I just read this article (Young Asian adults likely to face cash crunch in retirement) from The Straits Times and it pains me to read that the main reason for the alarming headline is due to a mortgage.

Young adults – so-called millennials – in the region are at substantial risk of a cash crunch in their later years, with many expecting to carry mortgage debts into retirement or even run out of money altogether.

I’m not against property as a form of investment but it’s pretty apparent that some young couples in Singapore are buying property that they have to take a 25 to 30-year mortgage to pay for. 20 to 30 years is essentially the entire working life of a person and if most of one’s CPF is used to pay the mortgage, CPF is going to be useless as far as retirement is concerned.

Some people may be banking on the fact that wages, in general, go up over time and hence their future increase in wages will be the solution to their retirement needs. There are two reasons why this is a terrible plan. One, saving at a later age means that money has less time to compound. Two, mortgages are typically pegged to floating rates. We have been in a low-interest rate environment for a long time. Any future increase in wages is likely to be offset by the fact that the mortgage will cost more in future too.

The most likely scenario for people who have over-stretched themselves on an expensive live-in property is to either downsize to a cheaper place or to use some sort of reverse mortgage on the property in retirement. Either way, it still means being a slave to your property for a long time.

The best thing young couples can do is to buy a home that is within their means. It’s a time-tested, age-old advice that still remains true to this day.