retirement income

It is impossible to buy an apartment for $600,000 that can guarantee you a monthly income of about $5,000 in today’s red-hot property market, but the Central Provident Fund’s (CPF) annuity scheme can give a couple such returns.

If a couple want to enjoy such a bumper monthly income for life with that same amount of savings, they can start planning with the aim of joining CPF Life at the highest tier when they reach the age of 55.

Many people do not realise that the national annuity scheme, which provides a good lifelong income for retirees, can yield far better dollar-for-dollar returns than a rental property.

Just like Singapore Savings Bonds or Treasury Bills, there is nothing to dislike about CPF Life because it works just like any annuity scheme in the market, except that it is much cheaper to take up and provides a stable monthly income for life because it is backed by the Government.

Yet, many people choose not to make better use of it, preferring instead to put their money into a second property, for instance, thinking it can provide a higher retirement income.

Those who do so often risk having their plans go awry when unfavourable economic conditions affect their plans, such as when the rental income is eroded due to higher mortgage rates.

Here are three reasons why CPF Life can provide better benefits to a retired couple, than having another property for rental income.

Affordability

Not everyone can be a landlord because it is expensive to invest in a second property. Even if you can buy one, you must be prepared to pay over $1 million for a better unit if you want to earn a higher rent.

You don’t need such high outlays for CPF Life because you can join the scheme based on what you can afford.

For instance, those hitting 55 who join with the Full Retirement Sum (FRS) of $198,800 in 2023 will stand to get about $1,600 a month from the age of 65, while those putting up the Enhanced Retirement Sum (ERS) of $298,200 will get about $2,400.

So a couple who put up about $400,000 can stand to get a combined lifelong retirement income of $3,200 a month, while those signing up with about $600,000 can get around $4,800 in total.

If they live up to 90, they would have received $960,000 (FRS) and $1.44 million (ERS) in total payouts. 

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Tax- and hassle-free

Landlords don’t just pocket the rent; there are various costs to meet before they can earn real income. These include income and property taxes, mortgage payments, estate maintenance charges, costs for repairs, and replacement of household items, plus fees for finding tenants.

If you have the misfortune of ending up with tenants from hell, you may even have to spend hefty legal fees to resolve such nightmares.

Retired couples who have decent CPF Life payments don’t have such risks because there are no fees to pay and the payouts are tax-free. Indeed, those who don’t have high monthly expenses can even save a portion of these payouts for their annual holidays, without touching their savings.

Stable income

Rental income is dependent on the state of your property as well as market conditions. If times are bad, there is a risk that you may not have a rental income. While you can sell your property, the proceeds will not last forever unless you know how to invest prudently.

CPF Life payouts are stable and not as volatile as other private financial products. Indeed, you can even choose to increase your monthly payouts by making annual top-ups of up to $10,000 to the scheme.

Of course, it is all well and good if you can invest in extra properties for your retirement, but you should not miss out on the best deal in town that can provide a decent lifelong income for only a fraction of the price of a property.

The reality is that many property owners do encounter cashflow problems in their old age, so CPF payouts can help meet some of their bills. This has prompted some retirees to sell their properties so they can use part of the proceeds to join CPF Life, as long as they are under 80.

While their payouts won’t be as good as those who joined at 55, it is still better late than never to enjoy fuss-free cash payouts for life.

Finally, couples in their prime looking to plan for a good retirement should first do the sums for CPF Life before embarking on buying a second property. Don’t miss out the chance to secure a sound asset that will continuously give you payouts through your golden years.

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debt

Some couples jump through hoops to buy a second home and then hold the properties separately to avoid taxes which are designed to deter speculation, but there are pitfalls aplenty in such a strategy.

This is what a couple in their 40s discovered recently after they lost a $3 million home and ended up saddled with huge debts when their two-property dream came crashing down.

In their eagerness to build wealth, they lost sight of the risk that property investment can be a double-edged sword that can turn dreams of cushy retirement into a nightmare of heavy debt if you stretch yourself thin on such big-ticket items.

The irony was that the couple were happily living in their $2 million condominium unit and would have had no problems in paying off the mortgage before they chose to “decouple” and buy the second $3 million property.

“Decoupling” refers to Singapore couples who break up the joint ownership of their first home by having one spouse transfer the share to the other, who then becomes the sole owner.

The aim usually is to allow them to buy another property without having to pay the hefty additional buyer’s stamp duty (ABSD) that is imposed on Singaporeans who purchase second or more homes.

Take a couple – A and B – who jointly own a home. If they buy a second property together, they will need to pay the ABSD of 20 per cent of the purchase price. They can avoid this by “decoupling”, which is widely practised here.

