Last Updated on: Monday, January 12, 2009

Retirement Ready

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 POOLSIDE
Whether you have just started working or nearing middle age, the sooner you start
your retirement plan, the more money you will have to live the lifestyle you desire.

It’s easier to accumulate wealth when you start saving from

young! See how much you need to set aside to accumulate
$500,000 by age 62 based on your age and an average
return of 5% in this chart 

In this module, your three key takeaways are:

 WHY PLAN FOR RETIREMENT?

 RETIREMENT PLANNING PROCESS
 REVIEW YOUR PLAN

WHY PLAN FOR RETIREMENT?

You would probably have considered planning for your retirement at some point but have not quite gotten
around to it. At each life stage, you are likely to have a unique set of concerns that invariably pushed retirement
planning to the backseat.

In your twenties, having just embarked on your career, you would naturally be more interested in building your
career.

By your thirties, you might have bought a house, gotten married and started your own family. At this life stage,
you would be more pre-occupied with attending to the needs of your children than with thoughts of planning for
your retirement.

As your children grow up, you may now find yourself with aged parents who need more care that they did
previously. Before you know it, you now find yourself in your forties.

Whatever your life’s concerns, retirement will be upon us one day. Rather than meet it unprepared, take the first
step now to ensure a financially secure retirement. Come with us, take your first step to being retirement ready
here.

RETIREMENT PLANNING PROCESS

Whether you have just started working or nearing middle age, the sooner you start your retirement plan, the
more money you will have to live the lifestyle you desire.

What is an ideal retirement? The answer to this question is a highly personal one. It really depends on how you
see yourself spending your time when you stop active work and how you intend to finance it.

The following table gives a quick snapshot of the amount of savings which you might need at retirement.
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 Assumptions

• Retirement age is 65 years old.

• Retirement income to last for 20 years.
• Return on investment during retirement is 4% pa.
• Inflation rate is 2% pa.
• Expected monthly expenses are in today's dollars.
• Lump sum figures are in future dollars. It is the lump sum that the CPF member should have when he reaches
the retirement age of 65, in order to afford the expected monthly expenses during retirement.

Take your first step to achieving your ideal retirement by asking yourself some questions.

Retirement Goals

First, you need to determine your retirement goals. What is the lifestyle you plan to lead during retirement? Do
you plan to do a lot of travelling? Are there some hobbies that you would like to pursue? Do you intend to
downgrade your property? You may wish to discuss this step with your spouse and decide just what your ideal
retirement will be.

How Much To Put Aside For Retirement?

After establishing your retirement goals, the next logical question will be “How much money will I need when I
retire?” The answer depends on a number of factors, such as your desired lifestyle, your general state of health,
and when you intend to retire. The Retirement Estimator gives you a simple way to estimate the lump sum
savings you may need for your retirement.

The Retirement Calculator is a more comprehensive approach to working out how much you now have and how
much you will need. It will take you about half-an-hour to complete the process.

Your ideal retirement can be a reality. The sooner you take your first step at retirement planning, the more likely
you are to making it a reality. Once you have determined how much you need, the next step is to understand
how to get there.

REVIEW YOUR PLAN

Retirement planning is not an exact science. It is a moving target simply because with time, a number of factors
might change — such as your salary, your mortgage interest, your children’s education needs, and your
investment rate of return.

Your expectations of an ideal retirement may also change as your income increases and your lifestyle improves.
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For these reasons, you should take the time to review your plan from time to time. We thus recommend that you
try to do this at least once a year or whenever there is a major change in your life.

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Now that you have worked out what is your desired retirement lifestyle, the next
question is how to get there. Well, here are five workshops designed to provide you
with a step-by-step guide to attaining your ideal retirement lifestyle.

 01. BASIC BUDGETING

 02. INSURANCE
 03. HOUSING
 04. INVESTMENTS
 05. OTHERS

01. BASIC BUDGETING

Whether you are a student with just a hundred dollars as pocket money or a high flying executive, basic
budgeting is the first and most important step you can take towards smart money management.

In this module, your three key takeaways are:

 Track Your Expenses

 Save Regularly
 Manage Your Debts

1. Track Your Expenses

Many times, we go shopping and find ourselves buying something we don’t really need. It’s amazing how
these unplanned purchases can all add up.

And it’s no wonder why we are hard pressed to recall how the money was spent when we have little money
left at the end of the month.

Whether you are a student with just a hundred dollar pocket money or a high flying executive making
thousands a month, basic budgeting is necessary. It is the first and most important step you can take
towards smart money management.
Basic budgeting helps you to instill a certain financial discipline in achieving your financial goals in life.

 They All Add Up  Five Steps To A Basic Monthly Budget

 Where Does Your Money Go?  Types Of Expenses
 Budgeting Basics  Budgeting Tips
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a) They All Add Up

See how small purchases can add up to a fair bit of money over time.

Purchase Monthly Cost Yearly Cost

Gourmet coffee every weekday morning $100 $1,200
3 movies a month with a companion $57 $684

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 4 music CDs a month $80 $960
1 PC/PS game per month $60 - $100 $720 - $1,200
Dining at a restaurant every weekend $200 $2,400
Mobile phone bill $100 $1,200
Spa and hair treatments $150 $1,800
Pubbing with friends once a week $200 $2,400
4 packs of cigarettes a week $180 $2,160

b) Where Does Your Money Go?

Hard-pressed to recall where your money went? You list down the regular expenses – house and
car loan instalments, utility bill, handphone bill, and food. But after that, it starts to get fuzzy… what
happened to the rest of the money?

There is only one way to establish where your money went : Track your spending for a full month.
Create a list of all your monthly expenses. If an expense occurs less frequently such as annual
insurance premiums, simply pro-rate it to a monthly figure. Be sure to include expenses such as:
housing, food, transportation, utilities, entertainment, etc. Keep your receipts and jot down your
expenses for the day at the end of every day for a month.

This may be a tedious job for those of us who are always somewhat financially challenged. But it is
a necessary step to gain an accurate reflection of your actual expense and working out a realistic
budget that works best for you.

The good news? You only need to do this once in order to start your budget going. But who knows,
you might actually enjoy doing this on a regular basis once you get started.

c) Budgeting Basics

Basic budgeting starts with a simple financial plan that sets the amount you would like to spend on
each category of expenses such as food, transport and entertainment in a given month. It will also
take into consideration other factors such as your income, outstanding debts, regular savings, and
an emergency fund.

Budgeting and tracking your expenses might feel like it's cramping your lifestyle, but if you work out
a budget that suits you, it can be one of your most powerful tools for getting ahead financially -
whether it is to save for a downpayment on a house, starting an education fund for your children,
planning for retirement, paying off credit card debts, or saving for a family trip.

d) Five Steps To A Basic Monthly Budget

Without a budget, many of us just muddle through, trying to stay one step ahead of our bills. A
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budget is simply a tool to increase your awareness of how and where you spent your money. It
provides you with a guideline to help you spend your money on the things that are most important to
you. Here are five simple steps to working out a basic monthly budget for yourself.

Step 1 – Create A List Of All Your Monthly Income

How much do you have? Aside from your take-home pay, if you have other sources of income that
are received annually (such as bonus and dividends), simply divide the amount by 12. This figure will
set the cap on your total budget.

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 Step 2 – Create A List Of All Your Monthly Expenses
Take time to carefully list down all your monthly expenses, including expenses that occur on an
annual basis.

Step 3 – Compare Your Total Income With Your Total Expenses

How much of your income are you left with after deducting all your current expenses? If you have at
least 10-20% left over, good for you! You are on the right track to good money management. If
there is little left over, or worse, your expenses exceed your income, then make sure you take Step
4.

Step 4 – Adjust, Adjust, Adjust

Adjust expenses according to the amount you have left.

If it is a small shortfall, it may simply be a matter of reducing some

If the shortfall is large, then you may have to seriously consider how you can reduce your fixed
expenses which may include moderating your lifestyle such as downsizing your home or doing away
with the car.

Start getting yourself on track financially today by working out a simple budget for your monthly
expenses. Use our sample budget worksheet to work out your budget.

Step 5 – Discipline And Review

It is important to realise that simply creating a budget is not enough. A good budget by itself is of no
use if you do not discipline yourself to stick to it. If executed properly, a budget will allow you to
simultaneously meet your expenses, place money into savings, and pay back outstanding debts. A
good budget also requires regular reviews from time to time, especially at different stages of your
life.

Once you have established a sound budget and are disciplined in sticking to it, you are on your way
to setting aside money for the next step.

e) Types of Expenses

Fixed Expenses
Expenses such as rent, mortgage, car payment and insurance premiums. Essentially refer to
regular instalment payments for which you are committed for a period of time.

Flexible Expenses
Expenses that change from month to month such as food, clothing and utilities. You have more
control over some of these items as compared with fixed expenses.

f) Budgeting Tips

Tip 1 – Pay Yourself First

Take away the temptation to spend everything you earn with the "pay yourself first" principle. Just
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decide on an amount or a proportion of your income you're going to save each pay day before
paying for anything else. You should ideally save at least 15% of your income.

Tip 2 – Keep Within Your Debt Servicing Ratios

As advised by MoneySENSE, keep your total debt servicing ratio to less than 35% of your monthly
income. For further financial prudence, keep your non-mortgage debt servicing ratio to less than
15% of your monthly income.

Tip 3 – Have Cash Savings

Maintain cash savings of three to six times your monthly income. A higher amount is recommended
if your income is not fixed and highly dependent on variables such as commissions.

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 2. Save Regularly

Cultivate the habit of setting aside regular savings. A little can become a lot over time. Even the smallest
amount can turn into serious money with the power of compound interest.

Your biggest enemy when saving is temptation. You can avoid this trap with realistic savings and financial
goals. You know yourself best. Think hard about what you can really give up to help grow your savings.

 Savings And The Power Of Compound Interest

 Set Aside An Emergency Fund
 Financial Goals

a) Savings And The Power Of Compound Interest

The magic in saving is in the power of compound interest. When you save with a bank, the bank
gives you regular interest payments. If you leave the interest and let it add to your lump sum, then
you start to earn interest on your interest, as well as on the original amount you saved. This is called
compound interest.

So, the earlier you start saving, the more powerful the compound interest effect. Take Rita for
example. Rita is 25-years-old and she has decided to start saving $90 every month. In 30 years’
time, Rita would have about $50,000 based on an average interest rate of 2.5% p.a.

b) Set Aside An Emergency Fund

It is always a good idea to have some money set aside for emergencies. You never know when you
may need it, but you will be glad you have it to cushion any financial emergency. This is an amount
of money you can call on if the unexpected happens. It means you won't have to borrow money or
be left financially vulnerable.

Decide a reasonable amount (generally, three to six months' income is recommended), balance it
with insurance protection against unexpected events, and start saving.

c) Financial Goals

We all have a set of financial goals that we would like to reach at some point in the future. Financial
goals can be big, long term ones or smaller, short term ones. They are specific things you want to do
with your money within a certain period of time.

While basic budgeting can be considered the first step in your retirement planning, setting financial
goals is the second step. Financial goals give you a purpose for the way you will spend your money
today and tomorrow. And it puts you in charge of your money and your future.
Be specific and realistic when setting your financial goals. Some examples of goals are:
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• Saving $20 a week

• Paying off your credit card debt in six months
• Paying off your mortgage loan before age 55
• Saving $4,000 for an overseas trip next year
• Ensuring a retirement income equal to 70% of your pre-retirement

After you have identified your financial goals, you should identify small, measurable steps you can
take to achieve these goals, and put this action plan to work.

Next, evaluate your progress. Be sure to review your progress at least once every half yearly to

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 determine if you are on track to achieving your goals. If you're not making satisfactory progress on a
particular goal, re-evaluate your approach and make changes as necessary. This could mean
relooking at your budget or check out our Investment folder to learn more.

Your next step after setting your financial goals in your retirement planning is to prevent financial
disasters caused by catastrophic illnesses or other personal tragedies.

3. Manage Your Debts

Think before you get into debt. Getting in is easy. Getting out is a lot harder. Going into debt is a big decision
as it limits your life options. Debt comes in many forms - credit cards, hire purchase, mortgages, personal
loans, and so on. There is no shortage of people out there wanting to lend you money in return for high
interest payment!

 Work Out Your Affordability

 Shorten Your Loan Tenure
 Pay Off Debts With High Interest Charges First

a) Work Out Your Affordability

Just because you earn enough to meet a loan repayment doesn't mean a loan is your best option. Make
an informed decision. Don’t be swayed by easy credit to spend more than you meant to. For example,
you may be able to afford the monthly loan repayments for a brand new car, but have you worked out
the long term high cost of maintaining a car? Will your other expenses be affected by a new loan? You
need to work out the full effect of the purchase on your budget before deciding if you can afford the loan.

b) Shorten Your Loan Tenure

The longer you carry your debts, the more interest you will pay. It pays to get out of debt as fast as you
can. This is simple math, not rocket science. Compound interest applies to borrowing too. Just as you
get compound interest on savings, you pay compound interest on the money you borrow.

