All of the annuity products featured here suffer from long-wait, low return, horrible liquidity. As I stressed in many blogposts, I need current income rather than retirement income, but these products do the opposite — increasing retirement income at the expense of current income.

I think because YJL invested heavily herein, his current income from his other investments is very low. His retirement income could be too much for his needs.

This product is rather complex. Here’s My simplified numerical illustration: (Still too much to remember and not so relevant)

assuming growth phase = age 55 to 65
and the subsequent payout phase = age 65 to 85 or 95 or whatever

At age 55 we invest 300k. Let’s not assume the very optimistic or extremely negative outcomes, so this 300k will increase at (non-compounded but guaranteed) 8% a year, during the growth phrase.

After 10 years, 300k becomes 540k, but this is not available for a lump sum withdrawal. This 540k is a reference value, as explained in this video, officially known as benefit base. The actual contract value (i.e. asset value or account value) is probably much lower since few fund managers can guarantee 8% for 10Y. This value depends on the annual fees (like 4%) and participation rate (like 50% of the actual asset goes into some equity funds). I believe the actual contract value is likely well below 540k.

Nevertheless, the 540k is the basis of the retirement income. Each year until I die, I receive something like 4% of this 540k, equal to $1800/month. This $1800/month as a percentage of the initial outlay of 300k is 7.2% — decent, but remember the 10Y wait.

If the growth period is longer like 20Y, then the initial investment improves from 300k to merely 208k, so the $1800/month amounts to 10.4% (of premium) payout_rate after 20 years wait.

I think I would prefer a shorter wait, like age 45 to age 55. Not sure how the numbers would change. For even shorter wait, my rental properties deliver immediate current income but at much higher credit risks. See the section below.

Note the annual fees don’t directly impact the guaranteed 8% garanteed increment (during Growth phase) or the 4% guaranteed income (during payout phase).  Guarantees are guarantees. The fees are how the operators make money, but fees are already factored into the prices.

How does it stack up against CPF Life

Similar. With the same 10Y wait, CPF Life seems cheaper i.e. payout is higher (8-9%).

I wanted to know the payout for $100k top-up at age 65…. Aha – Online Estimator shows that for someone born 1955 (aged 65 in 2020), a 275k top-up to RA would immediately start producing $1.3-1.4k in the Basic plan, around 6% payout rate. Standard plan would pay more than 1.5k i.e. 6.5% payout rate.

See also ##cpfLife adv over private annuity 

How does it stack up against property

• active management — is much worse with properties.
  • The guaranteed rent income improves that significantly
• risks — market risk, political risk etc is much better with annuity
• growth — (long term) is much better with properties. With notable exceptions like Tokyo, most properties appreciate over 20Y. (In every city, there are individual buyers who happen to buy at the very peak and end up waiting for 20Y to break even. )
• liquidity — is much worse with annuities
  • Except CPF-life, the annuity can be surrendered by giving up most of the lifetime benefits
  • properties can be sold any time, even during the first 10 years
• inflation (long term concern) — is better for property rental income