Do You Need $3M to Retire? Breaking Down the Numbers

In my previous blog post, I discussed key findings about retirement from the OCBC Financial Wellness Index 2024 report. These findings were also highlighted in local papers, where it was mentioned that retirees would need an estimated $1.5 million to $3 million to sustain monthly expenses of $6,000 to $12,000.

This is quite disheartening because based on the report below, Singapore has approximately 350,000 millionaires, which means over 90% of the population may fall short of this threshold. This raises a sobering question: Are the majority of Singaporeans destined to work indefinitely to sustain their retirement lifestyles?

Here is how I am preparing for my retirement

It was reported that most of the respondent selected "Lifestyle B", which means that each retiree will need $3430 per month for their expenses. For a couple, this amount will be $6860 per month. The actual amount may be lesser as they are staying in the same household, but for simplicity, lets use this amount. 

Below we proceed further, here are some assumptions:

• Husband maxed his CPF retirement sum to ERS ($3300)
• Wife only managed up to FRS ($1600)
• Both will receive around $4900 from CPF Life at age 65
• Both retire at age 65.

Using the assumptions above, a couple would need to cover $1960 of expenses per month on top of the CPF Life payout. Therefore, annually, the couple will need $23,520.

If they invest in an index fund yielding a 5.5% annual return, they would need approximately $430,000 in total savings. This calculation accounts for a 2.5% annual inflation rate and it allows you to continue drawing this amount till 100 years old.

Using a financial calculator, these are the parameters I used.

Current savings = $430k

Interest rate = 5.5%

Withdrawal per year = $23,520

How long wlll the savings last = 35 years

You may have also noticed that after the couple has passed on, there is still a balance of $505,940.42 which can be passed down to their children (if any). In my previous blogpost, I mentioned that one should start planning for retirement as early as possible, and this is why. The compounding effect is our best friend if we use it early.

My retirement is not a dream after all.

This is not a financial advice.