The first step involves A taking his name out of the existing home so that his wife B becomes the sole owner.

As A now does not have a property under his name, he can then buy the second home without paying ABSD, as he is deemed a first-time buyer.

The process is not cheap because the usual legal and property transfer costs will apply.

In addition, people who exit from the property must have enough cash to refund their Central Provident Fund account for the sums plus interest that have been used to pay for the first property.

Decoupling helps couples avoid paying ABSD, which is a legitimate move, as owners are entitled to dispose of their interest in any property as part of financial planning.

However, you should realise that property investment is really not about avoiding paying the ABSD.

If you and your spouse choose to hold a property each, it means you have both doubled your investment risk and this can have grave consequences if your numbers do not add up.

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The risk of over-leveraging

The couple mentioned earlier lived in a $2 million condominium unit that had an outstanding loan of about $500,000. They could have easily paid this off, but they decided to invest in a second property.

That involved the wife taking over her husband’s 50 per cent share of the unit.

She was earning a good salary and took the opportunity to remortgage the home for another $750,000, presumably because they would need the extra cash for the second property.

This extra loan lifted the total mortgage to $1.25 million but the monthly repayment of about $5,800 was still manageable due to the low interest rate of 1.2 per cent then.

After the decoupling, the husband, who ran his own business, bought a $3 million property on his own.

All was well until the pandemic struck and his business was badly hit. He was sued by his creditors, resulting in him being made a bankrupt.

As the $3 million property was in his sole name, it was seized by creditors as part of the settlement for his debt. To make matters worse, the wife was recently retrenched and had to settle for a new lower-paying job.

She now struggles to pay the mortgage for the first home because the monthly repayments have jumped 30 per cent to about $7,600, given the loan’s current interest rate of 4 per cent.

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Affordability, not ABSD

Many families look at decoupling as a ticket to invest in a second property because the process enables them to skip paying the hefty ABSD. But not having to pay ABSD does not mean they can automatically afford to own two properties, which are pricey assets.

Mr Alfred Chia, chief executive of financial advisory firm SingCapital, has recently come across several families who have been hit by financial woes because they could not keep up with the high costs of owning more than one property.

Many buyers tend to gauge affordability based on whether they can pay the down payment for their investment property because they are counting on rental income to offset mortgage instalments.

But when bank rates began to move up a year or so ago, it meant they faced two sets of loan increases if they are still paying the mortgage of the first home.

Mr Chia advises couples to do their sums to see if their combined income comfortably allows them to own two properties, even if they have to bear higher interest rates.

“Alternatively, they can delay their plan to buy another property until the first mortgage is almost paid up or when their incomes grow substantially,” he adds.

Risks of sole ownership

There are benefits to couples holding properties in joint ownership because if one spouse dies, the other can inherit it based on the rule on survivorship.

If a spouse holds a property on his own and he dies without a will, half the property can go to his parents if the couple have no children.

Even if they have children, the distribution will create additional legal costs because the surviving spouse and children will all have shares in the property.

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Holding a property on your own means that should you face a bankruptcy action, you stand to lose the whole asset.

If your spouse is a joint owner in such cases, there is a chance that the co-owner can keep half of the sales proceeds if they are not implicated in the bankruptcy action.

Extra costs of second property

There are recurring costs in owning another residence, including maintenance charges and higher property taxes for homes not occupied by the owners.

Even if you can lease out the unit and use the income to help offset mortgage payments, you may end up paying more income tax because the rents will increase your overall taxable income.

You cannot ask your non-working spouse to stand in as the “landlord” for your investment property to reduce the tax because tax on rental income is based on your share of the property.

If you are the sole owner, 100 per cent of the rental income will be added to your overall earnings for tax purposes.

Couples should not assume that having more property is the way to go for retirement planning.

Just like any other investment, they can end up in financial trouble if they fail to take note of the risks and affordability involved.

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why don't decouple

SINGAPORE – The biggest lifestyle and financial adjustment I’ve had to make in the past two years was when my husband and I welcomed our first child into the world.

We soon added her childcare fees and insurance plans to our expenses, and we had to make some practical adjustments to our lifestyle, which isn’t out of the norm for new parents: less dining out, and fewer shopping and paid entertainment options.

This year, we added two more big-ticket items to the list – renting an apartment while waiting for our home to be renovated, and starting those renovations.

Although we are very fortunate that our parents are offering to help with some of the renovation costs so that we do not have to take out a bank loan, we are still paying for the bulk of them.

