Retirement planning in Singapore can be quite daunting. As one of the world’s most expensive countries to live in, it’s important for Singaporeans to start planning for their retirement early.
As of 2024, the official retirement age in Singapore is 63. 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 less you spend each month, the easier it will be for you to retire.
Some people estimate their need for money based on the median income in Singapore. However, this may not be the most accurate method.
In our view, calculating how much you typically spend each month is the best way. For this article, what will do is rely on data from Singstats to guide us on how much we need.
According to the Report on the Household Expenditure Survey 2017/2018, published in July 2019, resident households whose main income earner is between the ages of 55 and 59 have an average monthly household expenditure of $4,713.
Source: Report on the Household Expenditure Survey 2017/2018 (Page 114)
Based on a different report from Singstats published in 2016, a household that is led by someone who is between the ages of 50 and 59 tends to have an average of 2.1 working people.
If we divide the average expenditure of $4,713 by two, it means an individual needs to still generate an income of at least $2,357 per month to retire at 55. If both couples want to retire at 55, they will obviously still need access to $4,713 a month to fund their expenditures.
However, for the purpose of this article, we will only take into consideration the amount needed for one person to retire.
Please note that the expenditure data we have taken is from a survey done in 2017/2018, so the amount may be higher today.
Funding Your Retirement
For a start, let’s consider CPF.
If you set aside the Enhanced Retirement Sum (ERS) of $308,700 (as of 2024) by age 55, you will start receiving a monthly payout of between $2,280 and $2,450 (an average of $2,365). To cover our daily expenses during retirement, utilizing CPF LIFE 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 one main problem.
Using Our Savings Only
A CPF LIFE payout of about $2,365 a month is around the same amount as the $2,357 a month we mentioned earlier was needed to retire. However the CPF LIFE payout only commences from age 65 onwards. For an individual to retire at age 55, the person will need an average of $2,357 per month, or about $28,284 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 $282,840 in total to fund an early retirement from age 55 to 64, before the CPF LIFE payout commences at age 65.
Here’s a simple table illustrating the amount needed to receive a payout of $2,357 from age 55 to 85.
| Age 55 to 64 | Savings Needed | $282,840 |
| Age 65 To 85 | CPF LIFE For Enhanced Retirement Sum | $308,700 |
| Total Amount Needed At Age 55 | $591,540 | |
At age 55, the individual will need about $591,549 in cash and CPF to retire and receive $2,357 monthly.
Listen: The DollarsAndSense Podcast Episode #1: What Is Retirement, Anyway?
Earning Interest On Our Savings
However, we should not simply leave the saved amount in an account with zero interest. Since we only need to draw down this amount monthly, we should leave the unused amount in an account that pays us interest.
One obvious account that we can leave our savings untouched is 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; you can also consider other high-interest savings accounts.
With an annual interest of 2.5% per annum, we will need about $248,000, and not $282,840, to get a payout of $2,357 from age 55 to 64. This is because our savings also earn interest each year even as we slowly draw down on the principal.
Similarly, we will also need $308,700 in our Retirement Account at age 55 for the Enhanced Retirement Sum
| Age 55 to 64 | Savings Needed (assuming 2.5% interest) | $248,000 |
| Age 65 To 85 | CPF LIFE For Enhanced Retirement Sum | $308,700 |
| Total Amount Needed At Age 55 | $556,700 | |
Funding Our Retirement Through Investments Only
Another way to fund our retire at 55 plan would be through investments.
To retire at 55 with while enjoying a passive income of $2,357 per month, or $28,284 per annum, we will need a portfolio of about $565,680, based on a dividend/interest income of about 5% per annum.
The good thing about this calculation method 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 would need a portfolio size of $435,000. This will give us a passive income of $2,357 a month from 55 until 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 also assume 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 constantly. So, you need a margin of error.
How You Fund Your Retirement Matters
To sum 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 to retire.
Through the Enhanced Retirement Sum, CPF LIFE can give us about $2,365 per month. In practice, this is probably the most cost-effective way for Singaporeans to start retirement planning. However, the payout only starts at age 65 onwards.
Singaporeans should have a good mixture of CPF savings and cash investments to retire at 55. 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
This article was written on 5 September 2018. We have updated it with the latest information and an adjustment in the calculation
Advertiser Message
Get The Latest Bite-sized Investment News, Ideas & Insights
It's free! Don't miss out on the latest financial market movements. FSMOne aims to help investors around the world invest globally and profitably, follow FSMOne’s Telegram for bite-sized finance analyses and exclusive happenings.
