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Tea with Skipper: How much do we need to retire on?

Sunday, February 24, 2013

Some time back, Skipper very graciously made me a promise to do a guest blog to share his thoughts on his retirement and what he thinks is sufficient for him in terms of money needed. True to his word, here is the blog:


First some caveats :
 
  • What is written should not be construed as advice but merely the planning and thoughts of an individual who has stopped full time employment.
  • To stop full time employment, you must not have any outstanding debts such as mortgages for your dwelling or any other item you cannot pay off immediately should the need arise.
  • You do not have any dependants or children who are not earning their own living.
  • You are of reasonably good health without any major dependency on long term expensive medical treatment.
  • You own the dwelling you are living in.
  • Circumstances will vary from individual to individual and the list is by no means exhaustive.
 
Now that the assumptions are out of the way, we can seriously look at the expenses you would incur when you don’t have a monthly salary. Before we look at the day to day expenses, some important and in fact necessary expenditure must be in place. In terms of importance, they are as follows :

Insurance

The most important are the H&S policies like MediShield. I cover my wife and me with the Enhanced IncomeShield with Riders. Better still if you can go for one that covers private hospitalisation as well. This is often one of the neglected areas, which will become very obvious when we fall sick and worse still if it is chronic.

Travel insurance if you make occasional trips abroad. Get an annual coverage if you travel often. We cover ourselves with an annual policy at $650 / year per person.

I intend to cancel all my WholeLife policies this year as we do not have any dependants. One policy which I have been faithfully paying for the past 20 years for a $75k coverage will return $38k. For TPD, I will buy a Personal Accident policy.

Annual Expenses

These would include Property Tax, Car Road Tax and Insurance and any other expenses which are particular to each of us.

Monthly and Daily Expenses

These would include conservancy charges, newspapers, PUB, telephone, internet, cable TV, petrol, parking charges, membership dues etc. List your own and tally the total amount.

Contingencies

Household maintenance/repair charges, replacement of appliances, dental treatments, car maintenance/repairs.

Leisure

Travelling expenses, course fees for leisure activities or classes. Set aside a certain amount for these activities. 

For my wife and I, we would need about $5,000 a month without the Leisure activities. We have put a sum of $20k for the leisure activities. So, it would all add up to $80k per year.

To be on the safe side, I have planned for a passive income of at least $100k per year but would prefer it to be $120k to cater for inflation in future. The additional sum can be reinvested for more income to cover inflation.

The $5,000 figure works for me but I am sure many would be able to do with lesser. One of the ways would be to cook at home more and eat out less. It is not only cheaper but also healthier as you can control what you put into the food you are eating. 

Please work out your own figures and add whatever buffers you feel comfortable with.

Skipper, thank you very much for sharing. :)

Read another guest blog:
Tea with EY: Money talk, money laugh.

Related post:
Why a wealthy nation cannot afford to retire?

17 comments:

SnOOpy168 said...

Thanks AK & Skipper for this article.

if it is $5k for 2, than i am smiling.

AK71 said...

Hi SnOOpy168,

Retiring with a monthly passive income of $5k in today's money should be very comfortable for most. Skipper good life! :)

SnOOpy168 said...

A quick glance at the 5k/mth figure.

Lets say that there are some economies of scale by having the 2nd person around (i.e. road tax is still the same, PUB bill would be marginally more, cooking cost per person will go down etc). I take a 60/40, for 1st & 2nd person share.

So, I will need about $3k just to pass time and lim kopi with my uncle friends. Only thing is that as my own HDB is a cash cow, I will need a place to stay..... hmmm, perhaps Taiwan or somewhere in Malaysia will make sense. I still want to have my hot water showers, fast & reliable internet and cable tv.

no harm day dream a little lah.

Sanye ◎ 三页 said...

According to Skippers condition, I can't retire yet as my children have not complete their U education. I am still supporting my mum who is in her 80's and without any H&S insurance.

Agree with AK $5K for two is quite comfortable, but I am working towards 8~10K too. ;)

AK71 said...

Hi Sanye,

Elderly without H&S could really be the big bomb. So, I agree that it is best to stay employed and have both passive and active sources of income in your situation.

I worry about my ability to care for my parents with costs esacalating year after year...

AK71 said...

Hi SnOOpy168,

Retiring overseas is something many are thinking about, it would seem. Well, with the high speed rail between K.L. and Singapore agreed upon, we don't have to look too far. ;)

EY said...

Hi AK,

When we think about the future, we often need a disproportionate dose of optimism cos it can be an emotionally draining exercise.

