The Housing and Development Board will extend the Lease Buyback Scheme to 4-room flats. This will enable more Singaporeans to monetize their assets and derive a steady stream of income for their retirement needs.
“Last year, I was your real estate agent. This year, the real estate market is no good, I have upgraded myself, I have become a financial planner,” quipped Prime Minister Lee as he spoke on retirement adequacy for Singaporeans in his National Day Rally on Sunday (Aug 17).
Mr Lee says Singapore has good schemes to provide assurance in retirement – namely through the Central Provident Fund (CPF) and home ownership. CPF members set aside the Minimum Sum when they turn 55 years old, and it will offer a regular stream of income for them after they turn 65. The payout will go on for as long as they live. The Minimum Sum for those who turn 55 this year is S$155,000. Mr Lee explained that the amount is “far from excessive”.
CPF members can count their homes in the Minimum Sum, meaning they need to set aside just half of it in cash, which works out to S$77,500. Mr Lee conducted a poll of the audience at the Rally using an example of a fictitious couple Mr and Mrs Tan.
“I ask Mr Tan – how much do you think you will need in retirement every month?” Mr Lee said. “What do you think? S$3,000 per month? That’s about two-thirds what he is getting now. S$2,000 per month – less than half what he is getting now? Or S$1,000 per month?”
The majority picked S$2,000 a month. Mr Lee said this means the Tans will need S$250,000 for their retirement needs – which is more than the Minimum Sum. And if Mr and Mrs Tan pledged their home, the amount of S$77,500 kept in their CPF account would only give them S$600 a month. They would then need to find other sources of income to plug the shortfall.
Mr Lee said there are options to achieve this, including continuing to work, getting support from their children, tapping on savings or getting money of out their house.
For example, he could rent out a room for S$700 a month, or move in with his children and rent out the entire flat for S$2,500 a month.
“The third thing you could do is to ‘right-size’: sell this flat and buy a smaller flat. Let’s say you buy a studio apartment, you move into the studio apartment and then in the process, you can enjoy a silver housing bonus from the Government which is S$20,000. We can do the sums, you get quite a lot of money – S$210,000, plus S$800 per month,” explained Mr Lee.
Another option is the Lease Buyback Scheme, which will be extended to 4-room flats. In Mr Tan’s case – if he sells the remaining lease of 35 years to HDB – he will receive a lump sum of S$27,500 in cash, plus S$900 per month.