity index. Variable annuities are extremely flexible and are typically invested in mutual funds, therefore are subject to the same risks as stocks, bonds and mutual funds. Variable annuities are best for more aggressive investors.

Is CPF Life an Annuity?

Yes, CPF Life is an annuity and currently all CPF members who turned 55 starting Sept 2009 will be able to buy into this plan using the money from their RA(Retirement Account). The money in the RA is actually the CPF money set aside as your minimum sum and transferred over from your SA(Special Account) and OA(Ordinary Account) when a CPF member turns 55. At the present moment, I would always recommend my client to buy into the CPF life as their first annuity plan as it pays the highest rates in the market right now. Then, to supplement the CPF Life you should take up another private annuity plan from one of the private insurer. Currently Manulife has two annuity plans that pays up to 4.2% per annum on the sum insured for the duration of the annuitant’s life. One of the plan called 3-Gen comes with a life insurance component, whereas the second plan i-Gen does not and hence also do not require any medical underwriting, make it an ideal plan for annuitant who may have a medical condition.

A Word of Caution

Setting up an annuity can be an incredibly confusing and complicated process and many people interested in annuities have questions about the process: Are annuity payments taxed? Are withdrawals from a deferred annuity taxed? Which is the best annuity choice for me and my family? 
Your best bet is to consult a Financial Planner to ensure that the annuity you pick is the best possible fit for your family and your financial situation.

a blog on: Financial Planning Advice - Christopher Pua

Easi Investors will beat putting money in FD

Given the low fixed deposit interest rate the banks are currently offering, do you know how much interest can you earn if you were to put $20,000 into Fix Deposit account?

That works out to be $111 per year.. The interest earned is not even enough to cover inflation.

For a limited time only, Manulife is offering our innovative program, called EASI-INVESTOR, to grow your savings at a faster rate and at the same time, maximise your returns.

Here is how Easi-Investor Gives you higher expected returns on your savings!

Easi-Investor is the perfect balance for your savings!

-Endowment component provides higher guaranteed returns (2.1%/pa for 5 year term & 2.3%/pa for 8 year term)

-Endowment component is capital guaranteed even with early withdrawal

-no medical underwriting

-top up investment anyimt to benefit from dollar cost averaging

feel free to contact me should you want to find out more about how Easi-Investor can help you fulfill your goals!

Christopher Pua

9239 0070

chrispua@yahoo.com

a blog on: Financial Planning Advice - Christopher Pua

Life Insurance as part of your Asset Class

Source : Youtube.com CNBC.com

CNBC talks about allocating 5% - 10% of your assets portfolio into Life Insurance.

Watch to find out more.

a blog on: Financial Planning Advice - Christopher Pua

Financial Planning: Investing The Right Way

source: www.forbes.com, www.youtube.com

The 3 Golden Rules in Investing.

Take a look at this video, it talks about the 3 golden rules in investing, common-sensical but essential.

1. Write down specific investment goals. Be realistic and don't invest without a purpose.

2. Have a proper asset allocation: Your mix of Stocks, bond, cash, insurance, gold, property etc

3. Have proper investment behavior: Don't get emotional. Be prepared for bear markets.

a blog on: Financial Planning Advice - Christopher Pua

Choosing a Financial Advisor.

