20 August 2015

Retiring on $2,000 a month [updated]

Retiring Siblings

Benny and Erica Tan are a brother and sister sibling pair. Benny had reached his statutory retirement age but was re-employed for a few more years.  Erica who is a tad younger, has however chosen to resign from her job and retired a year early. She got fed up working for an overly demanding boss. When she tendered her resignation, the boss begged her to stay. But she had already passed the point to turn back. She left with no regrets and is now picking up some ad-hoc work to fill her time.

They live in a 5-room HDB flat that have been fully paid for. The flat was transferred to them by their parents before they passed away. Not being graduates, they had basic jobs with decent but not 'obscene' pays.

Their lifestyle seems basic. While they do watch TV, they do not subscribe to cable. They do have an Internet subscription and each own a mobile phone with fairly basic plans. Both are singles with no spouse and kids to worry about. No car and certainly no motivation to do so as both do not even have a driving license!

It looks like they could survive on just $2,000 a month each. According to the Department of Statistics data on average household income and expenses, a 5-room HDB household averages $5,282.60 per month, while a 4-room HDB household averages $3,917.90 per month. I would judge that they are more akin to the 4-room HDB household although they live in a 5-room HDB.

Not having to spend a single cent on housing all their lives, their CPF contributions have been pretty much maximised and left untouched all these years.

Back to the Future

If they could rewind the clock and are instead at age 55 today, how would they make a decision on their CPF Life scheme?


Under the revised CPF scheme , they could go for the Enhanced CPF Life with a CPF-RA of $241,500, giving a perpetual monthly pay out of $1,770 to $1,920 each from respective retirement age. Assuming the lower end at $1,770, they would each face a shortfall of only $230. How can they close this gap?  There seems to be a few possibilities ...

Monetise their Property

Rent Out

As they are living in a 5-room HDB flat, they have a room to spare. Being near to a Polytechnic and a Junior College, it's a location with possibilities. They could rent out a room. I wonder what's the market rate for a room rental in a HDB flat? Is $460 a month realistic? The risk lies in whether they can secure continuous rental.

[Renting out via AirBnB is an alternative. Unfortunately, it's illegal. For now.]

Sell Down

They could consider selling off their current 5-room HDB and downgrade to a smaller HDB, and then take the difference to invest for an income stream. So they could consider the newly announced 40-year lease 2-room flexi scheme (More: Joint Press Release by MND and HDB on 2-room flexi schemeHBDWeb on 2-room flexi scheme).

For this to work, they would need to be able to extract out a cash value of $138,000 to be invested into income yielding products at 4% to get $460 a month. It seems possible. A check against this nifty tool at Simplyjesme on HDB resale prices shows an average resale price of over $600,000 for a 5-room.

The risk lies in whether the income yielding products are assured or come with downsides. But there seems to be more than enough margin of safety. If they sell their 5-room for $600,000 and buy the 40-year lease 2-room under the flexi scheme at $28,600 (for first timer applicants), that would leave them with $571,400. At 4%, that would generate an income stream of $22,856 a year, or $1,904 per month, well over the $460 gap that they needed to close. There's money to spare for overseas holidays, or to save for a rainy day.

Work Part-Time

Part-time Work

They could pick up some part-time work and earn some income. Assuming $8 per hour, they each need to put in only 29 hours a month to close the gap. That sounds like less than 4 full days of work a month! Seems doable. But are there employers willing to offer jobs designed for semi- retirees?

Monetise a Hobby

Benny in particular is an avid photographer. He could pick up some part-time work as a wedding photographer. But there could be some difficulties in getting sufficiently regular assignments to secure a steady income.


Inflationary considerations aside, there seems to be a few avenues to close the gap. Although, each does come with some level of uncertainty that could derail the plan. Are there other alternatives?


jason said...

ideally its to downgrade to 4 room, set aside the $80-100k for emergency purposes and invest the balance of say $40k. More importantly, find a part time job which can make some income, but the key is to keep the mind active, otherwise it just goes downhill after. If no downgrade, then room rental is very ideal - $500-600 per month is not entirely unreasonable based on the amenities/location ($120k-144k over 20 years!)

Singapore Man of Leisure said...


Isn't it wonderful to have so many options?

And the beauty is that all the options are not mutually exclusive ;)

Can blend and mix according to taste!

1. No need to change a thing. Just keep working beyond the statutory age like Benny has done and occasional ad hoc or freelance work for Erica is more than enough to bride the $230 "shortfall" ;)

2. If cannot work due to health reasons, there's the nuclear option. Downgrade from 5 room to 3 room. in Queenstown, HDB 5 room resale costs $800K while 3 room is $400K.

Can "invest" the $300K in SG bonds while balance $100K is emergency fund for medical needs.

Again the $230 "shortfall" is easily bridge ;)

3. The difficult part is the ability to "survive" on $2K per month without illness. That's the reason for all the angst in Singapore!

Lizardo said...

Jason and SMoL,

Thanks for sharing respective views. There're so many options. It's most certainly a happy problem. As SMoL pointed out, the options are not mutually exclusive. I'm happy for the brother and sister.

The only problem to guard against is failing health. CPF Life is hence a lifesaver for them. And as Jason suggested, keeping the mind active is also key.