Understanding Retirement Income

Retirees need a reliable stream of income to fund their living expenses. This income stream can come from several sources such as CPF LIFE, annuities, rental income and dividends. They could also fund their retirement lifestyle by drawing down from bank deposits and investments.

In recent years, insurance companies have been rolling out many types of retirement products into the market. Because of its complexity, a typical consumer usually finds it hard to understand or compare.

At DIYInsurance, we try to make it easier by categorising retirement income products based on:

1. Nature of income payout

Variable income amount

The income payout is made up of a guaranteed amount and a non-guaranteed projected amount. As the non-guaranteed amount is subject to the performance of the insurer, the actual income payout would be variable year by year.

Pros

1. Premium is cheaper
2. Projected income payout is higher

Cons

1. Income amount is variable, hence payout amount may be lesser

Fixed income amount

The income payout per year is fixed and guaranteed. It is not subject to the performance of the insurer

Pros

1. Income is guaranteed

Cons

1. Decreasing purchasing power as income will not increase
2. Premium is higher

Increasing income amount

The income payout per year can increase in the future.

Pros

1. Income can increase to offset inflation

Cons

1. Premium is much higher

2. Duration of Income Payout

For a limited number of years

The income stream is payable for a fixed number of years

Pros

1. Premium is cheaper
2. Higher income payout

Cons

1. Income stops at the end of duration (longevity risk)

For the entire life

The stream of income is payable for the entire life

Pros

1. Income is assured for life

Cons

1. Premium is higher
2. Lower income payout

The suitability of the retirement income products depends on several factors such as:

• How much retirement income you need
• How long an income stream you require
• How much resources you can set aside
• Existing sources of income for retirement purpose
• Is there a need to have additional payout during maturity
• Is there a need for high death benefit

For a start, you can use our Retirement Income Calculator to estimate your affordability or simply go to Compare Retirement Income products page to start comparing.