k_FLI2
— this project should not affect my daily life
- Should I spend (far) more time on MOETF? I think the absolute amount invested will be much smaller in MOETF.
- Also remember SRS 15k
If I can easily and quickly get to 200k then I may want to buy the 28k. At the moment
- 🙁 am not fully comfortable about the negative aspects
- 🙁 not so easy to hit 200k. I need to liquidate many assets, over a period of time … Right now my FSM positions require baby-sitting, and mostly underwater, creating anxiety, which would be reduced if I can wait till Feb.
== PLIP (PruLifetime Income Plus) #Markus
The PremFinancing is a double-edge sword. It enhances DYOC when SORA is low. When SORA exceeds 2.4%, DYOC would drop below 5% and I would have to accept the low DYOC over decades for SVBE.
Non-guaranteed 3.55% p.a. monthly payout from Pru after 36M prison term, till age 110.
For breakeven .. Surrender value starts at (guaranteed) 80k + 2k (non-guaranteed). It inches up after a few years. Far inferior to FLI2, but total premium (100k) is better.
%%Q: non-guaranteed return smells bad
A: Prudential has always declared 4.25%. After consecutive years of double-digit returns, Prudential once declared a bonus in the form of surrender value bump.
A: If they declare below 4.25% perhaps it would hurt their reputation. I think this is similar to OCBC’s aversion of mass layoff.
- After that, I have a painless exit route available to me whenever I need the 28k.
- But it’s not ideal to exit right after BreakEven, because my end-to-end total return would be 0%. Instead, I will try to hold 15-20 years in total
- By default, I would pay off $72k loan, and then tie up 100k of liquidity to hold this long bond until BreakEven.
- .. After that, I have a painless exit route available to me whenever I need the 100k.
- Overall, default solution is unsatisfactory. You would probably advise me on other solutions at that juncture. At this moment in 2021 I don’t know how I would feel.
- I am likely to relocate/emigrate to the U.S. in a few years and therefore prefer simple solutions. I don’t like babysitting any asset in my portfolio.
— unlike rEstate, gold, SP500, time is not necessarily on your side if you buy this product… See time is on your side if…
Given the long prison term, I wish to hold forever, but I won’t be able to when (not if) SORA goes up within a few years or decades. During the current window before SORA moves against us, we can earn some leveraged return… picking up pennies in front a bulldozer. It’s a Stress situation even if you work out a solution to the IR hike. Kun.H pointed out that I may need to monitor Sora when it starts moving against me.
Also remember that non-guaranteed payout is Low-n-nonGuaranteed, esp. over the long horizon.
Third problem is long-term SGD inflation. See FLI2
— biggest concern is IR hike
I said I could pay off the 72k loan and just earn the 3.55% payout while waiting till the 30th anniversary for SVBE (BE on surrender value). 3.55% is not bad and won’t be a pain. That’s the default plan.
Edmund said a cusotmer could deploy the 72k in a riskfree investment and earn the now-higher interest to offset the increased financing cost on the 72k loan. If the interest income can exceed the interest cost, then this is better than paying off the loan.
— key variables to monitor
- how soon I need the 28k .. the smaller 28k reduces this variable’s impact compared to previous products.
- SORA .. likely to move against me within decades
- insurer payout rate.. Could they keep it up forever?
— Prem financing Loan .. 72k collateralized loan. LoanIntRate = SORA+0.6% ~ all-in 0.75%pa, at the moment.
The 0.6%pa is a nonFloatingSpread written into the contract. Subsequent customers could get a different nonFloatingSpread.
Over the holding period (10-20Y), SORA could rise .. to 3%. I guess this is one of the biggest market risks.
It’s easy to be blown away by the current low SORA (giving the 10% current yield), and forget that it will eventually move against me. This is a time bomb (a stress situation). When it happens, this product won’t offer any option of easy exit. The surrender value is growing very very slowly towards 100%, much slower than SORA.
Q: given that I have too much SGD, why do I want to pay for prem financing?
A: actually I have “too much” only in the short term. Consider 3 directions:
* Direction F: pass up PLIP. Leave 100k in FSM earning 1.5% but liquid.
* Direction 1: no PFL.. the 3.55%, the 36M prison term and breakeven timeline are dismal and worse than Direction F
* Direction 28: 28k locked in + my 72k left in FSM earning 1% but highly liquid. Beside the income on 72k and the PFL interest cost, I earn the same $3552/Y as Direction 1.
Q: Why is Direction 28 better than Direction 1?
A: Main benefit is the liquidity of 72k over decades.
— four promotions
* 0.6% spread and $300 sign-on bonus for the PLIP
* $2k bonus paid out in May
* 1% IR for 12M
== manulife ReadyLifeIncome #Aaron
I don’t find any joy, brain stimulation in this product, even worse than mufu. Control tcost !
