PM Lee dons financial planner hat to help older S'poreans plan retirement

Mr and Mrs Tan: Hi, Mr Lee, we are turning 55 and have to make decisions on our CPF and retirement plans.

I work as a senior technician, earning $4,500 a month. My wife is a housewife and we have two children in school.

We live in a four-room flat in Ang Mo Kio which is fully paid up.

Mr Lee: How much do you think you'll need a month when you retire in 10 years' time?

Mr Tan: $2,000 a month.

Mr Lee: You'll need to put aside $250,000 in your CPF account to get the payout of $2,000 each month. This is more than the current CPF Minimum Sum of $155,000.

Mr Tan: But I don't have $155,000.

Mr Lee: But you own a home. And the CPF scheme allows you to include the value of your home as part of the Minimum Sum. So you only need to set aside half of the Minimum Sum, or $77,500, and you can take out the rest.

Mr Tan: Ah, $77,500 is no problem! So I can take out some money now and go on a holiday with my wife.

Mr Lee: But remember, with $77,500 left in your CPF account, you will only get $600 a month. If you need $2,000 per month, you can't depend on CPF alone. You must find other sources of income.

Mr Tan: What can I do?

Mr Lee: You have several options:

1. You may continue working. After all, in 10 years' time, the Government would most likely have raised the re-employment age beyond 65.

2. Your children should be working by then and they can support you.

3. You still have your personal savings to draw on.

4. Or you can also get some money out of your home.

The home is a valuable nest egg when you retire. A typical retiree household in a three-room flat has $300,000 worth of savings in his flat. For a four-room flat, the savings is $400,000.

Mr Tan: I can get money out of my home? How?

Mr Lee: You have a few options:

1. You can rent out one room in your flat and get about $700 a month.

2. You can rent out your whole flat and live with your children. You can get about $2,500 a month this way.

3. You can right-size your flat - sell your four-room flat and buy a smaller one. By doing this, you get $20,000 in Silver Housing Bonus.

If you right-size to a studio apartment, you will get $210,000 in cash and $800 additional monthly income, on top of your CPF Life payouts.

Mr Tan: Wow that sounds good. If I'm going to live with my children, why not just sell my flat? I can get even more money.

Mr Lee: I would advise against selling as I've seen too many sad cases of seniors who cashed out unwisely, got cheated of all their money or even got turfed out by their children. So it's better to keep your property, even if you rent the whole flat out. It is still yours and something to fall back on in case anything happens.

Mr Tan: My neighbours in a three-room flat just turned 65 and did a Lease Buyback with HDB. How does that work?

Mr Lee: Let's say you bought your flat when you got married and it came with a 99-year lease. In 10 years' time, you would still have two-thirds of the lease left. So if you're already 65, you will probably only need your home for another 30 years. HDB will buy back the remaining 35 years left on your lease and give you a lump sum of $27,500 in cash plus $900 per month, on top of your CPF Life payouts. Not quite as much cash if you right-size, but you can continue staying in the same flat. You can even rent out a room if you like, instead of moving to a smaller one.

Other changes that will benefit retirees

1 The CPF Minimum Sum will be raised to $161,000 from $155,000 from July 1, 2015. This applies to only those who turn 55 between July 1, 2015 and June 30, 2016.

2 HDB's Lease Buyback scheme will be extended to four-room flats as well. This means more than half of all flat owners can opt for this scheme, where HDB will buy back the remaining lease period on the property and give the owner a lump sum as well as a monthly payout.

3 Low-income elderly Singaporeans will receive a bonus each year from the age of 65. This bonus, known as Silver Support, will be on top of other government and community support they receive. Details will be announced in next year's budget.

4 The CPF policy will be adjusted to allow people the option to take out part of their CPF savings in a lump sum if they need to, subject to limits. Details are being worked out, but this will only be allowed after the age of 65 and cannot be excessive.

5 The Government will set up an advisory panel to study issues on how to adjust CPF policies.