Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Tuesday, 19 May 2015

Reaching Retirement is Tough

22:11 Posted by cheez , 2 comments
Reaching your retirement tough, especially with inflation, low interest rates and longevity.
The amount that we are saving might not be sufficient for us to retire at the age we feel we should be retiring.

Assuming you make the income as per below.
Assuming you save 20% of your monthly income, and there is no inflation.
Age Monthly Income Annual Savings
20 - 24 $2,000 $4,800
25 - 39 $2,500 $6,000
30 - 34 $3,000 $7,200
35 - 39 $3,500 $8,400
40 - 44 $4,000 $9,600
45 - 49 $4,500 $10,800
50 - 54 $5,000 $12,000
55 - 59 $5,500 $13,200
60 - 64 $6,000 $14,400

When you reached age 65, you would have saved $216,000 in total.
Below is the retirement income you can get depending on how long you think you can live.
Live Till Retirement Years Monthly Income
95 30 $1,200
90 25 $1,440
85 20 $1,800
80 15 $2,400
75 10 $3,600
70 5 $7,200

Base on the above 2 tables, we can tell that the longer you live in your  retirement, the less you get monthly from your retirement fund.
Retirement is going to get tougher as we live longer unless we push it back to after age 65.
Currently, if we start working at age 20, retire at 65 and live till 90, we are using 45 years of work to support 25 years of retirement; that's nearly equivalent to using half your monthly salary to support 1 month of your retirement, which technically, is fairly insufficient.

Several facts below:
1) On average, 1 year is added to your estimated lifespan every 10 years.
2) People used to live till 60+ 70, so retiring at 55 would still get you a fairly good monthly retirement income (35 years of work to support 15 years of retirement).
3) Retirement is going to get tougher as you live longer unless you work longer.

Sadly, most people will never have a scenario where there is no inflation. Most people will see inflation being higher than the interest they can receive, which erodes away their money's value.

*Above assumes a saving rate of 20%, which is the amount Singaporeans technically "save" via a compulsory retirement scheme call Central Provident Fund (CPF).
Just a little heads up, if you are unable to grow your retirement savings at a rate faster than inflation, chances are, you are going to have to work pass your retirement age to ensure you do not face any retirement income shortfall.

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2 comments:

  1. Unless we are super savers e.g. saving more than 60% of our net income, it is difficult to retire at official retirement age in Singapore without decent investment portfolio performance provide some cash flow support.

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    Replies
    1. Hi,

      Another way we can look at it is
      1) work pass retirement age
      2) tie the belt tighter during retirement
      3) Be financially savvy, subscribe to our blog, receive updates on how to improve your financials :)

      I guess CPF also plays its part, technically, it is like making you set aside money to last you till age 95.

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