Many Singaporeans become anxious as they approach 55, when the use of their CPF for investments or property purchases becomes somewhat restricted.
This is also the age when most of us are working towards our silver years – to have a comfortable retirement. Hence, any property purchase or sale when you make on or after 55 years old, must be made with greater consideration.
While some of us may think of maximizing our savings for old age and are thinking of downgrading to cash out, others who have accumulated enough wealth may choose to purchase their dream house or enhance their retirement funds via investment properties for themselves or their families.
If you’re still mulling over your next property move, let’s comb through some of the key considerations when you buy or sell after you hit 55.
Implication #1: Your CPF OA and SA will be combined together to form your RA
Most home buyers or owners would need to utilise their CPF savings from their Ordinary Account (OA) for their home purchase and subsequently to service their monthly mortgage repayment.
However, once you hit 55, CPF funds (up to/ capped at your full retirement sum) from your OA and Special Account (SA) will be taken to form your Retirement Account (RA). This year (2023), the full retirement sum is $198,800.
Those with a property can pledge their property, and only need to fulfil the basic retirement sum amount (half of the full retirement sum amount).
If you need more funds in your OA to service your existing monthly mortgage repayment, then you will need to apply to the Central Provident Fund (CPF) Board at least 3 weeks BEFORE you turn 55 to reserve funds in your OA.
In any case, CPF will usually notify you of your options in advance, so do look out for them.
Simply log in to the CPF website with your SingPass to reserve partial or all of your OA for this purpose, subject to CPF board’s approval.
This is important as the amount allocated to your OA decreases as you age, even as you continue working, which means you may end up having to top up cash should there be insufficient funds in your OA.
Implication #2: If you sell your house after 55 years old, you will need to top up to the Full Retirement Sum first
CPF made a very nice infographic below which explains what will happen when you sell your house after age 55 years old.
It highlights the difference very effectively on what are your choices before you turn 55 and after you turn 55.
Implication #3: You still can buy whatever property choices you want – subject to meeting the FRS in your RA first
Yes, you can still use funds in your Ordinary Account (OA) to purchase a property, as long as you have set aside the full retirement sum in your Retirement Account (RA).
Buyers above 55 would then have to use more cash for their property purchases as a considerable portion of their CPF funds would already be locked in their RA.
This explains why individuals who are heavily reliant on their CPF funds to purchase a property would rush to get their purchases settled before they turn 55. This allows them more flexibility on how to use their OA.
What are the property options possible for you after turning 55 years old?
- Short-lease 2-room Flexi Flats (15 – 45 years): lease ranges between 15 and 45 years – these flats cannot be sold in the resale market, and so should be considered strictly as places of residences (do not expect to make a profit).
Applicants must also fulfil a household income cap of $14,000 for families, and $7000 for singles. Optional fittings like built-in kitchen cabinets with induction hobs and cooker hood, sink and a built-in wardrobe can be installed.
Notably, this is the only type of Built-to-Order (BTO) even existing private property owners are eligible for, which comes as a pleasant surprise for some private property owners who are looking to cash out or downgrade in their twilight years. Resale levy applies. - BTO Flats (99-year lease): Singaporeans are entitled to purchase two subsidised HDB flats (eligibility applicable), so Singaporeans 55 years old and above can apply to buy directly.
Singles can apply for a 2-room flexi flat on a 99-year lease, while those are eligible to purchase under other the following schemes can apply to purchase bigger flats.- Fiance & Fiancee
- Married couples and/ or parent(s) with children
- Multi-generation families
- Orphaned siblings
- Families with non-residents spouse/ parents/ children
- Resale Flats: By now, most of us are aware that private property buyers who are at least 55 years old can purchase a 4-room HDB flat (or smaller) without having to wait for 15 months after they sell their private properties.
However, if they prefer a bigger space (i.e. 5-room/ executive/ marionette flats), then they will also be subjected to the 15-month waiting period before they are able to commit to a purchase.
This would mean having to look for alternative accommodation – i.e. rent for 15 months or stay with family/ friends.
Implication #4: CPF contribution rates will be reduced from 37% to 26%
Once you are above 55 years old, the CPF contribution rates will be reduced.
This is part of an effort to make older workers look more attractive to employers.
However, this is something that all of us who are still young should factor in.
As we are using CPF monies to pay for our property loan – it is important to never assume that our CPF contribution rates will NOT remain constant.
A drop from 37% to 26% means a 30% reduction towards the OA which is used for serving the mortgage loan.
When doing property purchase calculations, we should be aware of this reduced CPF contributions which will continue to be cut progressively as we turn 60, 65 and 70.
