Based on discussion with Joshua Yap of DBS, this analysis is focused on Singapore, but other countries are not very different.
- Reason 1: burn rate — some buyers have a burn rate close to 80% of income. When these folks retire they need a ton of help to support the same lifestyle a.k.a. same burn rate.
- However, they don’t seem to accept that after kids finish education, their burn rate would taper off
- Reason 2: passive income — most people have very low passive income, perhaps below $1k/m. Now I think most Singaporeans are risk averse so their passive income is generated at very low yields so $1k/M at 2% yield requires 600k of nett investment.
- Joshua said “not many people are blessed as you.” … music to my ear. Joshua was not flattering me throughout the chat. He didn’t need to.
- Reason 3 (Joshua): many buyers don’t want to work under stress past 65. With an additional income (endowment etc) these folks can afford to stop working so hard under stress.
- Reason 3b (Joshua): some buyers worry they would no longer be in-demand on job market.
- Reason 4: (Traditionally the Chinese are slightly better) many buyers such as my sister are unable to save for retirement. I aim to save half my salary, but some can only save $1k/m.
Caution — don’t fall into the superiority trap. An endowment buyer could be stronger (than me) in many ways.
I think Chinese Singaporeans are taught to save for rainy days, so endowment plans follow the Chinese tradition.