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.

Retiring a millionaire is not a dream!

I recently received an email from a reader in his mid 20s who just joined the workforce. Reading my blog at the recommendation of a friend, he wrote that he felt encouraged and sceptical at the same time. 

He wondered if it is really possible for him to become a millionaire (without having to sell his future flat) when he finally retires. Do you feel the same way he feels?

If we were to squirrel away $50 more per month in a biscuit tin from age 30 to 60, we would save another $18,000!




With the increasingly high costs of living in Singapore, it is easy to think that it is no longer possible to retire wealthy and having a million dollars in liquid assets seems to be a popular yardstick. 

I have a feeling that this belief is widespread amongst the young and, perhaps, the slightly less young too. 

This belief is very dangerous! It could be a self fulfilling prophecy!

Hey! Young people out there, listen up! You can become a millionaire by the time you reach retirement age or earlier! What's more, this is possible without even counting the money in your CPF or the value of your flat! 

AK is not pulling your leg. It is true.

I don't know how much money you make a month. I don't know how much money you spend a month. 

Of course, you know that I would say you should increase your income and reduce your expenses as the first step to wealth building. You already know that.

I won't tell you how much money you should spend a month. How could I tell you? Everyone's circumstances are different.

What I can tell you is how much money you should at least save a month! 

Now, based on this and with the knowlege of how much money you are spending every month, you would know how much money you must make a month to achieve the target of having a million dollars in liquid assets by the time you reach retirement age.

Young people have the most valuable asset in the world and that is time! Young people have time on their side.

The younger we start saving and investing for our retirement, the easier it is going to be. I know we hear this all the time from insurance salespeople and often, we brush them off because we believe that they are just out to make money from us. 

Well, AK is not an insurance agent and I am not going to make money from you listening to me. So, don't brush me off.

So, listen, what the insurance salespeople say is true. Yes, it is.





Now, let's work our calculators!

How much should we be saving and investing every month if we would like to have a million dollars in liquid assets by the age of 65?

Taking the example of the 25 year old reader who wrote to me, S$650, give or take a few dollars. Yes, only S$650 a month! Accumulate savings, buy stocks of good companies with about 5% dividend yield a year and re-invest the dividends. 

Saying nothing of possible capital gains, voila, you would have $1,000,000 by age 65!

The power of compounding is amazing and I have blogged about how money in our CPF-SA will grow 50% every 10 years even if we were to stop contributions today and this is from an annual interest of 4%!

What about the not so young? Well, if we start at age 30, we would need to put aside about S$880 a month. Not so bad. 

What about age 35? Ah, S$1,200 a month. Still manageable. 

Then, age 40? Hmmmm... S$1,680 a month. 

Later at age 45? S$2,430 a month! 

Wah! Sorry, I shouldn't shout.

OK, don't ask me for the monthly amounts for age 46 and above. I am in cold sweat.





Now, when I blogged about my passive income from S-REITs, I said that it is always hardest at the start. The Chinese say 凡事起头难. Hard to start but start we must.

To the 25 year old reader, believe me when I say that if you keep at it, your annual investment gains will eventually exceed the annual sum that you are saving and investing. 

Yes, your annual investment gains will exceed S$7,800 at some point in time and it will continue to grow if you continue to do the right thing.

Now, pause and picture that. Are you smiling?

If you know anyone who feels the same way this 25 year old felt, tell them that AK will shake them hard by the shoulders. 

Nah, let's not be violent. 

Just tell them to read this blog post. 

It won't take too much time but it could change someone's life.

Remember, all of us can do it!

Related posts:
1. 7 steps to passive income from stocks.
2. If we are not rich, don't act rich.
3. Warren Buffet, the world's greatest money maker
4. Rich Dad, Poor Dad: 2 are better than 1.
5. Recommended books for FA and TA.
6. 7 money habits of AK71's.
7. What is $1 million at retirement?
8. Achieving $1 million in retirement funds.