See if you can pay off your loan earlier by increasing the repayment amounts. Paying off your mortgage
early is a great financial decision. Small increase in repayments can have a big impact on the term of
your loan and the amount of interest you save.

c) Pay Off Debts With High Interest Charges First

Get rid of your high-interest debts first. Credit cards charge much higher interest rates than mortgages!
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So it makes sense to clear your credit card debts first.

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 02. INSURANCE
Insurance is a concept most of us ought to be familiar with. We may own some form of insurance or claimed
from it, but we may not fully understand how insurance is relevant in our retirement planning.

In this module, your three key takeaways are:

 Understanding Insurance
 Covering Yourself Adequately
 Your Common Insurance Questions Answered

1. Understanding Insurance - Knowing What Insurance Is All About

Insurance is really about protecting against risks. It protects you and your family against everyday risks to
your health, your assets and potential financial losses. Part of your retirement planning is making sure you
have all the necessary insurance cover and that you are adequately covered.

 Life Insurance
 Healthcare Insurance
 Insurance To Protect Your Assets

a) Life Insurance - Why You Need Life Insurance

Most of us probably have some form of life insurance be it personal insurance or under your
company’s term insurance or even Dependants’ Protection Scheme (DPS).

In life, anything can happen. A family’s income from a breadwinner can suddenly be snatched
through death or disability. Hence, the objective of a life insurance is to protect against a loss of
income upon the insured’s death or total permanent disability. It is designed to replace the insured’s
income and provide cash to the dependants so that they can continue to meet important financial
needs like daily living expenses, mortgage payments and education expenses.

Generally, there are two types of life insurance – term and traditional whole life. Not sure what is the
difference between the two? Well, our quick guide to life insurance cuts to the chase and gives you
only what you need to know.

 Quick Guide To Life Insurance

 Term Vs Traditional Whole Life Insurance For You

Quick Guide To Life Insurance

Baffled by the difference between term and traditional whole life insurance? Here is a quick
guide to steer you through.
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Term Insurance Traditional Whole

What is it? It provides insurance cover for a term It provides lifelong insurance
or a specific period of time. Term protection (as long as the policy
period typically covers one year or remains in force).
more.
How much? Generally it costs much less than Generally it costs much more than
whole life policies. term policies.
What are you You are buying life cover only. Upon Besides life cover, the policy may
buying? the death or total permanent also include an investment

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 incapacity of the insured, it pays the component which accumulates a
face amount of the policy. The face
amount is the money that will be paid can withdraw or borrow against.
at death or policy maturity.
Any Surrender No
Value?
When to buy? Term insurance allows you to buy
high levels of cover at relatively
inexpensive premiums. It is a good
option if you are on a tight budget.
What to take note While term insurance is generally
of? substantially cheaper than life
insurance in the initial years, take
note that the premium may become
increasingly expensive the older you
are. Some term insurance policies
premium may remain the same
based on your age when you first
purchase the policy. Also, bear in
mind that you may not be able to
renew or buy term insurance cover
beyond a certain age.
cash value that the policyholder
Yes. Surrender value is also
known as the cash value. This is
what you would get if you decide
to stop paying the premiums and
surrender your policy before its
maturity.
A typical whole life policy requires
you to service the premiums over
a long period. The policy will
lapse (i.e. no longer be in force) if
you fail to make your premium
payment. For this reason, you
should only commit to a policy
after you have done your sums
and are confident of servicing the
premiums over the life of the
policy.
The cash value of a policy is
different from the policy's face
amount. The face amount is the
money that will be paid at death,
total permanent disability or policy
maturity. The cash value of your
policy may be affected by your
insurance company's financial
results or factors such as mortality
rates, expenses, and investment
earnings.
Do note that if you surrender your
policy in the early years, there
may be little or no cash value.

Term Vs Whole Life Insurance For You

Now that you know the basic difference between a term and traditional whole life insurance, you
are probably wondering which one you should buy. The answer to this is personal as it really
depends on your needs and your financial circumstances.

If you have just started work or when you are just setting up a family and are on a tight budget,
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term insurance may be a good option as the premiums are generally cheaper than whole life.
You do want to take note that term insurance is generally renewable on a term basis depending
on your health status. This means that your insurer reserves the right not to renew your term
insurance policy if they deem you “uninsurable”. For this reason, you might want to consider a
whole life policy which offers a lifelong protection while you are still financially able and
insurable.

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 b) Healthcare Insurance - Why You Need Healthcare Insurance

When you are enjoying good health, healthcare insurance is probably the last thing you are
concerned with. And yet, healthcare insurance is one form of insurance you should buy while your
health is good.

With longer life expectancy and rising medical costs, it has become more important to ensure
adequate cover for your healthcare needs. After all, when medical care or treatment is needed, you
would want to focus on getting well instead of worrying about whether you can afford the medical
treatment.

 Quick Guide To Healthcare Insurance

 Understanding Your CPF Healthcare Insurance

Quick Guide To Healthcare Insurance

Confused by the various healthcare insurance plans and terms? No worries. This quick guide
will take you through all the technical jargons to just the essence of what you need to know.

Type of Healthcare What is it and what does it do for you?

Medical Expense Insurance (or
Hospital & Surgical Insurance)
Critical Illness Insurance (or Dread
Disease Insurance)
Disability Income Insurance
Long-Term Care Insurance
Hospital Income Insurance
Personal Accident Insurance
Covers the expenses for inpatient medical treatment or
surgery, including some outpatient charges for day
surgery, consultations and tests incurred as a result of an
illness or accident.
Provides you with a lump sum payment to tide you over
the initial period of being diagnosed or treated for an
illness covered by the policy.
Provides you with a replacement income if you are
unable to work due to an illness or accident. This will
allow you to continue to pay for you and your
dependants’ daily expenses and upkeep.
Pays you a fixed amount each month towards expenses
if you are involved in an accident or suffer a debilitating
illness that requires long-term care services.
Pays a fixed amount for each day of hospitalization.
Covers death, disablement and medical expenses
caused by accidents. Emergency evacuation expenses
are sometimes covered too, depending on the plan.
Coverage may be 24 hours worldwide as well.

Understanding Your CPF Healthcare Insurance

You can use your Medisave savings to pay for the premiums of MediShield, Medisave-approved
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Private Integrated Plans and Eldershield for yourself and your immediate family members. If you
are not sure about the difference between them, here is a quick summary to help you.

Type of Healthcare Insurance What is it and what does it do for you?

MediShield Catastrophic medical expenses insurance that covers
you for medical expenses incurred for certain approved
outpatient treatments and during hospitalization at Class
B2/C wards in restructured hospitals.
Medisave-Approved Private Catastrophic medical expenses insurance plan that offers

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 Integrated Plans additional benefits on top of that provided by MediShield.
It covers you for additional insurance protection such as
stays in Class A/B1 and private wards.
Eldershield Severe disability insurance plan that provides a fixed
income for a fixed period in the event of severe
disabilities that require long-term care.

c) Insurance To Protect Your Assets - Why You Need Insurance To Protect Your Assets

As you accumulate savings and assets, do not forget to insure yourself against the financial loss of
these assets. If you own a car, you will be familiar with insuring your car. But what about your home
which is probably the single largest asset you own? Even if you do not yet own a home, you will
probably have accumulated some assets that you typically leave at home.

Here are some insurance plans that you should be aware of to ensure that your assets are
adequately covered against any loss.

 Mortgage Reducing Term Insurance

 Fire Insurance
 Home Content Insurance

Mortgage Reducing Term Insurance

You have made your single most expensive investment – your dream home. You are likely to
have made the purchase with the help of a mortgage. To ensure that you and your loved ones
will be assured of a roof over your heads in any eventuality, you should purchase a mortgage
reducing term insurance to cover the loan. Mortgage reducing term insurance’s cover reduces
every year in proportion to the housing loan being repaid and pays the balance of the loan in the
event of death or total permanent disability of the insured.

If you have purchased a HDB flat and are serving the mortgage payment with your CPF savings,
you would have purchase a Home Protection Scheme cover. If you have purchased the flat with
a co-owner, we recommend that you get yourself covered for your share of the loan such that
the HPS cover for your HDB flat add up to 100% of the loan.

If your budget allows, you can also wish to consider getting yourself and your co-owner(s) to be
covered for 100% of the loan each. By getting a 100% cover, in the event of death or total
permanent disability of the insured, the balance of the loan will be paid by the insurance and the
remaining co-owner(s) need not worry about the loan subsequently.

Fire Insurance

If you own an HDB flat, you will definitely be covered by some form of fire insurance as it is a
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HDB requirement. What you should know is that your HDB fire insurance covers only building
structures and fixtures fitted based on HDB’s standard specifications. Similarly, if you have
purchased a fire insurance for your private property, your fire insurance covers only the building
structures.

Many people make the mistake of assuming that their fire insurance also covers the renovations
and home contents in the event of a fire. If you wish to protect your home content and
renovations, you will have to get a home content insurance.

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 Home Content Insurance

If you have spent a great deal of money on your home renovations, fixtures or have expensive
home contents, you certainly need to consider getting yourself a home content insurance.

Home content insurance protects the things that you own, including your renovation against any
fire damage, burglary or other catastrophe. It can also provide liability cover such as protection
from lawsuits resulting from harm that you, your pets or your family caused to other persons or
damage to their property.

If you stay in a rented home, don’t make the mistake of thinking that your landlord’s insurance
will cover your possessions in case of fire, burglary or other catastrophe. You need your own
insurance to protect your household contents.

2. Covering Yourself Adequately - Are You Over-Insured Or Under-Insured?

The amount of insurance cover you need will vary according to your life stage, your personal health, your
dependants if any, your financial situation and the type of assets you own. There are many types of
insurance available each serving a different insurance need.

Not sure what insurance coverage you might need? Use our insurance need checklist or the Insurance
Estimator to assess your basic insurance needs and learn more about how each form of insurance is
relevant to you.

 Insurance Need Checklist

 How Much Life Insurance Do You Need?

a) Insurance Need Checklist

Single:
Your basic insurance need will include:
 Life insurance
 Healthcare insurance

Married:
Your basic insurance need will include:
 Life insurance
 Healthcare insurance

Rents a home:
Even though you don’t own the flat, you will still need to consider home content insurance for your
personal valuables.
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Owns a home:
You will need insurance for:
 Fire insurance
 Home content insurance
 Mortgage Reducing Insurance

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 b) How Much Life Insurance Do You Need?

No Dependants

Generally, you won’t need any life insurance if you have no dependants. However, we do suggest
that you check with you insurance agent or financial planner for a comprehensive review of your life
insurance needs.

With Dependants

Anyone who depends on your income is considered a dependant. Dependants can include parents,

siblings, spouse or children. To determine how much life insurance you will require, first work out the

amount your dependants will need together with other sources of income (if any) if you were to die.

Here are some points for consideration:

a) Ongoing living expenses for dependants (Food, clothing, transportation, healthcare, etc)

b) Final expenses (Funeral costs, estate duty taxes, etc)

c) Outstanding debts (Credit cards, mortgage, other loans, etc)

d) Future expenses (Your children’s education, spouse retirement income, etc)

You may wish to contact an insurance provider to work out in detail the amount of life insurance you

need. If you are already covered by some form of life insurance, this may also be a good time to

meet up with your insurance agent or financial planner to review your life insurance cover.

3. Your Common Insurance Questions Answered

 Do You Need Other Healthcare Insurance If You Are Covered By Medishield Or Medisave-
Approved Private Integrated Plans?
 Do You Need Other Healthcare Insurance If You Are Covered By Your Company’s Medical
Plan?
 Should I Get A Term Or Traditional Whole Life Policy?
 What Is Total Permanent Disability?
 What Is Deductible?
 What is Co-Insurance?

a) Do You Need Other Healthcare Insurance If You Are Covered By Medishield Or Medisave-
Approved Private Integrated Plans?

If you are covered by your company’s medical plan, you should still consider getting yourself some
healthcare insurance. It might appear as a “waste of money” or “duplication of cover” at first glance,
but you need to aware of three major considerations.
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Lack of Portability

You are covered by your company’s medical benefits only as long as you are with the company.
Most group health insurance plans offered by employers in Singapore are not portable. What this
means is that if you leave the company, you will lose your medical cover. Your healthcare insurance
plan, whether it is MediShield or a private healthcare plan, on the other hand, is independent of your
employment status.

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 Becoming Uninsurable

If you suffer from an illness or a chronic health condition, you may not be insurable or may be
insured with an exclusion for the pre-existing condition. For this reason, you should seriously
consider getting yourself covered with some other form of healthcare plan while you are still healthy
instead of depending solely on your company’s medical benefit. This way, you will not be caught in
an uninsurable position when you change employers.

Medical Cover May Change

Your company’s medical benefits and cover are subject to change. You don’t want to be caught in a
situation where you suddenly find yourself unable to afford certain medical treatment. Having your
own healthcare plan gives you the security of not having to worry about changing benefits.

b) Do You Need Other Healthcare Insurance If You Are Covered By Your Company’s Medical
Plan?

First, you need to understand how MediShield and Medisave-Approved Private Integrated Plans
work. MediShield and Medisave-Approved Private Integrated Plans have deductible and co-
insurance features.

What this means is that you will still need some out of pocket expense. You can use your Medisave
or your immediate family members’ Medisave to pay for the deductible and co-insurance.

