A recent survey by Manulife Singapore that polled over 1,000 people here on their financial readiness showed the value that they placed on property for retirement preparation has significantly declined over the years.
It found that only about 35 per cent of the poll participants would now consider property to be one of their top two retirement priorities, a significant decline from 65 per cent previously.
This shift is driven by uncertainties about property’s long-term stability and changing views of it as family legacy, the survey found.
Overall, cash remains on top of the pile when it comes to building nest eggs, with 35 per cent of participants swearing by it as their “most important tool for retirement preparation”. Those who view cash as king say that close to half of their current savings and investments is in cash and cash equivalents.
Next on the list is the ubiquitous Central Provident Fund, with 22 per cent relying on its lifelong annuity scheme CPF Life for the bulk of their monthly retirement income. Those who rely on rental income and their property investment are in third place at 19 per cent.
Stable and monthly income is paramount
There is a reason why CPF Life is back in vogue for many retirement planners – starting from 2025, those 55 and older can plan to top up to the enhanced retirement sum (ERS) of $426,000, which will enable them to receive up to $3,300 every month from age 65.
This is a significant jump from the $1,700 monthly payout for those who choose not to top up when $213,000 (the full retirement sum) is moved to their Retirement Account from other CPF accounts at age 55.
Based on estimates by some financial institutions, those who enjoy monthly retirement income of over $3,000 can not only pay for most of their bills, but they can also look forward to short overseas holidays annually.
As payments from CPF Life are guaranteed by the Government, the Monetary Authority of Singapore has confirmed recently that those who receive a payout of at least $15,000 annually are considered creditworthy enough to apply for unsecured loan facilities such as credit cards.
In the past, banks usually look only at other sources of revenue, such as rental income.
Couples can get more
With prices of private properties at a record high, it is probably a tall order to find a decent apartment with a budget of $850,000 and yet expect that unit to generate rental income of at least $6,000 every month.
A couple with such savings can get more bang for their buck than singles because they can enjoy two sets of CPF Life payouts, which will be quite decent if both are in the ERS tier.
A couple who both turn 55 in 2025 and set aside the ERS of $426,000, or $852,000 in total, will get a combined monthly payout of over $6,000 when they hit 65. These payouts will add up to over $72,000 annually, or a whopping $1.44 million over 20 years.
Some people think that having an extra property to generate rental income in their old age is the way to go. In doing so, they deplete their CPF savings and miss out on the opportunity to earn such good income as a couple.
Consider this instead: Make sure both of you can hit the ERS tier for CPF Life to get a good lifelong income. If you still have ample cash, you can consider your two-property dream.
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Fuss-free income
When you retire, you should expect a carefree life without having to worry about the maintenance and paperwork for your investment property or, worse, chasing after tenants for rent.
Moreover, landlords have to report their rental income, which is taxable, as well as pay higher property taxes for investment properties.
Unlike tax-free CPF Life payouts which are expected to be stable, rental income can be affected in a prolonged downturn.
This is probably why many people now prefer having cash over properties, so they will never encounter cash-flow problems when it comes to paying for a good retirement.
Check out Invest editor Tan Ooi Boon’s new book – Retire With More Money – at stbooks.sg
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Tan Ooi Boon writes for and oversees the Invest section of The Straits Times.
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