S’poreans’ retirement funds enough for only 13 years: DBS survey

[Contrarian]

> Nagaraju told CNBC he would like to live on a "comfortable" monthly income of around S$5,500 ($4335) when he retires at 65,

S$5500 to retire comfortably 1 month?

To me S$3000 today is more than enough (car excluded).

[CY09]

Let's put this retirement complain of Singaporeans to bed with an example.

Let's say "Mr Contrarian" at age 25 realizes he needs $3,000 monthly in today's term for retirement at age 65. Assuming inflation rate of 3.5% throughout this exercise, he will need $11,800 per month until he is 85. Assuming his retirement fund generates a 4% return as he draws it down from 65 to 85, Mr C. will need $1,924,000 at age 65.

So how can he achieve $1,924,000 at age 65 when he earns $3,200 (before CPF)? Let's break it down in numbers, it is likely by then he is required to set aside $500,000 in CPF as min sum. This is because the CPF min sum follows inflation rates. Therefore he has to save $1,424,000 on his own over the next 40 years. Let's say, Mr. C decides to invest in an Index fund which yields 7% (inclusive of dividends and he reinvests the dividends). From age 25, Mr. C. only has to contribute $6,200 annually to his fund. If Mr. C starts from age 30, he has to contribute $8,950 and for age 35, its $13,100. Considering that an average Singaporean has an annual income of about $45,000 or $36,000 (after CPF contribution), the amount to save is definitely attainable.

At age 25, all Mr. C has to do is diligently save 17% of his take home income. Critics may point out that at age 65, Mr. C may be cashing out at the trough of the market. I will acknowledge this shortcoming; let's assume at age 25, Mr. C decides to achieve $1,424,000 at age 60 so that he has the flexibility to wait out for a 5 year period for a market upturn. He will need to save $8,950 annually and this is still 25% of his take home income.

Secondly, many Singaporeans have to know endowment and life insurance policies are one of their biggest stumbling blocks to achieve financial freedom. A 100k whole life plan paid over a 20 yr premium costs approx $2,250 annually. However, a term insurance covering the same amount is $15/mth ($180 full year). Let's say these $2000 annual difference over 20 years is invested into an Index fund (returns 7% p.a), you will be better off by $198,000 compared to an individual on an insurance policy getting the max projected return of 4.75%. So for every $100,000 covered, one is worse off by $198,000. [Here's a food for thought]

To summarize, the complains of inadequate retirement by Singaporeans is unjustified. All you have to do is start young, avoid becoming the "carrot head" for agents and you can easily achieve Mr. C's target of $1,924,000 at age 65.

[Temperament]

Ha! Ha!
Let's assume everyone can calculate like you. But not everyone can save or invest like you. In fact i think maybe only very few people are like you. i definitely is out. i can't calculate like you.

[Contrarian]

> Let's say "Mr Contrarian" at age 25 realizes he needs $3,000 monthly in today's term for retirement at age 65. Assuming inflation rate of 3.5% throughout this
> exercise, he will need $11,800 per month until he is 85.

A bowl of noodle at the hawker ctr costs $2.50 10 years ago. The same bowl of noodle in the same hawker ctr costs $3-$3.50 now.

1. The same noodle does not quadruple in cost.
2. The lifestyle of a retiree is different from a working adult in mid 30s

IF one does not go upmarket for everything, and sticks to the basics, then this projection will be very very sufficient :-)

[investor101]

I think a large majority of Singaporeans will not be able to retire. They are all in for a very nasty surprise.

1. They overspent on housing.

Property prices have increased much faster than salaries. When property prices rise by huge percentages, there is much much rejoicing. When property prices drop by 1%, the property market is gloomy. Are you for real?!
When salaries rise by 5%, gahmen and businesses are suddenly very worried by rising business costs.

Salaries go up no good. Property price go up good. Most people are simply going to expend their money in vain, overpaying for their properties with salaries that is not keeping up.

2. Cars here are overpriced.

Whatever your reasons are, paying $100k for an average car is not financially prudent. The car is simply not worth $100k whatever reasons you claim. And you have to pay that amount every 10 years, when your COE expires.

3. Reduced lifespan of a PMET

Working lifespans of professionals are decreasing at an alarming rate. Not surprising to find PMETs in their early 40s manning security posts or driving taxis. This of course, translates into massive income reduction.


