CPF savings insufficient for retirement: survey

I recently have a beer session with an ex-colleague of mine in his early 50's with an outstanding 100+K 15 yrs HDB concessionary loan. As we discussed more, I learnt that his CPF savings is insufficient to service his loan and he need to fork out $400+ a month (his wife is not working or contributing to the house mortgage).

Further probing revealed that he has 50K invested in some funds (from the proceeds of his 1st HDB house) and flabbergasted the rest of us at the beer table. I'm helping him to relook at his finances with a view of partial repayment of the housing loan so that we can reduce the monthly loan repayment. Hopefully we will be able to reduce his monthly cash components.

I'm beginning to think that the story of my fren is probably more common than not. One can be honest and hardworking but if you are clueless on the way of the finances, it can be devastating on your long term needs. As it is, you can imagine he has zero CPF savings and probably not much cash savings going towards his retirement needs.

HDB loan takes away a large part of our CPF savings or cash in order to service the loan. I believe many people still has the impression that owning a flat is an asset, so some may try to stretch their budget and go for the biggest possible flat even if it means having a tight budget.

It may be true that housing prices will only get higher in future years. However, the future is still an unknown. If one is stuck with a big house and little cash nearing retirement, will it do any good for the person? One maybe still forced to downgrade to a small house to free up some cash for retirement needs. We do not know how much will the valuations of smaller houses compare with larger ones in future. What if smaller houses are also quite expensive in future such that the difference in valuations to larger ones is not too great? So, even if one is willing to downgrade to a smaller house in future, he or she may not be freeing up much cash at all.

A house is not an asset but a liability. An asset is one that can generate stable sustainable cashflow that grow at a rate that at least keep up with inflation perpetually. If one can derive rental income from one's housing that can cover at least the mortgage loan or beyond (generating positive cashflow), then the house is an asset and not a liability to the owner. Otherwise, having to pay the loan installments will keep draining cash out of one's pocket which makes the house a liability.

If a house becomes a liability, then it maybe better to cut down on one's liability by careful planning so that one does not incur a huge liability by overstretching one's budget. The question will fall back onto weighing carefully between one's wants and needs. Do I really need such a big house or is it more of a want? I have to bear in mind my house is a liability. Do I want to own such a huge liability unless I really need that house?

Many people tend to be too optimistic with their finances or the future of housing valuations. Note that it will only be good to see things from a capital gain perspective if big houses really rise in valuations in proportions much more than smaller houses. Otherwise, this thinking is a fallcy and one does not really gain much capital by selling a big house to buy another smaller one to live in future.

Own cashflow generating assets (that puts money into one's pocket on regular sustainable basis that also fights inflation) and not liabilities (that drains money from one's pocket regularly and the item of liability may not be much more valuable in future dollars).

(21-02-2011, 12:44 PM)jeremyow Wrote: A house is not an asset but a liability. An asset is one that can generate stable sustainable cashflow that grow at a rate that at least keep up with inflation perpetually. If one can derive rental income from one's housing that can cover at least the mortgage loan or beyond (generating positive cashflow), then the house is an asset and not a liability to the owner. Otherwise, having to pay the loan installments will keep draining cash out of one's pocket which makes the house a liability.


Own cashflow generating assets (that puts money into one's pocket on regular sustainable basis that also fights inflation) and not liabilities (that drains money from one's pocket regularly and the item of liability may not be much more valuable in future dollars).

I may be missing something, but I dont understand why the government keeps using the phrase "your HDB flat is an asset".

If you cannot derive income or monetise its value (other than selling it), how is it an useful asset?

(21-02-2011, 10:15 PM)EnSabahNur Wrote: I may be missing something, but I dont understand why the government keeps using the phrase "your HDB flat is an asset".

If you cannot derive income or monetise its value (other than selling it), how is it an useful asset?

Well, the Government's point of view is that there are ways to monetize your house/home. Some examples:-

1) You can rent out one room or even your entire HDB flat to earn cash income, while paying for your HDB loan via CPF. (Note: I am actually doing this right now - renting out one room while servicing my loan with CPF).

2) You can sell to another Greater Fool who will pay a lot more than what you did for your flat (it is known as the COV), hence unlocking cash which can be used for other housing.

If anyone has anything to add, please do so, thanks!

On HDB, think of it the other way. If you do not own a HDB, you will incur rental cost. So if you do own a HDB, you actually save the rental cost. So instead of HDB generating income, the HDB help save you the extra expense.

Sideline to "asset. Its actually depend what is defination of an asset? An asset not necessary be generating income, an asset should be something that is of certain value (unless it is in negative equity).

Some example.
Is Rolex watch an asset?
Is gold bars an asset? (you may even need to pay for storage)
And the commonly heard term, "car is an depreciating asset", see the word asset...it is still an asset although it is depreciating (unless in negative equity).

(21-02-2011, 10:15 PM)EnSabahNur Wrote: I may be missing something, but I dont understand why the government keeps using the phrase "your HDB flat is an asset".

If you cannot derive income or monetise its value (other than selling it), how is it an useful asset?

I think the way to answer this question will be to ask, "What type of asset is this?"

Joshua Kennon at about.Investing: Investing for Beginners divides Assets into 6 types (full article here)-

Asset Type #1: Those that generate high returns on capital, throwing off substantial cash on very little capital investment but that can be grown by reinvesting profits into the core business for expansion.

Asset Type #2: Those that generate high returns on capital, throwing off substantial cash on very little investment but that cannot be expanded by reinvesting in the underlying asset.

Asset Type #3: Those that appreciate far above the rate of inflation but generate no cash flow.

Asset Type #4: Those that are "stores of value" and will keep pace with inflation

Asset Type #5: Those that are "stores of value" and will keep pace with inflation but have frictional costs such as storage requirements, maintenance, et cetera thus turning them into liabilities in that they require cash out of your pocket from time to time.

Asset Type #6: Consumer goods or other assets that depreciate rapidly with little or no resale value

As MW and aspeed have already mentioned, it's useful to think of how you can monetize the HDB (e.g. renting out a room or HDB's own reverse mortgage scheme) and also bear in mind op cost (for most people that don't own their home, camping at Changi Beach isn't the go to option, instead, renting or free-loading is the more likely option)

So, thinking along those lines, you can decide which type of asset a HDB flat will fall into. Read the full article by the way, there's a lot more description and examples as to what each asset type is.

To add on to MW list

3) The various govt upgrading scheme (HIP, Lift upgrading, Neighbourhood renewal, Main Upgrading) enhance the value of your flats and increase its valuation.

4) Selective En Bloc Redevelopment Scheme (SERS) compensates you for the flat and provides you an opportunity to buy a new flat - usually somewhere nearby.