Came across a most recent article dated 5 Dec 2014 on "Majority unprepared for retirement: Survey" which says that (my summary):
- THE majority of Singaporeans do not have a financial plan for retirement, are afraid of planning ahead and need more than they estimate to retire, a new survey has found.
- Many respondents hope to retire comfortably but only a minority are actually taking tangible steps to meet that goal.
- Singapore government estimates show that the number of residents aged 65 and above is expected to triple to 900,000 by 2030.
- Many Singaporeans do not even know where or how to start planning.
- 23% feel that they do not have enough funds to start investing.
- Workers and retirees agreed that Singaporeans do not know enough about building up a nest egg.
- The survey also found that people are underestimating the funds they need for old age.
- About 85 per cent of respondents said they hoped to have about $3,500 to spend a month for 15 to 20 years after retiring at the age of 65. They believe that it would be sufficient to set aside about $480,000 to $700,000.
- calculations by DBS financial experts showed that for monthly payouts of $3,500, Singaporeans will need a $900,000 fund.
You can read the original article at this URL...
So, how much really should you need to accumulate at 65 years old to retire with $3,500 to spend a month for 20 years? Obviously, the actual figure will depend on the assumptions that the estimator made, such as:
1) living cost inflation in next 20 years
2) The return from the capital you have at age 65 for the next 20 years.
Without these 2 assumptions being clearly made known, people are just groping the elephant while being blind-folded!
So what are reasonable assumptions for living cost inflation and return on capital? - These have a lot to do with government policies, and Singapore and the world's economic situations, and also cost of oil and Singapore's currency exchange rate (strong S$ or weak S$).
In general:
1) A stronger S$ will usually mean lower living cost inflation (since most of the items needed are imported).
2) Lower oil price will usually mean lower living cost inflation (since oil is used to produce electricity and run almost all transport and used by almost all businesses).
2) A stronger and appreciating property price will mean more comfortable retirement for most Singaporeans (since >90% of Singaporeans own their homes and they can downgrade to extract cash value out of their homes for more comfortable retirement).
Let's just assume that living cost inflation is 3% and return from capital is 4% (CPF retirement fund payout rate), then in order to have enough to spend $3,500 per month for the next 20 years, a person will need to accumulate:
$925,000
based on my calculation.
However, really, do you really need $3,500 per month to live in Singapore?
I don't think so!
Actually, I believe $2000 per month is sufficient to live in Singapore, assuming that you have your house already fully paid up and the full sum of $2000 is just for month expenses!
Ok, let do a scenario study assuming 3% inflation and 4% return, how much do a person need to accumulate to retire for 20 years for these estimated living expenses per month?
Living expenses per month Amount needed at 65 years old
$1000 $265,000
$2000 $530,000
$3000 $795,000
$4000 $1,160,000
Note: My above calculation assumes that the expenses drawn down increases with inflation and not a flat figure for next 20 years since I assume that expenses will increase as inflation increases.
Showing posts with label retire. Show all posts
Showing posts with label retire. Show all posts
Friday, December 5, 2014
Tuesday, November 25, 2014
What life-style you can afford with $1M to retire for 30 years?
Now, if you have S$1M now and would like to retire for 30 years, what life-style can you afford? How much money can you afford to spend per month as living expenses to last 30 years?
Well, based on my calculation, with S$1M now, you would be able to afford to spend S$3250 per month for 30 years (with 2% p.a. increase in allowance built-in)!
$3250 per month for a couple NOW (with 2% p.a. increase in allowance built-in) is really a comfortable living already.............
Assumptions I made are:
a) Average Investment return of 3% p.a.
b) Average Inflation of 2% p.a.
Above are realistic assumptions and hence totally achievable.
Given that average age of Singaporeans is 83 years old for men and 85 years old for women, if you have enough to retire for 30 years means that you can retire at 53 and 55 years old respectively if you are a woman/man !
Well, based on my calculation, with S$1M now, you would be able to afford to spend S$3250 per month for 30 years (with 2% p.a. increase in allowance built-in)!
