National Development Minister Lawrence Wong published a blog today (16 Nov) relating how he recently helped an elderly couple to do some financial planning for their retirement.
In general, Singaporeans are asset rich but cash poor. A lot of their cash is stuck in the high-priced properties in Singapore, so much so that many have found it difficult to retire comfortably here. The present government believes in self-sufficiency, that is, each Singaporean has to take care of his own retirement without any help from the state. The government would only give help to the dirt poor but even so, the help it gives is rather miserable.
Hence, for the rest of Singaporeans who are asset rich but cash poor, the government is asking them to “right-size” their house, a euphemism for down-sizing one’s house. In this way, one can then “squeeze” cash out of concrete – his or her property – by living in smaller flats.
Right-sizing one’s flat
In his blog, Minister Wong said, “Financial planning for retirement is something we must all take seriously. For HDB flat owners, this process is also linked to the various monetisation options to unlock the value of their flats.”
“For example, I recently met an elderly couple in their 60s living in an Executive flat in Woodlands. Their flat is worth $570,000 today, and they are looking to monetise their flat for retirement, as their children are all married and have their own flats. I went through with them their options,” he revealed.
Minister Wong then talked about choosing the “right-sized” house to move into. “For example, they can buy a 3-room resale flat in the same town for about $230,000 with around 55 years of remaining lease, which would be more than enough lease to cover them for life,” he said.
“In fact, they could even get a Proximity Housing Grant of $20,000 if the resale flat is close to their children (within a distance of 4 km).”
Alternatively, can buy a new 3-room HDB flat with a full 99-year lease, he said. This is, of course, assuming that the couple is eligible to buy a second subsidised flat from HDB. But buying a second-subsidized flat from HDB would mean they will have to pay a resale levy of $50,000 on top of the price of the flat.
“Another option is to purchase a new 2-room Flexi flat with a short-lease from HDB. This will be more affordable, and the resale levy is also reduced to around $18,000 or less,” Minister Wong added.
“If they are right-sizing to a 3-room or smaller flat (new or resale), they can also take up the Silver Housing Bonus (SHB) to receive a cash bonus of up to $20,000 when they use part of their cash proceeds (from sale of their Executive flat) to top up their CPF Retirement Accounts and join CPF LIFE, which will provide them with a monthly income stream for life.”
In other words, Minister Wong is encouraging the couple to use the balance of the cash proceeds from after selling their Executive flat and buying a 3-room or smaller, to put back into their CPF accounts.
LBS and renting out rooms
He also suggested taking up the HDB Lease Buyback Scheme (LBS) if the couple wish to continue to stay in their current flat. He said, “As I have announced previously, we are extending the LBS to 5-room and larger flats. HDB is working out the details, which should be ready by early next year.”
But the amount one can get from LBS will be smaller than what one can get from “right-sizing”. Then, there is the option for the couple to consider renting out their empty bedrooms to foreigners but that would mean a loss of privacy.
“As our population ages, Singaporeans will be looking at ways to plan ahead for their retirement. We will do more to help everyone in this process, so that they can be assured of a home for life, and also enjoy financial security in their golden years,” he said.