Mention retirement in front of a bunch of Singaporeans and everyone instantly starts griping about the rising cost of living, low wages and having to work from the cradle to the grave. But ask if they know exactly how much they need to retire and the room falls silent.
I don’t claim that it’s possible to know exactly how much you’ll need when you retire or exactly when you can get there. But here are some things you need to consider when planning your retirement.
With the government trying to convince people that you don’t need that much to retire and internet users vehemently denying it, most people are simply confused.
There’s no easy answer when it comes to estimating your retirement costs. Some people will say they can move in with their kids and need only to cover their living expenses, while others might factor in the cost of maids, cars and overseas trips.
Most people take their estimated yearly expenses, multiply by 30 years and then adjust for inflation.
You then calculate how much you will have in CPF and how much you can start withdrawing at what age, depending on whether or not you meet the minimum sum. The balance you will have to take out of your own savings and investments. This retirement calculator does the job for you.
Which brings us to our next point….
1. Downsizing a little now can go further than you think
Spending less now in order to retire later seems like a no-brainer. You need to save money to invest and build your retirement fund, blah blah, right?
The problem with this mentality is that when you’re looking at a desired retirement fund of over a million dollars, contributing $10 because you skipped that sandwich today doesn’t just seem futile, it seems downright pathetic. It’s no wonder retirement seems like a mythical two-headed beast to most young people.
The fact is, downsizing your lifestyle in your youth not only adds to your retirement fund, but also reduces the amount you actually need in your retirement fund to begin with.
Let me explain.
If you’re currently driving a Porsche and spend $2,000 a month on food alone, it’s obvious that suddenly downgrading to cooking at home every day and taking the bus everywhere the moment you hit 65 is going to be unrealistic.
On the other hand, someone who spends less than $1,000 a month in the present day is unlikely to have to budget $10,000 a month in retirement.
Also remember that every cent you invest today will be compounded, meaning $10,000 saved today becomes $26,533 in 20 years if you earn 5% interest. If you’re 35 years old now, it means what you’ve invested thus far will be more than twice the amount by the time you hit 55.
That means that colleague who earns the same amount as you but spends just $500 less can save $60,000 more every 10 years. If he invests wisely, in 20 years he’s going to be sitting on more than $150,000.
That also means that $5,000 you spent on a Chanel bag would have been $13,266 in 20 years if you had invested it at a 5% return. Ouch.
Use this compound interest calculator to see how much things are really costing you.
Hence, a guy who insists on living an expensive lifestyle today not only saves less than a frugal person with the same income, but will also need a significantly fatter retirement fund before he can stop working.
2. Semi-retirement is an option, but only for those who manage to save and invest early on in life
When you mention becoming semi-retired, many people will wrinkle their noses and say no! They’ve worked long and hard enough and the thought of doing part-time work when they’re old makes their hair stand.
But being semi-retired doesn’t have to mean doing 50% of the same work you’re doing now.
In fact, for those people lucky enough to have reached their retirement goals at an early age, being semi-retired simply means just earning enough to cover their monthly expenses.
Let’s say Person A has calculated that he needs $2 million to retire at age 65. If he has $500,000 in investments at age 35, in 30 years if all goes well he should have a sum of at least $2 million.
From ages 35 to age 65, then, our (very enviable) friend Person A can be in semi-retirement if he wishes. If he spends $2,000 a month, he needs only to earn this amount. If he earns even more than he needs despite being semi-retired, he can invest the money and either retire earlier or enjoy a more lavish retirement.
Clearly, the later in life you save up this money, the later you’ll be able to semi-retire, if at all. If Person A waits until he is 65 to start investing, he’ll need a full $2 million to retire.
Having passive income sources like renting out a room in your flat can help a lot at this stage. Some Singaporeans even choose to rent out their flats and move to JB or downgrade their existing flats when their children move out so they don’t have to work so hard anymore.
3. For many Singaporeans, it’s too late
As I said before, there is no easy answer due to the sheer range of circumstances people find themselves in.
People who look like they’re not earning much might have saved up or inherited money in their youth which has grown significantly in value over time. On the other hand, those earning above average amounts might also have above average expenses.
One thing that’s for certain is that there are many Singaporeans who will NOT be able to retire in this country, either because their wages are just too low or because they’ve started planning too late.
There’s no doubt that retiring in Singapore is way harder than it is in most other developed countries, at least those without chronic unemployment.
That means regular people have to put in a lot more effort to economise, save and invest in order to retire than your average Canadian or Australian.
That gives us one more reason to steer clear of the glitzy shopping malls that are constantly getting built to make us enslave ourselves further.
Do you have any other retirement tips? Let us know in the comments!
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