$3250 per month for a couple NOW (with 2% p.a. increase in allowance built-in) is really a comfortable living already.............
Assumptions I made are:
a) Average Investment return of 3% p.a.
b) Average Inflation of 2% p.a.
Above are realistic assumptions and hence totally achievable.
Given that average age of Singaporeans is 83 years old for men and 85 years old for women, if you have enough to retire for 30 years means that you can retire at 53 and 55 years old respectively if you are a woman/man !
Monday, September 22, 2014
Is $1M enough to retire for 20 years? - Review-2
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!!
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!!
Tuesday, September 16, 2014
Cost of Living Calculator
Recently, I came across this Singapore's cost of living calculator at this URL...
I found it very interesting because it will help me in my calculation of whether $1M is enough for a person to retire for 20 years?
Some useful information on Singapore's cost of living from this website is as follow:
--------------------------------------------------------
* What will be your regular mode of transport?
I will be taking public transport (buses and trains)
$170 - $190 monthly
I will be taking taxis
$700 monthly (assume two 20-minute taxi rides per day at peak period over 20 days)
I will buy and drive a car
$1,000 - $2,000 monthly (low-range or middle-range vehicle)
--------------------------------------------------------
Where do you plan to have your meals daily?
I will eat out at budget joints
$10- $15 daily
I will eat out at mid-priced restaurants
$35 - $50 daily
I will eat out at fine dining establishments
$80 - $150 daily
I will cook at home
$200 - $400 monthly
--------------------------------------------------------
What kinds of brands do you spend on for new clothing and footwear?
Budget/house brands
$80 - $100 monthly
Mid range brands
$120 - $200 monthly
Luxury brands
$240 - $470 monthly
--------------------------------------------------------
What communications and home entertainment services will you require? (select all that apply)
Home phone rental
$29.43 every quarter
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)
Cable TV
$33.17 - $50.29 (assumes cable TV from StarHub)
$53.50 one-time activation charge applies for a new home phone line
--------------------------------------------------------
Which of the following recreational activities do you enjoy? (select all that apply)
Movies
$12 per visit
Clubbing
$100 per visit
Art exhibitions/Museums
$5 - $30 per entry
Plays and musicals
$25 - $300 per ticket
Theme parks
$74 per entry (Assuming one-day pass for adults aged 13-64 to Universal Studios Singapore)
Club memberships
Varies for monthly subscription fee, entrance fee and deposit
--------------------------------------------------------
Education
If you have children, you may wish to add education fees to your budget.
Here's the estimated monthly cost per child
Kindergarten $400 - $1,500 Public School $246 - $772
International School $1,000 - $3,000 University $1,900 - $3,840
--------------------------------------------------------
I found it very interesting because it will help me in my calculation of whether $1M is enough for a person to retire for 20 years?
Some useful information on Singapore's cost of living from this website is as follow:
--------------------------------------------------------
* What will be your regular mode of transport?
I will be taking public transport (buses and trains)
$170 - $190 monthly
I will be taking taxis
$700 monthly (assume two 20-minute taxi rides per day at peak period over 20 days)
I will buy and drive a car
$1,000 - $2,000 monthly (low-range or middle-range vehicle)
--------------------------------------------------------
Where do you plan to have your meals daily?
I will eat out at budget joints
$10- $15 daily
I will eat out at mid-priced restaurants
$35 - $50 daily
I will eat out at fine dining establishments
$80 - $150 daily
I will cook at home
$200 - $400 monthly
--------------------------------------------------------
What kinds of brands do you spend on for new clothing and footwear?
