How much do you need to earn to retire? 3 young S’poreans share their retirement goals

Retirement.

What a sought-after dream in a country like Singapore.

Most of us may be able to relate to the three-stage life cycle of studying, working, and retiring (if we’re able to).

But with high inflation rates, salaries that may not keep up and those of us with costlier aspirations such as owning a home or starting a family, sweet, sweet retirement may seem a tad out of reach.

Proper financial planning is even more pertinent for those caught in The Great Resignation Wave (people who have resigned or intend to leave their jobs).

According to a poll done by life insurance company Prudential Singapore, one in five Singapore residents said that this career break had pushed back their retirement from age 58 to 64, six years later than planned.

To explore this topic, we spoke to three young Singaporeans in different stages of life to find out more about their retirement plans, and to find out just how achievable retirement actually is in Singapore.

Here’s what they shared.

The fresh graduate

Samuel Tan (not his real name) is a 26-year-old civil servant who graduated with a Bachelor’s degree from the National University of Singapore this year.

His parents are mostly financially independent, with Tan giving them 10 per cent of his monthly pay as a form of filial piety.

Besides personal expenses, he does not have any financial liabilities.

Here is a breakdown of Tan’s monthly expenditure, based on his monthly gross income (S$4,500 to S$5,500):

• 20 per cent CPF
• 20 per cent investments
• 10 per cent savings
• 25 per cent day-to-day expenses
• 10 per cent parents’ allowance
• 10 per cent tithing for church
• 5 per cent insurance

According to Tan, his father had ingrained in him the idea that “the day you start working is the day you start planning for retirement”.

This idea was heavily influenced by the fear of job insecurity given his father’s educational background.

As a result, Tan claims that financial freedom has always been his father’s goal, given that his father has always worked for practical reasons, not passion.

However, as Tan finds great fulfilment in his work and views work as a meaningful way to use his gifts and talents, financial independence and retirement are not as important to him as his father.

Tan also believes in upgrading himself and continually staying relevant in his career, further cushioning any worries of retrenchment or his skill set becoming “obsolete”.

To Tan, putting aside “too much” for retirement means sacrificing present relationships and experiences, something he does not want to do.

“Our 20s and 30s are years we can never buy back once they’re gone. Although I am investing aggressively now with my allocated budget, I am cautious not to compromise on spending on experiences with friends or on myself.

Aside from saving at least six months’ worth of emergency funds, I feel that any other amount you set aside to invest (for retirement) should be subject to your risk appetite, risk preference (are you able to stomach and ride through huge market falls?) and stage of life.”

Having said this, Tan is on the fence about having enough money to retire because he does not know what may happen in the future - he may get into a life altering mishap or contract a terminal illness which could hamper his ability to work.

Based on an estimated retirement age of 65, he will need to be protected and have his investments last for almost 40 more years.

Even though he currently invests in stocks, bonds and ETFs and would get an insurance pay-out if he ever meets with an accident or critical illness, he feels that this sum would not be able to last him for life.

While Tan has not considered whether he would like to take a career break in the future, he would definitely like to have that option.

He hopes to continue working and only retire when it’s impossible for him to work anymore, or when he reaches the retirement age to receive CPF payouts at 65.

The soon-to-wed

Veldas Lim is a 28-year-old executive who is getting married in November this year, and intends to purchase a flat with her fiancé soon.

As these two milestone events require a large sum of money, she has to plan ahead, manage her expenses prudently and set aside savings consistently.

Here’s a breakdown of Lim’s expenses per month based on her monthly take-home salary (S$3,000 to S$4,000):

• 20 per cent investment savings plan
• 25 per cent savings
• 35 per cent day-to-day expenses
• 15 per cent parents’ allowance
• 5 per cent insurance

In the future, Lim anticipates that she will have housing loans, hospital bills, children’s education and household expenses to pay for.

She also foresees needing to save a sizable sum for her retirement and for her children’s expenses in the future (if she is going to have children).

“To force myself to save, I put aside 25 per cent of my pay into a long-term endowment plan which I intend to use for my children’s education and for my retirement. At the moment, I only have a savings plan as I am not very familiar with investing yet.”

Currently, Lim is unsure if having children would mean taking a break in her career as she has not thought so far ahead.

She feels that as long as she is still employed, she will need to be more financially prudent in order to save up for children or unforeseen expenses in the future.

While Lim has not worked out an age to retire for now, she feels that 60 years of age will be a good estimate.

“It would really depend on how things go - if I am healthy, I will still continue to work until I am 60, even if I do not have any children.”

Lim also foresees her monthly expenses adding up to around S$1,500 during retirement:

• Dining out, grocery and household bills (S$800)
• Transport (S$200)
• Shopping (S$300)
• Personal luxuries (S$200)

This would cost her around S$18,000 a year.

As such, Lim is working towards accumulating a sum of about S$360,000 (via savings and her CPF) to tide her through a retirement of approximately 20 years should she stop working at 60.

