Insurance – Is Annuity Plan good for you?

Today I have learnt something new (from an insurance friend), It is said to be the key of retirement…..ANNUITY PLAN. Btw, he knows I want to retire and travel the world ASAP! As usual, take it with a pinch of salt and do as much research as i can about it.

Just a summarised idea of what annuity plan is – Its a retirement insurance plan for people aged 40 and above, it provides an “ikan bills” stream of income yearly for the retirees (Payout can also be done immediately – for age 40). Premium/s can either be paid monthly or with a single premium. You can also choose the option of payout for life and payout for a period of time

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DIYINSURANCE – Payout for life (I want to retire early)

This picture illustrates the income payout for life options, you can clearly see i have two choices;

  • Deferred – Putting a lump sum and wait either 20-25 years to get the “Puny” $6,000/+ a year.(Premium $62.3k)
  • Immediate – Putting a lump sum and get $6,000 yearly on the date of policy purchased. (Premium 201.8k)

Completely Ignoring the Internal Rate of Rate Yearly Because it doesn’t make much difference(Because majority of the time it is all the smelly wanks projections/B.S)

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Hais… I knew it

$6000/12 = $500 a month

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This is one of the pros of being an American (comparison of the deferred option)

Sadly I’m not and lets not be bitter about the difference of $16k!

In a smelly wank nut shell; don’t buy it unless you are a lazy couch potato that doesn’t know what to do with your money (you shouldn’t be reading this blog btw, you’re missing out on your channel 5 drama).

The last reason why I wouldn’t get it, previously mentioned in The truth of compounding Interest (Part 1), since STI is growing 7% annually, i might as well invest my $200k there ($14k Annually Capital gains Averaged + Dividends).

“financial freedom is harder than i imagine…:(“

-Further reading-

Annuity Deferred Plan

So what if you would to buy an annuity deferred plan?? Having 250k sitting in a bank, being aged 50 years old and only want money to be paid out at 65 (age of retirement). Below is a quotation from the insurance agent of DIYINSURANCE.

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The 30% agent basic commission is maxed at $30 (You can read in their FAQ page)

You will be getting $1,400 Monthly, so Yearly is $16,800.

Breakeven Years $250k/16.8k = 12 – 14 Years (2% increased p.a)

Lets look at your opportunity cost……….

Knowing STI Grows at 7%(Average) annually since inception, so lets take $250k and compound by 25 Years at a 7% rate.

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MoneyChimp.Com

Yup you will have $1,356,858 after 25 years…….

Since, there will be a 1001 types of computation breakdown…I should use a scenario that will depict my future.

Expenditure a year would be projected at $50k annual (Including inflation) – Monthly $4.16k

$1,356,858 / $50k =27 years 

By then i would be 65 + 27 = 92 years old

Hopefully my kids will be taking care of my old wrinkly body 😦

Immediate Annuity Plan

To cut the post short, I have checked with the Insurance Agent of DIYINSURANCE, if my brother is (40 years old and have $200k excess) for the Immediate annuity plan(Payout after premium is paid). The payout would be $495.40 Per month $5,944k Per Year. It will take 33 years to breakeven (Not even including inflation rate that is 2.25-2.5% annually because the payout will increase 2% per annum) – I do not think this plan is a steal

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Disclaimer; there are other policies out there that will be better than what was used in this post (so always do your calculation and be logical when a good one comes to you)

+1 Knowledge point

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