Some private insurers also offer rider plans to cover the deductible and co-insurance of the
Medisave-Approved Private Integrated Plans.. This means that you would not need to fork out any
additional cash or Medisave for deductibles or co-insurance. Whether you should get a private
medical expense insurance on top of your MediShield, or an additional rider plan on top up a private
medical of your MediShield, or an additional rider plan on top up a private medical insurance is a
personal decision. If you prefer the assurance of not having to worry about additional out-of-pocket
expenses, then you should consider buying one. If you have savings or a comfortable amount of
Medisave set aside, then you may find that having a MediShied or Medisave-Approved Private
Integrated plan will serve you just fine.

c) Should I Get A Term Or Traditional Whole Life Policy?

First, you need to understand what is the difference between term and traditional whole life policy
before deciding on the appropriate policy. Ideally, you should discuss this with your financial
planner who would be in a better position to advise you after analysing your own and your
dependants’ needs.

d) What Is Total Permanent Disability (TPD)?

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TPD usually applies when the insured’s illness or injury cause the insured:
• not to be able to sufficiently do any work, occupation, or profession
• not to be able to earn or obtain wages, remuneration or profit
• to become totally blind
• to lose both limbs at or above the wrist or ankle (by complete severance)
• to lose the sight of one eye and one limb (by complete severance) at or above the wrist or
ankle.

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 e) What Is Deductible?

Deductible is the minimum claimable amount that you would need to pay when you make a
healthcare insurance (e.g. MediShield, or Medisave-approved Private Integrated Plan) claim - the
deductible applies on the claimable amount rather than the incurred hospital bill. You will only need
to pay the deductible once in a policy year.

f) What Is Co-Insurance?

Co-insurance refers to a percentage of the claimable amount less the deductible that you will also
have to pay before the insurers pay the remaining amount.
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 03. HOUSING
Buying a home may be the biggest financial commitment you may make. Most of us will use CPF savings to pay
for our homes. Yet at the same time, CPF savings are meant to be our old age savings. This could mean that if
we overspend on housing, we might have little savings left for retirement.

In this module, your three key takeaways are:

 Financial Aspects Of Housing

 Using CPF For Housing
 Your Common Housing Questions Answered

1. Financial Aspects of Housing

It’s useful to equip yourself with basic information on the dollars and sense of owning a home. We
recommend that you know about these.

 How Much Can You Borrow?  Avoid Being Asset-Rich, Cash-Poor

 Mortgage Loan Basics  Using Your Property for Retirement
Income

a) How Much Can You Borrow?

Most of us do not have enough cash to pay the full cost of a property and would need a housing loan
to finance our purchase. As you start hunting for a home, you should have an idea of your budget. It
makes financial sense to have some figures in mind, even if they are just estimates.

When assessing the housing loan they are willing to lend, banks may assume that about one-third of
your gross monthly income will be used to pay debts (which includes housing instalments). Each
bank may have its own credit assessment guidelines.

A housing loan is a long-term commitment, and you should feel comfortable with the repayment. It is
hard to have peace of mind if you have little cash for living expenses after making large housing
payments every month!

Here are some factors that might affect your ability to repay a housing loan:

• Change in housing loan interest rates

• Change in CPF contribution rates or policies (e.g. a reduction in contribution rates may mean
less CPF is available for housing)
• Spouse stops working or has to work part-time to take care of young kids or aged parents
• Company retrenchment
• Accident or illness resulting in inability to hold down a job
• Poor economy and unprofitable business, which could mean a reduction in income
• Death of the main breadwinner, and the property is not adequately covered by a mortgage
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insurance

b) Mortgage Loan Basics

Before you take up your mortgage loan, you should examine the terms and conditions of the loan.
Make sure you understand the details. Talk with your loan provider, who would be most willing to
clarify any uncertainties you may have.

Here are some basics you should know about:

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  Interest Rate
 Loan Repayment Period
 Interest Computation
 Penalty For Early Repayment

Interest Rate

Banks typically offer mortgage loans with fixed interest rates in the first two to three years
and variable interest rates thereafter.

A fixed rate loan charges the same rate of interest throughout the duration of the loan. You
know exactly how much you’d have to pay monthly. But your payments won’t be reduced
when interest rates fall. However, payments won’t be increased either if interest rates rise.

In contrast, a variable rate loan is typically pegged at a fixed “spread” (a certain percentage
points) above the bank’s prime rate. The prime rate is the interest rate charged by the bank
to its best and most credit-worthy customers. If interest rates go up, so do your monthly
mortgage payments. If interest rates drop, you save money with lower payments.

For example, using a 25-year monthly-rest loan of $300,000 (monthly-rest means that the
principal amount is reduced every month as you pay the instalment), this table shows how
the instalment amount changes as the interest rate changes.

Interest Rate (%) Monthly Instalment ($)

2.0 1,272
2.5 1,346
3.0 1,423
3.5 1,502
4.0 1,584

Try it yourself! Use this simple Monthly Instalment Calculator to work out your monthly
instalment.
HDB’s concessionary interest rate is pegged at 0.1% point above the CPF Ordinary Account
interest rate. It is revised quarterly, when the CPF interest rate is revised.

Loan Repayment Period

Depending on the borrower’s age, housing loans can stretch up to 30 years or more. A
longer repayment period means you’ll be paying lower instalments every month but the total
interest payment will be higher.

For example, assume that you are taking up a $400,000 housing loan, and the interest rate
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is a fixed 4% pa.
Repayment Monthly Instalment Total Repayment Total % of Interest
Period (Years) ($) (Principal + Interest) Interest ($) in Total
($) Repayment
15 2,959 532,575 132,575 25%
20 2,424 581,741 181,741 31%
25 2,111 633,404 233,404 37%
30 1,910 687,478 287,478 42%

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 For the 20-year loan, the total interest charge is $181,741. In contrast, for the 30-year loan, you’ll
pay interest of $287,478 – that’s $105,737 extra, and with interest forming 42% of the total
repayment!

Try it yourself! Use the Total Interest calculator to work out the total interest on a housing loan.

If you are using CPF to repay your loan, it would be ideal to pay it off by the time you reach 55.
This is because of the reduced CPF contribution rates for workers above 55. You should also
note that the contribution rates for workers above 50 to 55 are lower than for those below 50.
Click here for information on CPF contribution rates.

Interest Computation

The cost of a loan largely depends on the loan repayment period, interest rate and how the
interest is computed. Here are two ways of computing interest that you should know about:

Monthly Rest (also known as monthly reducing)

When you pay an instalment, the amount comprises:

• a payment for the interest charge, and
• a payment towards the principal (the loan amount).

Monthly rest means that the principal amount you pay every month is deducted when
calculating the interest rate for the following months. Interest is thus computed on the
principal outstanding at the start of each month.

Annual Rest (also known as annual reducing)

Annual rest means that the total principal repaid by the end of the year is deducted when
calculating the interest rate for the next year. Interest is thus computed on the principal
outstanding at the start of each year.

In general, the interest charge will be the lower for monthly-rest, and higher for annual-
rest. A useful rule of thumb: The more frequently the interest is computed, the better.

Penalty For Early Repayment

Banks earn money by charging you interest on your mortgage loan. The more time it takes you
to pay off the loan, the more interest the bank earns.

Some homebuyers may want to pay their mortgage early, partially or fully, to save on interest.
However, banks may charge them a fee, known as a pre-payment penalty. The penalty varies
among banks (eg. it could range from 0.5% to 1.5% of the loan principal, if repayment is made in
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the first few years of the loan, within the pre-payment period).

This penalty is designed to persuade homeowners to continue to pay interest for a certain
period, instead of paying off their loan early. Banks impose such penalties to ensure they have
an opportunity to recover their costs on the particular deal that they gave to homebuyers.

Be aware of any penalties when choosing your loan. Ask about pre-payment penalty fees and
the length of the pre-payment period.

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 c) Avoid Being Asset-Rich, Cash-Poor

Many home buyers use CPF for housing. Unless you are confident that you will have adequate cash
savings for your old age, it is not prudent to maximize the use of your CPF for housing.

You may end up being “asset-rich, cash-poor” where you have little cash for day-to-day expenses,
especially in retirement (this is even more so if you have also used your cash savings/income for
housing).

We recommend using the following calculators to get a peek into your financial future!

• How much money do you need to retire? Get a lumpsum estimate here.
• Thinking to rely only on your CPF Minimum Sum for old age needs? See how much income you
may get monthly.
• Planning to take a housing loan and using CPF to repay the loan? Project your CPF balances at
age 55 here!

d) Using Your Property for Retirement

Some people find that while they have a fully paid-up home, they might not have enough cash for
living expenses during retirement.

If you wish to use your property to get funds for your old age, here are options to consider:

 Rental Income From Property

 Downgrading Property
 Reverse Mortgages

Rental Income From Property

HDB flat owners who meet certain conditions will be allowed to sublet their whole flat with HDB’s
approval.

• Alternatively, flat owners may also be able to sublet bedrooms in their flat. More information
on subletting HDB flats and bedrooms here.

Downgrading Property

This means downgrading to a smaller property. The net cash proceeds can be used for daily
expenses, and perhaps invested in low risk investment products to generate some investment
returns.

Downgrading can be done at one go, or in stages (eg. from a private property to a 5-room HDB
flat, and then to a 3-room flat), depending on the person’s financial and lifestyle needs.
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Downgrading to a smaller property is also sometimes done after a couple’s grown-up children
have moved out. The older couple might not need the larger space or may not wish to spend
time on maintaining the larger property. Downgrading may not always be financially-motivated.

More information on HDB Studio Apartment Scheme for elderly HDB flat lessees here.

Reverse Mortgages

A reverse mortgage is a type of home loan that allows you to convert some of the value in your

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 home into cash while you retain home ownership.

It works like traditional mortgages, only in reverse. For example, rather than making a payment
to your lender each month, the lender pays you. The money can be used for living expenses,
health care, children education expenses, etc.

Reverse mortgages are typically used by retired homeowners who need to supplement their
income.

When the homeowner dies, sells the home, moves out or reaches the end of the pre-defined
loan period (depending on the terms and conditions), the mortgage becomes due with interest. It
is typically paid off from the proceeds of the sale of the home.

• Currently, one local bank and one insurer offer reverse mortgages. Access an overview of
Reverse Mortgage (HDB) here.

2. Using CPF For Housing

Buying a home is serious business. Unless you are cash-rich, you’ll be servicing the mortgage loan on your
home for years to come.

Thus, if you’re using CPF to buy your home, it is important that you should familiarise yourself with these
information:

 Rules Of Thumb For CPF Home Buyers

 Factors To Be Aware Of When Using CPF for Housing
 Limits On The Use Of CPF For Housing

a) Rules Of Thumb For CPF Home Buyers

1. Know what you can afford before going home-hunting. The more you spend on housing, the less
you will have for old age needs. Generally, your total monthly debt payments (including home loan)
should not be more than 35% of gross monthly income.

2. It is prudent to plan to pay off the loan by age 55. If you are using CPF for the instalments,
remember you will have lower CPF contributions from age 50.

3. Generally, it is better to choose a shorter loan repayment period if you can. The longer the
repayment period, the more interest you are paying.

4. You must understand how interest rates will affect your loan repayments. Ask your loan provider to
show you examples using different loan interest rates.
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5. Changes in your income and in CPF contribution rates may affect your ability to pay your loan. You
should have emergency cash savings of about six times your monthly salary to help tide you through
unexpected events.

6. Take the time to discuss your housing loan needs with financial advisers and banks. At the same
time, educate yourself so that you are able to assess what they tell you.

7. Get a few quotations, and spend time to study the different loan packages. Don’t make hasty
decisions based on advertisements or brochures. Request for a Customer Information Sheet when

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 you are considering taking up a loan with the bank.

8. Make sure you understand the terms and conditions before taking up the loan, eg. is there a lock-in
period or can you make capital repayments? Ignorance is not an excuse if disputes arise later on.
9. For peace of mind, get a mortgage insurance cover. Consider taking up the maximum cover for co-
payers of the loan.

10. Finally, keep up with changes that may affect the use of CPF for housing. Read the information in
our website. It is in your own interest to be an informed CPF member.

b) Factors To Be Aware Of When Using CPF For Housing

Here’s a list of some factors you should know about if you use CPF for housing

 Factors affecting all homeowners

 Factors affecting only homeowners below 55 years old
 Factors affecting homeowners aged 55 and above

Factors affecting all homeowners:

1. CPF Housing Withdrawal Limit.

This is the maximum amount of CPF that can be used for a property. No further CPF can be
used when the limit is reached. Note that if you make lumpsum repayments with CPF savings, it
may reduce the outstanding housing loan and interest, but you will reach the withdrawal limit
earlier.
Use the CPF Housing Withdrawal Limits Calculator to check your limit

2. Private property with remaining leases of 30-59 years at time of purchase (from 19 July 2005).
These properties have lower Housing Withdrawal Limits. If the housing loan is outstanding when
the limit is reached, homeowners will have to pay future instalments fully by cash.

