Archives For tax planning

Deferred Annuity or PRS? which is the best option?

Few weeks ago someone asked me this question through my Facebook private massage. So i try to best to keep it very simple so it is easier for her understanding.

 

1) The major difference you can find between PRS and Deferred Annuity?

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2) The PRUretirement Reward

pruretirement reward

3) Capital guarantee

One of the feature i like about deferred annuity is the capital guarantee. From the table breakdown you can see under the green column the guarantee income payout during your retirement is very close to the total premium paid over the years.

base on this projection, you are guarantee to receive RM7,066/year which mean you will get monthly income of RM588 directly bank in to your account.

Look at deferred annuity as you safety net. If the investment fails, you won’t hit rock bottom because your retirement fund will be  there for you when you need it.

4) higher return with no downside*.

sound to good to be true. but is it is. The Premium paid is guarantee Preserved and yet you still can tap into higher investment return. As shown in the table,

 

  • investment return (x), 

total premium paid = RM108,000.

total return = RM376,777.

annual rate of return 7.34%

 

should it goes below expected return,

  • investment return (y),

total premium paid = RM108,000.

total return = RM168,514

annual rate of return 2.8%

5) Force Saving.

Which type are you?  The Spend first or Save first.

forced saving

i love the idea of force saving when it come to saving for retirement. Base on statistic, 95% of the people with the tendency of spending their income before they save.

Deferred annuity is a long term contract whereby you need to put aside a fixed amount of money for “X” amount of time and you cannot touch it before you reach age 55. This will ensure you money will always grow in time because you are not allow to withdraw it. (you still can withdraw it before reach 55 years old but you have to pay the 8% penalty)

6) tax exempt up to RM3,000 per year

this is a good way to reduce your income tax. at least you are eligible to enjoy this tax saving starting form year 2012 to year 2021. you can see how much money can you saved in taxes especially in this section on my previous post “how much can you save on insurance tax relief”.

7) Hassle free estate planning

monies in the PRS account will be subject to the usual estate distribution conditions. upon death, most of your assets including your PRS will be frozen.

Family member are required to apply for a Grant of Probate of Letter of Administration to unlock the deceased’s estate for distribution to the beneficiaries, which will take some time to do so.

For deferred annuity, as this is an insurance product, passing on the benefits of the policy to the next of kin is easily effected through a proper nomination and the proceeds are released with relative ease. This will bring our next point. 

8) This deferred annuity plan come with Death Benefit. 

How important it is for family members to have death benefit payout by insurance company?

Do you know, weather you have proper Will or without Will, you are subject to a minimum charges when you appointed a lawyer to administrate the decease assets. it does not come cheap. the lawyer fee is charged base on the total asset and the difficulty of the case.

The family members can use the death benefits payout by the insurance company to pay off the lawyer fee. The death benefits will usually takes 2 weeks.

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1) How to properly fill up your insurance tax relief 

You should know there are 3 components which you can enjoy tax exemption up to a total of RM12,000 annually

A) life insurance & KWSP                   RM 6,000 
B) Deferred Annuity & PRS                 RM 3,000
C) Education & Medical Insurance   RM 3,000

prudential statement

 

Amount in the statement indicate yearly tax exempt qualified
 
To fill up, simply put in the figure as stated in the statement 
A) under life and KSWP = RM 399
C) under education & medical insurance = RM581.

 


 

2) Budget 2014, are you better off or worse?

Please visit here  to find out on the latest 2014 income tax guide

 


3) How much money do i actually saved on insurance and annuity tax exemption



please refer to a case study below

 

prudential comparison table

 

3 a) Let’s see how how much money you actually saved over a long period of time

Total money saved per year is RM960. 
What if you could pay yourself instead of the government. How much you will be better off?

Let me show you a simple calculation.
if you can save RM960 annually in a vehicle that giving you 7% of compounded interest

1) Compounded 10 years = RM14,192.26
2) Compounded 20 years = RM 42,110
3) Compounded 30 years = RM 97,030
4) Compounded 40 years = RM 205,065

* Assuming Client file under the same income tax bracket

Would would prefer the money to be in your own saving account or in the government account?



sincerely 
ZENO