Retirement Planning: Is S$1 Million Enough?

For the longest time, the retirement sum of S$1 million is a benchmark to reach for many Singaporeans. They believe that hitting this magical number will make your golden years comfortable and without worries. However, whether this is the magical retirement sum or not, varies substantially from person to person.

To those who are just starting out in their career, retirement planning might seem far away. However, think about this: You are starting out in the workforce at 20 years old. Starting from your first salary, you will need to save $2000 a month for the next 42 years to give you that $1 million in savings. This simply means that you have to work until you are at least 62 to accumulate $1 million. What if after all you have saved, $1 million is not enough for you to retire comfortably?

Singaporeans’ Retirement Preparation

It is important to know that when it comes to retirement, everyone’s needs are different. Retirement planning is not a one-size-fits-all solution. How much you will need to retire as a single will differ vastly compared to a married individual or someone with children. Regardless of social status, a survey done in 2014 found that the majority of Singaporeans are not prepared for retirement. “Many respondents hope to retire comfortably but only a minority are actually taking tangible steps to meet that goal.”

Furthermore, a 2019 survey found that “a single man or woman aged 65 and above would need at least $1,379 a month to sustain it (basic living standards). A couple aged 65 and above would need $2,351.” This calculation includes “occasional inexpensive meals out with family or friends, homes that are safe and comfortable, and an annual holiday to a nearby destination at a cost about $500.” This survey leaves out “extravagances” such as air-conditioning and a car, and also assumes the elderly to be in good health without any mention of inflation.

Here at Planner Bee, we proceed to investigate how far $1 million can take you during your retirement. We have prepared the following scenarios based on the magical retirement sum of $1 million, taking into account annual inflation of 2%.

Scenario 1: Adam – Simple and Minimalistic Living

Adam is a super-saver and aims to live simply in his golden years. Trusting the 2019 survey he read in the Straits Times, he believes the basic expenditure of $1379 monthly will be sufficient.

Retirement sum: $1,000,000

Inflation: 2%

Year in retirementMonthly expenditure after inflation
Retirement sum left

Taking into account an annual inflation rate of 2%, Adam can survive 40 years on his $1 million savings. However, Adam must make sure to have a clean bill of health in his later years and that inflation remains at 2% or lower to live with his initial budget of $1379.

Scenario 2: Clare – Living Comfortably with Small Pleasures in Life

Clare cannot live without air-conditioning and occasional trips to Bangkok or Taiwan with friends are in her retirement plans. Doubling the basic living expenditure and adding a little more, Clare believes she can enjoy her retirement years with $3000 monthly.

Retirement sum: $1,000,000

Inflation: 2%

Year in retirementMonthly expenditure after inflation
Retirement sum left

Taking into account a 2% annual inflation, Clare is looking at 22 years of retirement before her $1 million savings run out. While she gets to enjoy her golden years, the forecast does not look ideal for her as Clare plans to retire by 50. Similar to Adam, Clare also needs to make sure that she is in the pink of health in her golden years and that inflation does not exceed 2%.

It is crucial to note that Singapore’s year-on-year core inflation in June 2022 is at 4.4% and the year-on-year headline consumer price index, or overall inflation, is at 6.7%, a much higher percentage than the scenarios we had shown.

Planning Retirement Early

While there are no correct answers to the right amount you will need for retirement, it is always good to look at your options as early as possible.

The earlier you start investing your savings, the more time you have to build your retirement nest egg. Investing your savings, especially into lower-risk products, can help mitigate the effects of inflation. It can also help you compound your wealth over more years before you ultimately need to dip into your savings.

Read more: When Should You Start Planning for Retirement?

Here, we look at an example of how investing can help to fortify your retirement.

Scenario 3: Lena – Living Comfortably with Investments

Similar to Clare, Lena wants to live comfortably in her golden years. However, Lena seeks out investments to strengthen her retirement nest egg. She aims for a 3% return on investment (ROI) to beat inflation. Furthermore, Lena begins investing her $1,000,000 savings five years before she retires.

Retirement sum: $1,000,000

Inflation: 2%

Investment returns: 3%

Year before retirement
Retirement sum accumulated

By the time Lena retires, she starts her retirement nest egg with $125,508.81 more than the million dollars she had five years ago. Even as she starts using money from her retirement sum, Lena continues to invest the remainder at a 3% ROI.

Year in retirementMonthly expenditure after inflation
Retirement sum left

With the same retirement sum of $1 million and a monthly expenditure of $3000, Lena could retire comfortably for 38 years before her savings runs out. For Clare who did not invest her retirement savings, it only lasts her for 22 years, a whopping 16 years less than Lena!

Do you strive to be Adam, Clare, or Lena in your golden years?

Retiring Well

Essentially, how well you retire depends on the choices you make before you hit the retirement age. To ensure your savings can sustain your lifestyle after you retire, it is important to plan early.

Here at Planner Bee, we are committed to helping our readers better plan their retirement. Check out our guides on How to Prepare for Retirement and 5-Step Plan to Investing for Retirement. How To Complement Your CPF Life With an Annuity Plan is also a great piece on retirement planning with annuity and CPF plans. Alternatively, come talk to us at ask@plannerbee.co to understand your retirement options better!

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