An average HDB household and $1 million.

Some might remember that I talked about an article written by Cai Haoxiang in The Business Times in 2013. He wrote about what an average household's monthly expenses could look like in 2042, using the Household Expenditure Survey 2007-2008 from the Department of Statistics as reference.

1997-1998, an average HDB household's expenses was S$2,681. 2007-2008, it was S$3,138. That was an increase of 17%. By 2042, if core inflation is 2% a year, that number would hit S$6,400. In 3 decades, the number doubled and then some. 

If we were to assume that costs would increase steadily, monthly expenses for an average HDB household could hit S$7,500 by 2052.





Many people say they need $1 million in savings when they retire at 65. I don't know if they know this for sure or if they are just saying it because $1 million sounds like a big deal.

OK, let us look at how long would that $1 million last?

Hold on to your seats.

At a draw down rate of $7,500 a month, about 11 years, assuming that the banks did not pay interest on savings and that there would be no further inflation. 

The money will run out at age 76.

Alamak, how like that? Many people are expected to live till 85 or older these days.

2052. 

Hmmm. 

That is 35 years away.

So, if you are 30 years old this year and you are from an average HDB household, this could well apply to you. 

Aiyoh. Stress.

OK. Before you run around doing a Chicken Little, an average HDB household was assumed to have 3 to 4 members. So, if your household size is smaller, then, expenses should be lower. 




Single or DINK at 65, anyone?

Of course, even for married couples who have children, at 65, their children should be financially independent of them. So, again, expenses should be lower than what is assumed here.

I am going to stick my neck out here and say that, in 2052, $4,000 of spending money a month could probably give most people who are 65 and retired a comfortable life.

If you are 30 this year, have $1 million in savings by age 65, you should be able to fund a $4,000 a month retirement easily into your 90s.

If we max out our CPF contributions annually and top up our CPF SA to hit the Full Retirement Sum (FRS) earlier, we could have this magical $1 million in our CPF account by the time we are 65.

Don't believe me? Read this:

http://singaporeanstocksinvestor.blogspot.sg/2016/08/1m-in-cpf-by-age-65-what-about-12m.html

From an average HDB household? If you do not have the temperament to be an investor, this is something to seriously consider.





Singles and DINKs will find this easier to achieve than those who are married with kids, everything else remaining equal.

Some might have to try harder and some might take more time but if this is important enough to attain, then, do the right thing. Start today.

Related posts:
1. Retiring a millionaire is not a dream.
2. A cornerstone in retirement funding.

Earn $350K a year and on track to financial freedom.

Hi AK,

I hope this email finds you well!

I have been your loyal reader for the past 2 years and have written occasionally to you. I like to share one additional perspective to achieving financial freedom which have not been written as much in your blog I believe:

Focus on maximizing your earning potential so that you have a nest egg to use to achieve financial freedom

I manage to develop my career in a niche field that is sought after and relevant- currently, I am making S$350K per year and will take 3 years to make S$1mil in income. My previous role paid S$250K per year so it took me 4 years to make S$1mil. Before that, being more junior in my career and making about S$150K per year, it took me about 6-7 years to make S$1mil in salary.

So with a high salary income and keeping expenses to a minimum, I have:

- maxed out CPF SA by 42 years old

- ensured my family is well covered with various relevant term insurance plans

- grown and still growing my SG stocks and REIT portfolio towards S$1mil now generating passive income that covers 70% annual expenses

- fully paid retirement plans (~pay out S$2K per month from 55 yr old)

- fully paid house and car (no loans)

- my two kids who are teenagers each have their own CPF SA accounts and $70K SG shares portfolios

I fully agree on being prudent in expenditure and financial planning for the future. But I strongly believe the FIRST step is to properly build your career if you can, so that it can one of your stable pillars to help you gain financial freedom.

I thought I share this perspective to encourage people to take charge of their careers, whatever that may be =)

Have a very happy Sunday!

Best regards,
L

Hi L,

There is a reason why I don't blog about careers much. I didn't really have a good career and didn't make more than $100K a year. Really.

I share my experience to show that we don't have to be high flyers to achieve financial freedom but I have also said that for some who have a very good career, investing for income becomes optional. Just be better savers. :)

http://singaporeanstocksinvestor.blogspot.sg/2016/08/just-be-better-saver-and-forget.html

I will share your perspective in my blog. Thanks for this. :)

Best wishes,
AK

Related post:
Very first step to becoming richer.