A financial strategy for the elderly with spare cash.

I am sure many of us are good children and worry for our parents.

Dear AK,

I have been reading your blog for a while and I do agree with a reader that there are many pieces of gold to pick up regardless how we traverse your site.

I would like to seek your thoughts on doing financial planning for elderly. To be specific, my mother (70 years old) has recently struck a windfall. As she is not good with her money and I believe that within one or two years, that money would have been vaporized if she were to donate some to temple, give some to children, grandchildren , overly indulge herself and so on.

She has stopped working few months ago and her children have been giving her monthly allowances (regardless if she is working or not). Her CPF does not give her monthly payout as she does not qualify for the minimum sum (the amount is $60,000 during her time).

I would like to help her draft out something such that she can still receive monthly 'salary' from her windfall. By having monthly salary, it would gives her the feeling of being independent and have control on what she wants to spend on, instead of relying on her children. Having said that, her children will still continue to give her the monthly allowance.

This amount of money, besides being able to give her monthly payout, would at the same time be earning interest and to 'grow' more money as well. I am not sure if she should do a voluntary top up to her CPF account such that she can receive monthly payout, or she should keep it in fixed deposits of varying duration.

Would appreciate if you could help to throw some light.

Thank you

Best regards

LT

Hi LT,

Your mom is very lucky to have good children. :)

OK, know that I am not a qualified financial adviser or something. I can only talk to myself:

"For the elderly, they should be more concerned about not losing money instead of growing money. They should not be taking too much risk.

"If they are not investment savvy, they could consider contributing to their CPF account. The money will be split into the OA, SA and MA. Since they are 55 years or older, they can withdraw the money when they need (except for money in the MA). If they don't need the money, leaving it in the CPF means getting 2.5% to 4% in interest income.

"For the more elderly, those who are 65 and older, I think this is a good enough option and is something I have asked my parents to do.

"For the younger seniors, those who have just turned 55, they could consider Top Ups to their CPF-RA if they believe in an annuity that will pay them a monthly income for life from age 65."

I hope I have not confused myself. -.-"

Best wishes,
AK

Also read this:
Improving retirement adequacy for my dad.

Related post:
Make my money last longer? A senior's example.

Do you want to be a landlord? (Ideas from a Singaporean with a young family in his 30s.)

A conversation on buying properties for investment and some considerations.

Reader:

I have been following your blog for couple of years and thank you for sharing your journey. I will be really happy if I can achieve a quarter of your passive income when I retired (excluding cpf life).

I wish to bounce some ideals off you. Just wish to explore some ideas here while you are talking to yourself. J

I am in my late 30s with a very young family with kids, living in a 4 rooms hdb flat from BTO, north east, reaching mop soon, with 20 years of outstanding loan. 

I am aspired to own two properties, ideally 1 hdb flat and a private condo, with either one as a passive income machine/ appreciation for retirement but given all the current measures in place, it is quite impossible. I believe I have the following options:

Option 1: EC

I am considering an EC but if I were to go down this route, my aspiration will not be achievable due to (1) private property (EC after 5/10 years) must be disposed within 6 months after purchase of a resale flat (2) I will be in my mid/ late 40s when the EC reach mop of 5-10 years, theoretically at that age I would not want to stretch myself financially to get another condo. Having said that, I feel EC is a good investment.

Option 2: Staying Put

Alternatively, I can stay put, maybe clearing my hdb loan while waiting for opportunity to get a private condo but this may or may not happen. The prices is likely to go up once the government remove cooling measures unless we have a recession.

Option 3: Resale

Last option, upgrade into a bigger re-sale flat, perhaps in a matured town. Then again I will have to wait for another 5 years before allowing to get a private condo.

Would you be able to share with me what’s your thoughts are, the pros and cons, and what would you do if you were in my shoes? Would you just invest only in stocks and forget 2^nd property)? =P

AK:
Well, if you aspire to own a second property to have rental income, I would suggest that you take reference from the "Rule of 15" which I have blogged about before. You could go to my blog and do a search for this to read that blog post.

You want to consider also whether you are the land-lording type. Talk to friends who are landlords and hear what they have to say. For sure, it is not necessary for us to be landlords to achieve financial freedom.

For married Singaporeans who qualify, an EC is probably the best low risk method to make some capital gains. They are usually priced some 25% lower than condominiums in the same area. MOP of 10 years and an EC gains full condo status. Of course, you cannot keep your HDB flat in such a case but do you need to?

Of the three ideas you have, I think buying a newly launched EC would probably give you the biggest capital gain in time to come.

Reader:
Thank you very much for sparing some time to respond to my query.

I have re-read your post on Rule of 15, I did some quick calculations, for BTO flat, definitely it’s better to buy, however for EC, it shows it is better to rent but like you said, EC is priced at a discount compared to the condos in the same area as such there will be capital gain upon 10 years MOP. If Rule of 15 indicates EC shows not a good buy then private condo will be worse……

The reasons I wish to own 2 properties is due to 

(1) rental income 
(2) appreciation 
(3) my journey in equity has not been performing as anticipated. I have been reading some books (mainly on FA) and your blog of course but I feel my analysis and timing is always poor, 
(4) I could be wrong but I believe most people make $ from property then they use the capital gain to invest in equity during bad times to achieve financial freedom.

I have not cleared up all my HDB loan (although I can with my life saving) as I am waiting for opportunity in the equity market. But the cost of doing these is quite high even I have the CIMB account 0.8% vs 2.6%, 365 & multiplier account. Similarly, I am doing a $7,000 contribution to my SA yearly, but I have not transferred $ from OA to SA in view that I would get a condo when there is opportunity. No right no wrong here, but right now these are my choice (for now). =P

Our combined income may be hitting the new EC ceiling, what would be your view if EC is no longer an option? Apologies that I didn't mention this earlier. Feel free to comment Shi Fu!

Lastly, I have to thank you for sharing your journey all these while and I enjoy reading every one  of them. Keep it going 

AK:
The Rule of 15 is a good guide when we want to ask if a property is value for money. It is especially true when we are interested in buying one as an investment for (rental) income.

Now, if we are buying with an eye on capital gain, there is more of a speculative flavour. However, if there is a chance for arbitrage which is what newly launched ECs could provide, then, those who qualify might want to take a chance. ;)

I do agree that private condominiums in Singapore mostly do not offer value for money now. I believe that prices could continue to come under pressure for many more years. This is not to say that we cannot find good deals now.

You might remember another blog post I published titled "Affordability and value for money" or something like this. You might want to do a search in my blog for it.

It is true that we can make a lot of money from properties compared to equities but it is also about getting in at the right price. In this respect, it isn't very different from equities. :)
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Compared to investing in equities, an investment property is a much bigger one time commitment which would probably involve a relatively large amount of leverage. So, don't rush into a deal. Think carefully.

It is not only about affordability. It should also be about value for money.
Related posts:
1. To rent or to buy: Rule of 15.
2. Affordability and value for money.

3. Disastrous property investments.