Thursday, February 14, 2013

What turning 55 might mean to you

As prices of HDB flats are sky rocketting, it is important to do your calculations right.

Buyers over 25 years old who took or plan to take a maximum of 30 years loan will have to take note of what is going to happen when they reach 55 as they will be affected.

When you reach 55, you can choose to withdraw the balance in your OA and SA and excess of $38,500 in your MA.

If you do decide withdraw, you will have to put aside MS of $139,000 (current sum) in your to-be-created RA. If you are not able to meet the MS, you can only withdraw $5,000.

Monthly payouts from your RA will only kick in when you reach 65. In other words, unless you have substantial savings, you will have to continue to be either employed or earning an income after you reach 55 for another 10 years in order to sustain yourself.

So if your housing loan is not fully paid by the time you reach 55 years of age, you have to ensure that you are able to continue servicing your monthly payments after that on top your own monthly financial needs.

If you use the maximum OA contribution to service your loan, you also have to take note of the decreasing percentage of your pay going into your OA as you grow older. The rates as as follows

Age                     %
35 & below      - 23
Above 35-45 - 21
Above 45-50 - 19
Above 50-55 - 13.5
Above 55-60 - 12
Above 60-65 - 3.5
Above 65          - 1

What this means is that by the time you reach 55, you have to be earning almost twice the amount of what you are earning when you are below 35 years of age to be able to have enough contributions in your OA to service your monthly loan payment, especially if you use your OA maximum monthly contribution amount currently to service your loan.

Therefore it is advisable to take up a housing loan that can be fully paid by the time your reach 55 unless you do not plan to withdraw from your CPF when you reach 55 and plan to continue working beyond 55.

OA - Ordinary Account
SA - Special Account
MA - Medisave Account
RA - Retirement Account

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