Honestly, I have avoided dwelling too much on the dollars and cents. I know there are certain bad habits that I need to kick so that I will have a more comfortable retirement. I just aim at moving things a few bits at a time and keeping my faith that having the big picture in mind will lead me there eventually.

But of course, it is always helpful to have people work the sums for us and remind us of the steps we need to take. For that, I would like to thank skipper for sharing. :)

And also not forgetting your numerous monologues which I pick up with my stethoscope firmly planted on the wall next door! :P


Cheers,
Endrene

ivan said...

Hi AK,

Maybe in the longer haul, we all become one country again with our northern neighbor. It could be a nice thing, enconomic integration and all. Well never say never.

Rgds,
ivan

AK71 said...

Hi Endrene,

I am a worrier. It is one reason why I suffer from insomnia regularly. I am trying to worry less and making some progress. ;)

As conventional wisdom would have us do, we should try our best to take care of possible downsides and all else will take care of themselves. Of course, let us hope that we have done a good job. :)

AK71 said...

Hi ivan,

I would not say never but I would say that it is highly improbable. Why? I will leave that to the learned economists and politicians to debate.

SnOOpy168 said...

EY refreshed my outlook : one step @ a time and not look too far ahead.

Last evening, at a kopi session, a friend asked me out of the blue "so when can you retire". i was slient for a mom and replied, " when i am retrenched by this current company ". otherwise, i can walk away with a modest living lifestyle. but cannot buy new camera & lenses easily

EY said...

Hi AK,

I know what you mean - worrying too much and losing sleep. It used to happen to me too. I called myself a pessismistic optimist. Haha.

But now, beauty rules! If worrying gives me white hair, I quit worrying. If getting angry gives me wrinkles, I quit getting mad. Like I said, I simply choose the most positive interpretation for every situation and I absolutely agree that managing the downside of things is important. But more important is to keep that cheesy smile on! Be grateful, be happy! :D

Maybe you need to loosen up a lil'. SMOL made a really hilarious comment about how you could loosen up. He's such an inspirtation! LOL~

Endrene

AK71 said...

Hi SnOOpy168,

Usually, I would ask the same question as an answer. Hahaha... ;p

I always say that if someone says something, it means he has thought of it before. Since he has thought of it before, I am interested in what he thinks. ;)

AK71 said...

Hi Endrene,

I believe in planning ahead but reality could be and often is different from what we envisage. A spanner gets thrown into the works sometimes. :(

Although my financial locomotive is chugging along nicely now, it could still be derailed. By what? That is something I don't know and I know I shouldn't worry about things I can't plan for. So, I try not to.

As I do what I feel are the right things over the years, I worry less. Step by step, one day, I should have less to worry about. :)

skipper said...

Thanks for all the comments. Plan for what you can foresee and that is the best you can do. No use worrying about things you do not know or anticipate.

My favourite adage is, "Have you done the best you can ? Is there anything else you can do ?".

I had not planned to stop working this soon, fully expecting to continue until at least to the time of withdrawing my CPF. As things have turned out, I can do so earlier than expected.

As a few of you have mentioned, plan for the worst and hope for the best. Most of us tend to over worry. While is is good to worry a little, don't overdo it to the point of paralysis.

So, here's to good planning and the sooner you plan, the better.

skipper said...

SnOOpy,

3k for a single is more than sufficient if you own your own dwelling. For us, the 5k is broken down to 2k each for my wife and me and 1k for other expenses.

On top of that, I have invested my wife's savings to generate another $500/month for her. I cover all the household expenses ,car road tax and insurance. My wife pays for the petrol and maintenance for the car and has a surplus every year.

Anonymous said...

Totally agree on the Hospitalisation & Surgical (H&S) Insurance part. I am generally sceptical about insurance but H&S is one area that I encourage my friends to consider for themselves and their parents if their finance means can manage.

I got Enhanced IncomeShield with Assist Rider from NTUC for my parents 2 years ago. Of course, we all want our parents to be healthy and we would rather not have to make any claims for insurance.

But this year, my mum need to go for a minor day surgery which costs about $460. The nurse noted that my mum has insurance and helped her to file a claim. So, we only need to pay for 10% of the bill. That more or less justify the insurance premiums for the year.

Another incident is my dad's friend who had a $20,000 hospitalisation bill. Lucky for him, his son got him a premium H&S package before that, so the whole bill is paid for by insurance. Imagine, $20,000 could have been a 6 month salary if a person's salary is around $3,000.

With raising hospitalisation costs, H&S insurance coverage is really critical as a hedge.

PS: I am not an insurance agent. Haha.

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