Saturday, May 1, 2010

What if you can't afford to retire?

Options for low-income elderly folk.

Fri, Apr 30, 2010
The Business Times

By Lorna Tan

The reality of just how much it costs to retire is sinking in for many people.

As a result, more expect not to be able to retire completely - they will need to turn to part-time jobs in their golden years.

This was a key finding in a recent survey by Russell Investments and The Nielsen Company on how Singaporeans are planning for their retirement.

The findings indicated that about 70 per cent of the more than 500 respondents believe they will need some part-time work to supplement their retirement income.

Singapore's rapidly ageing population is a cause for concern, with the number of people aged 65 and older expected to treble to 900,000 in 20 years, from about 300,000.

Adding to the bleak picture: The survey indicated that only half of Singaporeans who have not reached retirement age have made financial plans for their nest eggs.

It is no wonder that experts constantly emphasise that when you fail to plan, you plan to fail. But for those who do not have time on their side and have yet to start mapping out their plans, not all hope is lost.

The Sunday Times looks at the income options available to low-income elderly people, particularly those with no financial plans. Some of these options look at the flat as an asset, as well as a source of rental and retirement income.

Lease Buyback Scheme (LBS)

Launched on March 1 last year, the scheme allows low-income elderly Singaporeans living in three-room and smaller flats to monetise their flats to supplement their retirement needs.

It is believed that these households need more financial help, as they are unlikely to be able to take advantage of other options such as downsizing to a small flat or subletting a room.

Under the scheme, the HDB will buy back the tail end of a flat's 100-year lease at market valuation, leaving a 30-year lease for the owner. For example, if a flat has 70 years left, the HDB buys 40 years of the lease from the owner. It pays the market rate for the 40-year lease and this money goes to the CPF Life national annuity scheme in the flat owner's name. He will then receive a monthly income stream for life.

According to a study last year on unlocking housing equity for retirement by Dr Ngee-Choon Chia and Dr Albert Tsui, a three-room flat which is now worth $236,000 has an estimated housing value, unlocked from a 40-year lease, of about $109,000 at present.

The monthly annuity payouts from CPF Life through the buyback of the three-room flat is $694 to $724 for a man and $620 to $650 for a woman. Monthly payouts for women are lower than for men because of the longer life expectancy of women, on average.

Both the study's authors are from the economics department at the National University of Singapore (NUS).

To be eligible for LBS, the homeowner must be aged at least 62, have enjoyed only one housing subsidy and must have occupied the flat for at least five years, among other conditions. If the owner dies before his lease runs out, his family gets the refund of the balance.

At the start of this month, the scheme was broadened to include those who previously owned four-room or bigger flats.

It also includes those with outstanding housing loans exceeding $5,000, but who are able to buy an annuity under CPF Life for at least $60,000 with the HDB payout. Previously, the household had to have less than $5,000 outstanding on a home loan.

With the revision in rules, the number of elderly households that stand to benefit from LBS has risen to 34,800 or 82 per cent of elderly households in three-room and smaller flats.

One key advantage of the LBS is that you get to live in your home and at the same time receive a lifelong income.

Mr Ben Fok, chief executive of Grandtag Financial Consultancy, says: 'This option is viable for owners who are comfortable to stay where they are and do not wish to move or downgrade to a smaller flat. They prefer not to sublet their flat as privacy may be important to them.'

The downside is that upon the death of the retiree, he may not leave behind anything for his loved ones. In Asian culture, this may not be well accepted, says Mr Christopher Tan, chief executive of wealth management company Providend.

And retirees may also not like the idea that the house they are living in no longer belongs to them.

Mr Leong Sze Hian, president of the Society of Financial Service Professionals, however, believes that the owner will be worse off under this option.

He believes that HDB flats will be worth more 30 years down the road. After all, they have always increased in value historically, as old flats may be selected for en bloc redevelopment. Under this programme, the residents of affected blocks will be offered replacement flats. In fact, he notes that older flats have generally appreciated more, as they are in mature estates with more amenities.