Even though our renovations were something we had been saving for over a few years, the inflation now and substantial 30 per cent to 40 per cent rise in manpower and labour costs compared with pre-pandemic levels have somewhat diminished the interest earned on our bank deposits.

The increased goods and services tax, now at 8 per cent, is another burden when it comes to buying home necessities and appliances.

Money can and will be earned again, of course, and I will be able to resume saving bigger sums once the renovation is done.

My concern now is how to grow those funds I have left and any future savings to beat the core inflation rate, which is estimated to go up to 4.5 per cent in 2023.

Only then will I feel more secure saving up for my child’s future university education, and perhaps reconsider buying a car.

Since my aim is to beat inflation, experts I spoke to generally advised me to get started on investing and that the time is now.

Associate Professor Pearpilai Jutasompakorn from the Business, Communication and Design Cluster at the Singapore Institute of Technology says it is “crucial to start investing as soon as possible to maximise the long runway of investment before retirement” and take advantage of compounded returns.

She suggests holding a long-term diversified investment portfolio consisting of assets such as stocks, bonds, real estate, commodities and inflation-protected securities, as well as a mix of local and international investments.

Prof Pear adds: “Determine your risk tolerance level and invest in different asset classes accordingly, diversifying your portfolio to minimise risks…

“To diversify further within each asset class, consider investing across different sectors, industries and geographic regions.”

ST ILLUSTRATION: CEL GULAPA

Ms Jessica Tan, a senior wealth planning manager at DBS Bank, says you cannot “underestimate the power of compounding effect on every dollar” saved and advises people to learn to invest now.

She recommends the bank’s Invest-Saver, which lets you set up a unit trust or exchange-traded fund (ETF) regular savings plan.

“This is ideal for new investors who want a head start, or those who do not have the resources or know-how to monitor and time the market,” adds Ms Tan.

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Since investing a sizeable sum of money into a fund is not an option until after I pay off my home renovation, one option I can consider at the very least is to earn whatever interest I can from my savings, in addition to my current savings plan.

One way is with the POSB Save As You Earn account, which has additional higher preferential interest for fixed monthly savings made over a two-year period.

You can start by saving at least $50 a month.

Prof Pear reminds me that my financial needs and goals will change according to the different stages of my life.

So I will need to monitor, re-evaluate and rebalance my budget, savings and investments on a regular basis.

She also offers this advice: “Don’t forget to invest in yourself by upgrading your skills and knowledge, which can improve your earning potential and overall financial well-being.”

While she reckons I have taken “some significant steps” towards securing my future, as I have my savings plans and insurance policies in place, I can take things “to the next level” by adopting a more disciplined approach to spending and budgeting.

“Track your expenses, identify areas where you can cut back and allocate more towards savings and investments,” she says.

Ms Tan adds: “A good question to ask yourself is: Do I really need it and how badly? How is this going to impact me, and how long will it last?

“Is it going to put me in debt and is the value you will get out of it over its lifetime worth the cost?”

There’s no running away from good old discipline when it comes to managing money and controlling the urge to impulse buy, something which I’m guilty of in times of stress.

My impulse buys (mainly clothes and books) may not put me in debt, but I recognise that I can do without the new buys most of the time, and that money, however little, would be much better off in a savings account or an ETF to generate some returns.

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how to beat inflation

SINGAPORE – The biggest lifestyle and financial adjustment I’ve had to make in the past two years was when my husband and I welcomed our first child into the world.

We soon added her childcare fees and insurance plans to our expenses, and we had to make some practical adjustments to our lifestyle, which isn’t out of the norm for new parents: less dining out, and fewer shopping and paid entertainment options.

This year, we added two more big-ticket items to the list – renting an apartment while waiting for our home to be renovated, and starting those renovations.

Although we are very fortunate that our parents are offering to help with some of the renovation costs so that we do not have to take out a bank loan, we are still paying for the bulk of them.

Even though our renovations were something we had been saving for over a few years, the inflation now and substantial 30 per cent to 40 per cent rise in manpower and labour costs compared with pre-pandemic levels have somewhat diminished the interest earned on our bank deposits.

The increased goods and services tax, now at 8 per cent, is another burden when it comes to buying home necessities and appliances.

Money can and will be earned again, of course, and I will be able to resume saving bigger sums once the renovation is done.

My concern now is how to grow those funds I have left and any future savings to beat the core inflation rate, which is estimated to go up to 4.5 per cent in 2023.

Only then will I feel more secure saving up for my child’s future university education, and perhaps reconsider buying a car.

Since my aim is to beat inflation, experts I spoke to generally advised me to get started on investing and that the time is now.