“My ideal retirement life would be to have the time to engage in hobbies such as writing and drawing. It would be great to start a small business to sell my artistic creations. If my retirement income is not enough by then, I foresee myself working part-time as well.”

The new mother of one

Sim Qian Qi is a 27-year-old sales consultant.

Together, Sim and her husband have a combined five-figure monthly income.

They also have a six-month-old son.

Currently, their main financial responsibilities include paying for food, groceries, bills, and their son’s infant care centre school fees.

Fortunately, their monthly mortgage is fully paid for using their individual CPF accounts, so they do not have to do any top ups each month, leaving them with more spare cash.

Here’s a breakdown of Sim’s expenses per month based on her monthly take-home salary (around S$3,500 to S$4,500):

• 10 per cent parents’ allowance
• 30 per cent investments
• 25 per cent food and groceries (she rarely cooks at home)
• 15 per cent transport, shopping, beauty and personal expenses
• 10 per cent insurance and paying for bills
• 10 per cent savings

While Sim had initially expected her expenses to go up by a fair sum due to the arrival of her baby, she is thankful for the available government grants.

“I got S$6,000 in cash immediately after I gave birth and another S$6,000 into my son’s CDA account, which I currently use to pay his infant care school fees (around S$800 per month).

Till now, the only fees I’ve spent on my baby have been on the gynaecologist and hospitalisation fees during my delivery, which amounted to around S$10,000, as well as other miscellaneous baby items (e.g baby cot) which came up to less than S$5,000.

As we received many second-hand items from our friends and family, that has helped us to save a lot as well.”

Moving forward, Sim plans to continue saving and investing 30 to 40 per cent of her take home salary.

This amount could go up if her salary increases in the future.

According to Sim, she has not thought much about planning for her retirement in terms of finances because she would rather focus on her shorter-term goals.

Having said that, she does have a rough idea of what her ideal retirement at age 55 to 60 will be like - spending around S$3,000 per month for the next 25 years or so, which totals to an approximate S$900,000.

“I do still want to have a part time job where I work to kill time (probably just half a day for two to three days a week) to supplement my retirement fund, so that could contribute around S$1,000 per month.

This leaves me needing a passive income of S$2,000 per month, which I’m hoping to get from both monthly CPF payouts and my dividends or returns from investing long term.”

Is retiring just a pipe dream?

As evidenced by the above respondents, it is possible to earn a less-than-median or median income (S$4,500) and plan for retirement regardless of the stage of life you may be at (fresh graduate, getting married, new parent).

All you have to do is take actionable steps to plan and achieve your retirement goals.

If you are someone who has yet to think about or act on retirement planning, here’s some valuable information on how you can do so.

1) Start early

It is never too early to start planning for your retirement.

Starting early means having a longer runway to grow your retirement funds and reap the benefits of the compounding effect.

2) Plan for longevity

In 2021, it was estimated that the life expectancy at birth of Singapore residents is 83.5 years of age.

Singaporeans now rank third in the world for overall life expectancy, just behind Japan and Switzerland.

Thanks to medical advancement, more Singaporeans can even expect to stretch their life expectancies up to 100 years of age.

As such, it is important for Singaporeans to save up a substantial sum of money for the future, so you will not outlive your savings.

3) Diversify your portfolio

According to an April 2022 poll of 1,000 Singaporeans by Prudential Singapore, Singaporeans mainly depended on their Central Provident Fund (CPF) and bank savings to finance their retirement.

Like all three of our profiles, more than seven in 10 respondents (73 per cent) listed CPF savings as their top source of retirement income.

The difference between respondents who were prepared for retirement and those who were not also lay in the diversification of their financial portfolio.

Similar to Tan and Sim, 68 per cent of people who were confident of having enough to retire said they invested in shares, bonds and Exchange-Traded Funds (ETFs), and 46 per cent had insurance.

On the other hand, only half of the people who were unprepared for retirement had investments, while 36 per cent had insurance.

During challenging market conditions, having a diverse portfolio will help to spread risk and smooth out volatilities.

Different types of annuity plans

When it comes to annuity plans, do note that there is no ‘one size fits all’ approach as not everyone has the same retirement goals.

You will need to take into consideration your needs, desired lifestyle and whether a particular annuity plan can fill the gaps in your retirement.

Here are the different types of annuity plans Prudential Singapore currently offers:

• Regular Payouts - For those who prefer regular income payouts to use for their monthly expenses when they retire
• Lump Sum Payouts - For those who prefer a larger sum at a go, to fund big-ticket items such as retirement holidays or children’s university education
• Investment-Linked Policies (“ILPs”) - For those who prefer higher yields with a protection element

If you feel unprepared for retirement and would like to find out more about how you can plan for your future, check out Prudential Singapore’s website here, or speak to a Prudential financial advisor today.

It’s never too late to start now.

This sponsored article by Prudential Singapore gave this writer invaluable insights on retirement planning.

Top image via Taiyou no Yuusha Fighbird