A reader recently commented about why is it that the $1 million figure always seems to pops up when people discuss about retirement and asked if this is really true.
My answer was ‘everyone’s number is different, there is no one size fits all”. The amount you need for retirement can be very different from your colleague sitting next to your cubicle.
The 4 key factors that determine Your retirement number:
1) Lifestyle
Do you plan to still work part time or fully relax after you retire? Do you plan to live simply or go for long holidays overseas? The more luxurious your retirement lifestyle, the more funds you will need to set aside to support it.
2) Retirement Age
The earlier you plan to retire, the longer your funds will need to last you till your expected lifespan. This also determines when you start to draw down on your funds and therefore the amount of time you have to accumulate the funds.
3) Expected Lifespan
The average life expectancy is 85 for women, 83 for men and Singaporeans aged 65 now has a 1 in 2 chance to live beyond 85 and 1 in 3 chance to live beyond 90. Of course this also depends on individual health status and lifestyle.
The longer your life expectancy, the more number of years you need your savings to last.
4) Rate of Return
If you leave your retirement savings all in bank or FD earning 1%, will need even more to keep up with inflation, but if you are able to generate higher return e.g 8%, your money will still grow at 5% after netting off inflation of 3%. The harder your money works, the less you will have to.
So how do you find out how much you need to retire?
To answer the burning question – how much is enough?
Consider 4 questions below to figure out how much you really need (based on the four factors listed above):
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How much do you need to support your desired retirement lifestyle?(based on today’s dollar)
Here are some tips to help you determine this:
- Start with a list of all your current monthly expenses e.g food, transport, mortgage, entertainment, insurance etc.
- Go through it looking for areas that you can or will reduce in retirement and deduct them off your current expenditure figure. For example – your fuel or ERP costs may be reduced if you expect to be driving less often during peak hours; your mortgage and other liabilities may be fully paid up by the time you retire.
- Next, consider any new expenses like escalating health care costs and insurance premiums, and other expenses for enjoyment during retirement like holidays and new hobbies.
If you are nearing your retirement, a quick estimate you can consider is to use 70-80% of your pre-retiree income as a gauge.
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When do you plan to retire?
The current retirement age in Singapore is 65, though you may wish to retire early than that. What is your desired retirement age?
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How long do you estimate your retirement to last?
For example, if you expect to retire at age 60 and expect to live til 85, then you need to plan for your income to last 25 years.
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What’s your return on investment?
What kind of savings and investments do you currently have for your retirement funds and what’s the average return you expect to get?
While past performance is not an indication of future performance, it can help as an estimate for initial computation. The key is in reviewing the performance of your investments to see if it is performing accordingly to your expectations so you stay on track towards your retirement goals.
Calculating your golden number
There are many useful online calculators and resources to help you calculate your golden number, so no need to worry even if you are no good with figures!
One useful resource I like and often share is the CPF retirement calculator https://www.cpf.gov.sg/eSvc/Web/Schemes/RetirementEstimator/RetirementEstimatorLanding
Simply key in the figures you have from the above 4 questions and you will be able to see how much you need to accumulate by the time you retire to support your desired lifestyle. You can even have a chart showing you how much you need to save to reach that figure.
Have fun experimenting with the figures!
Share with us – What is your golden number? Does it coincide with the commonly touted $1million or is it very much different?
To Your Success and Happiness,
Yong Hui
P/S Determining the amount you need for retirement is the 1st of the 5 steps involved in planning a happy retirement, to find out what the rest of the steps are and how to retire happily with confidence, register for a complimentary retirement roadmap session here
Hi Yong Hui,
Let me start by complimenting your good English. Besides your good English, your articles are also well written. It always makes my day whenever I come across locally written blogs that have these two attributes. They make reading them a pleasure.
Now back to the topic of calculating the savings for retirement. I noticed two different guidelines were given for gauging the expenses upon retirement. The one given here stated a rough guide of 70-80% of pre-retirement income, while another given in your earlier article stated 50-70% of your pre-retirement expenses. These two guidelines can and do result in very different numbers.
Personally I find the one that is based on expenses more realistic and practical. For example, for a couple who are near to retirement and have paid up for their home, their expenses could only be 30-40% of their income. When in retirement, living on 70% of that expenses would be much more within reach as opposed to trying to achieve a post retirement income of 70-80% of their pre-retirement income.
Anyway, the above is just a small remark. You rightly pointed out that the “number” is different for every individual. For me, it is not so much how much to save before I retire, but it is about establishing a stable and adequate stream of passive income.
Hi Nicholas, thank you for your kind compliments and I’m happy to see that you enjoyed the articles at my blog!
I absolutely agree with what you mentioned about establishing passive income for retirement. In my 5 step guide to planning a happy retirement, I wrote about the 2 approaches to funding one’s retirement, the first of which is the commonly touted accumulation route to save up a lump sum, and the other is via income generation like what you mentioned. Feel free to download an complimentary copy of the guide here https://yonghui.sg/free-retirement-guide