This Week On Seedly: Great Eastern Family3, Personal Finance Checklist, Retirement with $100,000
Here’s an interesting statistic for Seedly’s Personal Finance Community.
With the crazy number of discussions going on in a week, we will be providing a summary of what went down on the Seedly Personal Finance Community for the week.
What went down on Seedly’s Personal Finance Community (1st – 7th January 2018)
- Advice and review of Great Eastern’s Endowment Plan (Family3 Whole Life Savings Plan)
- Personal Finance Checklist for 2018
- Options for retirement planning with $100,000.
- Best interest and fuss-free deposits/investments for sum between $300,000 to $400,000.
Great Eastern Endowment Plan (Family3 Whole Life Savings Plan)
A quick context to the question raised on Seedly Personal Finance Community:
- One of the members bought a GE Endowment Plan (Family3 10-years), 2 years ago.
- In contrast with investment instruments such as stocks, Exchange-traded funds and Robo-advisories, the return of the endowment plan appears extremely low for the given period of time.
- The insurance agent mentioned that Great Eastern always hit projected 4.75% investment return.
- Should she cancel the endowment plan, there will be a $0 surrender value, and she had already paid close to $10,000 premium.
Seedly Community’s help: While she is only required to pay for the first 10 years, does it make sense to cancel it?
- Soon Xiaohui:
It is important to make sure that it is a Great Eastern Plan. In my opinion, they never hit 4.75% returns and it is not a proper way to introduce an endowment plan.
The best outcome will be cutting losses, provided somebody will be doing the investment for her.
- Spruyt Darren:
The breakeven point for this policy seems ridiculously late in the policy term. The monthly/ yearly payouts seem little and one will have little use for it.
The 3G plans are supposedly meant to buy for your children so that there is a death benefit to pass on to your grandchildren when your children pass on. This way, the policy can accumulate a much larger cash value because there is generally a longer period of time for the money to snowball.
Hence, the agent did not recommend the plan for the correct purpose in the first place.
- Daryl Tay:
1) Someone seems to be misleading the product. The above does not look like an endowment plan at all, it seems more like a limited pay whole life policy. Meaning the policyholder pays the plan for 10 years, and the policy will protect her for the whole of life.2) What was the purpose of buying this policy? If it was sold as an endowment plan, then the likelihood would be surrendering of the policy at retirement age or drawing down of dividends.3) Speaking purely from my professional point of view, I do not believe in advising anybody to surrender a policy, especially one that has cash value. There should be a reason why the policy was purchased in the first place. Sometimes, the client requires a little push or reminder to remember why they went ahead with the plan at that particular time. While circumstances might have changed since then, but I believe that has to be established before advising a client to surrender any plan. Even something as simple as an accident plan.4) There is NO SUCH THING as a guarantee from the agent that GE hits 4.75% a year every year. If he is capable of saying that, tell him to put it in contract, on writing that in the event that Great Eastern does not pay out the amount listed on the benefit illustration, that the difference will have to come out from his assets. This behavior is highly unethical and should not be allowed to continue in the financial practitioner industry.
Read more about the discussion here.
Personal finance checklist for 2018
A chart to break down the 5 key components of personal finance.
New year, new me! Save it onto your phone to remind yourself in the year ahead!
Read more here.
Options for retirement planning with $100,000
The context of the question:
- A 45 years old member of Seedly’s Community is looking into some retirement plan so that she will have a fixed monthly income starting at age 60.
- She currently has $100,000 in cash and is seeking options.
- Option 1 that she is considering:
Assuming she has already put aside the Basic Retirement Sum at age 55.
Put the $100,000 into CPF Special Account. At age 60, the $100,000 would have compounded into $180,000 at 4% interest.
From age 61 to 80, she will withdraw $1,080 per month over 20 years. While the remaining of the $180,000 will still compound at 4% interest.
- Option 2:
Purchase Aviva MyRetirement Choice, at a premium of $20,000 per year over 5 years.
Total premium paid: $100,000
At Internal Rate Of Return (IRR) of 2.09%, one will receive a guaranteed payout of $680 per month over 20 years, from age 61 to 80.
If based on 4.75% projected returns, the payout will be at $1,143 per month. (IRR at 4.42%)
Seedly Community’s help: CPF Special Account vs Aviva MyRetirement, which should I choose?
- Spruyt Darren:
One should also plan where to draw their monthly income between age 60-64 since withdrawing of CPF money (unless it is from the OA account) is impossible until age 65.
One can opt for enhanced retirement scheme too. The Retirement Account will give an interest of up to 6% per annum. However, one will not be able to withdraw it once the money is placed in it.
- Jay Tan:
Another option can be buying into several ETFs and Bonds at periodic intervals. The returns are likely to outperform option 2, and investing in an indexed fund will mean minimum effort in managing it.
- Hariz Arthur Maloy:
1) One can only top up his SA up to the current Full Retirement Sum. Hence, not all the $100,000 can be utilized. So do check your existing balance.2) For Annuity Plans, if you have that $100,000 at this very moment, one may want to consider a single premium plan such as Manulife Retire Ready SP. It gives comparable returns to Aviva MRC.3) One can also look to get a divided paying income portfolio. A good combination of bonds and equity funds that pay coupons and dividends. Diversified globally and rebalanced every quarter.Investments or even physical property will last longer than that age, plus may be passed on to your children (if any). CPF Life also pays for life, but cannot be passed down.
There are also legacy plans that can be used to continue income for your children, albeit a significantly smaller monthly amount paid out.
- Kyith Ng:
I think there are some gaps in your plans if I am correct.At 55 years old, your CPF SA and OA will transfer the Full retirement sum into your RA. Hence, I do not understand why you have a limited drawdown. Once your CPF SA FRS is reached, you cannot contribute anymore.
Thus, it is likely your excess money will only generate a return of 2.5% instead of 4%.
You can opt for the Enhanced Retirement Sum which is 3 times the Basic retirement sum (currently $80k+-) that is an option to take.
Your advantage is that you are 10 years to 55 years old. You do not have to select the CPF Life Scheme at 55 years old, and in case you change your mind, you can always withdraw out the excess of the FRS or BRS then.
Whichever other options, it will require some active management. If you have a sum of $200,000, Providend can manage the wealth withdrawal with a wrapper fee. The underlying is based on Dimensional Fund Advisors quantitative funds. This would be the most passive. But at this point, I am unsure if is risk-adverse enough.
If you are risk adverse, you have to plan a larger sum of money. You have to be ready your expenditure outpace your sum of money. That is the reality.
Read more on the community here.
Best interest and fuss-free deposits/investments for sum between $300,000 to $400,000
The context of the question:
- Member is totally new to investment schemes and investment-related products.
- Looking for fuss-free deposit or investment product for a sum between $300,000 to $400,000.
- Do not want any insurance, and Investment-linked Policy (ILP) related products.
Seedly Community’s help: What are some of the products that can help?
- Jessica Shi:
If you are concerned about the risk, maybe you can try going for Singapore Savings Bond ( SSB). The capital of investment is guaranteed as compared to STI ETF/REITs.
On top of that, it is technically low risk the nd you get the flexibility of withdrawal as compared to other instruments.
Alternatively, one can also consider structured deposits.
- Lim Chun Jimmy:
One can consider investing in overseas ETFs through Robo-advisors such as Autowealth, Stashaway or Smartly.
Join in the discussion here.