Based on an annual price appreciation of 5 per cent for an HDB flat, Mr Leong works out that a flat valued at $200,000 now will be worth $864,388 in 30 years.


Another viable option is for elderly people to sublet their rooms. Mr Leong says this option is suitable for the retiree who wants to grow old in his own flat and still have some rental income.

According to the NUS study, about seven in 10, or 74 per cent, of the elderly prefer to 'age-in-place'.

The retiree can also opt to sublet his entire flat by moving in with his children. One key advantage of this is that the appreciating equity of the flat is retained by the flat owner, adds Mr Leong.

Mortgage consultancy Housing founder Dennis Ng prefers this option to LBS, as he believes it is possible to rent out a room for $400 to $500 a month while the elderly person still retains ownership of the home.

Mr Fok cautions, however, that the owner may have to pay income tax for rent collected.

Of course, the inconvenience of having strangers in the house cannot be avoided. The owner will have to contend with losing some degree of privacy as well as putting up with strangers who may have different lifestyle habits.

Says Mr Tan: 'Not only is your privacy being intruded upon, but your whole life may be disrupted too. You share his friends if he brings them back, and you have to share the kitchen, the bathroom, the TV set and more. I am not sure whether a retiree is willing to sacrifice so much during his golden years.'


Another option is for elderly people to sell their flats and downgrade to smaller flats or to HDB studio apartments.

According to the NUS study, significant sums will be cashed out if elderly people downgrade to smaller units. On average, $79,000 or $132,000 can be cashed out by downgrading from four-room to three-room or two-room flats, respectively. The sums could be even higher now, given the current trend of appreciating HDB prices.

If, say, $79,000 is placed in an annuity, a man can get a monthly payout of $502 to $526, and a woman can get $450 to $472 a month, for life.

If the elderly person opts to downgrade to an HDB studio apartment, which costs less than $100,000 currently, the cash proceeds would be even higher, says Mr Ng.

Most financial experts agree that downsizing seems to be the best financial option. After all, most retirees will conclude that they do not need to live in a big flat upon retiring.

The advantages are clear, says Mr Tan.

'You may get some cash for selling your bigger house and buying a smaller one, and at retirement, you do not have to spend so much energy cleaning the bigger premises. At the same time, expenses such as utility costs are lower with a smaller apartment.'

Mr Fok likes this option because it can help to reduce one's debt if there is an outstanding mortgage.

'You clear your debt and use the proceeds to buy a smaller home and be debt-free,' he adds.

Working longer

Mr Tan believes that the real option is really retiring later and working longer. But in order to do that, he proposes the following:

  • Accept that you have to work through your golden years. This is really a mindset shift, and you must make this shift at least five years before your planned retirement age or before you leave your current place of work.

    To suddenly realise that you have to work longer without mentally preparing for it may be very tough to accept for a retiree.

  • Keep yourself healthy. Many may want to work but find that they no longer have the health to keep working.
  • Keep yourself relevant to the corporate world. Decide what is needed in the job market now; find something you would like to do and go for training. After all, you are bound to want to do something that you like, so it is best to start preparing yourself early.
  • If you want to go into business, prepare a business plan and do a cost-benefit analysis. Ask yourself if you can afford to lose your money.

Thursday, April 1, 2010

US and Asia Regional Market Summary

Asia Regional Market Summary

Singapore shares closed lower on Wednesday with the blue-chip Straits Times Index down 45.93 points to 2,887.46. Volume was 1.65 billion shares worth $1.85 billion. Losers led gainers 377 to 142.

Hong Kong stocks closed 0.63 per cent lower on Wednesday on profit-taking, snapping three consecutive gains. The benchmark Hang Seng Index gave up 135.44 points to 21,239.35. Turnover was HK$67.06 billion (US$8.35 billion).

