The retirement advice that worries me the most

WHILE I was having breakfast at a hawker centre near my office one recent morning, an insurance agent approached me and asked whether I had planned for my retirement.

I told him politely that I had made plans, was in the wealth management profession, and am investment-savvy.

He pressed on regardless. His company, he said, had an annuity plan better than CPF Life, one that could pay 6 per cent per annum.

He admitted it was an investment-linked insurance policy (ILP). I tried to explain that one cannot fairly compare an ILP retirement plan with the CPF Life annuity.

Before I could finish, he argued that the government also invests our Retirement Account (RA) monies into the equities market. When I pointed out that CPF monies are actually placed into Special Singapore Government Securities (SSGS), which are not traded in the bond market, he retorted: “Yes, securities, that is stocks and shares.”

He then claimed that when one dies after joining CPF Life, their family would receive nothing of the unused balance.

I stood up to leave, but not before telling him firmly that he needed to improve his knowledge and do a fair job for his clients. He needs to make an income, but in the right way, as his advice would impact the lives of those who believe him.

I share this story because over the past few months, I have been hearing variations of this.

It seems many Singaporeans are being asked not to set aside the Full Retirement Sum (FRS) in their RA at age 55. Instead, they are advised to set aside only the Basic Retirement Sum (BRS) – which is half of the FRS – by pledging their property, and to redirect the other half into an ILP.

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With FRS at S$220,400 in 2026, this means keeping only S$110,200 in the RA at age 55 and putting the remaining S$110,200 into an ILP.

In a separate situation, I was shown an illustration that claimed the combination of CPF Life and an ILP would outperform CPF Life alone.

The adviser here showed a slide demonstrating a combined monthly payout from age 65 of around S$2,161, over 25 per cent more than the S$1,640 from CPF Life alone if FRS were retained.

On top of that, the ILP was presented as offering a “bequest” of about S$200,000, described as “capital guaranteed (upon death)”, something CPF Life does not match once payouts exceed contributions.

It was then labelled the “recommended option”.

How the product works

In the proposal above, the ILP’s premiums would be paid over three years. The prospective client is shown two sub-funds the ILP would invest in, managed by Lion Global Investors and Allianz Global Investors.

These are shown with annualised historical returns of 12.34 per cent and 8.19 per cent, respectively, over the past 10 years. These rates appear to have been projected forwards to arrive at an expected future lump sum and income payout.

At the end of the 10th year, the policyholder at age 65 may either withdraw a lump sum of about S$221,947 or opt to receive about S$1,271 a month in “dividends for life”.

When this is layered onto BRS of S$110,200 in the RA, the headline numbers are arrived at: about S$2,161 a month in total income from age 65, comprising S$890 from CPF Life (BRS) and S$1,271 from the ILP, plus a S$200,000 bequest.

On paper, it looks compelling. That is precisely why it warrants careful scrutiny.

The concerns

First, the illustrated returns are backward-looking and almost certainly drawn from a particularly strong equity decade.

Projecting 12.34 and 8.19 per cent a year forward to derive a lump sum of S$221,947 or the S$1,271 monthly payout is misleading. At more realistic net-of-fee returns, the “higher payout” claim can disappear entirely.

Second, ILPs carry multiple fee layers that presentation slides I have seen do not disclose; these can eat into returns.

Third, CPF Life is being mischaracterised as just another investment. It is not. CPF Life is a government-backed, pooled lifetime annuity.

RA monies currently earn 4 per cent annually and are invested in non-tradeable SSGS, not equities. Comparing a market-linked ILP against CPF Life on a “return” basis misses the point entirely. One is an investment, the other is an insurance annuity.

Fourth, the “capital guaranteed (upon death)” label deserves a second look. Most 101-type ILPs guarantee 101 per cent of premiums paid (in this case, just S$109,800) or the account value, whichever is higher – not a fixed S$200,000.

The S$200,000 figure is a projection, not a guarantee. When markets fall, projections fall with them.

Fifth, and most importantly, longevity risk is entirely ignored. CPF Life pays for as long as you live. The ILP’s “dividends for life” only last as long as the underlying fund sustains them.

Drawing S$1,271 a month from a market-linked instrument, especially into a poor sequence of returns in early retirement, can deplete the capital. There is no pooled longevity insurance in an ILP.

Sixth, the income from CPF Life isn’t comparable to income from an ILP. CPF Life’s payout is guaranteed for life. But the income from the ILP is projected and market-dependent.

Our stand

For essential retirement expenses such as food, utilities and basic healthcare, the instrument to fund them must mitigate both investment risk and longevity risk. The more efficient instrument for this is an annuity; CPF Life is the best annuity available in Singapore.

If CPF Life alone is insufficient or if diversification is desired, private annuities or investment-grade bonds can supplement. But the foundation should be at least the FRS in the RA.

Only after essential expenses are secured should one consider other instruments for discretionary or growth needs. As I have argued before, ILPs are not the most suitable vehicle for investing.

The proposed structure takes a guaranteed, government-backed, longevity-pooled lifetime income and partially replaces it with a market-linked, fee-laden, non-guaranteed product illustrated at optimistic historical returns.

To brand this as the “recommended option” is not ethical.

The damage from getting this wrong only becomes visible years later, when it is too late to undo.

The agent at the hawker centre and the broader pattern I am seeing in the industry could quietly erode the retirement adequacy of many Singaporeans. That is a price too high to pay for a sale.

The writer is CEO of Providend, South-east Asia’s first fee-only comprehensive wealth advisory firm