3. Available Housing Withdrawal Limit (AHWL).

If the total CPF used for the property has reached the property’s 100% Valuation Limit, you may
continue to use your CPF if you have the AHWL. This to ensure that members have at least the
prevailing Minimum Sum cash component set aside for retirement. The AHWL applies to all
homeowners except those who buy new HDB flats using HDB concessionary loans.

If you’ve reached 100% VL, you can estimate your AHWL here.

4. Housing loan interest rates.

A rise in interest rates means you may have to pay higher monthly instalments on your loan.
This could mean forking out more cash every month if you are already using your available CPF
savings for the instalments. Note also that interest rates for 90% home loans are usually higher
than those for 80% home loans.
Use the Monthly Instalment Calculator to estimate the monthly instalment.
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5. CPF contribution rates and allocations.

Both employer and employee do not have to contribute CPF on salary amounts which exceed
$4,500. This means more take-home pay, but employees have to remember that they won’t be
able to rely on having more CPF savings for their housing.

6. Changes to CPF contribution levels.

Remember that your level of contributions may change over the years. It could increase (e.g.
salary rise); decrease (eg. pay cut); or even stop (e.g. unemployment). A useful rule-of-thumb is
that we should have emergency savings of at least six times our monthly salary to cater for
unexpected events, if possible.

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 7. Limit on Voluntary CPF Contributions.
Remember that your level of contributions may change over the years. It could increase (e.g.
salary rise); decrease (eg. pay cut); or even stop (eg. unemployment). A useful rule-of-thumb is
that we should have emergency savings of at least six times our monthly salary to cater for
unexpected events, if possible.

8. Limit on Voluntary CPF Contributions.

In addition to mandatory/compulsory contributions, some CPF members make voluntary
contributions to their CPF accounts. There is a limit to the amount of voluntary contributions a
CPF member can make. Any voluntary contributions paid in excess of the approved limit will be
refunded without interest.

9. Other commitments.
Don’t forget that you may also need your Ordinary Account savings for other purposes –
commitments under CPF Investment Scheme; Home Protection Scheme premiums;
Dependants’ Protection Scheme premiums; usage under CPF Education Scheme.

10. Undischarged bankrupt.

HDB flat owners who are undischarged bankrupts can continue to use CPF to pay their housing
loan instalments. From 15 June 2005, private property owners and owners of privatised HUDC
flats who are bankrupts may continue to use their CPF to service their housing loans taken to
buy the property, if the CPF charge on the property is created before their bankruptcy.

Factors affecting only homeowners below 55 years old:

11. Transfer of Ordinary Account savings to Special Account.

Members below age 55 can transfer savings from the OA to the SA, to earn more interest.
However, such transfers are irreversible, and homeowners with outstanding home loans should
think carefully before making such transfers.

Factors affecting only homeowners aged 55 and above:

12. Lumpsum withdrawal at 55.

You can withdraw your CPF savings when you turn 55 after you set aside your CPF Minimum
Sum. Before you withdraw your CPF savings, however, do consider how you intend to continue
paying any outstanding loan instalments. This is important as employees above 55 will have
lower CPF contribution rates.

13. CPF Minimum Sum at age 55.

The CPF Minimum Sum is being raised gradually to reach $120,000 (in 2003 dollars) in 2013
(please see Table A).
Members can set aside the amount fully in cash or pledge their property for up to 50% of the
Minimum Sum applicable to them. It has to be set aside at 55 even if members postpone or do
not make any withdrawal of CPF savings at 55. This may thus affect the amount of Ordinary
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Account savings available for housing.

14. CPF Minimum Sum shortfall.

If members have a shortfall for their CPF Minimum Sum upon reaching 55, they will not have to
make-up the shortfall immediately. However, the shortfall could affect the use of CPF for
housing if the property’s 100% Valuation Limit has been reached. The amount that can be used
would be the Ordinary Account balance less any shortfall in the Minimum Sum cash component.

15. Medisave matters.

Although these do not have a significant impact on homeowners, it would be useful for members

24
 to note that their CPF withdrawal at 55 can be affected by the Medisave Minimum Sum or
Medisave Required Amount. More information may be accessed here.

c) Limits On The Use Of CPF For Housing

Buying a home means a long-term financial commitment. If you are using CPF for property, remember
that the more you spend on property, the less you might have for old-age needs.

There are limits on the amount of CPF you can use. The limits are to:
• Ensure that the CPF used is not way above the value of the property.
• Instil financial prudence so that members will not over-commit to property at the expense of
retirement savings.

You should be aware of these housing limits:

 100% Valuation Limit (VL)

 Available Housing Withdrawal Limit (AHWL)
 CPF Withdrawal Limit for Housing
 Withdrawal Limit for Private Properties with Remaining Lease of 30-59 years

100% Valuation Limit (VL)

The VL is the lower of:

• the purchase price of the property, and
• the market value of the property at the time of purchase.

You can use your CPF savings up to the VL, without having to meet any condition on your CPF
balances. Thus, even if you have just started working and have only a small amount in your CPF,
you will still be able to use CPF to buy a home.

Example A Example B
Purchase price of property $200,000 $800,000
Value of property $230,000 $750,000
Valuation Limit $200,000 $750,000

Reaching the VL:

It is likely your housing loan would still be outstanding when your CPF withdrawal has reached
the 100% Valuation Limit (VL).

This is largely because you are using CPF to pay both the housing loan’s principal amount as
well as the interest charges. The higher the interest on the housing loan, the faster the 100% VL
will be reached.
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Using your CPF to make a lumpsum/capital repayment on your housing loan may make you
reach the VL earlier, but it will reduce the interest charges.

Use the CPF Housing Withdrawal Limits Calculator to compute when you may reach your
withdrawal limits.

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 Available Housing Withdrawal Limit (AHWL)

When you reach 100% VL, you may continue to use your CPF savings to repay the housing loan.
The amount you can use is the AHWL.

Why AHWL?
• AHWL ensures that members have at least the Minimum Sum cash component set aside for
retirement.
• It is important as any CPF monies used beyond the value of the property stand a higher risk
of not being refunded to members' CPF when the property is sold, e.g. low property prices
during a market downturn.

How AHWL is calculated:

CPF members below 55 years CPF members 55 years and above
AHWL is the available Ordinary Account balance AHWL is the available Ordinary Account
after setting aside the prevailing CPF Minimum balance less any CPF Minimum Sum cash
Sum cash component.* component shortfall.

* Special Account balance (including the amount used for investment) and Ordinary Account
balance are used to meet the Minimum Sum cash component.

Important Points To Note:

• The AHWL is a moving limit. It increases with new CPF contributions, and is reduced with
usage of OA savings or when the Minimum Sum increases.
• Using your CPF to make a lumpsum/capital repayment on your housing loan may make you
reach the AHWL earlier, but it will reduce the interest charges.
• The Board informs members three months before the VL is reached and the AHWL
becomes applicable.

CPF Withdrawal Limit For Housing

There is a maximum limit to the amount of CPF savings that can be used for housing.

The limit applies to those who:

• Buy an HDB flat from 1 January 2003, financed with a bank loan.
• Refinance their HDB concessionary loan with a bank loan from 1 January 2003
• Take a bank loan to buy a private property from 1 September 2002.
• Refinance an existing loan taken before 1 September 2002 for a private property.

The applicable limit depends on when the property is purchased or when the housing loan is
refinanced.
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Once it is reached, CPF members will not be able to withdraw any more CPF for their property
(the limit applies to a particular property, so members can use CPF for other properties which
have not reached the limit).

Date of Purchase or Loan Refinancing HDB Flat* (bank loans) Private Property^
1 Sep 2002 - 31 Dec 2002 Not applicable 150% of VL
1 Jan 2003 - 31 Dec 2003 150% of VL 150% of VL

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 1 Jan 2004 - 31 Dec 2004 144% of VL 144% of VL
1 Jan 2005 - 31 Dec 2005 138% of VL 138% of VL
1 Jan 2006 – 31 Dec 2006 132% of VL 132% of VL
1 Jan 2007 – 31 Dec 2007 126% of VL 126% of VL
1 Jan 2008 onwards 120% of VL 120% of VL
* For purchase of new flats, it refers to the date of booking. For resale flats, it refers to the date
of application received by HDB.
^ For private properties with remaining lease of at least 60 years.

Why The Limit:

• The use of CPF to pay the interest on housing loans is essentially consumption (ie. an
expense) which does not add to the property value.
• Excessive amounts used to pay interest will affect CPF members’ ability to save enough
CPF for retirement needs.

Use the Total Interest Calculator to calculate how much interest you’re paying on a housing loan!

Important Points To Note:

• The CPF Withdrawal Limit is a maximum limit per property.
• Using your CPF to make a lumpsum/capital repayment on your housing loan will make you
reach the maximum limit earlier, but it will reduce the interest charges.
• The applicable maximum limit will not change even if the housing loan is refinanced (eg. a
private property bought in Jan 2003 is subject to 150% of VL. If the loan is refinanced in
2006, the maximum limit remains at 150% of VL).
• The Board would remind affected members six months before they reach their applicable
maximum limit (members are informed about their limit when they apply to use CPF to buy
property).

Access the CPF Housing Withdrawal Limits Calculator to calculate your maximum housing limit.

Withdrawal Limit For Private Properties With Remaining Lease Of 30-59 years
The withdrawal limit will be calculated based on the ratio of the remaining lease when the member is
55 years old, to the lease at the point of purchase.

You can use this convenient table to find out the applicable withdrawal limit.

3. Your Common Housing Questions Answered

 When You Reach Age 55

 Ownership of Property
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 Various Financial Matters

a) When You Reach Age 55

If I have paid-up my housing loan and I sell my property after 55, must I refund any sales proceeds
to my CPF Account?

Upon the sale of the property, you are required to refund the Minimum Sum deficiency, or the
principal CPF withdrawn for the property plus the accrued interest, whichever is lower. The Minimum
Sum deficiency is the Minimum Sum applicable to you when you turned age 55 less the balance in

27
 your Retirement Account (excluding interest earned).

For members who had turned 55 before 1 July 1995, the required CPF refund will be the principal
amount pledged for part of the Minimum Sum plus the accrued interest on the pledge. However, if
the property is not pledged for part of the Minimum Sum, no refund is required.

What if I sell my property before reaching 55, and have not fully paid-up the housing loan?

Generally, when you sell your property, you would need to refund the CPF savings you had earlier
withdrawn for the purchase of the property. This includes the interest you would have earned, had
the savings remained in your CPF account

It is a straightforward matter when the sales proceeds are enough to pay the remaining loan to HDB
or the lending bank, as well as making a full refund of your CPF savings.

What happens if the sales proceeds aren’t enough? Here is a simplified table showing the “priority”
of payments, ie. how the sales proceeds would be applied.

Priority of HDB Flat Financed HDB Flat Financed Private Property Private Property
Payment with HDB Loan Loan Bought Before 1 Bought or
September 2002 Refinanced After 1
September 2002
First Outstanding HDB Outstanding housing CPF savings Outstanding housing
loan and interest, loan with bank withdrawn for loan with bank
and resale and purchase of property
resale applicable
Second CPF savings CPF savings Outstanding housing CPF savings
withdrawn for withdrawn for loan with bank withdrawn for
purchase of purchase of property purchase of property
property, and CPF
interest
Third* Outstanding HDB Housing loan’s Housing loan’s Housing loan’s
upgrading cost if any interest, and CPF interest, and CPF interest, and CPF
interest interest interest
* the housing loan interest here is applicable only in the event of a forced sale, and is calculated
from the date of payment default.

What happens when I reach 55, and have yet to fully repay the housing loan?

Please click here for the information.

b) Ownership of Property
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What happens to a property owned by a person when he passes away? Does CPF Nomination
cover property bought using CPF savings?

Properties bought with CPF savings are not covered by CPF nomination.

When a member passes away, the property will form part of the estate of the deceased member.
The CPF savings withdrawn for the property need not be refunded to the deceased’s CPF account.

A homeowner can make a will and state who should get the property, in the event of his death. If a
person dies without making a will, he is said to have died “intestate”. The estate will be distributed
according to the rules of intestacy as laid down in the Intestate Succession Act.

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 For Muslim homeowners, Singapore’s Syariah Court has jurisdiction over the method of distribution
of a deceased person's estate among his next of kin in accordance with Islamic law. The rules of
intestacy are not applicable.

Person died intestate, leaving: Distribution

1 Spouse only (no children or parents)
2 Spouse and children
3 Spouse, parents (no children)
4 Parents and children
5 Parents (no spouse or children)
6 Siblings and their children (no spouse,child or
parent)
7 Grandparents (no spouse, child, parent or
sibling)
8 Uncles and/or aunts (no spouse, child, parent,
sibling or grandparent)
9 No spouse, child, parent, sibling, grandparent,
uncle or aunt
All to spouse
Half to spouse and half to children equally
Half to spouse and half to parents equally
All to children to be shared equally
All to parents equally
All to be shared equally among siblings and if
they have already passed away, their
children
All to grandparent(s) equally
All to uncles and/ or aunts equally
All to Government

What happens when a property is owned by two or more persons, and one person passes away?
What’s the difference between “joint tenancy” and “tenancy-in-common”?

The law provides for two forms of ownership: “joint tenancy” and “tenancy-in-common”. The form of
ownership is stated on the title document for the property.

