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Annuities!

These financial tools are suitable for individuals seeking regular income in retirement with low risk and best purchased closer to retirement age. It works by either depositing a lump sum or a regular payments into an account that will produce variable returns based on your risk appetite. Did you know that KWSP/ EPF is also a type of annuity?

Key Features of Annuities

1. Tax Deferral: withdrawals during retirement when the individual may be in a lower tax bracket reduces tax payable

2. Death Benefit: many guarantees a specified payment to beneficiaries if the annuity holder dies before payments begin

3. Lifetime Income: ensures annuity holders do not outlive their income

4. Guaranteed Minimum Withdrawal Benefits (GMWB): Some guarantee the ability to withdraw a minimum amount each year, even if the account balance is depleted.

Disadvantages of Annuities

1. Fees and Expenses: Annuities can have high fees, including administrative fees, mortality and expense risk charges, and investment management fees.

2. Complexity: The variety of annuity types and features can be complex and difficult to understand.

3. Liquidity Issues: Withdrawals before a certain age (usually 59½) can result in penalties and surrender charges, and early withdrawals are typically taxed as ordinary income.

4. Inflation Risk: Fixed payments can lose purchasing power over time due to inflation, unless the annuity includes an inflation adjustment feature.

Which annuity is best for me?

1. Fixed Annuities are best for conservative investors seeking predictable and stable income with no risk to principal.

2. Variable Annuities are b est for investors willing to take on more risk for the potential of higher returns

3. Indexed Annuities are best for those seeking a balance between growth potential and protection of principal.

4. Immediate Annuities are best for individuals needing income immediately, often used by retirees.

5. Deferred Annuities are best for individuals planning for future income, often used by those still saving for retirement.

Examples of retirement annuities in Malaysia

1. Great Eastern Great Retirement Plan : Offers guaranteed annual income during the retirement period, potential dividends, and death benefits.

2. Prudential PRUretirement : Provides a combination of guaranteed and non-guaranteed payouts, including regular income during retirement and death benefits.

3. AIA A-Life Retirement Income : Guaranteed monthly income, potential dividends, and lump sum benefits at maturity or upon death.

Ordinary Annuities

Most Malaysian annuity plans are designed as ordinary annuities.Payments are made at the end of each period. Using the calculator below tells you how much your investment would be worth after specified years or payments. You can also input future value to discover how much regular payments are required to amass your desired savings!

Annuity Due

Some annuity plans might offer flexibility, including the option to choose an annuity due structure, where payments are made at the beginning of each period. Using the calculator below tells you how much your investment would be worth after specified years or payments. You can also input future value to discover how much regular payments are required to amass your desired savings!