CPF or life annuity

Dear Mr Tan

I am approaching age 55. Should I leave my minimum sum in the CPF to earn 4% per annum, or take it out to buy a life annuity? I am confident that you can give your impartial advice. Thank you.

-----------------------------------

REPLY:

You should take to an insurance adviser from NTUC Income or visit the business center to talk to a salaried adviser. You can compare the difference and make the best decision for yourself.

In my frank view, the life annuity with NTUC Income is likely to earn a long term rate of return of about 4-5% per annum. This should be as good as CPF or slightly better.

However, the life annuity has an element of risk pooling. It guarantees payment of the annuity for as long as you live. You do not have to worry that your money will run out earlier. (In the case of the CPF, the money is expected to run out after 20 years (ie when you reach age 82).

However, if the annuitant dies younger, a part of the principal or interest is left behind in the pool to pay the benefit to those who live longer.

There are also difference in the amount of payment. The life annuity from NTUC Income pays out less during the initial years and increases with bonus. The rate of bonus vary yearly according to the investment yield.

If you are not sure, it is all right to leave the money in the CPF to earn 4% per annum. This is an attractive rate of return.

Do take your time, before you make a decision. Either way, you should be happy with the decision. In both cases, the products give good value to the customer.