After I posted the first post on whether "Is $1M enough for a person to retire for 20 years?", I received comments that my assumptions and figures are not correct because of the following reasons:
1) How many people in Singapore can accumulate $1M a year by the age of 62 years old?
2) My figure does not include property costs (be it rental or money sunk into property and should be deducted from the $1M I mentioned).
3) My costs of living figures are just too low! They ask me to inflate the figures and see what will happen in the new scenarios!
Ok ok, valid points raised! Let me try to recalculate the figures again, using new assumptions. This time, I would use household incomes and household expenses for a couple (2 persons, husband and wife) and then divide by 2 as it is easier to get the hard figures for these and also to include property because it is usually owned by a couple (especially for HDB flats in Singapore)...
Let's first review comments (1)-(3):
(1A) Based on Singapore's household income statistics for the year of 2013, about 80% of households earn more than $3,000 per month in Singapore (inclusive of CPF contributions)(excluding retirees households which consist of 6.1%).
If these couple saves half of their income and spend the other half, from age 25 years old to 62 years old (for 37 years), they would have $666,000 in total - This does not include returns on capital nor their property.
Now, assuming that the couple spent $250,000 on a 4-room HDB flat, payable by instalments from 25 years old to 37 years old at $877 per month for a mortgage rate of 2.6%, and if remaining cash earns return of 4% (CPF Special account rate) from 25 years old to 37 years old, he would have fully paid for a property and still have cash/liquid assets of $632,000 at the end of 62 years old.
Again, the above indicates that Singapore's government policy of including property as an asset is a very important policy measure! It helps the low income a lot! Furthermore, with the property fully paid off, the couple can engage in "Lease Buyback" to get more cash to spend and can also earn extra cash by renting out 1 or 2 of their 3 bedrooms of their 4-room HDB flats!
However, in order to be able to rent out these retirees' rooms, the government need to allow more foreigners to come to work in Singapore (otherwise there will be nobody to rent these retirees' rooms for them to earn extra income)!
The above also indicates that helping the low income group to invest to get higher return is another very important aspect the Singapore government needs to look into!
(2A) See "(1A)" above.
(3A) Ok, I will inflate the figure a little, but still has to be realistic for ordinary folks, not including luxuries...
Let's calculate the Cost of living per month for a person (average figure):
(Note: Most of below figure are based on reasonable figures from Singapore's cost of living calculator at this URL...)
* Food (cook at home, with occasional eat out) $400.00
[cook at home : $200 - $400 monthly]
* Transport (bus and trains only, should be much less for retiree) $180.00[taking public transport (buses and trains) : $170 - $190 monthly]
* Utilities (electricity, water, gas, sewage) $90.00
[This is based on national average of $180 per household per month for 4-room flat with gas usage and hence $90 per person per month]
* Communications (mobile phones subscriptions & internet) = $62.90
[Internet access : $24.90 (25mbps) - $39.90 (100mbps) monthly (assumes home broadband services from StarHub)]
[Mobile phone plan : $38 - $205 monthly (assumes mobile services from StarHub)]
* Clothings and footwear = $100.00
[What kinds of brands do you spend on for new clothing and footwear? Budget/house brands : $80 - $100 monthly]
* Medical insurance & expenses (assume the rest covered by insurance) = $200.00
* Some frails and luxury = $200.00
* Rental costs = $0.00
Total per month per person = $1,232.90
Note: Rental costs is $0 because the person has a fully paid property.
Let's assume inflation of cost of living is 2% per year.
Let's assume this single person put all his cash of S$316,000 (half of $632,000 for a couple) into annuity earning 2% per year at the age of 62 years old.
Based on my calculations, this person would have enough to last till 83 years old, and this is without touching his property or engaging in "Lease Buyback" for his property or even rent out a room or 2 for his 4-room HDB flat to get more cash to spend!
So, in conclusion: 80% of the people in Singapore has sufficient money to retire if they have been prudent with their expenses and able to manage their savings to earn decent return!!
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