An interesting article titled “Retiring Right … and picking a plan that fits you” was published in the Sunday Times Insight Section on 17 April 2016. It highlighted the concerns of a greying population and that understanding one’s needs in retirement is important prior to zooming in on suitable options.
The article also shared some information on the various retirement income plans available in the market and how they compared with one another (see attached picture). However, I noticed that the parameters used in the comparison are random and inconsistent.
- Saving terms are different – In using single premium (lump sum) plans to compare with 10, 14 and 15 years savings term, the guaranteed cash values can differ to a great extent and the projected yield of the plans is greatly distorted.
- Failure to mention the additional guarantees over capital offered by the different plans – Some plans offer guaranteed cash value as high as 200% of capital whereas some barely break even.
- Failure to address the death or surrender benefits of the plans – Some plans offer lower benefits as compared to others.
Besides the payment term, the total premium and/or the total cash payout should also be used as a yardstick so that the comparison is as ‘apple-to-apple’ as possible.
Another interesting point is that the comparison highlighted the widely differing guaranteed cash values – ranging from $54,000 to $120,000 (for the first six non-inflation pegged plans in the table).
These are just some inconsistencies that were found in the comparison. Whilst it gives the reader some idea what is available out there, it is inconclusive. And it can easily confuse the reader as he or she may not be aware that many important features were not highlighted in the comparison.
Understanding your needs in retirement planning is key
Your retirement planning deserves careful thought. It is not just about the numbers and longevity. It requires you to think deeper about the lifestyle you would like to engage in in order to determine how much you really need to spend your silver years purposefully. Remember – it is the product that fits you and not the other way round.
How much do you want and when
- How much income payout do you need?
- When do you want to begin receiving the income?
- Do you need the income to pay for limited years (for example, for 10, 15 or 20 years) or a lifetime?
- Do you need the annual payout to be fixed (guaranteed), fixed with a variable component, or increasing over time to mitigate inflation?
- Do you need an additional maturity payout at the end of the policy?
- By cash or Supplementary Retirement Scheme (SRS)?
- Premium duration, for example, single (a lump sum payment) or over a number of years?
Your capital should ideally be GUARANTEED
A good retirement plan should guarantee the customer’s capital in case he or she wishes to withdraw the money at retirement age. In other words, the plan’s surrender value should not fall below the total premiums paid.
Consumers are bombarded with many retirement-related insurance products and it is a challenging task to do their own comparison. This is even more so when every insurer tries to be unique. This DIY approach can be both frustrating and time consuming. The solution to this would be to engage a financial planner from an Independent Financial Adviser (IFA) company to help you plan – We do a better and more accurate comparison.
The plans compared are from insurers represented by IFAs. Are you actively cared for by a CFP from an IFA company? If not, then feel free to contact me for a chat over coffee.