What is S$1 million at retirement? Peanuts?

In my last blog post, I made certain assumptions which would see a 25 year old saving and investing S$650 a month today having S$1,000,000 by the age of 65. As the blog's purpose was to show that retiring as a millionaire is not a dream, I only had to show that it is indeed achievable.

The next question which is of relevance is whether we can retire with S$1 million in cash in Singapore? This led me to search through my stack of The Business Times because I remember reading a recent article on this.

Cai Haoxiang wrote a piece on 7 January 2013 in The Business Times on the topic. In the article, he made certain projections as to what an average household's expenses on a monthly basis could look like in 2042. The projections were made using the Household Expenditure Survey 2007-2008 from the Department of Statistics as a base.

It was revealed that from 1997-1998, an average HDB household's expenses was S$2,681 and 10 years later in 2007-2008, it was S$3,138 or an increase of 17%. By 2042, assuming a core inflation of 2%, an average HDB household's monthly expenses would become S$6,400.

So, over a 34 years period, expenses could increase by some 104%. Let us assume that expenses would increase another 17% over another 10 years like it did from 1997/98 to 2007/08 and we would see monthly expenses for an average HDB household at S$7,488 a month.

S$1 million in the bank would last an individual 133 months or roughly 11 years assuming that the banks did not pay interest on savings and that there would be no inflation. Of course, these assumptions are unrealistic but we get an idea of how things might look like then. So, S$1 million would only last 11 years from 2052?

Let us not be too pessimistic. Remember that the survey is about average HDB households. What is an "average" household like?

In the article, it was mentioned that an average household would mean one with 3 to 4 members. However, it is unlikely that by the time we retire at age 65, we would still be supporting children or our parents. OK, with the former, it is possible if we became parents in our 50s and with the latter, it is also possible if our parents had us when they were very young or are of hardy stock.

However, these would be more exceptions than the norm, I would imagine. As both husband and wife retire in their 60s, it would be more realistic to imagine an average household with only 2 members, therefore. Then, their average monthly expenses would be much lower than a household with 3 or 4 members. Sounds less scary now, doesn't it?

Less scary it might sound but is S$1 million still enough for a couple of retirees in their 60s to live off in Singapore? Enough is really subjective, isn't it? So many questions need to be asked but with a household size of 2 average elderly folks, it could actually be enough.

Remember how I made the assumption of a 5% return on investments in my last blog post? If the 25 year old reader should stay invested, by the time he is retired at age 65, his S$1 million portfolio would be generating S$50,000 annually. Instead of re-investing the gains, it would be time to use it for his expenses in his golden years.

Now, let us not be chauvinistic. Let us assume that the future wife of the 25 year old reader should do the same thing he should be doing, setting aside S$650 a month in savings for investment and at the same rate of return, she could retire a millionairess! At age 65, her portfolio would also be generating S$50,000 annually assuming a 5% annual return.

Pause and imagine that. Smiling?

Remember that the journey is the hardest at the beginning. I would even describe the early years as being rather miserable. So, every time you are tempted to stray, every time you are thinking of giving up, come back and read these blog posts.

We don't have to be very rich when we retire but we should have enough and we should be happy.

Related posts:
1. Retiring a millionaire is not a dream.
2. To be a happy peasant.