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Retirement Planning In Singapore: How Much Do I Need To Save And Invest To Retire At 55?

Between $450,000 and $650,000.


This article was first written on 5 September 2018 and updated with the latest information

Retirement planning in Singapore can be quite daunting to think about. Being one of the world’s most expensive countries to live in, it’s important for Singaporeans to start planning for their retirement early.

The official retirement age in Singapore is 62. However, CPF LIFE payout only commences from age 65 onwards. This means if you wish to retire earlier, say at age 55, you will need to find other sources of income to cover your living expenses.

But how much exactly would you need to save and invest to retire at 55?

Read Also: What Is The Difference Between Retirement Age And Re-Employment Age In Singapore?

Monthly Expenses Needed

Before you can determine whether you have enough to retire at 55, you first need to have a comprehensive understanding of what’s your average monthly expenses. Logic dictates that the lesser you spend each month, the easier it will be for you to retire.

When it comes to how much money you need, some people simply base it on what’s the median income in Singapore. However, this may not be the most accurate way to estimate how much you need.

The best way is of course to calculate how much you typically spend each month. For this article, what will do is to rely on data from Singstats to guide us on how much we need.

According to Singstats, a household which is led by someone who is between the age of 50 to 59, spend an average of $4,837 per month. These households tend to have an average of 2.1 working person. Do note this is based on a 2016 report so the amount may be higher today.

Source: SingStat

If we divide the average expenditure of $4,837 by two, it means an individual needs to have an income of about $2,419 per month, in order to retire at age 55.

For both couples to retire, they will need on average $4,837 per month. However, for the purpose of this article, we will only take into consideration the amount needed for one person to retire.

Funding Your Retirement

For a start, let’s consider CPF.

If you set aside the Enhanced Retirement Sum (ERS) of $279,000 (as of 2021) by age 55, you will start receiving a monthly payout of about $2,155 at age 65. Utilizing CPF is probably the most cost-effective way for retirement planning in Singapore.

Read Also: Why You Should Maximise Your CPF LIFE Before Other Private Annuity Plans?

However, this leads to two further questions.

Using Our Savings Only

Firstly, $2,155 is still about $264 short of our target of $2,419. Secondly, CPF LIFE payout only starts from age 65, which means we cannot retire at 55.

To solve the first question, what it means is that we need an extra $264 per month or about $3,168 per year. Assuming life expectancy till age 85, we will need about $63,360 in savings to cover the shortfall in the amount we get from CPF LIFE from age 65 to 85.

To solve the second question, for an individual to retire at age 55, the person will need an average of $2,419 per month, or about $29,028 per year, over a period of about 10 years.

An easy way to calculate this is to assume that an individual funds his/her early retirement solely through savings. In this case, the person would need about $290,280 in total to fund an early retirement from age 55 to 65, before the CPF LIFE payout commences at age 65.

Here’s a simple table to illustrate the amount needed, in order to receive a payout of $2,419 from age 55 to 85.

Age 55 to 65 Savings Needed $290,028
Age 65 To 85 Additional Savings Required

CPF LIFE For Enhanced Retirement Sum

$63,360

$279,000

Total Amount Needed At Age 55 $632,388

In total, the individual will need about $632,388 at age 55 in cash and CPF to retire and to receive $2,419 per month.

Listen: The DollarsAndSense Podcast Episode #1: What Is Retirement, Anyway?

Earning Interest On Our Savings

However, we should not simply leave the amount we have saved into an account that pays us zero interest. Since we only need to draw down this amount monthly, we should leave the unused amount into an account that pays us interest.

One obvious account that we can leave our savings untouched will be our CPF Ordinary Account (CPF-OA), which pays an annual interest of 2.5%. Of course, this is not the only account that you can use and you can also consider other high-interest savings accounts.

With an annual interest of 2.5% per annum, we will need about $261,000, and not $290,280, in order to get a payout of $2,419 from age 55 to 65. This is because our savings are also earning interest each year even as we slowly draw down on the principal.

In order to make up for the shortfall of $264 from age 65 to 85, we will need about $40,000 at age 55, at an interest rate of 2.5% per annum. This assumes that the money grows from age 55 to 65, with a monthly withdrawal of $264 from age 65 onwards for a period of 20 years.

Lastly, we will also need $279,000 in our Retirement Account at age 55.

Age 55 to 65 Savings Needed (assuming 2.5% interest) $261,000
Age 65 To 85 Additional Savings Required

CPF LIFE For Enhanced Retirement Sum

$40,000

$279,000

Total Amount Needed At Age 55 $580,000

Funding Our Retirement Through Investments

Another way to fund our retirement will be through investments.

In order to enjoy a passive income of $2,419 per month, or $29,028 per annum, we will need a portfolio size of about $580,560, based on a dividend/interest income of about 5% per annum.

The good thing about this method of calculation is that we can receive lifelong dividend/interest income, without having to draw down on our principal investment.

If we were to draw down on our principal investment each year, and still continue to earn 5% per annum, we will need a portfolio size of $450,615. This will provide us with a passive income of $2,419 a month till age 85. Under this method, we will need a smaller portfolio since we will be drawing down on our principal each year, but this also means that we will be left with nothing at age 85.

There are two big assumptions that we are making here which we need to point out.

Firstly, we are assuming our portfolio size remains constant throughout the duration. Secondly, we are also assuming that the dividend/interest income of 5% remains constant throughout the duration.

While these assumptions are necessary for ease of calculation in this article, they hardly ever apply in the real world, where markets constantly move up and down, and where dividend/interest changes all the time. So you need a margin of error.

How You Fund Your Retirement Matters

To sum it up, how we intend to fund our retirement is just as important as how much we need, and when we hope to retire. If you are relying purely on savings alone, without earning ongoing interest on your savings, then you would need a much larger sum of money in order to retire.

Through the Enhanced Retirement Sum, CPF LIFE is able to give us about $2,155 per month. In practice, this is probably the most cost-effective way for Singaporeans to get started on retirement planning. However, the payout only starts from age 65 onwards.

In order to retire at 55, Singaporeans ought to have a mixture of both CPF and investments. This will give them the best of both worlds as they can earn a higher return from their investments, while concurrently getting the good risk-free interest provided by CPF.

Retirement Planning In Singapore: 3 Lesser-Known Facts About CPF LIFE

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