That is why many people try to restructure their housing portfolio or reduce their outstanding property loans before turning 55 years old.
So even if we make plans to continue working beyond 55 years old and the official retirement age, let’s keep in mind about this.
Implication #5: CPF and our property choices are closely intertwined
If you check out the various options to monetize your home, you will notice that ensuring that the Full Retirement Sum (FRS) is set aside is prioritized.
This FRS requirement also applies for the Lease Buyback Scheme and the Silver Housing Bonus.
My thoughts?
Since we withdrew money from our CPF to finance the purchase of our property, it is only right that it should be returned back to finance our retirement.
But making the right decisions on our property options can be tough.
This is especially so that when we make the decision to cash out at high property prices, it means that we also have to be prepared to buy our next home at high property prices.
That is why it is so important to regularly do a detailed financial assessment and calculations to check where we stand currently and what is possible in the future.
Conclusion
As we grow older, we notice that a lot of things start to change.
Not just CPF rules or housing rules.
Our bodies might not be as healthy as it was when we were younger.
Learning new things can be a challenge as we realize that it becomes harder to catch-up on knowledge that is constantly evolving.
In the coming years, there is news that the economy will continue to slowdown. With inflation and rising interest rates – it should not come as a surprise.
Our bodies might not be as healthy as it was when we were younger.
Learning new things can be a challenge as we realize that it becomes harder to catch-up on knowledge that is constantly evolving.
In the coming years, there is news that the economy will continue to slowdown. With inflation and rising interest rates – it should not come as a surprise.
Value is not just what is within our CPF accounts.
But what other value we can provide to other people around us.
Frequently Asked Questions:
1) How can an older 55-year old HDB flat owner monetise their current property without selling?
- Lease Buyback Scheme (LBS) – Well for a start, the LBS is only eligible for senior citizens 65 years of age and above. These flat owners can choose to reside in their existing flat and sell a portion of the remaining lease (minimum 20 years) back to HDB.
This allows them to continue residing in a neighborhood or community the are familiar with, while ensuring that they meet and top up their BRS (for couples/ units with more than one owner) or the FRS (single owner) in their CPF RA for CPF Life, so that they get a monthly payout.
The amount in excess (capped at $100k) of the top up sum required to their RA, will be the cash proceed that these owners are able to enjoy. However, do note that eligibility criteria applies.
Visit this site for more details – https://www.hdb.gov.sg/residential/living-in-an-hdb-flat/for-our-seniors/monetising-your-flat-for-retirement/lease-buyback-scheme
- Room rental would be a good alternative for HDB 3-room flats (or bigger) owners. Unlike whole unit rental, HDB owners are allowed to rent out their rooms without fulfilling the Minimum Occupation Period (MOP) for regular income.
- Whole unit rental – Some couples / individuals would choose to move in with their children / friends / family members on a temporary or permanent basis. Reasons range from companionship, to providing caregiving or some are simply not in the state to care for themselves.
This group would then be in the position to rent out their entire flat/ property. While you might ask why don’t they simply sell and cash out? Well, some of them may decide to move back into their house when the situation changes (e.g. grandchildren are older etc.).
2) What should a 55-year old (or older) HDB flat owner who is planning to sell take into consideration?
You will need to be aware what properties you can afford or would be eligible to purchase before you sell, as well as the funds (sales proceeds/ CPF OA/ loan amount).
For some individuals/ families who have bought a resale flat at a high price during a bull’s run, and utilised quite a fair amount of CPF funds, they may end up in with a rude shock of a negative sale/ NO cash proceeds situation as the accrued interests of the CPF funds used, accumulated over the years is too substantial.
HDB home owners in such situations, should then evaluate their finances to ensure they have sufficient cash/ savings for the down payment (cash component of their next purchase), renovation etc.
Since most of the funds from the sales would go back to their CPF, they can opt for the Enhanced Contra facility when purchasing a resale HDB flat or the Contra facility when purchasing a BTO flat.
This allows you to use the funds from the sale of your current flat immediately for your next property, reducing their cash outlay and also reduce loan amount.
3) What should a 55-year old (or older) private property owner who is planning to sell their matrimonial home take into consideration?
I feel that the most significant thing to note like the above, would be your next housing option.
Always remember when you can sell your current place at a high price, it often means the purchase price for your next home (if similar to or bigger than your current place) would usually be high too, unless you’re looking to downgrade of course.
So do be clear on your next move, before you take the plunge.
What would be the typical options for sellers who sell their unit when they are 55 years old (and above):
- Staying with loved ones – I have heard of clients who sold their property to move in together with their children/ siblings/ relatives.
