New Reporter
03-07-23, 11:54
When bungalow owners are house rich but cash poor
The factor that determines whether you will have sufficient retirement is how much you need to spend every month, for the next 20 to 30 years.
Jun 11, 2023
Owning a bungalow in Singapore is a sign that you enjoy great wealth, but the owners in two cases have to scrimp and scrounge because they are trapped in the “asset rich, cash poor” vice.
In one case, the owners – an elderly woman and her daughter – were so short of cash that they had to depend on their friends to pay for their meals whenever the group had their regular gatherings.
The other case is that of a retiree facing financial strain because he is hard-pressed to keep up with rising costs and other essential expenses.
These are distressing predicaments, yet these Singaporean retirees cannot be considered “poor” by any yardstick because they own assets that most of us can only dream about – multi-million-dollar bungalows.
And their ranks are apparently growing, with retirees owning million-dollar homes beginning to feel the pinch because they have insufficient cash savings to meet their living expenses.
While these retirees live in condominium apartments or houses, they failed to save enough or sign up to a decent retirement plan, such as joining the CPF Life at its highest tier, which could provide a regular monthly income to help tide them over in old age.
After all, many of us are likely to feel complacent and think we will have enough to retire on if we have, say $1 million in our bank accounts when we stop working after 60.
But the factor that determines whether you will have sufficient money for retirement is not based on your actual savings but how much you need to spend every month, for the next 20 to 30 years.
Folk who live in private properties are likely to need more savings because they incur far more expenses to upkeep their homes, while Housing Board (HDB) flat owners enjoy various rebates and even cash goodies based on their flat sizes.
It’s just mathematics – if you need $5,000 every month, you need to have savings or a fixed-income stream that can provide you with $1.8 million for the next 30 years. Even so, this sum alone is unlikely to be enough to cover many unexpected expenses such as repairs and home renovations, as well as medical costs.
The Sunday Times reader who related the account of the mother and daughter said that when the pair first joined the group’s social outings a few years ago, their friends were happy to pay for their meals. “But when the group found out that they lived in a bungalow, many of us refused to pay for them any more since they were richer than all of us.”
It is hard to put a number on such “poor” home owners in Singapore because the state of anyone’s savings is not known, even to government agencies. But based on case studies collated with the help of financial planning professionals, such instances are more common than many might think, and they occur across a range of different backgrounds.
Retiree who has a $20 million bungalow
While his house is worth around $20 million, one owner is apparently facing difficulty in paying the property tax, which is about $36,000 a year, or $3,000 a month. But the tax bill is not his biggest concern: If he chooses to remain in the house, he will face much higher expenses when wear and tear sets in and things start to break down.
That said, he will be in a very comfortable position if he chooses to sell. He could afford a lavish apartment in the Orchard Road area and still have a huge stash of spare cash to enjoy his retirement.
A couple who owns two properties
Many people think that having an additional property is a sure-fire way to guarantee a comfortable retirement because the second home can be rented out to earn a monthly income.
But such plans are workable only if two conditions are fulfilled – the loan for the rental property is fully paid up and the unit is sufficiently spacious or in a good location to command a higher rent.
Otherwise, you may still find yourself short of money as you try to juggle various expenses.
This is what is happening to a retired couple who rent out a private apartment while they live in their HDB flat. Most of the rental income apparently goes into servicing the mortgage, so there is not much left over for their own expenses.
To make matters worse, they have not made plans for medical care and so are hard-pressed to pay for such expenses. They are unable to ask their grown-up children for more support because the children have their own families and expenses to worry about.
As a result, the couple have no choice but to rent out two bedrooms in their HDB flat to supplement their expenses.
Cash-strapped condominium owners
Rain or shine, anyone living in a private estate must pay maintenance fees that can be a few thousand dollars a quarter, depending on the size of the home and number of units in the development.