Malaysia stocks ended slightly higher on Wednesday following profit-taking in key heavyweights like Maybank and Sime Darby. The benchmark FTSE-Bursa Malaysia Kuala Lumpur Composite Index finished at 1,320.57, up a nett 1.22 points or 0.09 per cent. Turnover was at 961.369 million shares valued at RM1.540 billion (US$470.925 million). Losers led gainers by 441 to 275.

Japan ' s Nikkei average hit an 18-month intraday high before paring gains on Wednesday, the final day of the financial year, but further gains were expected in the new quarter as a global economic recovery picks up strength. The benchmark Nikkei inched down 0.1 per cent or 7.20 points to 11,089.94 after rising as far as 11,147.62, its highest intraday level in about 18 months. The Nikkei climbed 5.2 per cent in the January-March quarter. The broader Topix dipped 0.1 per cent to 978.81.

Source: BT Online

US Market Summary

Stocks fell on Wednesday as a report showing a surprising drop in private-sector employment stoked concerns about the health of the laboUr market two days before the government's key jobs data.

Wall Street took a one-two punch from ADP Employer Services data showing US private-sector employers unexpectedly cut jobs in March and a separate report that showed US Midwest business activity expanded less than expected last month.

The Dow Jones industrial average dropped 50.79 points, or 0.47 per cent, to close at 10,856.63. The Standard & Poor's 500 Index shed 3.84 points, or 0.33 per cent, to 1,169.43. The Nasdaq Composite Index fell 12.73 points, or 0.53 per cent, to end at 2,397.96.

Source: Reuters

Wednesday, March 31, 2010

US Market Summary 30 Mar 2010

The stock market closed with modest gains after a report that consumer confidence grew more than expected in March. We can see that the market is slowly recovering but stocks won't be able to push higher unless there's an improvement in the job market. Investors have been tolerant of uneven housing reports and are instead focused on jobs.

Monday, March 29, 2010

Market News for this week


§ US consumer sentiment ended unchanged in March from February. The final March reading for the surveys' overall index on consumer sentiment was 73.6, the same as February's, but slightly above the 73 forecast by analysts polled by Reuters. (Source: BT Online)

§ The US economy expanded at 5.6 per cent in the fourth quarter, the government said on Friday, revising downward an earlier estimate of 5.9 per cent gross domestic product growth. (Source: BT Online)

§ President Barack Obama's administration on Friday announced new plans to help up to four million US homeowners. The measures will tap into US$50 billion worth of funding already set aside to help the housing sector. The administration has already spent hundreds of billions of dollars trying to stabilise the housing market and reduce foreclosures. (Source: BT Online)


§ Singapore's factory output came in better than expected for a third straight month in February, surging 19.1 per cent year on year as global electronics demand strengthened further. On a seasonally adjusted basis, February's industrial production grew 5.9 per cent from January, the Economic Development Board said yesterday. (Source: BT Online)

§ Visitor arrivals to Singapore jumped 24.2 per cent year-on-year to 857,000 last month, the highest ever recorded in the month of February. Visitor days came in at 3.3 million days, up 16.3 per cent compared to the corresponding month in 2009. (Source: BT Online)

§ Leasing market for non-landed homes showed signs of recovery in the final quarter of 2009. Median rents saw their first quarter-on-quarter growth of 0.5 per cent following five quarters of continued decline from a peak in Q2 2008. The monthly median rent in Q4 2009 was $3.02 per sq ft. Occupancy rates also jumped, achieving 94.5 per cent in Q4 2009. (Source: BT Online)

Greater China Region

· An adviser to the People's Bank of China, Fan Gang, says the mainland could adopt a more flexible exchange rate policy once the global economy is back on a sure footing. In an opinion piece, Mr Fan warned that a revaluation of the yuan would not by itself resolve economic problems in the US such as high unemployment and a massive trade deficit. He said China 's politicians have a domestic agenda just like the Americans. The key element of that agenda is to maintain employment growth. (Source: PBOC)