Budget/house brands
$80 - $100 monthly
Mid range brands
$120 - $200 monthly
Luxury brands
$240 - $470 monthly
--------------------------------------------------------
What communications and home entertainment services will you require? (select all that apply)
Home phone rental
$29.43 every quarter
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)
Cable TV
$33.17 - $50.29 (assumes cable TV from StarHub)
$53.50 one-time activation charge applies for a new home phone line
--------------------------------------------------------
Which of the following recreational activities do you enjoy? (select all that apply)
Movies
$12 per visit
Clubbing
$100 per visit
Art exhibitions/Museums
$5 - $30 per entry
Plays and musicals
$25 - $300 per ticket
Theme parks
$74 per entry (Assuming one-day pass for adults aged 13-64 to Universal Studios Singapore)
Club memberships
Varies for monthly subscription fee, entrance fee and deposit
--------------------------------------------------------
Education
If you have children, you may wish to add education fees to your budget.
Here's the estimated monthly cost per child
Kindergarten $400 - $1,500 Public School $246 - $772
International School $1,000 - $3,000 University $1,900 - $3,840
--------------------------------------------------------
Sunday, September 14, 2014
Is $1M enough for a person to retire for 20 years?
Is $1M enough for a person to retire for 20 years (assuming the person retire at 62 years old and live till 82 years old)?
Recently, there are many people who are starting to complain that cost of living in Singapore has gone too high, and $1M is not even enough for a person to retire! Is this a fact or a myth (just belief and misconception)?
To be realistic, we have to take the cost of living of basic necessities, no frails - because cost of living for frails and luxuries are not necessities and are just WANTs, not NEEDs...
Ok, why not we put a hard figure to it once and for all to prove or disprove it? Here we go!...
Costs of living per month per person (average figure):
- Food = $330 (cook at home, with occasional eat out)
- Transport = $150 (bus and trains only, should be much less for retirees)
- Utilities (electricity, water, gas, sewage) = $120
- Communications (mobile phones subscriptions & internet) = $80
- Clothings and footwear = $100
- Medical insurance & expenses = $200 (assume the rest covered by insurance)
Total per month = $980 per month per person.
Let's assume inflation of cost of living is 2% per year.
Let's assume this person put his $1M into annuity earning 2% per year at the age of 62 years old.
At the end of 82 years old, he would still have about S$1,153,000 !!
So, $1M is more than enough for a person to retire!!
Recently, there are many people who are starting to complain that cost of living in Singapore has gone too high, and $1M is not even enough for a person to retire! Is this a fact or a myth (just belief and misconception)?
To be realistic, we have to take the cost of living of basic necessities, no frails - because cost of living for frails and luxuries are not necessities and are just WANTs, not NEEDs...
Ok, why not we put a hard figure to it once and for all to prove or disprove it? Here we go!...
Costs of living per month per person (average figure):
- Food = $330 (cook at home, with occasional eat out)
- Transport = $150 (bus and trains only, should be much less for retirees)
- Utilities (electricity, water, gas, sewage) = $120
- Communications (mobile phones subscriptions & internet) = $80
- Clothings and footwear = $100
- Medical insurance & expenses = $200 (assume the rest covered by insurance)
Total per month = $980 per month per person.
Let's assume inflation of cost of living is 2% per year.
Let's assume this person put his $1M into annuity earning 2% per year at the age of 62 years old.
At the end of 82 years old, he would still have about S$1,153,000 !!
So, $1M is more than enough for a person to retire!!
Friday, August 15, 2014
To become rich, save more and spend less on your income!
It is actually quite possible for any ordinary person earning a very average salary to be able retire early - the secret is "save more spend less"!
Just give a very simple example:
Gross Median household income from work of employed residents (excluding non-employed and retiree) in Singapore is S$7,870 per month in 2013.
Note that this figure for Household income from work includes employer Central Provident Fund (CPF) contributions.
I can't find latest figure on household expenditures, but in 2007 the household expenditures of those household with income of $7000-$7999 is $4685 per month. Assuming inflation of 3% from 2007 to 2013, let's assume the expenditure is $5,594 per month in 2013.
That means the median household can save $2,276 per month.
Let's assume the household maintain this savings for 30 years, and they are able to obtain 5% return per year.
At the end of 30 years, they would have: $1.894m !!!