 Joint tenancy

This is where all the owners have an equal interest in the property regardless of the amount of
money each co-owner had contributed towards the purchase of the property.

Married couples usually opt for joint tenancy when they buy a property. A joint tenancy overrides
any will, and the survivor always gets the automatic right to assume ownership of the deceased’s
share.

Thus, if a husband passes away first, then the wife as the survivor automatically takes over the
husband’s share of the property. Even if the husband had made a will which stated how his
share of the property should be distributed, his wife will automatically get to inherit his share.
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 Tenancy-in-common

This is where each co-owner holds a separate and definite share in the property. This
arrangement is more common where the owners are not related to each other, e.g. friends
buying a property together for investment.

There is no right of survivorship in a tenancy-in-common. In other words, unlike a joint tenancy,

the deceased's interest does not pass automatically to the remaining co-owners.

Upon the death of a tenant-in-common, the deceased's interest can be distributed in accordance
with his will (if any) or under the provisions of the Intestate Succession Act.

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 Can I use my CPF to buy more than one property?

Yes, you may use your CPF to purchase more than 1 property under the Residential Properties
Scheme.

If you already own a property (HDB flat or private property) bought with your CPF savings, you will
be able to do so after setting aside in your Ordinary and Special Accounts the prevailing Minimum
Sum cash component if you are below 55 years, or the Minimum Sum cash component shortfall if
you are aged 55 and above.

Use of CPF for the new property will be subject to a CPF Withdrawal Limit of 100% Valuation Limit
for properties with at least 60 years of lease. For properties with remaining lease of less than 60
years but at least 30 years, the applicable Withdrawal Limit can be found in the table here.

What are some of the differences between buying and renting a property?

 Buying a home:

Advantages Disadvantages
If you have bought prudently, your property A cash downpayment is needed (but this will
value may increase over time (although the reduce the mortgage loan amount)
increase cannot be guaranteed).
You may use CPF to pay for the home or If you deplete your CPF savings and do not
home loan, rather than out-of-pocket cash. have cash savings of your own, you may not
have enough savings for old age needs when
you retire.
You may use CPF to pay for the home or Easier to develop a sense of permanence and
home loan, rather than out-of-pocket cash. belonging to the neighbourhood
You can take-up a long-term housing loan to Interest cost on a mortgage loan may be as
buy a home, unlike renting which needs cash. much as the cost of the home itself (depending
on the mortgage details)!

 Renting a home:

Advantages
More flexibility in changing your home if your
financial situation changes
When family size grows or contracts, you can
change your living environment accordingly
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Disadvantages
You may be subject to rental increases or even
run the risk of not being able to renew the rental
lease
Some people prefer to have “a place of my own”
which carries a positive emotional feeling

You know exactly how much you have to Rental payment is an expense, which has to be
spend each month on housing expenses. paid with cash. CPF cannot be used.
No long-term financial commitment or debt. You won’t benefit from any increase in the value
of the property.

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 c) Various Financial Matters

What is negative equity, and how does it affect a home buyer?

Generally, a home is said to be in “negative equity” when its market price is less than its outstanding
loan.

Banks say that as long as customers pay the monthly instalments on time, they won’t ask them to
top-up the difference between the market price and the outstanding loan.

However, if payment isn’t made for a few months, and the customer is unable to work out a payment
plan with the bank, the bank may get a court order to do a “forced sale” to recover the outstanding
loan and unpaid interest.

While it is less common for HDB flats to be in negative equity, it’s possible for resale flat buyers to
find themselves in such a situation, especially if they had bought the flat when prices were at a
relatively high level.

There are many housing loan packages offered by banks. How do I know which is best for me?

 Loan Duration

Check the maximum loan duration or term that you can get. Some banks also set a
maximum age limit, which would limit the loan duration. However, you shouldn’t decide on
the maximum duration without careful thinking. The longer the duration, the more interest
charges you would be paying!

 Monthly Instalment

Ask the banks to show the instalment amounts using different interest rates, including
interest rates that are higher than those quoted in the loan packages. This lets you assess
whether you would be comfortable if interest rates were to fluctuate.

 Interest Rates

Typically, banks offer fixed interest rates for the first 2 -3 years of a loan, with variable
interest rates for the remaining years. Ask the bank to provide you with the effective
(average) interest rate figure over the entire loan period.

 Initial Lock-in Period

Some banks impose a penalty if customers leave in the initial years of the loan. This refers
to the customer paying off the old loan, perhaps by refinancing using a new loan with
another bank. The penalty could be about 0.5 to 1.5 per cent of the existing loan amount.
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 Fees

See if the banks charge a loan processing fee, pre-payment fee, or third-party fee such as
legal fee, valuation fee and fire insurance premium.

What is refinancing, and why do people refinance their housing loans?

Refinancing means getting a new housing loan to pay off the current loan. This is usually
done because people believe they would pay less interest on the new loan.

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 A lower interest rate will decrease your monthly instalment. But you may have to stay with
the new loan for some time before the lower payments will offset the costs of refinancing.

If you are thinking of refinancing, ask the bank to show you why their loan package is better
than your existing loan. You should also check on any lock-in period that might come with
refinancing, the legal fees, and other refinancing costs.

Some financial advisors say that if you have an HDB concessionary loan, you should think
carefully before refinancing to get a market-rate bank loan. This is mainly because the
HDB’s loan interest rate is pegged to the CPF interest rate, and may fluctuate less than
banks’ interest rates. Also, it is likely that HDB may be willing to exercise more flexibility than
banks when there is a loan default.

What is “cash-back”, and is it allowed?

“Cash-back” arrangements occur when the buyers, sellers and housing agents collude to
inflate the declared purchase price so as to enable the buyers to take a higher housing loan
and/or to withdraw more CPF savings. These arrangements are supported by valuation
reports, which are also on the high side.

Such "cash-back" arrangements are illegal. They are also not financially prudent for the
buyer. The buyers’ retirement savings are eroded by the withdrawal of more CPF monies
than is needed for the actual purchase. Buyers also expose themselves to greater financial
risks by taking on bigger mortgage loans, which will result in more interest being incurred.

From April 2005, all members using their CPF savings for the purchase of HDB resale flats
financed with a bank loan and/or servicing of the loan will require a valuation report from a
private valuer assigned by HDB. This requirement will also apply to transferees who are
taking bank loans to effect transfer of ownership of an existing HDB flat at market valuation.

What are some of the costs which I may incur when I own a home?

The housing loan may be your largest financial commitment when you buy a home. But
that’s not the only housing cost.

In addition to renovation and decoration costs, and housing agents’ commissions (if you use
their services), here is a list of the other main expenses you should know about. It applies to
both HDB and private properties, though the costs for private properties are usually higher.

Legal fees

This is also known as “conveyancing fees”.

If you are buying a private property, you would need to engage a lawyer to advise you on
the process, and later to handle the necessary legal work to transfer ownership of the
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property. Legal fees could range between 1% and 1.5% of the property purchase price.

Some banks may offer a legal fee subsidy as part of their loan package. You can use your
CPF savings to pay the difference in legal fees after taking into account the bank's subsidy.

Some banks may offer a legal fee subsidy as part of their loan package. You can use your
CPF savings to pay the difference in legal fees after taking into account the bank's subsidy.

HDB provides legal services when you:

• Buy an HDB flat
• Sell your HDB flat

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 • Refinance your HDB loan

For HDB flat financed with bank loan, you can either choose HDB or your own private lawyer
to provide the legal service. CPF savings cannot be used to pay the legal fees if you are
selling your property.

Estimate legal fees for your HDB transaction here.

CPF Conveyancing Panel for Residential Properties Scheme and HDB Flats Financed with
Bank Loan may be accessed here.

Stamp Duty/Fee

Stamp duty is a government tax. It is payable by a buyer who buys a property in Singapore.
It is a tax on commercial and legal documents, and not a tax on transactions.

The stamp duty payable is calculated on a scale:

• 1% on the first $180,000
• 2% on the next $180,000 and
• 3% thereafter.

CPF savings may be used to pay the stamp duty.

Valuation Fee

When you apply for a housing loan from a bank, it usually requires a valuation report of your
property. Valuations are done by professional property valuers, and valuation fees may vary.
Some banks may absorb the fee for their customers.

If you are using your CPF to buy a resale HDB flat, you will need to submit a valuation report
by a private valuer assigned by HDB together with your resale application to HDB.

The “value” of your property is one of the factors used by banks to determine the housing
loan amount. Factors taken into consideration in assessing the property include location,
size, condition of building, availability of facilities, etc.

 Mortgage Insurance

HDB flat buyers who are using their CPF savings to pay their monthly housing instalments
have to be insured under the CPF’s Home Protection Scheme. The insurance scheme
protects CPF members and their families against losing their homes should members
become physically/mentally disabled or pass away before their housing loans are paid up.

While it is generally not compulsory for private property owners to buy mortgage insurance,
they should consider buying one especially if they are taking up housing loans with long
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repayment periods. As buying a private property is a large financial commitment for many
home buyers, they should prepare for unfortunate events and provide financial protection for
themselves and their families.

 Fire Insurance

It is mandatory for HDB homeowners to purchase a fire insurance policy with HDB's
appointed insurer if they have taken a mortgage loan from HDB after September 1994 and
have yet to fully repay the loan.

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 The policy covers the cost of reinstating the damaged interior of the flat built by HDB for
damages caused by fire, lightning, explosion, bursting and overflowing of water pipes, etc.

For HDB homeowners who are taking a mortgage loan from the banks, the banks would
normally also require them to purchase a fire insurance policy.

It is advisable for private property owners to have adequate fire insurance to protect them
against losses or damages resulting from a fire, especially as such properties could be
expensive.

Read more about fire insurance here.

 Maintenance/Conservancy Charges And Utilities

HDB homeowners pay monthly service and conservancy charges to their town councils for
the maintenance of their housing estates. Charges vary according to the town councils and
the flat types, ranging roughly between $55 and $80. Owners of larger flat types pay higher
charges.

Owners of private properties like condominiums and apartments typically pay monthly
maintenance fees ranging from $100 to $1,000, depending on the number of units in the
estate and how lavish the facilities are (eg. swimming pools, tennis courts, saunas, and
gardens).

Utility charges (power, water, gas) depend on usage.

 Property Tax

The property tax payable annually is computed based on a percentage of the annual value
of the property. The annual value is the estimated annual rent that your property can fetch,
regardless of whether you are able to rent it out or not.

If you own and occupy the property, the tax rate is 4% of the annual assessed value. If your
property is rented out, the tax is currently 10% of the annual assessed value of the property.

To read more about property tax, visit the IRAS website.

What are some factors to consider when investing in property?

 Financial Commitment

While banks may accept debt servicing ratios ranging from 40%-60% for the loan, some
financial advisers suggest to keep within 50% or less so as not to overstretch one’s financial
limits (the ratio refers to the proportion of a borrower's monthly income taken up by total
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monthly loan payments). Another suggestion is for the total loans not to exceed 50% of total
assets, which include salary, savings and equities.

 Bank Loan

Banks typically do not grant loans of more than 80% of an investment property’s value (ie.
the home loan amount divided by the property valuation). Note that while rental income from
investment property is taken into consideration when granting the loan, only a portion rather
than the entire rental income might be considered. Also, investment properties generally
have a higher interest rate than a loan for residential properties.

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  Economic And Business Conditions

If you are cash-rich, you could probably buy a property even during “bad” times when
property prices are likely to be depressed, and hold on the property until prices have risen.
But if you are not certain about having a guaranteed income during an economic downturn,
then you should think twice before investing.

 Timing Of Investment

Time your investment so that you buy as prices are starting to increase, and sell before they
decline. This is, of course, easier said than done. But experience and constant monitoring of
market movements would help. You must have the financial resources to stay invested for
some years, and shouldn’t bet on being able to make a quick profit on the property.

 Housing And Land Policies

Keep in touch with government policies, property developers’ plans and commercial banks’
practices as these may affect property prices.

 Understand Profits And Risks

Work using realistic figures when you do your sums on the cost of purchase and the
expected return or income from the investment. In particular, you should assess how you’d
be affected if the property market falls. That’s when your expected return/income would fall,
while you’d still have to keep paying the housing loan.

 Objectivity

Be objective when you compare and analyze property investments. While emotions may
influence your investment decisions, eg. you are attracted to the premises or locality, you
should always keep in mind your reason for wanting to invest – most of the time, this would
be to get an investment profit or rental.

 Good Location

A well-maintained property in a good location enhances its ability to produce a good rental
income or a good price at the end of the investment. It is thus important to make a physical
inspection to ensure that the environment is suitable for occupation or investment.

 Maintenance Of Property
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Good maintenance should enhance the value of the property. For a landed property such as
a terrace house or bungalow, you may want to consider appointing a professional to
manage your property if you do not have the time. For condominiums and HDB flats, you will
pay the management corporations and town councils to take care of the common property
and common areas.

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 04. INVESTMENTS
Perhaps you wish to earn higher returns on your monies. Maybe you want to have enough funds for your child’s
tertiary education in 15 years’ time. Or you want to grow your retirement nest egg so that you will have an
adequate retirement income.