This could be a great option, but be prepared to deal with tricky situations whereby you end up not coping with your son’s/ daughter’s partners, and end up having to move again.
By then, you could realize you have less funds for your purchase, with a sizable amount locked in your RA. So do have a contingency plan if you intend to move in with another family member.
- Purchasing HDB resale flat (up to 4-room) – While younger private property owners (below 55) who sell their homes would have to wait 15 months before they are eligible to buy a HDB resale flat, owners 55 and above would be able to purchase a non-subsidised HDB flat (4-room or smaller only) on the resale market immediately.
Some of my clients opt for this to cash out, and either use the cash for themselves (travelling, pursuing their interests), or to help their children who may need the cash for an overseas education or downpayment for their first property.
- Buying another smaller private property – Not all home owners are looking to cash out. Individuals/ families who are in a good financial position may simply opt to purchase a smaller private property that are near to amenities which serves their needs as they get older – for instance an MRT Station – as they do not see themselves driving eventually.
Some would sell as having to navigate stairs in a duplex/ landed house or managing a huge space is too challenging.
- Applying for a new BTO flat (99 year lease or short term lease) – there are two ways around this. The most common would be to apply and only dispose of the current property when the new BTO flat is ready.
4) What should a 55-year old (or older) property investor consider if they are planning to buy private or landed property?
In my work, I do have clients who are planning to leave a legacy to their children. They have done very well in their career or made big exits from their business.
For some, this is the time to fulfil a lifelong dream – be it to buy a landed property, big enough to accommodate multi-generation families or to purchase units in a new launch project for yourself and your adult children.
Finances
At the age of 55, Singaporeans would be able to draw out their excess funds after fulfilling their FRS or BFS (after pledging their existing property).
They can then channel their combined funds to another property purchase. This is especially important as you would have to cope with a shorter loan tenure (till 65 years old, or 75 years when you refinance), which means the monthly loan repayment would be higher, depending on the loan amount.
Beside a shorter tenure, the Loan To Value (LTV) for a first loan would be 75% for your first loan; 45% for your second loan.
LTV will be reduced if you choose to extend the tenure beyond 65 years old. This means that you will need to have more cash to facilitate your purchases.
Meeting your physical and family needs
For those purchasing a property for their own stay, it is crucial to ensure the property will meet your needs as you age. Some considerations include:
- A lift with elderly friendly design for landed properties – You can look out for properties with these attributes or if you are constructing the house, then these must be communicated to the architect and interior designer.
While it may not pose any issues for now, navigating flights of stairs may be a challenge in future and having to renovate/ move due to inaccessibility would be harder to cope then. - Same goes for private condominiums or apartments – Duplex units may not be a good option in the long run for the same reasons above. This is why walk-ups, while offering a spacious layout or design may seem attractive, might not be the best choice.
Meeting your investment needs
For those purchasing a second property for investment to grow their retirement fund, it is crucial to identify a property with good growth potential or reasonable rental yield.
It is also essential to find a good realtor to manage the rental unit.
I did my best to write an article that is applicable to as many Singaporeans as possible and allow you to think ahead of the implications of turning 55 years in this country.
Let me know if I missed out anything.
If you like me to do a detailed financial assessment or simply to explore your own property choices that is possible for you – drop me a message via WhatsApp.
Our discussions are no-obligation.
Must both husband and wife be 55 and above to buy BTO / Resale if they currently own a private property ?
You also mentioned above that there are two ways around this. The most common would be to apply and only dispose of the current property when the new BTO flat is ready. What’s the other way ?
Yes, both husband and wife must be above 55 years old to buy either a resale 4-room (or smaller) HDB flat, or apply for a 2-room Flexi BTO flat (leases for such flats run from 15 to 45 years).
If you are only prepared to sell when your new BTO flat is ready, then you are restricted to the 2-room Flexi BTO flat. However, if you can sell your private property and either stay with a loved ones (if that option is available) or rent for a period of time, then you would have more options:
1) Apply for any BTO flats (assuming you are still eligible to purchase directly from HDB/ income ceiling etc fulfil HDB requirements) after 30 months from the sale of your private property
2) Purchase a bigger HDB flat (5-room and above) 15 months after the sale of your private property.
Hi
Just to check , if my new BTO COME AFTER MY 55 YEARS OLD, can i appeal to CPF only park basic retirement instead full retirement fund in my account after I sold my house. So I can use it to pay my new BTO flat.
Regards
Gerald
Hi Gerald, yes please contact CPF in advance (before you turn 55) to reserve the required funds in your Ordinary Account (OA) for your new flat.
What are the implications for property purchases or sales for Singaporeans who are 55 years old or older, particularly concerning their CPF savings?