Why Retirement Planning and Legacy Planning Should Be Considered Together?

Written by Shawn        🕑 5 min

Key Takeaways:

1. Retirement and legacy should be planned together.
2. Medical retirement, often overlooked, should be an important point of consideration.
3. Annuities is a possible tool to solve retirement and legacy needs at once.

Are you nearing your desired retirement age?

Are you also thinking how much legacy to leave behind for your beneficiary when you depart?

In a traditional Asian society, the common method is to plan retirement and legacy independently of each other.

More often than not, most pre-retirees having 2 of the above intentions will do something similar to the below example:

Assuming $1,000,000 of liquid cash in their name, they will try to set aside a pre-determined amount to spend at retirement, and the rest will be “locked” in a bank account and be given a strict “no touch” rule until after passing away.

If $300,000 is the pre-determined amount to spend at retirement, $700,000 will be “locked” and never to see the day until the time comes.

The Pro of doing so is the soon to be retiree will have full access to his/her cash. Emergency financial situations can be easily solved, like healthcare needs.

The Cons is he/she must accept the possibility of outliving after spending the entire $300,000. Finding alternative sources of retirement pot would eventually pose a problem. Likelihood that the “lock” imposed on the $700,000 legacy will have to be unlocked, especially desperate times.

Outliving your retirement pot is getting common given increasing average life expectancy of Singapore (See Straits Times: https://www.straitstimes.com/singapore/life-expectancy-of-singapore-population-rose-in-last-decade-but-fell-during-covid-19)

One glaring blind-spot, most pre-retirees often overlooked is medical retirement. That is, making sure financing is not a problem for hefty medical bills.

So how can we solve these 2 problems below?

1. Outliving retirement pot
2. Securing legacy for loved ones

Let’s go back to that pre-retiree $1,000,000 example.

This pre-retiree has 3 wishes upon retirement:

1. Lifetime income of $3,000/month
2. Medical bills taken care off
3. Secured legacy of $1,000,000 for family.

These are the resources that the pre-retiree has:

  1. $1,000,000 cash in bank.
  2. Medical Insurance.
  3. Property for own stay.

Possible solution for a healthy pre-retiree:

  • First, invest $1,000,000 into an annuity that pay’s lifetime income.
  • Second, purchase a life insurance that pays $1,000,000 sum assured upon passing away. This is more economical and efficient than saving up $1,000,000.
  • Third, use lifetime income from annuity to pay for:
    • Retirement Expenses
    • Medical Insurance Premium
    • Life Insurance Premium

With this solution, the pre-retiree would have the following in his/her name:

1. $1,000,000 of insurance pay-out.
2. $1,000,000 of annuity (which can also be passed down to beneficiaries).
3. Property (passed down to beneficiaries).
4. Well maintained medical insurance.
5. Lifetime Income.

Now he/she have $2,000,000 (excluding property) of legacy to be passed down to beneficiary, and zero worry of financial emergency due to medical problems.

For pre-retiree with existing medical conditions:

– The only difference is life insurance purchase might be a hurdle, but investing in an annuity is still possible.
– If the pre-retiree still desire more legacy to their name, a possible avenue is to look at investment linked annuities (ILA) that protects capital gains upon death.

How can an ILA protect capital gains upon death? This is a new concept called high watermark locked-in value introduced in modern ILAs.

Assuming that this pre-retiree purchased a modern ILA at $1,000,000 initial capital, this is how capital gains be translated to legacy:

As above, all-time-high of market at any point after market entry is the guaranteed legacy for your beneficiary, even if the market were to make a u-turn thereafter.

In conclusion, maximizing retirement income and legacy need not be planned independently. Considering modern solutions, it is beneficial to marry both concepts together, which can potentially produce maximized outcome on both ends.


The information provided in this article and accompanying material is intended for informational purposes only. It should not be considered legal or financial advise. Content extracted from various sources are in no way intended or implied as endorsements of any product or services. Speak to your financial advisor to determine what may be best for your individual needs.