If the estate’s common facilities need fixing or replacing, the costs come from the residents’ “sinking fund”, which must be topped up if it is running low. HDB owners, by contrast, do not need to pay even when new facilities such as walkway shelters or playgrounds are built.
Condominium funds are managed by the residents themselves, so anyone having problems paying will not enjoy a subsidy, just a curt letter telling them that a stiff late payment penalty will be imposed if they still do not pay up.
Most condominiums have such late payment penalty rules, which suggest that cases involving cash-strapped owners are common. This is especially so if owners also face problems in keeping up with their daily expenses.
What owners can do
Some retirees end up depleting their savings so they can buy a private property. But if you are cash-strapped, you should think about downgrading so you can use your most valuable asset for retirement.
Retirees selling their homes should also consider paying a visit to the Central Provident Fund Board to find out how they can use part of the sales proceeds to join its lifelong annuity scheme that guarantees decent payouts for seniors who have saved enough.
A possible reason why many retirees have money woes could be that they did not quite understand how CPF Life could help them when they were younger.
For instance, a couple who have saved about $300,000 each, or $600,000 in total, for CPF Life by the time they hit 55, stand to receive a combined monthly payout of about $4,800 from the age of 65.
Such payments would go a long way towards defraying living costs – by age 85, the couple would have received almost $1.2 million, or about twice the amount they put into CPF Life. The best part is that the payouts continue until the end of life.
Retirees who enrol in CPF Life now will not get such payouts because they missed the chance of joining early and letting the interest compound to provide a higher yield.
However, it is still better late than never because having a continuous lifelong monthly income is far more beneficial than just keeping the money in a fixed deposit to earn interest that is much lower and not payable monthly. If you are 65 or older, you can start to receive the CPF Life payouts after you sign up.
Ultimately, people should never become “slaves” to their own homes; even the grandest bungalow will not be a home sweet home if you have sleepless nights worrying about lack of money.
The most important asset in your life is never a property but your health and well-being.
https://www.straitstimes.com/business/invest/when-bungalow-owners-are-short-of-cash
The factor that determines whether you will have sufficient retirement is how much you need to spend every month, for the next 20 to 30 years.
Jun 11, 2023
Owning a bungalow in Singapore is a sign that you enjoy great wealth, but the owners in two cases have to scrimp and scrounge because they are trapped in the “asset rich, cash poor” vice.
In one case, the owners – an elderly woman and her daughter – were so short of cash that they had to depend on their friends to pay for their meals whenever the group had their regular gatherings.
The other case is that of a retiree facing financial strain because he is hard-pressed to keep up with rising costs and other essential expenses.
These are distressing predicaments, yet these Singaporean retirees cannot be considered “poor” by any yardstick because they own assets that most of us can only dream about – multi-million-dollar bungalows.
And their ranks are apparently growing, with retirees owning million-dollar homes beginning to feel the pinch because they have insufficient cash savings to meet their living expenses.
While these retirees live in condominium apartments or houses, they failed to save enough or sign up to a decent retirement plan, such as joining the CPF Life at its highest tier, which could provide a regular monthly income to help tide them over in old age.
After all, many of us are likely to feel complacent and think we will have enough to retire on if we have, say $1 million in our bank accounts when we stop working after 60.
But the factor that determines whether you will have sufficient money for retirement is not based on your actual savings but how much you need to spend every month, for the next 20 to 30 years.
Folk who live in private properties are likely to need more savings because they incur far more expenses to upkeep their homes, while Housing Board (HDB) flat owners enjoy various rebates and even cash goodies based on their flat sizes.
It’s just mathematics – if you need $5,000 every month, you need to have savings or a fixed-income stream that can provide you with $1.8 million for the next 30 years. Even so, this sum alone is unlikely to be enough to cover many unexpected expenses such as repairs and home renovations, as well as medical costs.