Choosing the right Financial Advisor

source: www.imas.org.sg

Advice & Advisors

How to choose a good Financial Adviser Representative The representative must be honest, trustworthy and ethical If you sense a lack of sincerity and trust in the representative, you probably want to seek a second opinion. An adviser who lacks strong ethical standards and compromises ethics for convenience will not hesitate to compromise your position. The representative must be able to understand your financial responsibilities. If he has little or no idea about your situation after you have explained to him, and cannot determine your problem areas, then he probably cannot recommend you the solutions that meet your needs. The representative must think of your interests instead of his. Client centred is vital. An adviser who thinks of his interest before yours will probably recommend solutions that benefit him more than you. Your interest can be easily compromised in the process. The representative must be impartial and objective when recommending solutions. This is to ensure he is able to provide appropriate and effective advice in accordance to your needs. The representative must have access to a wide range of financial products. An adviser who is limited by products will not be able to offer competitive and creative products in his recommendation. The representative must have good knowledge of the various financial products available. It the adviser is ill-informed of the various financial products, he will not be able recommend solutions that have taken into consideration various alternatives available. The representative should possess good work ethics and habits. He has to be diligent and be prepared to serve your financial needs. An adviser that is often difficult to contact will frustrate you and cannot help you achieve your objectives. The representative must be a good listener. An adviser that is impatient will tend to hurry you into committing on the investment too soon. The adviser should gather sufficient information before proposing a solution. He must be prepared to conduct a thorough fact-find and involve you in the discussion stage to understand your situation well. This will ensure that he takes into consideration your situation before recommending you an appropriate plan. The representative must have a proper system of record keeping. This is to ensure that he keeps track of the history of discussions you have had with him regarding the areas of concerns, action plans and objectives. You should feel comfortable with your representative The client adviser relationship is critical to ensure that you are able to rely on him for effective and professional advice. Achieving your financial goal is a long term process that requires constant review, good advice and strong sense of discipline. If there is too much information that you cannot divulge to your adviser because you are not comfortable, then your adviser will not be able to advise you appropriately. The rep must continuously keep himself abreast of the changes in the industry. If you sense that he is unwilling to further his education and improve his knowledge, then you may be dealing with an obsolete adviser in time to come. The representative must be serious about his career and stay in the business in the long term. Only an adviser who takes his job in personal financial advisory as a long term career can ensure that he will be there to help you achieve your objectives. If your advisers are changed too often, you will get tired of ensuring that you deal with the right person and probably waste too much time trying to go through old data too often. We thank the Association of Financial Advisers (Singapore) for their advice on choosing a financial adviser. a blog on: Financial Planning Advice - Christopher Pua

Parkinson's Law of Finance

Parkinson's Law

By: Brian Tracy

Source: www.briantracy.com 27 Feb 2009

Why People Succeed or Fail

Parkinson's Law is one of the best known and the most important laws of money and wealth accumulation. It was developed by English writer C. Northcote Parkinson many years ago and it explains why most people retire poor.

The Way the Law Works

This law says that, no matter how much money people earn, they tend to spend the entire amount and a little bit more besides. Their expenses rise in lockstep with their earnings. Many people are earning today several times what they were earning at their first jobs. But somehow, they seem to need every single penny to maintain their current lifestyles. No matter how much they make, there never seems to be enough.

The Key to Financial Success

The first corollary of Parkinson's Law says: "Financial independence comes from violating Parkinson's Law."

Parkinson's Law explains the trap that most people fall into. This is the reason for debt, money worries and financial frustration. It is only when you develop sufficient willpower to resist the powerful urge to spend everything you make that you begin to accumulate money and move ahead of the crowd.

Slow Down Your Spending

The second corollary of Parkinson's Law is: "If you allow your expenses to increase at a slower rate than your earnings, and you save or invest the difference, you will become financially independent in your working lifetime."

This is the key. I call it the "wedge." If you can drive a wedge between your increasing earnings and the increasing costs of your lifestyle, and then save and invest the difference, you can continue to improve your lifestyle as you make more money. By consciously violating Parkinson's Law, you will eventually become financially independent.

Action Exercises

Here are two things you can do to apply this law immediately:

First, imagine that your financial life is like a failing company that you have taken over. Institute an immediate financial freeze. Halt all non-essential expenses. Draw up a budget of your fixed, unavoidable costs per month and resolve to limit your expenditures temporarily to these amounts.

Carefully examine every expense. Question it as though you were analyzing someone else's expenses. Look for ways to economize or cut back. Aim for a minimum of a 10 percent reduction in your living costs over the next three months.

Second, resolve to save and invest 50 percent of any increase you receive in your earnings from any source. Learn to live on the rest. This still leaves you the other 50 percent to do with as you desire. Do this for the rest of your career.

a blog on: Financial Planning Advice - Christopher Pua