· A residential site in Tung Chung will become the first site to be auctioned in the coming financial year. A developer triggered the sale by agreeing to submit a minimum bid of almost HK$2.9 billion. The size of the site is 26,200 square metres. The auction will take place in mid-May. It follows successful auctions of sites in Tai Po. (Sources: RTHK)

· Authorities revealed that the growth of new loans supplied by commercial banks remained relatively rapid in March. The new loans supplied by Industrial and Commercial Bank of China, Agricultural Bank, Bank of China, Construction Bank had reached nearly 2,000 billion yuan in the first two weeks of March, which is slightly higher than the same period of last month. - The new loans supplied by the whole banking sector are estimated at about 800 billion to 1 trillion yuan in March. Taking into account the quarter-end performance evaluation of commercial banks and strong corporate credit demand, the impulse of banks to lend is still evident in March.(Source: China Security News)

· On 25 March, the governor of Central bank Zhou Xiaochuan said when attending annual meeting of Inter-American Development Bank, that some of the special incentives can be gradually faded out only if convinced of the economic recovery. The necessary conditions for implementing exit policies also include "make certain that W-shaped economic recovery won’t appear, that is slowdown in economic growth again after experiencing a rebound." - Taking a gradual implementation of exit policies is easier to communicate and can be understood easily by market participants. (Source: PBOC)

· The deputy director of National Development and Reform Commission Xu Xianping revealed that the relevant departments were coming up with a guidance to speed up the development of Yangtze River shipping, aiming at fostering regional economy of Yangtze River as new economic growth of Shanghai shipping economy to drive the economic development of inland rivers. -On A-share market, the listed companies related to transport of Yangtze River area include such 4 port corporations as Shanghai Port Group, Chongqing Gangjiu,Wuhu Port, Hong Kong, Nanjing Port, and Chang Jiang Shipping Group Phoenix whose business focuses on water transport on Yangtze River.(Source: NDRC)

· ICBC announced its intention to issue convertible bonds of not more than 25 billion yuan in A-share market to supplement the capital funds. After this financing, ICBC's capital adequacy ratio will be 12% or more, indicating that in principle it will no longer seek new financing through capital market in the next three years. - Re-financing is needed to further improve capital structure, raise capital quality, and to meet credit needs. However, now ICBC's capital adequacy ratio is still better than the national average, so the specific time of issuing the bonds is still to be selected.(Source: ICBC)


· Foreign investors remained net buyers of Thai shares for a 24th consecutive session worth Bt1,007b last Fri. (Source: Bisnews)

· The Finance Ministry is ready to raise Thailand’s GDP growth forecast for 2010 to at least 4% from a previous estimate of at least 3.5% but the figures were still below actual fundamentals as ongoing political chaos would drag growth down below 5%, a source at the ministry said. (Source: Post Today)

· Thai political update: (1) The government and core leaders of the United Front for Democracy against Dictatorship (UDD) will hold a second round of talks in a bid to defuse political tensions today after failure thrash out their differences over conditions leading to a house dissolution yesterday as the red shirts put forward a timeframe of 15 days for PM Abhisit Vejjajiva to dissolve the parliament; and (2) a series of explosions hit Bangkok with the latest bomb exploding near a residence of former PM and veteran politician Banharn Silapa-archa at Soi Charan Sanitwong 57 Sunday night. (Source: Krungthep Turakij)

· PM Abhisit Vejjajiva may decide to impose the International Security Act (ISA) in the resort town of Hua Hin to maintain law and order during the Mekong River Commission (MRC) Summit to be held from Apr 2-5, 2010. (Source: Bisnews)

· Finance Minister Korn Chatikavanji sent a signal of interest rate increases once the political situation returned to normal and the economy recovered. He also saw hot money flowing into stock markets but cited that the ongoing baht’s strength did not erode Thailand ’s export competitiveness as the currency appreciation was in line with currencies of its regional competitors. (Source: Krungthep Turakij)

Regional Market Focus for this week


§ On Friday (26Mar10), shares in Singapore closed higher, with the STI up by 17.91 points to 2,906.28. Gainers led losers 309 to 167. In the US , stocks initially rose after European Union leaders said they had agreed on a standby aid package for Greece , and after better-than- expected March consumer sentiment data. However, they sold off later during the day to close mostly flat, with the S&P 500 marginally higher by 0.86 point (0.07%) at 1,166.59.

