“Can you rely on your HDB flat for retirement planning?”

Did you know that your HDB flat is more than just a “roof” over your head? As you approach retirement, your flat can play a big role in ensuring you live out your golden years comfortably. CPF InTouch speaks with Mr. Alfred Chia C K, Chief Executive Officer of SingCapital Pte Ltd, to learn how Singaporeans can leverage their HDB flat for retirement.


Alfred Chia C K
Chief Executive Officer
SingCapital Pte Ltd

Despite the fact that everyone desires financial independence, not many of us give much thought to our retirement planning. One possible reason is that we tend to believe that our property will be able to sustain us financially till our golden years.

This is especially so when we read about a HDB flat that can be sold for close to $1 million. This is not common and usually only happens for flats that are centrally located. We tend to believe that by simply selling off the flat and downgrading to a smaller flat, we can then use the remaining proceeds for our retirement.

Let’s see if this strategy is sound.

Take the case of Mr Tan as an example. He is a 40-year-old man who intends to retire at the age of 60 with a monthly retirement income of $2,000. In 20 years’ time, based on 2% inflation, the future value of Mr Tan’s desired retirement income will be $36,000 per annum. Assuming an interest rate of 6% and inflation rate of 2%, the adjusted return of inflation will be 3.92% and he would need a retirement fund of $540,000 at age 60 to support himself until age 82, which is the average life expectancy.

This is a substantial amount especially if Mr Tan had not been planning for his retirement fund. For Mr Tan to achieve his desired retirement lifestyle, here are some useful tips that he can consider:


1. Pay off your HDB loan by age 55

Many home owners tend to stretch their loan repayment to typically age 65. For loans that stretch beyond the home owner’s age of 65, the maximum loan that an individual can secure will be lower. While paying your loans over a longer period makes the monthly mortgage more affordable, there is little room to accumulate for retirement funds. As you approach the desired retirement age, you should focus on accumulating your retirement funds.

If you can settle the home loan before age 55, you can enjoy the interest rate that CPF offers. Furthermore, since your CPF contribution drops after you turn age 55, it may be wiser to settle the HDB loan before that


2. Rent out spare bedroom(s)

You can consider renting out unutilised bedrooms especially if your children have bought their respective properties and no longer live with you. If your housing loan has been fully paid, the rental you receive can complement your retirement income streams.


3. Right-size your property

If you do not wish to rent out the rooms but do not require the extra space, you can right-size your property to a smaller unit. HDB introduced the Silver Housing Bonus (SHB) to help lower-income elderly households supplement their retirement income when they right-size their flat.

If you buy a smaller flat type (up to 3-room flat), you can apply for the SHB and receive up to $20,000 cash bonus per household by using some of your net sale proceeds to top up your CPF Retirement Account (RA) and join CPF LIFE.

Find out more at the HDB website at http://www.hdb.gov.sg/


4. Lease Buyback Scheme (LBS)

If you are contented with your place and do not wish to move out, you can consider opting for HDB’s Lease Buyback Scheme. It allows elderly residents in a 4-room or smaller flat to sell part of the flat’s lease to HDB to receive a stream of income in their retirement years, while continuing to live in it.

The proceeds from selling part of your flat’s lease will be used to top up your CPF Retirement Account (RA). They can then use their full CPF RA savings to purchase a CPF LIFE plan, which will provide them with a monthly income for life.

Find out more at the HDB website at http://www.hdb.gov.sg/


5. Keep HDB and invest in a Private Residential Property

Another strategy is to keep your HDB and invest in a private property. Do make sure to have proper financial planning to assess that you can afford both mortgages. When both housing loans are fully paid, you can rely on the rental income of your private property for your retirement income. However, the recent property cooling measures by the government have increased the cost of investing in another property. Back to Mr Tan’s case – if he does own two properties, and still desires a future retirement income of $36,000, then one of his two properties must provide him with the rental income.

Yes, we all dream of becoming landlords so as to collect rent as passive income. To live this dream, we would need to come up with an appropriate action plan. Based on current financing regulations, if you have not fully paid off your first housing loan, you can only get 50% financing on your second housing loan. Mr Tan would need to fork out at least 50% down payment, along with stamp duty, additional stamp duty, legal fees and other related fees. This would translate to more than $720,000 if he wants to invest in a property worth $1.2 million. This means that Mr Tan would still have to work towards accumulating that funding to buy the investment property to provide him the retirement income he wants.

Depending on your preference, there are options where you can leverage on your HDB flat to help in your retirement planning. However, these are just options to supplement your retirement income. You should not rely solely on the suggested strategies for your retirement planning.