Whatever your reasons for investing, it pays to know some investment basics. While you will not become an
investment guru, the basics would help you make better investment decisions.

In this module, your three key takeaways are:

 Investment Basics You Must Know

 Rules of Thumb for Investing
 Costs of Investing

1. Investment Basics You Must Know

We recommend that you familiarise yourself with a few basic investment concepts. The concepts can be
applied to most investment products.

 Investment Time Horizon  Diversification

 Asset Allocation  Compound Interest
 Risks & Returns  Dollar Cost Averaging

a) Investment Time Horizon

It is the time period between when the investment is made and when the proceeds from the
investments are needed. There are three typical time periods.

 Long Term

You need your investment proceeds 10 or more years from the time of investment. Stocks and
unit trusts can be considered as you have enough time to ride-out any fluctuations in prices

 Medium Term

You need your investment proceeds 4 – 9 years from the time of investment. Investors with this
time horizon should pursue a combination of bond, unit trusts and stock investments. On an
average, bond investments as a savings will grow at a rate of return that is slightly ahead of
inflation. Stock and unit trusts investments can also be considered as a complement for higher
growth.
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 Short Term

You need your investment proceeds within 3 years.

If you need your money in a short time, you cannot take chances with your investment. You
should place more emphasis on cash equivalents such as time deposits or bond investments.
You might even not invest your CPF savings, as there is not much that the investor can do in
terms of averaging out the ups and downs of investing.

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 b) Asset Allocation

One of the most important investment decisions an investor can make is not what particular product
to buy but how he can allocate his investment funds to the three main asset classes: cash, bonds
and shares.

Asset allocation reduces investment risk as losses in one asset class are often offset by gains in
another.

The asset allocation decision is extremely important, but it can be complex too. You may want to use
the services of a professional financial planner to help you with it.

Extra! Some factors to consider for asset allocation.

1) What are your investment goals?

Are you investing to preserve your capital or is it to increase your wealth?

Are you investing so that you can have an alternative source of income?
Your goal will affect your asset allocation strategy. For example, if you intend to preserve your capital,
then you cannot afford to take too many risks. Having the bulk of your investments in shares will not
be suitable for you.

2) What is your investment time horizon?

All investment goals have a time line. If you are in your mid thirties and you plan to retire when you
reach 65, you are looking at a time horizon of about 30 years. A suitable allocation in this instance
may be more of your investment in shares and less in bonds.

3) What is your risk tolerance?

The risk tolerance level of one individual will differ from another. If your risk tolerance is low, your
portfolio will comprise mainly bonds instead of shares. Hence, your expected returns will be lower.

4) Given your risk tolerance level, what are the expected returns?

Be realistic in your expectations. Bonds are generally quite safe but in terms of returns they are not as
attractive as shares.
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5) What are your liquidity needs or constraints?

For example, if you expect to buy a home or are reaching the CPF withdrawal age of 55 within a few
years, you should think carefully before investing your cash or CPF.

It is possible that your investment time horizon may be too short to average out the fluctuations in the
market value of the investment, and you run the risk of having to sell your investment at an
unattractive price because you need funds urgently.

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 c) Risks & Returns is of a higher level than ‘Investment risk, ‘Investment returns’ etc.

 Investment risk is the possibility that the ACTUAL return on an investment will vary from the
EXPECTED return, or that the initial principal amount will decrease in value. A simple way of
looking at risk is that it is the possibility of losing money!

 Investment returns are the profits or losses made from the investment. For example, if you
buy stock for $10,000 and sell it for $12,800, your return is a gain of $2,800. Or if you buy a
bond for $10,000 and sell it for $9,200, your return is a loss of $800.

Long-term investors are interested in total returns, which is the amount your investment
increases or decreases in value, plus any income you receive. If you have dividends of $180 from
the stock investment above, your total return would be $2,980 ($2,800 investment gain + $180
dividend income).

Risks and returns go hand-in-hand. Higher returns mean greater risk, while lower returns offer
greater safety.

Extra! Read more about risks here.

1) Types of Risks

Risks can be broadly categorized into:

• Systematic risk
• Non-systematic risk

Systematic risks are external factors affecting investments, e.g. general economic conditions,
changes in interest rates or a sudden change in market sentiment. Usually, such risks cannot
be avoided.

Non-systematic risks or specific risks are those that are linked directly to the investment itself.
For example, it might include the quality of the company’s management and the sustainability
of a company’s product development strategy. Spreading your investments among a variety of
investment products can minimize non-systematic risks.

2) What is risk tolerance?

Risk tolerance or risk appetite means the amount of risk you are comfortable with and can
afford to take. Can you still sleep comfortably at night if your investments suffer a short-term
loss? Do you have enough savings that you can financially afford to take some investment
risk?
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3) The Risk Return trade off

Generally, the higher the risks, the higher the returns. A start-up business could become
bankrupt or it could become a multimillion dollar company. If you invest in this start-up
business, you could lose everything, or you could make a fortune.

On the other hand, a blue chip company (this generally refers to companies that are stable,
well-established and financially-sound, and which have demonstrated their ability to pay
dividends in both good and bad times) is less likely to go out of business but you are less likely

38
 to get rich because their stock price movements are generally less volatile.

You can balance risk and return by having a mixture/combination of different types of
investment products in your portfolio. Thus, you would have some investments that have the
potential for better returns and others that are safer.

d) Diversification

Diversification or spreading your investment over a combination of several investments allows you to
even out the ups and downs in your investment returns. This means that you should not put
everything into stocks and unit trusts, or everything into bonds.

In this way, if one investment does not perform well, there are other investments that may do better.
As the saying goes, do not put all your eggs in one basket.

You can diversify your investments in two ways:

 According to asset classes, i.e. have a combination of cash equivalents (e.g. fixed deposits),
bonds and stocks. This is known as “asset allocation”.

 According to markets, i.e. having investments from various geographic regions, countries,
various currency denominations, industries and companies.

With diversification, your investment portfolio will be better able to weather the ups and downs of
economic cycles and market volatility.

Extra! Check out the CPF’s Risk Classification System (highly recommended if you invest your CPF
in unit trusts, investment-linked insurance products or exchange-traded funds)

e) Compound Interest

Compound interest is the interest earned not only on the initial principal but also on the accumulated
interest of previous periods.

For example, if you have $1,000 in your Special Account and it earns 4% interest each year, you’ll
have $1,040 at the end of the first year. But at the end of the second year, you’ll have $1,081.60.

Not only did you earn $40 on the $1,000 you initially deposited (your original “principal”), but you also
earned an extra $1.60 on the $40 in interest. Even if you never add another cent to that account, in
10 years you’ll have over $1,480 through the power of compound interest, and in 25 years you’ll have
$2,665.

Hence, long term investing can really add up.

Check out the power of compound interest for yourself with this calculator.
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f) Dollar Cost Averaging

As most investors know, market timing - aiming to buy low and sell high - is very hard to accomplish.
Dollar-cost averaging is a technique to help soften the impact of fluctuations in investments, and
takes a good portion of the emotion and guesswork out of investing.

It involves investing a sum of money regularly over a period of time, regardless of whether the market
is up or down. This means your money automatically buys more units of your investment when the

39
 is up or down. This means your money automatically buys more units of your investment when the
price is low and fewer units when the price is high.

Generally, the average cost of the investment will become lower over time. This lessens the risk of
investing a large amount in a single investment at the wrong time. While you may not get the “ideal”
results from buying at the market's low point and selling at its high point, neither will you suffer the
consequences of doing the opposite.

2. Rules of Thumb for Investing

Investing your CPF or cash savings can be a difficult thing. With so many investment products, marketing
promotions, and well-intentioned tips from friends, how do you know where to invest your money?

To get you started, we offer you a few rules of thumb (or guidelines) for investing. Note that while our list is a
useful guide when investing, it will not guarantee that your investments will always be profitable.

 Know Yourself  Review Your Investments Regularly

 Think Long Term  If You Can, Invest Early
 Diversify Your Investments  Do Your Groundwork Before Investing
 Asset Allocation Is Key  Know your Real Rate Of Return
 Keep An Eye On Expenses  Use Time, Not Timing

a) Know Yourself

Know your emotions, fears and whether you can tolerate investment risks. Make sure you choose
investments that are suitable for your long-term goals. You should feel comfortable putting your
money in them (and you should be able to sleep easily at night – without having to take sleeping
pills!).

Even if your time horizon is sufficiently long that you can afford to invest in riskier products, you
should be comfortable with the short-term fluctuations (price changes) you’ll encounter. If you’re not,
you should rethink your investments.

b) Think Long Term

CPF savings are for old age needs. You should thus invest your CPF with a view to growing your
nest egg instead of taking risky decisions to earn a quick profit.

As a long-term investor, you want to focus on longer trends, not temporary fluctuations. Thinking
long-term can help calm fears caused by short-term market movements.

c) Diversify Your Investments

Consider spreading your investments among asset classes (stocks, bonds and cash equivalents)
and within each class (different products). Doing so can spread risk over a variety of investments
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and may minimise the impact of unpredictable market downturns. In other words, do not “put all your
eggs into one basket”!

d) Asset Allocation Is Key

Experts say that deciding on asset allocation is generally more important than deciding which
products to buy. To decide on a suitable asset allocation, you’d need to consider your investment
goals, time horizon and risk tolerance.

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 And always remember, there’s no such thing as a “sure thing” or a “free lunch” in investing. You’d
always have to balance the expected return with the risk of making a loss.

e) Keep An Eye On Expenses

Do not neglect the costs of investments – they could mean the difference between making a profit or
a loss! Over the long term, high expenses can drag down the profits gained from investing in even
the better-performing investments.

f) Review Your Investments Regularly

Yes, investing your CPF is for the long-term but it is also important to keep track of how your
investments are faring. Review your portfolio at least once a year, and whenever your personal or
financial circumstances change. You may have to rebalance your portfolio to keep pace with your
long-term financial plans and your life stage (eg. when you marry, when you have kids, etc).

g) If You Can, Invest Early

When investing, it’s generally better to invest earlier than later, though this depends largely on your
financial goals and situation (eg. you may not want to invest your CPF because you wish to buy a
property).

A hypothetical example: $100,000 invested now and earning a 5% return will grow to $265,000 in
20 years. If we only invest 10 years later, $163,000 is needed to achieve the same result. This is
the effect of compounding.

h) Do Your Groundwork Before Investing

The more you know, the better off you are. Do not invest just because someone has advised you to
do so or a marketing brochure looks impressive.

Read books, newspapers and magazines. Understand the risks associated with each investment.
Check out the typical returns of such investments. Understand how each of your investments fits in
with the rest of your portfolio and with your overall investment plans. Remember, be prudent when
investing your old age savings.

i) Know Your Real Rate Of Return

When you invest, you should have an idea of the expected level of returns (you should be thinking
"net" returns after expenses, and not look at just gross returns).

And remember: Always compare the net investment returns against the guaranteed risk-free
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interest enjoyed by your savings in your CPF accounts - if the expected returns are lower, you
should think carefully before investing your CPF.

You should also be aware of the effect of inflation. If you earn 8% on an investment, but inflation is
2%, then your real rate of return is roughly 6%.

Extra! Read more about real rate of return and inflation.

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 1) Real Rate of Return

When we talk or read about investment returns, the figures we see are usually the “nominal”
returns. This means that the figures have not been adjusted for inflation.

One of the risks associated with any investment is the effect of inflation. When you take
inflation into account, you would get the “real” rate of return.

An example: Your return on an investment was 8% in the first year and 9% in the second year.
In which year did you do better?

In order to properly answer the question, you would need to know the annual inflation rates. If
inflation was 2% in the first year and 4% in the second year, the real return would roughly be
6% and 5% respectively. Thus, you would actually do better in the year that you earned the
“lower” 8% return!

2) Inflation

Simply stated, inflation is an increase in the general price level of goods and services.
Alternatively, it can be seen as a decrease in the purchasing power of the dollar.

In Singapore, we sometimes say that “things are getting more expensive” or that “money is
getting smaller”. What we actually are referring to is the increase in the general price level of
goods and services, and the decrease in the purchasing power of money!

How do we calculate inflation? Many countries, including Singapore, measure inflation by the
changes in the Consumer Price Index (CPI). The CPI is an indicator of the change in prices for
a pre-defined “basket” of goods and services, which are commonly bought by the majority of
households (eg. food, clothing, transport, etc), during a specified time period.

More information on Singapore’s CPI can be found at the Singapore Department of Statistics
website.

j) Use Time, Not Timing

Even experts cannot always predict the market consistently. Yet some investors think they can, by
making decisions based on rumours and gut feeling. They tend to buy high and sell low because
they "time" their buy-and-sell decisions.
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Success in market investing requires patience and stamina. Most of the market’s gains occur in a
few strong, but unpredictable, short-term periods. To maximize returns, you will have to stay
invested during those periods.

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 3. Cost of Investing

Why Costs Count

Everyone wants to achieve the best possible returns from their investments, irrespective of their financial
goals and tolerance for risk. But it is equally important to keep an eye on the possible costs of investments
because these will determine your net investment returns.

A difference of one percentage point in a fund’s annual expenses may look minimal. But when funds are
invested for the long-term, even a small difference can result in significant differences in the outcomes.