Associate Professor Pearpilai Jutasompakorn from the Business, Communication and Design Cluster at the Singapore Institute of Technology says it is “crucial to start investing as soon as possible to maximise the long runway of investment before retirement” and take advantage of compounded returns.

She suggests holding a long-term diversified investment portfolio consisting of assets such as stocks, bonds, real estate, commodities and inflation-protected securities, as well as a mix of local and international investments.

Prof Pear adds: “Determine your risk tolerance level and invest in different asset classes accordingly, diversifying your portfolio to minimise risks…

“To diversify further within each asset class, consider investing across different sectors, industries and geographic regions.”

ST ILLUSTRATION: CEL GULAPA

Ms Jessica Tan, a senior wealth planning manager at DBS Bank, says you cannot “underestimate the power of compounding effect on every dollar” saved and advises people to learn to invest now.

She recommends the bank’s Invest-Saver, which lets you set up a unit trust or exchange-traded fund (ETF) regular savings plan.

“This is ideal for new investors who want a head start, or those who do not have the resources or know-how to monitor and time the market,” adds Ms Tan.

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Since investing a sizeable sum of money into a fund is not an option until after I pay off my home renovation, one option I can consider at the very least is to earn whatever interest I can from my savings, in addition to my current savings plan.

One way is with the POSB Save As You Earn account, which has additional higher preferential interest for fixed monthly savings made over a two-year period.

You can start by saving at least $50 a month.

Prof Pear reminds me that my financial needs and goals will change according to the different stages of my life.

So I will need to monitor, re-evaluate and rebalance my budget, savings and investments on a regular basis.

She also offers this advice: “Don’t forget to invest in yourself by upgrading your skills and knowledge, which can improve your earning potential and overall financial well-being.”

While she reckons I have taken “some significant steps” towards securing my future, as I have my savings plans and insurance policies in place, I can take things “to the next level” by adopting a more disciplined approach to spending and budgeting.

“Track your expenses, identify areas where you can cut back and allocate more towards savings and investments,” she says.

Ms Tan adds: “A good question to ask yourself is: Do I really need it and how badly? How is this going to impact me, and how long will it last?

“Is it going to put me in debt and is the value you will get out of it over its lifetime worth the cost?”

There’s no running away from good old discipline when it comes to managing money and controlling the urge to impulse buy, something which I’m guilty of in times of stress.

My impulse buys (mainly clothes and books) may not put me in debt, but I recognise that I can do without the new buys most of the time, and that money, however little, would be much better off in a savings account or an ETF to generate some returns.

MORE ON THIS TOPIC

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doing nothing

In a quaint Scottish town, inside an exquisite church whose ceiling appeared as high as heaven, an organist was practising. Music filled every stone cranny and human pore. This was years ago – I was on a whisky tour and possibly in an altered state of consciousness – and I’m telling you this only to laboriously make a point.

I enjoy visiting churches.

I also like Montmartre, roaming some random bookshop Maya Angelou may have wandered into, strolling through a Phuket market, and examining the Science Museum in London’s South Kensington. But in truth, one of my ideal holidays is something far removed from such touristy hard work.

It involves doing nothing.

For six days in Melbourne last month at my daughter’s house, I achieved nothing worth a Facebook photo or an Instagram post. I stared at clouds that I imagined as warships, pottered, was hypnotised by winter rain streaking down glass and held my granddaughter’s hand as one might a lifeline. You should try it. The Netherlands, this creative land of Rembrandt and Johan Cruyff, has even turned this do-nothingness into an art form with a name. Niksen.

My friend’s sister – some mix of meticulous and mad – makes Excel sheets for her holidays. I didn’t know there were such people or that there were so many of them. Everything is listed: places to go, when, how, and for how long. A month’s adventure across towns set down as grimly as a grocery list.

My packing for this trip involved no information on cafes retrieved from Instagram, no walking recommendations offered on TikTok and, most tellingly, no work laptop. My office would manage; I’d thrive. These temporary divorces are renewing in an era where we have blurred boundaries. We need to give ourselves permission to say we are uncontactable.

I live, like you, a purposeful life, joyous in so many parts but also relentless, where we’re always chasing some vague, better version of ourselves, our brains overheating like engines on a ship, driven by some guilt-inducing line in a third-rate self-help book about making every minute count. No, some minutes are best spent just sitting with a dog, a gentle hand on its body, and feeling its ribcage lurch as it dreams.