§ Technicals for the STI seem to be leaning harder on the Shanghai Composite at this point in time. The STI continued higher on Friday despite a very obvious rejection of key resistance in the S&P 500 the day before (Thursday, 25Mar10). The Shanghai Composite on the other hand, rallied 50 points from its low on Friday.

§ Price action wise, the technical outlook is currently somewhat unclear due to the conflicting direction given by Shanghai and the S&P 500, as well as the STI’s seeming inability to decide which side to bank on more. We go back to watching key support & resistance levels for clues on the STI’s direction. Resistance is at 2,910 and 2,932 respectively. Support is in the 2,885 to 2,880 region, then 2,870 to 2,865. A breach of support/resistance will give us a directional bias for the STI.

Hong Kong

§ Hong Kong market rallied and the benchmark indexes upped by the most in a week; on the speculation European leaders will form an agreement to ease Greece ’s debt problems. The HSI and the HSCEI gained 274.56pts and 147.84pts respectively settled at 21053.51 and 12050.33. Market turnover was 60.28 billion.

§ We expected that the recent low last week, which closes to 20700 would be, a critical support for the HSI. The US market may consolidate at recent high level and swing within a relatively narrow range before non-farm payrolls announcement this Friday, which limits the upside potential of benchmark indexes. Besides, the volatility of benchmark indexes would be higher resulting from the tightening measures to cool the mainland properties markets. Expected support and resistance today are 20900 and 21258 respectively.


§ Thai stocks were extremely volatile throughout the session last Fri before succumbing to a heavy bout of profit taking in late market trading on risk aversion ahead of the red-shirt’s rally over the weekend. The composite SET Index ended the session down 5.5 points in lighter volume while foreign investors remained net buyers of local equities.

§ Even though foreign investors continued to buy local shares for a 24th consecutive session, pushing the main index higher by as much as 11%, net foreign buying was however showing signs of abating in some regional markets, leading to heightened speculation on when foreign fund flows would reverse. Such speculation also led to rising market volatility during the session. In the near term, we still give more weight to the political factor as a second round of talks between the government and the red shirts will take center stage today after failure to reach any common ground on parliament dissolution proposed by anti-government protesters to end the ongoing political stalemate yesterday. On the external front, concerns over Greece ’s debt problems appear to be abating somewhat. In a big picture, we believe the overall Thai market is likely to see a choppy session with a positive bias today.

§ For today’s strategy, we advise investors to look for laggard plays relative to peers or the broad market.

§ Today, resistance on the main index is expected at 793-800 and support at 772-763.

Thursday, March 25, 2010

Stocks fall after agency cuts Portugal debt rating

NEW YORK (AP) -- Major stock indexes fell from their 2010 highs Wednesday as weakness in the housing market and rising European debt loads revived investors' pessimistic view of the economy.

The Dow Jones industrial average fell about 53 points. It was only the Dow's second drop in 12 days. Broader stock indexes also slid.

Treasury prices tumbled after a government debt auction drew only modest demand for a second straight day. That raised concerns that the government will have to pay higher interest rates to attract buyers for its debt. Washington has been issuing record amounts of debt to help revive the economy.

The drop in stocks came after Fitch Ratings lowered Portugal's credit rating. The agency said the country's recovery will be slower than others that use the euro. Fitch contends that could hurt Portugal's ability to repay its debt.

Deficit problems in Europe have been one of the few drags on stocks this year. Rising debt in Greece, Portugal and other nations that use the euro have investors worried that troubles there could upend a nascent global recovery.

I'm sure this has been one of the major weakness in the market, which it would not recover so fast. Anyway just stay alert for the time being for slow recovery.

Brain Bliss