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.

Legend

OA - Ordinary Account

SA - Special Account

MA - Medisave Account

RA - Retirement Account

HDB Loan Calculator

This file does a pretty accurate calculation of your HDB Loan, provided you key in the correct information in the blue cells. If you have not obtained your HLE, assume the full amount for the moment.

HDB LOAN CALCULATOR - DOWNLOAD

Take note that the maximum loan period is 25 years or until you are reach 65 of age, whichever is lesser.

The interest rate is based on the current concessionary rate of 2.6%. This rate is adjusted every quarterly, in January, April, July and October each year. Current HDB market interest rate is actually 3.38%

The file gives you 4 options

1. Calculate by loan period with a maximum of $40,000 (combined) parked in CPF-OA
2. Calculate by loan period without any amount parked in CPF-OA
3. Calculate by desired monthly payments with a maximum of $40,000 (combined) parked in CPF-OA
4. Calculate by desired monthly payments without any amount parked in CPF-OA.

You can choose to see either with maximum $40,000 (combined) parked in CPF-OA or without for the loan breakdown.


MAXIMUM OF $40,000 (COMBINED) IN CPF-OA

The option of having a maximum of $40,000 (combined) parked in CPF-OA is included because the first $20,000 in each individual CPF-OA earns extra interest of 1% making it a total of 3.5%, which is higher than HDB 2.6% interest rate. It means you are better off keeping that amount to earn that extra interest, if you can afford to*. Look at the calculated actual interest paid to make the comparison of having any amount parked or not.

Although the extra 1% interest goes into your Special Account and you will not be able to use it for other purpose except for retirement, it goes into meeting your Minimum Sum later on when you retire. That means, there is more of your Ordinary Account to draw out from when you reach the age of 55.

Having a maximum of $20,000 in your own CPF-OA on standby will also come in handy if you are unable to service your mortgage when there are no contributions to your CPF-OA for a period of time due to lost of income etc. The number of months that amount can help you out will be

Amount parked / monthly installment = number of months you are covered


MAXING OUT MONTHLY INSTALLMENT USING CPF-OA CONTRIBUTION

To know if you need to top up in cash on top of your monthly CPF-OA contribution to pay for your monthly installment, take note of the table below. All you need to concentrate on is the amount credited into your Ordinary Account (as highlighted in blue). If the amount is lesser than your calculated monthly installment, it means you have to top up the difference in cash.

Take note the percentage decreases as you grow older so if your income do not increase as you age, it means you have to top up more after every stage in the table. So take note if you plan to max out your monthly installment using your monthly CPF-OA contribution.

The file provides an estimate of the monthly cash top up that you may need to make.

Employee Age (Years)	Contribution Rate (for monthly wages ≥ $1,500)			Credited into
	Contribution by Employer (% of wage)	Contribution by Employee (% of wage)	Total Contribution (% of wage)	Ordinary Account (% of wage)	Special Account (% of wage)	Medisave Account (% of wage)
35 & below	16	20	36	23	6	7
Above 35-45	16	20	36	21	7	8
Above 45-50	16	20	36	19	8	9
Above 50-55	14	18.5	32.5	13.5	9.5	9.5
Above 55-60	10.5	13	23.5	12	2	9.5
Above 60-65	7	7.5	14.5	3.5	1.5	9.5
Above 65	6.5	5	11.5	1	1	9.5

*  If you are a first timer, you may not have the luxury of  maintaining any amount in your CPF-OA as it will be emptied when you apply for HDB loan.

To pay off or not to pay off

"Since the interest rate for the 1st $20,000 in your CPF Ordinary Account is higher than the interest of the HDB Concessionary Loan, it would not be prudent to transfer the funds from your CPF Ordinary Account to pay off part off your housing loan as the yield earned on the CPF Ordinary Account is higher than the interest expense of the housing loan"

- http://www.moneytalk.sg/2009/03/cpf-and-hdb-loan.html

"An additional 1% interest will continue to be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA). The additional interest received on the OA will go into the member’s SA or RA to enhance his retirement savings"

- http://mycpf.cpf.gov.sg/Members/Gen-Info/Int-Rates/Int-Rates.htm

So it make sense to keep the first 20k of your OA as it will earn higher interest compared to HDB loan interest rate. Anything above 20k are better off used to settle our HDB loan.