I relish my life, the research that writing demands, the curiosity that infects it and the ideas I collide with, but sometimes, there’s a value in being superbly unproductive. No plan, no goal, no destination, no guilt. And so, on a couch in Melbourne, I felt like a fast train that had paused at night at a dimly lit station for a refuelling. Those old steam engines puffed gently when stationary, I just sighed.

In effect, I became the very thing that terrifies parents: A loafer, shirker, slacker. How utterly wonderful. We’re normally tightly tied to the structured life and captives to our clock. It ticks, we tock. But now, for this sliver of time, I’d turned it all inside out. My phone often lay upstairs and I did not exercise a lick. My six-pack would have to be delayed.

What is doing nothing for me? Contemplating, drifting, meditating, daydreaming, emptying the mind, surrendering to days with no real purpose? Perhaps a little of everything. My workaholic friend S, who hates being rushed on holidays, watches ants work and discovers worlds in blades of grass. He makes his world smaller and quieter and lets the multitude of voices in his head subside. Like him, I wasn’t working my brain furiously, not shining it like a torch on a single idea.

Go somewhere, a bucket-list bragging world urgently tells us. See something. It’s a worthy message, but occasionally, it’s permissible to go deaf. For six days, I joyously accomplished nothing and yet received a great gift: proximity to family.

I stood in a field as morning crept upon us, my feet wet and icy, my daughter next to me, her hair as beautifully tinged with grey as the wide sky. I listened to my nine-year-old granddaughter speak so naturally about her friend who identifies as “they/them”, and it reminded me that bigotry is only a grown-up disease that we teach to the young. I discussed politics and cricket with my son-in-law, and decided sweet chilli and sour cream are the only chips worth eating. Artificial intelligence cannot create this life for me.

I met a musician on a walk, and we talked cellos and guitar collections. I read a few pages of a new Martin Luther King Jr biography, saw a mediocre film in an empty hall and slipped into daydreaming. Once this was a childhood staple, now in a world of technological toys, it’s a sinking habit. We’re all handcuffed to our phones, refusing to look up and out and let our imagination unspool like a fisherman casting a line on a quiet river.

Perhaps if we did, we’d become Walter Mitty, the fascinating character sketched by James Thurber in a short story in The New Yorker in 1939. Mitty is a mild fellow, out shopping with his wife, when one moment he dreams he is a daredevil pilot and the next an expert surgeon. He gets wondrously lost within his private worlds, and it leads to a telling conversation with his wife.

“I was thinking,” said Walter Mitty. “Does it ever occur to you that I am sometimes thinking?” She looked at him. “I’m going to take your temperature when I get you home,” she said.

ST ILLUSTRATION: MIEL

The idle mind can be a devilishly creative workshop, and daydreaming sparks invention and stirs ideas. As the Turkish writer Orhan Pamuk once wrote: “We may not understand where they come from or what, if anything, our daydreams may signify, but when we sit down to write it is our daydreams that breathe life into us, as wind from an unknown place stirs an aeolian harp. One might even say that we surrender to this mysterious wind like a captain who has no idea where he’s bound.”

I was simply bound for calm. Our modern lives are filled with urgency, our days challenged by Russian invasions, calls to upskill and enlarged prostates, till we feel stress claw at our insides. And so this holiday was a step away from that, a taking of a journey more inward than out, a temporary preference for stillness over the hectic, a gathering of myself for a return to productiveness.

I returned with no cultural trinket, no Australian sports scarf and no Akubra hat, and yet I had luggage. I brought back an overweight body, happiness on whatever index you can measure it and an envelope full of pink hearts with messages in a childish hand. One said: “Please Don’t Go”. I also carried the understanding that just to be able to do nothing makes me entitled. On an exceedingly unfair planet, my laziness was an act of privilege. 

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Scholastic Pro Reading

Scholastic Pro Reading Programme

Dear all,

Please log in to Scholastic Pro using this link:

https://slz02.scholasticlearningzone.com/auth/intl/Login/SGP58YK

Userid and password: I have sent the details to the parents' watsapp chat group.

Please change your password as soon as possible.

Here are a few useful links:

1. Quick start user guide in PDF format if you need them, Quick Start Guide.
2. There is an customer support portal, https://scholastic-learning-zone.custhelp.com/ where you can find FAQ, online help and Scholastic contacts.

I have assigned 3 books for our class to read. You are encouraged to read more books on top on what have been assigned. It is not necessary to finish reading 3 books all at the same time. Please do familiarize yourself with this website. 

Happy reading, everyone.

Regards

Mdm Chan

SA2 exam paper

Dear all,

I've posted exam papers (2015 Maths SA2) from one of the good schools in Sg.
Please go to Edmodo to print this out.

Thanks and regards
Mdm Chan