Aviva recently launched a new retirement savings plan MyRetirement to help Singaporeans plan for their retirement. Basically, you choose your retirement age and whether you want to receive your income in a lump sum or spread over 10 years in monthly payouts. With that, the adviser will be able to calculate your premiums which you will need to pay based on the number of years which you would like to spread your premium over.
The reason Aviva came up with this plan is because most Singaporeans find financial planning for retirement to be complicated. The question is, is it that complicated?
Some Details About The Retirement Savings Plan Based on the Brochure
Choice of Retirement Age – 50, 55, 60, 65
Monthly Guaranteed Retirement Income for 10 Years Starting 1 month from Retirement
Capital Guaranteed If Held Until Retirement
Guaranteed Returns of Up To 2.38% Per Annum
Choice of Premium Payment Terms
Low Returns Savings Plan
On first glance, it is a very simple savings plan which encourages people to set aside money for retirement. Based on the maximum of 2.38% per annum return, I consider the returns to be too low, almost comparable to some of the whole life insurance policies out there. Furthermore, there is no insurance protection with this plan. I took a look at the footnotes, it says that 2.38% assumes that entry age is at 17 and retirement at 65, so anybody who goes into this plan above the age of 17 or older could be looking at a lower rate of return.With proper knowledge in investment, one can easily attain conservative returns of at least 5% and higher returns per annum. Even the Genting retail bonds give at least 5.125% returns per annum.
You Only Live 10 Years After Retirement?
You are basically investing your money in an annuity which starts paying from retirement for a time period of 10 years. If retirement age is 60, do you think you will only live for 10 years until 70? What happens if you live until 80? This does not sound like a good retirement plan when you run out of income after just 10 years. If you have to invest in an annuity, life annuities might be a better option, although I personally prefer to do my own investment.
Not Accounting For Inflation
The brochure makes a very compelling case of inflation. How about the 10 years during retirement when the payout from the MyRetirement is fixed and expenses continue to grow at a rate of 2-4% per year? At 2.38% (the maximum return), you are hardly beating inflation and I expect your money to be worth a lot less in purchasing power if you invested in the MyRetirement plan.
If you read my website long enough, you will know that I am a proponent of buy term insurance and invest the rest. By investing, I do not mean locking your money in meaningless annuities or savings plans but rather investing in proper investment assets.
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