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Growing your wealth with insurance

Insurance products can supplement CPF and other investments as part of a diversified investment portfolio for retirement planning.
Wednesday, March 2, 2016 - 05:50

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"From a wealth management angle, insurance has always been one of the key components of wealth management solutions." - Tony Chow, assistant general manager, China Life Insurance (Singapore)

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"Customers increasingly prefer to have regular payouts or an income stream upon retirement." - Daniel Lum, director of product and marketing at Aviva Singapore

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"It is important to safeguard against the threat of high medical costs and recuperation expenses." - Lee Swee Kiang, chief product officer, Great Eastern Life

AS SINGAPOREANS live longer and face higher costs, finding investments that can keep a lid on medical expenses while yielding a steady income over the long term has become key for many when planning for their retirement.

The recent East Asia Retirement Survey by the Global Aging Institute found that 66 per cent of Singaporeans surveyed were concerned about having enough funds when they retire, and an overwhelming 88 per cent did not expect to depend financially on their children when they retire.

"With longer life expectancy of Singaporeans (age 85 and 80 for women and men respectively) and Singapore being the fourth most expensive city to live in, it is not surprising that many of us find it challenging to plan ahead and prepare for our retirement," said Tony Chow, assistant general manager, China Life Insurance (Singapore).

While many Singaporeans are aware of the need to plan for their retirement, many have yet to start the process of doing so. The Singapore government recently launched CPF Life and enhanced the CPF Minimum Sum Scheme to help its citizens with their finances when they retire. However, as CPF Life payouts may not be sufficient, Singaporeans need to look to other investment products to meet all their financial needs when they stop working.

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"From a wealth management angle, insurance has always been one of the key components of wealth management solutions. Insurance can address the varying needs of an investor pertaining to savings and investment (wealth accumulation), legacy planning (wealth distribution and preservation) and wealth protection," said Mr Chow.

However, industry players said that there is no a one-size-fits-all approach when it comes to retirement planning. Rather, there are a number of factors to consider - such as time horizon, risk appetite, preferred payout mode and affordability.

Building a diversified investment portfolio is also key in mitigating risks, and the approach you take will change as you age. You might choose to take more risks when you are younger to potentially earn returns that can beat inflation. As you near retirement, however, the priority should switch to capital preservation to minimise risk exposure as there would be less time to rebound from large losses.

STEADY INCOME

Recognising the need to make their savings stretch for a longer period as life expectancy increases, more Singaporeans are seeking products that can pay out regularly over the long term.

"Customers increasingly prefer to have regular payouts or an income stream upon retirement, as opposed to a lump sum payout that they then have to manage throughout their retirement years," said Daniel Lum, director of product and marketing at Aviva Singapore.

There are insurance savings plans which are designed specifically to offer a regular income stream in retirement. For instance, Aviva's MyRetirement and MyRetirement Plus offer a guaranteed monthly income for 10 or 20 years respectively, starting from your desired retirement age. Policyholders also have the flexibility to choose to withdraw the returns in a full lump sum, or partial lump sum and partial monthly income.

The benefit of such plans is that it is structured so that you know exactly when you will be getting your returns. This provides policyholders with more certainty in their retirement years.

Meanwhile, a product introduced last year from Prudential is the first insurance savings plan to allow customers to grow their wealth up to the age of 100. The PRUwealth income plan is designed to deliver potentially higher returns to customers while ensuring that their capital remains intact after the 20th year.

Another of the insurer's products, PRUlifetime income, is a whole of life plan that can be transferred from a parent to a child, providing financial support over three generations, including the grandchild.

Insurance also plays an important role in helping protect you from costly medical expenses that could potentially wipe out your savings, which differentiates them from other investment products.

In the event of disability, long-term care can be very costly and often for a prolonged period of time. Aviva's Long Term Care Study 2011 found that the typical costs incurred averages out to about S$2,000 per month. With a lower ratio of dependents supporting the aged in Singapore, it is important to plan so that you can afford the needed long-term care and continue to pay the bills, insurers said. While the national Eldershield scheme offers a basic level of protection, those seeking more comprehensive coverage can purchase products that enhance protection.

"We recognise that the risks of illness and long-term disability increases with age. It is important to safeguard against the threat of high medical costs and recuperation expenses. Huge bills for treatment and recovery could easily deplete your nest egg," said Great Eastern Life's chief product officer, Lee Swee Kiang.

He recommended having in place a comprehensive hospitalisation and surgical (H&S) plan and a long-term care plan as the basic blocks of your retirement planning portfolio, alongside wealth accumulation plans. Great Eastern Life offers a Supreme Health and Total Health for comprehensive H&S needs and Eldershield Comprehensive for long-term care needs.

PURSUING YOUR DREAMS

However, retirement is no longer just about making ends meet and being able to pay your medical bills on time. Singaporeans now expect more from their retirement, adding to the urgency of having sufficient savings once they stop working.

Findings from a recent social media campaign on retirement by Great Eastern Life showed that Singaporeans now think of retirement as a new phase in life that offers them an opportunity to pursue new experiences. From the campaign, GE found that the the top five pursuits that Singaporeans seek after they stop working are: travelling around the world; pursuing personal interests; developing a second career; spending time with loved ones; and contributing back to society.

Said Mr Lee: "At Great Eastern, we are advocates of a 'rich' retirement for everyone. A 'rich' retirement in our definition consists of not just having sufficient cash to retire comfortably but also ensuring your nest egg is preserved during medical emergencies or unforeseen circumstances. With proper planning set in place, you are free to pursue your retirement dreams wholeheartedly."


Singaporeans' attitudes to saving

THE Aviva Consumer Attitudes to Savings study is conducted three times a year. The latest study conducted in November 2015 found that:

  • 53 per cent of Singaporeans are worried that they will not have enough money when they retire to provide an adequate standard of living.
  • This is despite 56 per cent of Singaporeans saying they have already started saving specifically for retirement.
  • This is how they are saving specifically for retirement: CPF (69 per cent); bank deposit or savings account (64 per cent); savings product from a bank or insurer such as endowments and investment-linked plans (53 per cent); direct investments such as unit trusts, shares, bonds (37 per cent); property (28 per cent).
  • 46 per cent think that they are going to have to work beyond the normal retirement date to fund their retirement while 56 per cent say that they would like to continue working "either full time or part-time" after the usual retirement age.
  • When selecting a retirement savings product, Singaporeans tend to prefer guaranteed returns. 67 per cent would prefer higher guarantees with lower variable returns, compared to 15 per cent who would prefer lower guarantees but with higher variable returns.
  • 22 per cent think that the funds they need in retirement for an adequate standard of living is less than S$2,000 per month. 43 per cent think it is about S$2,001-4,000; 16 per cent think that it is about S$4,001-6,000; 13 per cent think that it is more than S$6,000, and 6 per cent do not know.
  • The majority of Singaporeans have planned for their funds to last about 10-15 years (36 per cent) or 20-25 years (32 per cent). 16 per cent have planned for their funds to last about 30 years or more, while 9 per cent have planned for only five years or less. 8 per cent do not know or have not thought about it.
  • Provisioning for healthcare expenses should be a key part of retirement planning. 68 per cent of Singaporeans plan to pay for medical expenses incurred in old age with Medishield, 66 per cent plan to use Medisave; 45 per cent have planned with an Integrated Shield plan; 30 per cent are planning to rely on cash savings; 8 per cent plan to rely on their family members; and 9 per cent have not thought about it.
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