The Sunday Times reader who related the account of the mother and daughter said that when the pair first joined the group’s social outings a few years ago, their friends were happy to pay for their meals. “But when the group found out that they lived in a bungalow, many of us refused to pay for them any more since they were richer than all of us.”
It is hard to put a number on such “poor” home owners in Singapore because the state of anyone’s savings is not known, even to government agencies. But based on case studies collated with the help of financial planning professionals, such instances are more common than many might think, and they occur across a range of different backgrounds.
Retiree who has a $20 million bungalow
While his house is worth around $20 million, one owner is apparently facing difficulty in paying the property tax, which is about $36,000 a year, or $3,000 a month. But the tax bill is not his biggest concern: If he chooses to remain in the house, he will face much higher expenses when wear and tear sets in and things start to break down.
That said, he will be in a very comfortable position if he chooses to sell. He could afford a lavish apartment in the Orchard Road area and still have a huge stash of spare cash to enjoy his retirement.
A couple who owns two properties
Many people think that having an additional property is a sure-fire way to guarantee a comfortable retirement because the second home can be rented out to earn a monthly income.
But such plans are workable only if two conditions are fulfilled – the loan for the rental property is fully paid up and the unit is sufficiently spacious or in a good location to command a higher rent.
Otherwise, you may still find yourself short of money as you try to juggle various expenses.
This is what is happening to a retired couple who rent out a private apartment while they live in their HDB flat. Most of the rental income apparently goes into servicing the mortgage, so there is not much left over for their own expenses.
To make matters worse, they have not made plans for medical care and so are hard-pressed to pay for such expenses. They are unable to ask their grown-up children for more support because the children have their own families and expenses to worry about.
As a result, the couple have no choice but to rent out two bedrooms in their HDB flat to supplement their expenses.
Cash-strapped condominium owners
Rain or shine, anyone living in a private estate must pay maintenance fees that can be a few thousand dollars a quarter, depending on the size of the home and number of units in the development.
If the estate’s common facilities need fixing or replacing, the costs come from the residents’ “sinking fund”, which must be topped up if it is running low. HDB owners, by contrast, do not need to pay even when new facilities such as walkway shelters or playgrounds are built.
Condominium funds are managed by the residents themselves, so anyone having problems paying will not enjoy a subsidy, just a curt letter telling them that a stiff late payment penalty will be imposed if they still do not pay up.
Most condominiums have such late payment penalty rules, which suggest that cases involving cash-strapped owners are common. This is especially so if owners also face problems in keeping up with their daily expenses.
What owners can do
Some retirees end up depleting their savings so they can buy a private property. But if you are cash-strapped, you should think about downgrading so you can use your most valuable asset for retirement.
Retirees selling their homes should also consider paying a visit to the Central Provident Fund Board to find out how they can use part of the sales proceeds to join its lifelong annuity scheme that guarantees decent payouts for seniors who have saved enough.
A possible reason why many retirees have money woes could be that they did not quite understand how CPF Life could help them when they were younger.
For instance, a couple who have saved about $300,000 each, or $600,000 in total, for CPF Life by the time they hit 55, stand to receive a combined monthly payout of about $4,800 from the age of 65.
Such payments would go a long way towards defraying living costs – by age 85, the couple would have received almost $1.2 million, or about twice the amount they put into CPF Life. The best part is that the payouts continue until the end of life.
Retirees who enrol in CPF Life now will not get such payouts because they missed the chance of joining early and letting the interest compound to provide a higher yield.
However, it is still better late than never because having a continuous lifelong monthly income is far more beneficial than just keeping the money in a fixed deposit to earn interest that is much lower and not payable monthly. If you are 65 or older, you can start to receive the CPF Life payouts after you sign up.
Ultimately, people should never become “slaves” to their own homes; even the grandest bungalow will not be a home sweet home if you have sleepless nights worrying about lack of money.
The most important asset in your life is never a property but your health and well-being.
https://www.straitstimes.com/business/invest/when-bungalow-owners-are-short-of-cash