Retirement Planning

Insur­ance offers a very attract­ive option of buy­ing an insur­ance called Annu­ity that pay us a reg­u­lar sum of money monthly/yearly from age 60 or 62 till our last day with our loved ones. You can invest a lump sum of money into annu­ity and the insur­ance com­pany will com­pute the reg­u­lar pay­out. And when unfor­tu­nate event hap­pen to you, and the pay­out you received so far is less than the amount that you have inves­ted in the annu­ity, the insurer will return the remain­ing amount with some interest to your bene­fi­ciary. How­ever, if you out­live the amount inves­ted, it is a bless­ing as you will be paid for life. Hence, by invest­ing in annu­ity, we have no worry of not receiv­ing con­sist­ent income for life. Moreover, some annu­ity declare bonus every year, hence your pay­out will increase each year to com­pensate for the infla­tion. So you get income incre­ment even dur­ing your retire­ment years!

Annu­ity is really a neces­sary invest­ment for every­one of us, wheth­er you are single or mar­ried.

CPF board will auto­mat­ic­ally cre­ate a CPF Retire­ment Account once we reach 55 years old. The min­im­um sum required to be set aside will be depos­ited into the CPF Retire­ment Account. CPF will then start the pay­out from the offi­cial retire­ment age of 62. The pay­out ends once the full amount is with­drawn.

You may use CPF Retire­ment Fund to pur­chase the annu­ity. For those who can­not res­ist the attract­ive interest rate paid by CPF board, you may leave the money in CPF retire­ment fund to earn the guar­an­teed 4% interest. How­ever, it is still prudent to use cash to buy a sep­ar­ate annu­ity policy so that you will still get some pay­out from the annu­ity when CPF stops the pay­ment to you.

Sup­ple­ment­ary Retire­ment Scheme (SRS) is a scheme to help the high-income earner to save tax by con­trib­ut­ing any amount up to a max­im­um cap of $11,475 into the SRS account. It also helps to build up your retire­ment fund. The amount con­trib­uted to SRS will be deduc­ted from your assess­able income. This works out to be a sav­ings about $1,000-$2,000 if you invest the max­im­um amount allowed. The cap­it­al gain for invest­ing the SRS sum is not tax­able. You will be able to with­draw the SRS money from age 62 onwards, the offi­cial retire­ment age when you open the SRS account at any loc­al Singa­pore bank. And only the 50% of the amount with­drawn are sub­jec­ted to income tax if the assess­able income is above $24k. So you can plan and spread out the with­draw­al amount for the next 10 years to min­im­ize the chargeable income tax.

Amount depos­ited into SRS account can be used to invest any­thing such as share, unit trust, insur­ance policy and even fixed depos­it. Just don’t leave the money in the SRS account as it only gives the mea­ger % of interest rate offers by the bank.

Down­load the Fin­an­cial Needs Ana­lys­is spread­sheet now to determ­ine the amount of funds required for the vari­ous area of insur­ance cov­er­age!

Ginny Lim Gek Eng
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