ManuRetire is a retirement product that is exclusively distributed by DBS on behalf of Manulife. The ManuRetire should not be confused with another product called Manulife RetireReady which is distributed by Manulife agents , IFAs and DBS as well.
In order to analyze the suitability of a retirement product, the product must fulfill two criteria:
- The product is required to provide a reasonable retirement income over the life expectancy of a typical retiree.
- It should provide a reasonably high guaranteed return based on the Internal Rate of Return or known as the IRR. Those who has a higher risk appetite for non-guaranteed returns should consider properties, stocks, unit trusts and bonds instead.
Using the example HERE, assuming a male last age 40 selects 65 years old as retirement age and would like to receive $3,000 monthly payout for 10 years, the ManuRetire would require a premium of $1,926.66 a month for 10 years. He will also receive a non-guaranteed maturity benefit of $321,057.
Graphically, the payout will look like the following:
I have ignored the non-guaranteed maturity benefit simply because the insurance industry has historically not honoured their projected non-guarantee bonuses. ALL insurers except Tokio Marine Life (previously Asia Life) has cut their bonuses. One particular insurer even cut 100% of its terminal bonuses during the dot com crisis. That is why many older folks often advised their children not to buy insurance due the feeling of being play out because of the notorious cutting of bonuses.
Can the ManuRetire provides a reasonable retirement income over the life expectancy of a typical retiree?
The answer is clearly no.
First, the product does not address inflation. $3000 in 65 and $3000 10 years later is not the same. Assuming an inflation of just 2% per annum, $3000 will become $2416 10 years later. Even CPF Life is going to be modified to provide an Escalation Payout at 2% per annum.
Second, the 10 years payout period is too short. It is highly likely that the retiree will live for another 10 years after the ManuRetire expires. What should the retiree do when the product expires? Actively manage his stock investments to get the income?
Is the ManuRetire’s IRR reasonably good?
The guaranteed IRR is 1.78% per annum. This is terrible! It is lower than inflation.
Any other product that is better?
Yes, there is definitely other products that are better than ManuRetire. I will call it Product X. I cannot name the product X over the Internet as it will deem to be a recommendation and endorsement of the product. I will get lawyers letters from compliance and MAS for such recommendation and endorsement since I am a regulated financial adviser. On the other hand, unregulated bloggers can anyhow recommend and give advice on such products without even getting into trouble. How unfair!
Product X retirement age is also 65. However, it pays $3000 of monthly payout for 20 years and is adjusted for inflation at 3.5% per annum. Below is a chart to illustrate the cash flow:
It is important to note that there are two insurers that offer almost identical products that looks like Product X. In fact, one insurer copied from the other. One of the insurer actually is a better one because it is cheaper. So I usually recommend the cheaper one despite the more expensive one commanding a much higher commission.
In terms of payout period, Product X is more suited for retirees because its payout period is twice as long as ManuRetire.
In terms of guaranteed IRR, it is 2.46%. This is definitely better than ManuRetire. Although the guaranteed IRR is nothing to shout about, it is at least close to inflation rate. Of course, for those who has a higher appetite for risk, they can consider investments to get a potentially higher return.
When selecting a retirement product, ensure its payout is over a reasonable long period of time. Second, ensure that it has some kind of inflation adjustments. Third, make sure its guaranteed rate of return is at least equal to inflation.
If in doubt, always engage a professional fee-based financial planner to provide an objective and unbiased advice.
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