For example: You invest $10,000 in a fund with an annual return of 5% for 15 years. With an expense ratio
or charge of 2%, you would end up with $15,580. But if the expenses ratio is 3%, you would only have
$13,459 – a difference of $2,121!

So before you invest, besides looking at the possible returns or profits from your investment, look at the
possible costs too.

If you are investing your CPF savings, you might be interested to note these:
• charges typically incurred for investments
• Agent bank charges
• Investment administrator charges

Expense Ratios: What They Mean

There are basically two types of costs incurred when investing in unit trusts and investment-linked insurance
products:
• transaction costs of buying and selling the investments
• ongoing expenses of running the funds. These include management fees, trustee fees,
administration fees, audit fees, etc.

Simply stated, the expense ratio is calculated as:

Net Asset Value

x 100
Ongoing expenses

While management fees (which is the major ongoing expense of a fund) are charged as a percentage of a
fund’s assets, many other expenses may be fixed amounts. Thus, while various factors can cause expense
ratios to vary from fund to fund (eg. management fees are higher for equity funds than bond funds), expense
ratios generally tend to fall as the fund sizes increase. This is why smaller funds usually have higher
expense ratios than larger funds.

Ultimately, the key factor for any investor should be the actual return achieved net of expenses. However, it
is also prudent for an investor to be aware of the expense ratio of his investments. Use our Expense Ratio
Calculator to see how your actual return can be affected by expense ratio of your investment.
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Read: Limit on expenses implemented by the CPF Board. You can also see CPFIS Reports: The Results for
the expense ratios of CPFIS unit trusts and investment-linked insurance products.

CPF Interest – Your Risk-Free Returns

Always remember that you are earning a minimum of 2.5% per annum on your CPF savings – this is
guaranteed and risk-free.

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 Thus, before investing your CPF savings, it is only prudent for you to ask: Can the expected net returns at
least match or come close to the interest that I am getting?

It’s not always possible to reach a clear answer. But you should always be conscious of the CPF interest
rate when considering whether to invest your CPF savings.

Read more about the CPF interest rate.

RISK TOLERANCE QUESTIONNAIRE

Can You Stomach Losses?

Investment goals differ from person to person. The question of how much risk to take is thus a personal one
— no one answer is correct for everyone. Risk is the possibility that an investment could result in a loss
because of swings in the financial markets.

A young person without family commitments or a housing loan to repay might be happy investing in higher
risk instruments like stocks. On the other hand, a middle-aged person with family and a housing loan to
repay might be more comfortable investing in less risky instruments, eg. a balanced fund in which investors’
funds are invested in a mixture of stocks and bonds.

Only you can decide what risk/return trade-off you are comfortable with, but the following questions may help
you assess your tolerance for risk.

Click here for the Risk Tolerance Questionnaire.

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 OTHERS
Planning For Your Children’s Education Needs

As a parent, you want only the best for your children. Securing the finances for your children’s tertiary education
would naturally be an important consideration since it is likely to be one of the biggest expenditure you will face
as a parent.

 Why Plan Now?

 How Much Do You Need to Set Aide?
 Ways To Save For Your Children’s Education Needs

1. Why Plan Now?

The rising cost of education, especially tertiary education, may mean that you are unable to provide the best
education for your children or that you have to dip into your retirement savings to do so.

It is therefore important for you as a parent to start saving for your children’s tertiary education as early as
possible. The earlier you start saving, the easier it is to attain your desired amount of savings with the effect of
compound interest.

2. How Much Do You Need To Set Aside?

To estimate how much you have to set aside for your child’s tertiary education, you how to consider the following
factors:
• Tuition fees
• Living expenses (e.g. room, board, books, travel, transport, etc)
• Country of study
• Inflation

3. Ways To Save For Your Children’s Education Needs

There are a variety of ways in which you can save to finance your children’s education needs. How you choose
to build up your children’s education fund depends largely on your risk appetite and time horizon. You will have
to pick one or a combination of the suggested ways that is most suitable for your need.

CPF Education Scheme

You can use your monies in your CPF Ordinary Account to finance your child’s local tertiary education under the
CPF Education Scheme. Do note that there are restrictions on the use of your CPF savings.

Regular Savings Or Fixed Deposits

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This is the usual way of saving and allows you to withdraw the money as and when you need. While it is low in
risk, the associated lower returns will mean that you will have to set aside more in order to reach your financial
goals.

Education Endowment Policy

Endowment policy is a life guaranteed savings scheme that pays out a lump sum when the policy matures. Many
insurers now offer endowment policies specifically to cover children’s tertiary education.

45
 Typically, you will pay premiums up to the term of the policy, which may range from 10 to 24 years. Upon the
maturity of the policy, you as the paying parent will receive a lump sum which can go towards financing your
child’s education. Some insurers allow proceeds to be withdrawn in annual instalments to coincide with course
fee payments.

The main benefit of an education endowment policy as compared to saving on your own lies in its insurance
coverage. If the paying parent dies, becomes permanently incapacitated or is struck with a major illness, all the
future premiums will be waived and the insured child will receive the amount insured at the end of the policy.
This will ensure that finances for the child’s education will be taken care of in any eventuality.

Annual returns of endowment policies can range from 3 per cent and more. Some policies are bundled with an
investment-linked element that can deliver higher returns than typical endowment policies. But do note that they
are also subject to investment risks as the returns are not guaranteed.

Investment

The potential gains of investing in unit trusts and stocks are greater than buying endowment policies, but so are
the risks. If you are considering investing as a route to fund your children’s tertiary education, you have to
consider your time horizon and spread your risk through asset allocation. We suggest that you take a closer look
at our Investment folder and be familiar with the associated investment. If you choose to invest, choose to be an
informed investor.

Tax Planning

Tax planning is not just for the rich. With some planning, you will be able to enjoy tax relief while saving more
towards your retirement.

Voluntary CPF Contribution

You can build up your retirement savings by making voluntary contributions to your CPF accounts which will
earn the prevailing CPF interest rates. If you are self-employed, voluntary contributions to your own CPF
account is tax-exempted, subject to a limit, but contributions to the accounts of others are not tax deductible. If
you are an employee, you can make voluntary contributions for yourself or others, but these are not tax
deductible. All voluntary contributions are subject to a limit (including mandatory contributions) for each calendar
year.

Supplementary Retirement Scheme (SRS)

The Supplementary Retirement Scheme (SRS) is a voluntary scheme that allows you to contribute a varying
amount to SRS (subject to a cap) which may be used to purchase various investment instruments.

While your contributions to SRS help to grow your retirement nest egg, you will also get to enjoy tax relief for
your contribution and only 50% of the withdrawals from SRS are taxable at retirement.
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46
 Estate Planning

Estate planning should be an integral part of your retirement planning. It not only tackles the issue of how your
estate should be distributed upon your death but also deal with the issue of providing guardians for your minor
children (if any), and stating how your affairs should be handled in the event of incapacity.

 Why You Need An Estate Plan?  Considerations For Your CPF Assets
 Making A Will

a) Why You Need An Estate Plan?

The common misconception is that estate planning is for the rich. Nothing can be further from the truth.
Estate planning is more than just writing a will. Part of estate planning is to minimise expenses and avoid
a lengthy probate process to ensure that the bulk of your assets are preserved and distributed to your
beneficiaries speedily, thus minimising the possibility of financial hardship.

Dying intestate, or without a will, subjects your estate to a probate process that may be costly. This
process can become complicated and long drawn if more than one family member comes forward with
petitions to become administrators. In some cases, the process can take years.

If you don't have a will, the Intestate Succession Act will dictate how your assets are to be distributed
which may not be in accordance with your wishes. For example, if a married couple with no children
were to die together in an accident, in the absence of a will, the older spouse is deemed to have passed
away first. The Intestate Succession Act dictates that 50% of the older spouse’s estate will go the
younger spouse’s estate. Since the couple has no children, the Act dictates that 100% of the younger
spouse’s estate (which includes 50% of the older spouse’s estate) to go to the younger spouse’s
parents.

If you are a parent of children under the age of 18, you should note that if you and your spouse were to
die suddenly without a will, the courts will decide on a guardian for your minor children.

Estate planning also includes expressing how you want your assets, financial and other affairs to be
handled if you should become incapable of managing them yourself. This can be done by establishing
powers of attorney. A power of attorney is a document that allows you to authorise one or more persons
to act on your behalf. The power of attorney may be for a definite, specific act, or it may be general in
nature. As a power of attorney is a legal document and can grant someone with a lot of authority to act
on your behalf, you should think carefully before drawing a power of attorney. For example, you may
want the power of attorney to take effect only if you were to become mentally incapacitated and even
then, the authorised person may only make decisions pertaining to your healthcare decisions.

Estate planning is an ongoing process. You will need to review, adjust and make amendments regularly
to suit your changing circumstance and life stages.

b) Making A Will

A will provides for the administration and distribution of your assets amongst your beneficiaries after your
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death. If you are above 21 years and of sound mind, you may make your own will and change it any
time. You should note that your will is nullified or cancelled upon marriage, unless the will was made in
contemplation of your marriage.

Here are some areas to consider when making a will:

Assets Owned
Maintain an inventory list of all your assets, including those held in joint accounts, so that you can decide
how you wish to distribute them. You can also include personal effects in your will if you wish to pass it
to specific beneficiaries.

47
 Impact On Relationships
While a will can help minimise friction among family members by having you state your intentions clearly,
it does not preclude contention of your will upon your death. Therefore, consider the impact of
relationships while deciding how to distribute your assets as you would not want your will to be a cause
of familial discord.

Minor Children (Under The Age of 18)

Do you have children under the age of 18? If so, they are considered minors. You should give serious
considerations to appoint reliable guardian(s) for them upon your death.

If any of your intended beneficiary is a minor, you will need to consider who will manage his/her assets
until the child is to come of age.

Getting a will done is relatively inexpensive. You can consult a lawyer or an estate planner who can
assist you in getting your will done.

c) Considerations For Your CPF Assets

What happens to your CPF assets when you die?

Without CPF Nomination

Your CPF monies will be distributed to your family according to the intestacy laws.

With CPF Nomination

If you wish to distribute your CPF savings differently from the intestacy laws, you can make a CPF
nomination. Monies in your CPF accounts are not covered by a Will. What this means is that even if you
have a will, your CPF nomination will supercede your will.

We suggest you find out more about CPF nomination and some of its considerations before making your
nomination.
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48
 GYM
Keep fit with our latest gym equipment while finding out how you can make your CPF
monies work for you.

In this module, your three key takeaways are:

Grow Your CPF Savings To See You Through A Longer Retirement

Grow Your CPF Savings By Transferring Your Ordinary Account Savings To
Your Special Account

Grow Your CPF Savings Even When You Buy Your Dream Home

GROW YOUR CPF SAVINGS TO SEE YOU THROUGH A LONGER RETIREMENT

You have worked most of your adult life and built up a rather substantial amount of savings in your CPF. You are
looking forward to your 55th birthday when you can withdraw part of your CPF savings to finance that dream
holiday or perhaps to renovate your home.

However, as you approach 55, you should carefully consider if you will have enough money to see you through
retirement. About 50% of Singaporeans aged 62 today can expect to live another 20 years or more based on
present life expectancy. What this means is that you will have to set aside more savings to see you through a
longer period of retirement with an increased life expectancy.

When you turn 55, you are required to set aside the CPF Minimum Sum in your newly set-up Retirement
Account. The CPF Minimum Sum applicable to you depends on when you turn 55.

You should be aware that your CPF savings set aside for your old age are just sufficient to meet basic needs.
With the Minimum Sum that you have set aside, you will get a monthly income from age 62 for about 20 years
until your Minimum Sum is exhausted. Use the CPF Minimum Sum Payout Calculator to project the monthly
payout you will receive from your Retirement Account upon reaching age 62.

Do you expect yourself to live beyond the age of 82? If so, do you have other sources of income besides your
CPF savings when you retire? If you do not have alternate sources of income, then you ought to seriously
consider how you can stretch your CPF savings to see you through a longer retirement.

September 2009 Update! If you are at least 55 years old, you can use your Minimum Sum to join CPF LIFE. This
is a life annuity scheme run by CPF Board. CPF LIFE will give you a monthly income for as long as you live. You
can read about CPF LIFE here and estimate your monthly income using the CPF LIFE Payout Estimator.

Deferring Your Withdrawal At 55

After setting aside your Minimum Sum, you can choose to leave your remaining CPF balance with the Board. By
not withdrawing the remaining CPF savings, you will earn the prevailing interest and build up your retirement
funds. You can use our Compound Interest Calculator to estimate the additional interest you can earn by
deferring your withdrawal.
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Deferring Your Withdrawal At 62

Do you intend to work beyond 62? Or perhaps your cash savings can see you through the initial years of your
 retirement. Instead of starting your monthly CPF Minimum Sum payout at 62, you can consider deferring it. By
deferring your monthly payouts, they could last you longer AND you could enjoy the Voluntary Deferment Bonus
(V-Bonus).

• Later Draw-Down Age (DDA)

The Minimum Sum Draw-Down Age (DDA) will be raised progressively after the re-employment laws take
effect from 62 to 63 years in 2012, then 64 years in 2015 to reach 65 in 2018.