You would ask: "Is your calculator faulty?", "Did you make a mistake in the calculation?"
Well, the answer is: NO!
You see $1.894m is because of the power of compounding return at 5% !
Thus, as you can see, your return need not be large over a long-term of say 30 years, you just need 5% compounded return or more!
BUT: Assuming you obtain low returns, or worse, you obtain 0% return, then at the end of 30 years, you would only have: $819,360.
Just give a very simple example:
Gross Median household income from work of employed residents (excluding non-employed and retiree) in Singapore is S$7,870 per month in 2013.
Note that this figure for Household income from work includes employer Central Provident Fund (CPF) contributions.
I can't find latest figure on household expenditures, but in 2007 the household expenditures of those household with income of $7000-$7999 is $4685 per month. Assuming inflation of 3% from 2007 to 2013, let's assume the expenditure is $5,594 per month in 2013.
That means the median household can save $2,276 per month.
Let's assume the household maintain this savings for 30 years, and they are able to obtain 5% return per year.
At the end of 30 years, they would have: $1.894m !!!
You would ask: "Is your calculator faulty?", "Did you make a mistake in the calculation?"
Well, the answer is: NO!
You see $1.894m is because of the power of compounding return at 5% !
Thus, as you can see, your return need not be large over a long-term of say 30 years, you just need 5% compounded return or more!
BUT: Assuming you obtain low returns, or worse, you obtain 0% return, then at the end of 30 years, you would only have: $819,360.
Sunday, August 10, 2014
Financial Planning v2 (version 2)
The other day I shared about Financial planning theory in a short summary, but I then realized I missed out the most important part that I stressed in my maiden post - Protection! Yes, Protection through insurance!
So, I updated the Financial planning theory v2 here it goes:
1) When you earn from your job, spend less and save more.
2) When you have income, you want to protect your income because you are the only money-earning "machine", hence the need for sufficient insurance! (Many kinds to cater for different scenarios, will cover this in future).
3) Make your savings work hard for you via investment.
4) Hopefully by 55 years old (or even earlier), your capital has grown big enough that this capital is self-sustainable to generate sufficient passive income that is sufficient for your living expenses and you don't have to rely on income from work! (This is similar to annuity but I am never a fan of annuity because their returns are just all too low!)
So, I updated the Financial planning theory v2 here it goes:
1) When you earn from your job, spend less and save more.
2) When you have income, you want to protect your income because you are the only money-earning "machine", hence the need for sufficient insurance! (Many kinds to cater for different scenarios, will cover this in future).
3) Make your savings work hard for you via investment.
4) Hopefully by 55 years old (or even earlier), your capital has grown big enough that this capital is self-sustainable to generate sufficient passive income that is sufficient for your living expenses and you don't have to rely on income from work! (This is similar to annuity but I am never a fan of annuity because their returns are just all too low!)
Saturday, August 9, 2014
Financial Planning - theory very simple, execution to achieve goal damn difficult!
Financial planning theory is very simple, yet the execution to achieve the goal is damn difficult!
The ultimate goal of financial planning is to be able to retire (retire early hopefully) and smell the roses with passive income to cover your living costs (may include draw-down of your capital but you hope it can last until you "go"!).
Financial planning theory here it goes:
1) When you earn from your job, spend less and save more.
2) Make your savings work hard for you via investment.
3) Hopefully by 55 years old (or even earlier), your capital has grown big enough that this capital is self-sustainable to generate sufficient passive income that is sufficient for your living expenses and you don't have to rely on income from work!
The ultimate goal of financial planning is to be able to retire (retire early hopefully) and smell the roses with passive income to cover your living costs (may include draw-down of your capital but you hope it can last until you "go"!).
Financial planning theory here it goes:
1) When you earn from your job, spend less and save more.
2) Make your savings work hard for you via investment.
3) Hopefully by 55 years old (or even earlier), your capital has grown big enough that this capital is self-sustainable to generate sufficient passive income that is sufficient for your living expenses and you don't have to rely on income from work!