How Much Should I Have In Savings And CPF To Have A Comfortable Retirement?
The short answer to this question is: “It is anyone’s guess”.
Fortunately, there’s a longer answer that can help us determine what we need to have a comfortable retirement.
While we are in our 20s, many of us dismiss retirement planning as something that is not urgent. The problem with this mindset is that there will always be urgent things for us to consider regardless of the stage of life we’re at or how old we are. Planning for our retirement should start the moment we start working to give us the best chance of a comfortable retirement.
How Much Do You Need In Retirement?
No two individuals will need the same amount in retirement. This is because different people will lead different lifestyles and have different expectations in retirement.
Starting at this point, we can use our current monthly expenditure to determine how much we will likely need in our retirement. List down everything you spent on in an entire month and determine how much of it will likely be cut out by the time you retire.
When we’re younger, many of us will have expenses that we’re likely to be able to cut out by the time we retire. This includes servicing housing loans and car loans, giving our children an allowance and paying for their school fees, paying for gym memberships, shopping for work clothes or even setting money aside for retirement.
Of course, many expense items will continue to stay once we’re in retirement, including utility bills, telecommunications bills, cable subscription bills, grocery shopping, transport expenses, entertainment expenses and many others. In some instances, we could even see greater expenditure in areas such as healthcare or employing help to upkeep homes.
Based on our current levels of expenses, and cutting out what we’re likely not required to continue spending on in retirement, we arrive at an estimate of how much we may need in retirement.
So How Much Do We Really Need In Retirement?
As mentioned, this isn’t an easy question to answer, nor will it be an exact figure for everyone. For a good estimate, we can use some insights from the Singapore Department of Statistics (SingStat) to determine what we may need to spend on in our retirement.
Based on a SingStat survey in 2012/13, the average monthly household expenditure per household member in the 41st to 60th quintile, in retiree households, was $720. This is a mouthful, but it simply means that each retired person in the middle 20% of households, spent $720 per month.
Since 2002/03 when the survey was done, retirees have seen their expenses rise 5.3% per annum. If we extrapolate this, here is the approximate amount you will need in retirement.
|Age Today||Number Of Years To Retirement||Amount You Will Spend In Retirement|
Sounds Like A Lot Of Money – Here’s Why You Don’t Need To Worry (That Much)
Firstly, you don’t need this amount in your bank account the day you retire. You need to understand that you’ll likely spend this amount during the the duration of your retirement. This means that your money can still be invested, and earn interests and returns, while you are 65 to pay for expenses years down the road.
Another consideration is that you won’t need all of this money in cash. You can still rely on your CPF savings, in particular, your monthly CPF Lifelong Income For The Elderly (LIFE) payouts to cover your expenses in retirement. One problem you may face is that while your CPF Special Account (SA) savings compound at 4.0% per annum, it looks like the increase in spending in retirement is higher at 5.5% per annum.
This figure should already account for inflation, barring unforeseen circumstances. The current figures you see in your take-home pay, investment portfolio and CPF balances do not. Hopefully, between now and when you retire, you will be able to see your savings and CPF balances rise in tandem.
Of course, we’re also taking the middle 20% of the population in consideration, depending on your ability to spend when you retire, you could fall in the top 20% or even bottom 20% – the reality is that you will still be able to have a retirement. Do note that in the calculations, we take into consideration retiree households, and this means even the bottom 20% are retirees.
Lastly, while 65 is the retirement age today. There’s no guarantee that we can’t work beyond that age. Already the government has implemented a re-employment age of up to 67, and this may follow more adjustments. Even if we aren’t able to keep up with expenses, we can always try to take on some work or even choose to rent out a spare room in our flat to keep up with expenses if our savings and CPF balances aren’t able to afford that for us.
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