ANNUTIES-How can we use them?

Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
#51
I don't know why you guys keep on comparing MS and CPF life. Its like comparing apples and oranges. CPF life has insurance built in. CPF life is also aimed at the average joe not you guys (even if I charitably give you some credit for investment savvy - people always think they are cleverer than they really are), but needs everyone to participate to form a good pool.

I think this article summarizes my thoughts fairly well.

http://seekingalpha.com/article/1079761-...an-actuary
Reply
#52
You are right in comparing apple to apple, and orange to orange, then you can measure quite accurately.
To measure something accurately CPF LIFE should be compared to another immediate annuity. i think the only other annuity company available now is from NTUC.

But hey!
Is there anything wrong to find out whether the different in taste of an apple and taste of an orange, which taste suits you better? If you don't try, you will never know what suit your taste. By the way, do you like apple or orange or none? Have you try? Ha! Ha!
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply
#53
(06-05-2013, 09:48 PM)tanjm Wrote: I don't know why you guys keep on comparing MS and CPF life. Its like comparing apples and oranges. CPF life has insurance built in. CPF life is also aimed at the average joe not you guys (even if I charitably give you some credit for investment savvy - people always think they are cleverer than they really are), but needs everyone to participate to form a good pool.

I think this article summarizes my thoughts fairly well.

http://seekingalpha.com/article/1079761-...an-actuary

Very simple. Coz you can only make a choice of having only either an apple or orange. So if don't compare, how to choose? It is not that you can have both to eat. Govt don't allow that.

Of coz, if you have someone to share with, one can have an apple, another have an orange, then can share. Smile
Reply
#54
Very well put. i think there is nothing more to add to this discussion.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply
#55
(06-05-2013, 10:34 PM)Temperament Wrote: You are right in comparing apple to apple, and orange to orange, then you can measure quite accurately.
To measure something accurately CPF LIFE should be compared to another immediate annuity. i think the only other annuity company available now is from NTUC.

But hey!
Is there anything wrong to find out whether the different in taste of an apple and taste of an orange? Which taste suits you better? If you don't try, you will never know what suit your taste. By the way, do you like apple or orange or none? Have you try? Ha! Ha! Don't just grab the first thing you see.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply
#56
I repeat myself : cpf life targets the middle income or lower to ensure lifelong income in a sustainable way (no running out of money and then running to the gov aka tax payers of the future). If you think you can do a better job self insuring, that's beside the point - and I think there's a tendency to be over optimistic
Reply
#57
My answer is still "Don't grab the first thing you see". It may not be the best or most suitable for you.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply
#58
(07-05-2013, 02:14 PM)tanjm Wrote: I repeat myself : cpf life targets the middle income or lower to ensure lifelong income in a sustainable way (no running out of money and then running to the gov aka tax payers of the future). If you think you can do a better job self insuring, that's beside the point - and I think there's a tendency to be over optimistic

Hi tanjm,

Not sure your reply is to me or Temperament. Anyway, my view is CPF Life is mandatory for me, I can never run away for it if it going to be there when I am 55. So whether I can good in generating money or not is beside the point. If I can choose like what Temperament can do now, I will definitely compare and see which one is more suitable/worthwhile to get. Maybe this is the reason why I am here at this forum, to compare which investment is more worthwhile. It in my blood.

And I am not optimistic. So I get myself a retirement plan from one of the insurer to supplement CPF Life, so that I will never run out of money.
Reply
#59
(07-05-2013, 03:33 PM)NTL Wrote:
(07-05-2013, 02:14 PM)tanjm Wrote: I repeat myself : cpf life targets the middle income or lower to ensure lifelong income in a sustainable way (no running out of money and then running to the gov aka tax payers of the future). If you think you can do a better job self insuring, that's beside the point - and I think there's a tendency to be over optimistic

Hi tanjm,

Not sure your reply is to me or Temperament. Anyway, my view is CPF Life is mandatory for me, I can never run away for it if it going to be there when I am 55. So whether I can good in generating money or not is beside the point. If I can choose like what Temperament can do now, I will definitely compare and see which one is more suitable/worthwhile to get. Maybe this is the reason why I am here at this forum, to compare which investment is more worthwhile. It in my blood.

And I am not optimistic. So I get myself a retirement plan from one of the insurer to supplement CPF Life, so that I will never run out of money.
I feel sorry for those who are born in195x or 196X. You got no choice. i don't think it's fair for forcing you into a corner. Nobody likes to be in a corner-It's a dead end.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply
#60
You have no choice but to pay taxes (and thank goodness our tax rates are as low as they are). You have no choice but to obey the laws of the land. There is no such thing as 100% free choice.

We have ample evidence in other countries that a long term sustainable pension scheme is one that pays for itself without being a burden on future generations of tax payers.

Let me give you something to think about. I did this quickly for fun. Let's say that you have $100,000. And you decide to self insure. You need a bit of math and excel skills to follow this argument.

According to the SingStat website http://www.singstat.gov.sg/publications/...and_deaths

The proportion of males still alive at age 95 given you are alive at age 65 (i.e. probability of survival conditional on age 65) is 0.06. This is not a low number. However, I will assume you can plan your self-insurance until then.

I have seen posters assume they can make 5% returns if they self-insure. This cannot be a riskless portfolio. I model this as a mean return of 5% with a standard deviation of X%. e.g. if X is 1%, it means that 2/3 of my returns are between 4 to 6% (assuming normal distribution).

On a excel sheet, I basically use the norminv(rand(), mean, stddev) function to model the random returns in any one year. I then can simulate N number of scenarios (basically a monte carlo) and find out how many scenarios out of N do I run out of money by age 95.

On a $100K sum, I will assume an annual withdrawal rate of $8000 (which is similar to current estimated CPF life payouts on 100K of capital), I also assume that you invest the 100K at age 55 without any withdrawal until age 65 - again similar to CPF life.

My N is 16380 scenarios (basically about the width of the excel sheet :-)).

(A) For a mean return of 5% and a stddev of 3% (ie 2/3 of returns fall between 2% to 8%), I get 258 scenarios in which you have a 0 or lower principal at age 95 (1.57% of total scenarios).

(B) For a mean return of 5% and a stddev of 1%, I get no failures. with a stddev of 2%, I get 0.07% failure rate.

© For a mean return of 5% and a stddev of 4%, I get 1029 failures or 6.28% of total scenarios.

Now, statistically speaking you have a 6% probability of surviving until age 95 at the time you start withdrawing money. This means, you have a small but non-zero chance of running out of money for any reasonable risky condition.

What's the intuitive reason for this? Well, 8K is 8% of 100K. So when you draw a $8K pension, you may be drawing down capital. Even in bad years, you still draw down $8k, eating into your capital. That's why the results vary even though your mean return is still 5% per annum.

The assumption of normality in your return profile is, i would say, probably optimistic. It should show high kurtosis - i.e. you need to assume black swans. For example, even if you assume your average return is 5%, there may be entire stretch of years in which your return is very negative (I do not need to reach further back than 2008 for an example), but you still need to have your income to live on.

In conclusion, even if you assume a higher rate of return than an annuity's investment float, you will need to keep a buffer for the lean years. This may result in a withdrawal rate scarcely better (if at all) then with an annuity and with no certainty that you won't outlive your capital.
Reply


Forum Jump:


Users browsing this thread: 24 Guest(s)