- 🙂 long payout term — 110 years, longer than CPF-life
- 🙁 but pay out rate is only partially guaranteed
- 🙁 pay out rate much lower than CPF-life
- 🙂 smaller commitment (than previous products) — 42k in total
- 🙂 shorter wait (than previous products) — 60M
- 🙂 some death/TPD payout — worth something
- 🙁 surrender value is not so good within 20Y (break-even after 10Y). The longer the sweeter, like wine.
— what if my kids don’t care about this $100/M payout? I think this is unlikely when they become mature enough. For centuries, all consumers in all countries like freebies.
The longer I live, the more tangible and visible is this payout.
— how it compares to T:US
- 🙁 illiquid
- 🙁 lower yield
- 🙁 5Y wait
- 🙁 bigger commitment
- 🙂 capital protected, though you may need to wait 10Y for break-even.
- 🙂 a stabilizer in my portfolio, but why don’t I get $42k in T:US first?
— possible reason for regret
- 🙁 there might be better ways to “leverage” the 42k, such as T:US (above), or more properties in Asia or U.S., or HY/PE
- Remember the Mindchamps 40k “investment”. This 42k is surely more fruitful.
— my reply (slightly modified)
Hi Aaron,
Thanks for spending the time on the RLI ( ready Life Income) product features etc. I have several reservations but I will focus on the show stoppers. You don’t need to reply.
My sister gave me some tough questions on RLI and in the end I told her my own observation that my blue-chip dividend stocks represent a favorable alternative in terms of 1) payout wait time, 2) liquidity, 3) minimum amount, and 4) payout rate in the form of dividends.
On the other hand, RLI offers principal protection, some death/TPD payout (which i don’t appreciate), and an interesting 110Y stream of payout. For the last few days after I spoke to my sis, I have put a lower value on the amounts-that-pay-out-during-the-decades-After-my-passing. I think my daughter would appreciate $1200 (projected) annual pocket money, but I don’t feel so sure how much that would mean to her life .. might mean a lot to her or not much.
In fact, the uncertainty over the payout rate is a bigger uncertainty due to the super long horizon. $1200 might increase to $1500 or drop to $800, sometime after I pass away. Singapore inflation may also deteriorate, say, 90 years from now, when the 7th generation of leadership comes to power, perhaps very different from the last 3 generations of PAP leaders. In 110 years, my daughter is long gone and her grandchildren may live in a very different world so would they appreciate a pocket money of $1000/Y or $1400/Y or whatever?
It’s like giving someone a big present without knowing how much she needs it. ( In contrast, what if I leave them a kilogram of pure gold? )
RLI is not the first product presented to me that would pay out long after I pass on. Now I recall that I have considered or “bought” several life insurance (including annuity) products over the years
A) TokyoMarine tri-generation
B) Manulife Universal life
C) Axa critical illness 20Y
Each time I spent many hours, many sessions with multiple consultants on the product team. In the end I didn’t commit to any of these products due to
* long wait time for payouts
* sizable commitment, well above $1k
* long break-even hold time — the combination of slow growth (in “surrender value”) and low payout rate means that I lose my principal if I quit during break-even period. So I must hold it long enough.
I think in total I spent more than 10 hours analyzing and discussing each product, so I was serious. The time spent was so very high, precisely because of the high commitment level. In contrast, I would spend possibly less than 10 hours on some $99k property deal, even though the commitment level is higher. That’s because break-even is faster, and because payout (rent) rate is higher and starts within months.
CPF-life is the only annuity I have considered good enough. It has possibly zero wait (if I top up at age 65). Payout rate is around 7% compared to 3% for RLI. Break-even is probably faster if I add up the payout and bequest, though I won’t see the bequest in my grave. CPF-Life is a very competitive offer, so I’m willing to commit the maximum , around 300k.
So RLI (along with Tri-gen and Universal life) is no match for cpf-life in my humble opinion. The strongest competitor to cpf-life is Allianz Income Protector but still pales against cpf-life in my humble opinion.
DBS multiplier is great due to low commitment, extremely high liquidity, no waiting. That’s why I don’t mind 2% return.
In conclusion, I have mentioned 5 “better” products than RLI
1) blue-chip dividend stocks — to be increased
2) CPF-life — heavily analyzed… cumulative 50 hours spent over 3 years
3) rental properties — already bought a few
4) DBS multiplier — used for a year
5) gold — to be increased
I’m always open to consider new products including insurance. You can see I hold many medical insurance plans, with no surrender value. In contrast, I think life insurance products are always too safe, too slow growing, too much waiting required, too much commitment, too rigid, too illiquid for me.