Becoming a millionaire has long been viewed as a financial milestone. It is a point where years of disciplined saving and investing begin to translate into financial security for you and and your family.
To put it in perspective, if you earn the CPF Special Account (SA) interest rate of 4.0% on a $1 million nest egg, you will generate $40,000 of passive income a year. This is nearly 1.5 times how much the average retiree household in Singapore spends annually. For reference, the Household Expenditure Survey 2023 found that retiree households spent $2,349 a month on average.
The knowledge that having $1 million to your name can sustain a basic standard of living for the rest of your life can be incredibly empowering.
But, how long will it take an average young Singaporean earning the median income to become a millionaire?
It Will Take 58 Years To Save $1 Million
The median income in Singapore is $5,500 today. But, you obviously can’t save and invest all of it.
Firstly, your salary will be about $4,860, after deducting your employer’s monthly CPF contributions. And, after deducting your employee CPF contributions of about 20%, it will be $3,888.
According to the Household Expenditure Survey 2023, the average monthly household expenses per person is about $2,435.
This means the average Singaporean will have around $1,453 in disposable cash at the end of each month.
Assuming you are able to save all of it, it will take you about 57 to 58 years to hit the $1 million-mark.
As you can assume your career to span about 40 years, roughly from 25 to 65 years old, it’s not really feasible to hit the $1 million mark by just saving money. You need to invest.
Read Also: What’s The Median Salary In Singapore (At Every Age, Gender, Education and Race)
It May Take 31 Years, If You Rely On Lower-Risk Investments
One benchmark rate that we can turn to for the long-term risk-free rate of investing is the CPF Special Account – which pays a floor rate of 4%. To be clear, this rate is not what the SA is supposed to pay out, but the government’s committed rate to help Singaporeans accumulate more for their retirement.
Let’s assume we can earn a return of 4% per annum on our savings instead. This will allow us to reach $1 million in 30 to 31 years.
For young Singaporeans in the workforce today, this starts to look achievable within your career.
If You Invest Globally, You’ll Only Take 21 Years To Reach $1 Million
Given the high inflation environment today, you may want to take on higher risk to earn a higher return. For those who have long investment horizons, you can ride out the economic ups and downs over the years to accumulate $1 million much more quickly.
Over the past 30 years, broadly diversified global equities, such as the S&P 500 ETF has delivered over 10% return per annum.
Doing this may cut the time you take to accumulate your $1 million nest egg by a third. You can get there in 20 to 21 years.
Read Also: How Much Money You Should Have In Savings (And/Or Investments) According To Your Age In Singapore
You Can Get There in 12 to 13 Years Depending On Your Median Salary
For those who work in PMET roles, the median monthly take-home pay is closer to $5,061. Similarly, for those who have a Degree qualification, the median monthly take-home pay may be $6,000.
This might be one reason why the government has been intent to get Singaporeans to achieve higher formal qualifications and upskill themselves in recent years.
Someone with a degree and a take home-pay of close to $6,000, will be able to set aside $3,565 a month – after taking the same average household expenditure into account. This is over $2,000 more each month compared to someone earning the median income.
This person will be able to build a $1 million pot within 12 to 13 years. And, this shows the power of both setting aside more and aiming to earn 10% return per annum.
The Average Singaporean Can Still Reach $1 Million Nest Egg
Another thing to note is that we are not taking CPF contributions into consideration, which can be another 37% of your salary, as well as earning 4% per annum on your balances. Again, this will help you hit the $1 million nest egg faster – if you take it into account.
Another reasonable expectation is that you cannot simply rely on saving money. You have to make your savings work for you – by investing. You should also strive to increase your earning power. In general, employees who work in PMET roles or have a Degree qualification tend to have the highest earning power.
For those starting early and have a long investment horizon, the historical returns have shown that you can expect 10% return per annum. This would have helped you beat the rate of inflation.
Finally, you must consider the purchasing power of your retirement nest egg in future. What you can buy with $1 million in 30 years is very different from what you can buy with $1 million today. This just shows that you must start investing early.
Read Also: $930 To $2,548 A Month: Here’s How Much You Need To Spend During Retirement In Singapore Today
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