• Deferment Bonus (D-Bonus)

To help members who are between 50 and 57 (as of 31 Dec 2007) to cope with the later DDA, a one-off D-
Bonus will be given.

• Voluntary Deferment Bonus (V-Bonus)

To encourage members to voluntarily defer their draw-down to age 65, a V-Bonus will be given for each year
of deferment. Members aged 54 to 63 in 2007 who have not started their draw-down are eligible.

The D-Bonus and V-Bonus will be paid into members’ Retirement Account (RA) to improve their retirement
savings.

• How much you can get:

With $30,000 in your Retirement Account (RA), you can get:
Maximum D-Bonus Maximum V-Bonus
(3 - 5% of RA (2% of RA balance
Age at 31 Dec 2007 DDA balance up to up to maximum of Total
maximum of $30,000 over 1 to 3
$30,000) years)
50 to 51 65 $ 900 (3%) $ 900
52 to 53 65 $ 1,200 (4%) $ 1,200
+ voluntarily defer your draw-down to age 65 to get V-Bonus:
54 to 55 64 $ 1,500 (5%) $ 600 (1 year) $ 2,100
56 to 57 63 $ 1,500 (5%) $ 1,200 (2 years) $ 2,700
58 to 61 $ 1,800 (3 years) $ 1,800
62 62 $ 1,200 (2 years) $ 1,200
63 $ 600 (1 year) $ 600

Find out how much D-Bonus and V-Bonus you are entitled to with our online CPF Minimum Sum D-Bonus
and V-Bonus Calculator.

Don’t have $30,000 in your Retirement Account (RA)?

• If you are 50 to 54 years old:

Make a voluntary cash contribution to your CPF. The maximum amount of CPF contributions, including the
employer and employee CPF contributions, is $26,393 a year. For more information on voluntary
contributions, please click here and scroll down to “Voluntary CPF Contributions”.
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• If you are 55 years or older:

 Top up your RA to the prevailing Minimum Sum using cash. Or ask your spouse, children, grandchildren or
siblings to top up for you using cash or their CPF savings. And they could enjoy tax relief for cash top-ups of
up to $7,000 per year! For more information on the CPF Minimum Sum Topping-Up Scheme, please click.

GROW YOUR CPF SAVINGS BY TRANSFERRING YOUR ORDINARY ACCOUNT

SAVINGS TO YOUR SPECIAL ACCOUNT
Your CPF savings earn a minimum risk-free interest of 2.5% guaranteed by the Government. Your Special,
Medisave and Retirement Account savings will earn a guaranteed minimum 4% interest until December 2010. In
addition, the first $60,000 in your combined CPF balances, with up to $20,000 from your Ordinary Account, will
earn an extra 1% interest.

If you are currently below age 55, you can transfer the savings from your Ordinary Account (OA) to your Special
Account for higher interest if you do not intend to use your OA for housing. You can transfer an amount up to the
prevailing Minimum Sum.

Use our Ordinary Account-Special Account Savings Transfer Calculator to find out the net increase in interest
resulting from your transfer.

Things To Note Before Effecting A Transfer

Do take note of the following before effecting a transfer:

1. There is a limit to how much you can transfer to your Special Account. You can top up your Special
Account with your Ordinary Account savings up to the prevailing CPF Minimum Sum.

2. Consider all the current and future use of your CPF savings before making a transfer from the Ordinary
Account to Special Account as you will not be able to reverse the funds back to your Ordinary Account
once a transfer has been made.
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For example:
• Will you need to tap on your Ordinary Account for your existing mortgage payments?
• Or will you be planning to purchase a new flat or upgrade your existing property?
• Perhaps you intend to use your Ordinary Account to pay for your child’s local tertiary education?
 To effect a transfer

You can submit your transfer request through my cpf Online Services. Do note that you can only effect the
transfer if you are below 55 years of age and have less than the prevailing Minimum Sum in your Special
Account.

GROW YOUR CPF SAVINGS EVEN WHEN YOU BUY YOUR DREAM HOME
Buying your dream home is possibly your single biggest investment. Besides considering the location and size of
your home, one of the key factors is of course your budget. Use our Home Affordability Calculator to estimate a
housing loan amount based on your income, ability to service the loan and the property purchase price.

Since the income we can earn in our lifetime is finite, the more you spend on housing will mean the less you will
have for your retirement. In general, as advised by MoneySENSE, your total debt payments should not be more
than 35% of your gross monthly income.

A housing loan is a long-term commitment. It is wise to buy a home that you can comfortably afford. After all, you
want to be able to sleep soundly in your new home without having to worry about how you are going to get by
with the little cash you have left after making a large housing payment each month!

Do bear in mind that you will receive lower CPF contributions to your Ordinary Account as you grow older and
are required to set aside the Minimum Sum at age 55. To enjoy your dream home, MoneySENSE advice is to try
to pay up your mortgage loan before age 55.

Be Aware Of Housing Limit

If you are planning to buy a private home or an HDB flat with a bank loan, you should be aware of there are
limits to the amount of CPF you can use. Once you reach the Housing Withdrawal Limit, you will have to pay
your housing instalments fully in cash.

Check out the Housing Module at our Business Centre to find out more about these limits. Use our housing
calculators to help you plan for the purchase of your dream home.
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 SUN DECK
You have worked hard a good part of your adult life, provided for your family, and
accumulated some assets and personal savings.

In this module, your three key takeaways are:

Stretching Your Retirement Nest Egg

Generating Supplementary Income

Preparing For Retirement

STRETCHING YOUR RETIREMENT NEST EGG

In your golden years, there may be uncontrollable events such as high inflation leading to an increased cost of
living and higher incurrence of medical expenses that drain your retirement nest egg faster than anticipated.
Even as you enjoy the fruits of your labour, it is important that to ensure that you do not outlive your retirement
nest egg.

Have You Planned For Your Retirement?
Ways To Stretch Your Retirement Funds

Have You Accumulated Enough?
Life Annuities

Why You Need To Stretch Your
Retirement Nest Egg

1. Have You Planned For Your Retirement?

You have worked hard. You are now nearing or at retirement age looking forward to a life of leisure that you
have always dreamed about. At this stage, you should ideally have accumulated sufficient retirement income
to see you through your golden years.

If you have not started planning for your retirement, you must act now! You need to seriously take stock of
your financial situation and assess if you will have enough to see you through your retirement years. Your
golden years will not be golden if you are not financially able. Use our Retirement Calculator and visit our
Business Centre to learn the “Five steps to Retirement Planning”.

2. Have You Accumulated Enough?

By now you would have a good idea if you have set aside sufficient savings for your retirement. If you have
not, you will have to reconsider your retirement goals such as delaying your retirement. Alternatively, think
about how you can generate income to supplement your retirement.

3. Why You Need To Stretch Your Retirement Funds

Even when you have planned for your retirement and accumulated the nest egg you think that would be
sufficient for you to enjoy your preferred retirement lifestyle, you need to bear in mind that with medical
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advancement, life expectancy is steadily increasing.

Life expectancy has increased by as much as 14 years since the 1970s, as compared to life expectancy in
the 1970s. This means that we can expect ourselves to live in retirement much longer than our parents’
generation.
 Besides longer life expectancy, higher cost of medical care and inflation can also cause your retirement
funds to deplete faster than expected. Your retirement dream can turn into a nightmare if you end up
outliving your savings. Therefore, it is pertinent that you make wise financial decisions to stretch your
retirement nest egg.

4. Life Annuities

Annuities come with many different features. In general, an annuity ensures that you do not outlive your
retirement income. It allows you to invest a capital amount (either as a lump sum or in regular payments)
with an insurance company who will in turn make regular (usually monthly) payments to you. Depending on
the type of annuity, the payments will either continue for a set number of years, or cease upon your death.

The amount of the regular income depends on your age, gender and the amount paid into the annuity
amongst other things (depending on the features of your life annuity).

A life annuity will stop payment when the insured dies. However, some life annuities offer a guaranteed
payout feature that pays the balance of your capital to your estate or beneficiaries upon early death.

As with any financial investment, be an informed investor. Check out the annuity products offered by the
various insurance companies or talk to your financial advisor before making a purchase. Make sure the
annuity that you purchase meets your needs.

If you are at least 55 years old, you can use your Minimum Sum to join CPF LIFE. This is a life annuity
scheme run by CPF Board. CPF LIFE will give you a monthly income for as long as you live. You can read
about CPF LIFE here and estimate your monthly income using the CPF LIFE Payout Estimator.
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 GENERATING SUPPLEMENTARY INCOME
Unfortunately, not all who are retiring or have retired would have set aside sufficient money for their retirement.
Even among those who have, some may eventually find that the retirement savings that they have set aside are
insufficient due to raising medical and living expenses.

Here are some suggestions that you might want to consider to help generate income to supplement your
retirement nest egg.

 Working During Retirement

 Generating Income From Your Home

1. Working During Retirement

Although retirement is often seen as a time to stop working and spending the rest of your life enjoying the
activities you did not have the time for, some of you might want to consider working partially during
retirement.

Hopefully the reason you choose to work is to have something to do and earn a little pocket money along the
way. For those who have not saved up enough for your retirement, working is one of the ways to supplement
your living expenses.

If you would like to upgrade your skills or attain relevant qualifications to make yourself more marketable or
perhaps you would like some assistance in finding a job, you can visit Singapore Workforce Development
Agency (WDA) for more information.

2. Generating Income From Your Home

The largest asset you own may be the one that you are living in – your home. Do you know that you can
generate income from your home to supplement your retirement funds? Here are some ways you can
access money tied up in your home:

Rent out part or all of your home

Perhaps your children have gotten married and set up homes of their own. Instead of leaving their rooms
empty, you can consider renting out one or more of the rooms available. Or perhaps your children have
invited you to live with them. Instead of leaving your home empty, you can rent out the whole unit.

If your home is a HDB flat, do check with the HDB on their rules with regard to renting out your flat.

Downgrade

Downgrading to a smaller and cheaper home can provide money to supplement or improve your retirement
lifestyle. Now that your children have set up homes of their own, you no longer need that much space
anyway. Besides, a smaller home may be easier to upkeep and maintain.

Reverse Mortgage
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Reverse mortgage means you are getting a loan from a bank or financial institution using your home as
collateral. You will need to repay the loan when you sell your home or when you reach the end of your loan
term. Upon your death or at the end of the reverse mortgage loan term, your home will be sold by the loan
provider to repay the loan. In such a case, you (if you are still living) and your family members who are
staying with you will have to find an alternative place to live.
 You need to consider carefully the features of a reverse mortgage and assess if it really meets your needs
before getting one.

PREPARING FOR RETIREMENT

Retirement planning is more than just getting yourself financially ready for retirement. To have a fully rewarding
retirement, you would also need to consider and plan for your social, psychological and health needs.

 How Would You Spend Your Time?

 What About Your Health?
 Managing The Transition

1. How Would You Spend Your Time?

Do you have a plan on how you would spend your time when you retire? In order to enjoy a healthy
retirement, you should start taking care of your health if you have not done so. How would your spouse and
family members fit into your retirement plans?

There are many activities and programmes available to engage you in maintaining an active role in society.
Maybe you will be bored with the idea of not going to work every day. Perhaps you might be happier working
or volunteering once you retire. There are lots of people who started a second or even a third career after
retirement. If you don’t like the idea of working for money, you can volunteer your time to help at community
or charitable activities and projects.

There are also lots of activities you can get yourself involved in at your neighbourhood CCs and CDCs. Visit
the Family & Community Development @ eCitizen and Ministry of Community Development, Youth & Sports
websites for more information.

2. What About Your Health?

To maintain an active lifestyle, you need to have a healthy body! Healthy nutritious diets, exercise and
leading a stress-free life are the keys to a healthy you. To know the A-Z about health, visit the Health
Promotion Board website.

Make a commitment to be a healthy and active person, and you will reap the benefits of an enjoyable and
fruitful retirement. By taking care of your health, you are likely to spend less on your medical care in the long
run.

3. Managing The Transition

Making the transition to retirement is not quite like flipping a switch where you just stop work one day and go
into retirement mode. You do have to prepare yourself psychologically to some extent for the switch. You
might want to take a few days leave to see how it is like to be at home. You might want to think about what
your identity, relationships and purpose should be, prior to retirement.
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Identity & Purpose

If you have always closely associated your identity with your job or position at work, how would you define
yourself now that you no longer work? When you retire, you may have to redefine yourself. You can look at
retirement as a whole new chapter in your life. This may mean exploring a new interest, doing something
completely different or continuing what you have been doing on a different scale. Don’t wait till retirement to
have an identity crisis.
 Relationships

The adjustment is not just for you but also for your spouse and family members. Home life may change with
you and your family members having to adjust to the extra time together. Conflicts over turf such as who
gets to use the television or computer may be more commonplace than you think. Differing expectations
over family time or baby-sitting of grandchildren may also lead to conflicts. You might want to discuss
expectations with your spouse, family members and friends just to make sure you are all on the same
wavelength.

Retirement should an exciting phase of your life. Enjoy it by planning and preparing for it early!
Sun Deck