Tuesday, January 12, 2010

Housing loans eating up funds for retirement

As of December, over 25,000 people above 55 were using CPF to pay off debt
By Tan Hui Yee

Thousands of older Singaporeans risk running low on retirement savings because they have spent too much on housing.

As of December last year, more than 25,000 people above the age of 55 were still paying off their housing loans with Central Provident Fund (CPF) savings.

Of the active CPF members - that is, those most likely to be working - 22,300 were paying loan instalment amounts that were larger than their monthly CPF contributions.

And 12,800 of them stood to deplete their CPF Ordinary Accounts in less than six months if they lost their jobs and could not make new contributions.

The Ordinary Account is the account into which is paid the bulk of a worker's CPF contribution.

Money in this account can be used to service housing loans.

These figures mean that of the 140,000 active CPF members over the age of 55 in December, one-fifth had yet to pay off their home loans.

This is a worrying statistic, given that financial advisers say by that stage of life, people should be paring down on their financial commitments.

Mr Leong Sze Hian, president of the Society of Financial Service Professionals, explained: 'The older you get, the easier it is to get retrenched and the harder it is to get re-employed.'

The CPF Board, which released the figures in response to queries from The Straits Times, cited the example of a 55-year-old woman who bought a four-room resale flat three years ago.

She has wiped out her CPF Ordinary Account and her monthly contribution amounts to just $171.

Yet, she needs to pay $780 a month in home loan instalments.

And she needs to do so for the next 10 years to repay her outstanding loan of $99,000.

Another CPF member who has nothing left in his Ordinary Account is Mr B.G. Siriniwas, 56.

The former security officer bought an executive flat six years ago and was retrenched in 2004.

Unable to keep up his home loan payments, he has sold it off and is downgrading to a smaller flat.

Dr Amy Khor, mayor of Southwest Community Development Council, said she thought many of the older people still servicing their home loans bought bigger homes in the 1990s as they thought that property would keep appreciating in value.

But prices plunged after the 1997 Asian financial crisis and have inched up only recently.

The CPF Board said some home owners made the mistake of using their entire monthly CPF Ordinary Account contributions to pay for housing, leaving no buffer to see them through contingencies, such as a period of joblessness.

Some also failed to factor in possible hikes in mortgage rates.

Others were caught out by recent policy changes to lower CPF contribution rates for older workers.

As a result of CPF cuts announced in 2003, only 27 per cent of the income of someone above 50 to 55, will go into his CPF account, compared to 33 per cent for someone under 50.

The figure drops for those even older.

Housing agent Albert Lu, who runs C&H Realty, advised: 'Don't always stretch it to the limit. Always keep some money as a reserve.'

Mr Leong suggested that financially strapped home owners try to use their other assets to pay off as much of their housing loans as possible, if the returns from those assets were lower than their mortgage rate.

The CPF Board, which has been organising roadshows on retirement planning over the past few years, said it will be taking part in a property seminar organised by Singapore Press Holdings and the Institute of Estate Agents in August, where it will urge people to be more prudent on their housing purchases.

"I will work till my dying day'

Mr B.G. Siriniwas, a former security officer, is 56 and has no personal savings.

He also has nothing left in his Central Provident Fund (CPF) Ordinary Account, and reckons that he will have to work for the rest of his life.

The father of a 10-month-old girl bought a new $430,000 executive flat in the north of Singapore six years ago, thinking its price would appreciate.

He took a $340,000 home loan and had to pay $1,600 a month out of his CPF savings to service it. Then, he was earning about $1,700 a month.

Two years ago, he was retrenched and has not been able to find a full-time job since. The family of three lives on his wife's take-home pay of about $1,400 a month.

The money in his CPF Ordinary Account ran out in February last year.

Desperate, he got the Housing Board to allow him to defer repayment of his loan while he tried to sell his flat. He sold it for about $350,000 last month, at a loss of about $80,000.

Pointing to a wall in his flat, he said: 'These bricks won't feed me and my baby.' Mr Siriniwas and his wife will move to a five-room flat.

Asked about retirement, he said: 'There's no way I can save. I will work till my dying day.

'Young people should plan their finances very very carefully. They shouldn't take it for granted.'
I renovated my flat before my retirement to create space, amenities and comfort as a retirement nest. Properly done with personal planning the flat can be equivalent to any condominium minus the security guard and the swimming pool etc.

My advice from my life experience:

- Proper planning of one's style of living is paramount. Once planned stick with the plan and follow by action.

- Do not compare with others. Live within your comfort zone, i.e. Your finance and earning capability.

- Save as much as you can during your prime age.

- Ensure a safety margin in your saving especially the CPF account for old age.

- Never to listen and influence by your friends or relatives that they made a lot of money by selling and buying HDB home. Do not be taken in by friends or relatives that easy money were make in speculating in stocks, etc. (Note: Some people like to boast and brag around when making money, quiet when losing money.)

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