Monetizing Housing Equity to Generate Retirement Incomes
The public housing program and the unique way of financing housing through the mandatory savings system in Singapore have created a class of homeowners. This paper compares the instruments available to different flat owners to monetize their assets, including the Lease Buyback Scheme (LBS), subletting, downsizing and reverse mortgage. We estimate the present value of retirement incomes derived from these options by incorporating the survival probability which is forecasted using the Lee-Carter demographic model. We compare the monthly payouts that can be unlocked and discuss the tradeoffs of adequate retirement with the elderly preference for leaving a bequest and ageing in place. Our results show that LBS is the most attractive option. It allows the elderly to age-inplace while generating a steady stream of monthly drawdown and possibility of leaving a bequest. Subletting releases housing equity while retaining the asset. This helps the elderly to fulfill their bequest motive. Reverse mortgage is the least attractive option, yielding the lowest retirement income due to high loading factors.
|Date of creation:||Jan 2009|
|Contact details of provider:|| Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200|
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- Palacios,Robert J. & Pallares-Miralles,Montserrat, 2000. "International patterns of pension provision," Social Protection and Labor Policy and Technical Notes 98252, The World Bank.
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- Palacios,Robert J. & Pallares-Miralles,Montserrat, 2000. "International patterns of pension provision," Policy Research Working Paper Series 98252, The World Bank.
- McCARTHY, DAVID & MITCHELL, OLIVIA S. & PIGGOTT, JOHN, 2002. "Asset rich and cash poor: retirement provision and housing policy in Singapore," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(03), pages 197-222, November. Full references (including those not matched with items on IDEAS)
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