Finance

How much do you need to retire or live comfortably?

At some point, I believe all of us will start to think about retirement and finances that we need to live comfortably and gracefully. What is the minimum sum of money or income per month we need when we reach 55 or 65 years old? The amount depends on the cost of living in the country and the lifestyle that we desire.

According to a recent study by a team of researchers from Lee Kuan Yew School of Public Policy (LKYPP), National University of Singapore (NUS), they discovered from their focus group discussions with seniors that the household budgets necessary to meet basic needs were S$1,379 per month for single elderly households, S$2,351 per month for elderly couples, and S$1,721 per month for a person aged 55 to 64 years old. The budgets go beyond just subsistence and cover the following items:

  • Enjoy occasional treats with loved ones at restaurants
  • Being able to replace old furnishings
  • Owning communication devices such as a mobile phones, laptops and Internet connection
  • Going for an annual holiday

Definition for Basic Standard of Living

A basic standard of living in Singapore is about, but more than just, housing, food, and clothing. It is about having opportunities to education, employment, and work-life balance, as well as access to healthcare. It enables a sense of belonging, respect, security, and independence. It also includes choices to participate in social activities, and the freedom to engage in one’s cultural and religious practices.

The study said, "Budgets should enable older adults to thrive rather than just stay alive." In conclusion, older people have these basic needs for “a sense of belonging, respect, security, and independence.”

See this animation video for the summary of the study:

If you love to read more about this study, you can click HERE for an executive summary or click HERE for the full report.

Assuming that we are now 65 years old and can live up to 85 years old (this is the average lifespan predicted by 2040), that would be 20 years and the required total retirement fund will be S$426,662.33 with an average of 2% inflation built in. For Singaporeans, the minimum payout from our Central Provident Fund (CPF) Life is S$570 if we have S$88,000 in our basic retirement sum at age 55. If we choose their Escalating Plan, the payouts will increase by 2% every year. As such, CPF Life will provide a total sum of S$14,696.49 for 20 years.

After offsetting CPF Life's total payouts, the balance would be S$411,965.84 that will need to come from our savings, investments or allowance from children.

If you are 30 years old now, you have 35 years to save up S$411,965.84. Hence, you need to save S$11,770.45 per year or S$980.87 per month. Ta Da!

By using the same formula above, you can calculate your required saving amount based on your current age with simple maths.

If you still wish to drive a car or travel more often during your retirement years, you will definitely need more funds to have such lifestyle.

Of course, if we are still healthy and able during our golden years, we can continue to work and accumulate our wealth.

One saving principle that we can all consider is 50/30/20 budget rule, popularized by Elizabeth Warren in her book, “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings.

50% of your monthly budget are used for essential items such as housing, food and transport; 30% towards lifestyle choices such as buying latest gadgets, travelling; and the remaining 20% towards savings or investments.

Additionally, Billionaire Mark Cuban recommended that we need to save six months' worth of living expenses for an emergency fund or raining days.

"Dishonest money dwindles away, but whoever gathers money little by little makes it grow." - Proverbs 13:11 (NIV)

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