In the past, many Singaporeans can retire by age 55-60, with enough savings and a comfortable retirement. Now, we need to pass legislation to up the retirement age to 67, so that companies can legally employ singaporeans to work as toilet cleaner, table cleaner and security guard when they are in their 60s. You work for long hours in your old age for a pittance, and your company still thinks your pittance is way too expensive for them.

And the funny part is, some people still are grateful for the reduction in the quality of their lives. Stockholm Syndrome at its best.

[CY09]

Ha! Ha!
Let's assume everyone can calculate like you. But not everyone can save or invest like you. In fact i think maybe only very few people are like you. i definitely is out. i can't calculate like you.

Hi Temperament,

For a long term holder of ETF/ Index, a 7% return (inclusive of dividends) is average imo. The "Straits Times Index ETF generated 8.4% annualized returns over past 10 years" (Motley Fool Singapore, Mar 2014).
As for the savings part, saving $6,200 or $8,950 is not hard, break it into months and you are saving $500 or $750 a month. This amount stays fixed throughout your working life until 65; while your wages grows annually. So the proportion gets smaller YoY.

To Investor 101,

I do agree on your point 1 of excessive housing expenditure. I am interested to see how individuals are going to service their loan post housing downturn or interest rate hike. Many ppl are speculating on properties including the young. For point 2, here is the beauty of the COE boom and collapse. I know of many ppl in their late 20s/30s who own cars but are still able to spend/save/invest well with 2 kids. This is because they paid for the COE cheaply between 08-09 and hang on to their car. Similarly, there is another group of individuals who purchased their car in 03-06 on the cheap and are opting/have opted not to buy a new one. Here there is a timing element and a lifestyle choice

[investor101]

Ha! Ha!
Let's assume everyone can calculate like you. But not everyone can save or invest like you. In fact i think maybe only very few people are like you. i definitely is out. i can't calculate like you.

Hi Temperament,

For a long term holder of ETF/ Index, a 7% return (inclusive of dividends) is average imo. The "Straits Times Index ETF generated 8.4% annualized returns over past 10 years" (Motley Fool Singapore, Mar 2014).
As for the savings part, saving $6,200 or $8,950 is not hard, break it into months and you are saving $500 or $750 a month. This amount stays fixed throughout your working life until 65; while your wages grows annually. So the proportion gets smaller YoY.

To Investor 101,

I do agree on your point 1 of excessive housing expenditure. I am interested to see how individuals are going to service their loan post housing downturn or interest rate hike. Many ppl are speculating on properties including the young. For point 2, here is the beauty of the COE boom and collapse. I know of many ppl in their late 20s/30s who own cars but are still able to spend/save/invest well with 2 kids. This is because they paid for the COE cheaply between 08-09 and hang on to their car. Similarly, there is another group of individuals who purchased their car in 03-05 on the cheap and have opted not to buy a new one. Here there is a timing element and a lifestyle choice

I think for the average person, he or she needs to slowly build up a pool of money that can give an annual income of around $15-20k at least. At the same time, keep their jobs and strive to network more and pick up new professional skills and develop managerial skills. A small passive income would booster their own existing pay and probably allow them to save some money each year.

CPF? Forget it. The returns are not good, and for most people, their CPF will be wiped out paying for their housing, and the drawdown age keep increasing. At this rate, many of us won't be able to start drawing on CPF till we are 75. The drawdown age will likely increase within a few years.

[Ray168]

IMO, SG economy may has reach its peak, and at mature phase.

So, the 7~8% CAGR of STI may not repeat itself.

Ha! Ha!
Let's assume everyone can calculate like you. But not everyone can save or invest like you. In fact i think maybe only very few people are like you. i definitely is out. i can't calculate like you.

Hi Temperament,

For a long term holder of ETF/ Index, a 7% return (inclusive of dividends) is average imo. The "Straits Times Index ETF generated 8.4% annualized returns over past 10 years" (Motley Fool Singapore, Mar 2014).
As for the savings part, saving $6,200 or $8,950 is not hard, break it into months and you are saving $500 or $750 a month. This amount stays fixed throughout your working life until 65; while your wages grows annually. So the proportion gets smaller YoY.

To Investor 101,

I do agree on your point 1 of excessive housing expenditure. I am interested to see how individuals are going to service their loan post housing downturn or interest rate hike. Many ppl are speculating on properties including the young. For point 2, here is the beauty of the COE boom and collapse. I know of many ppl in their late 20s/30s who own cars but are still able to spend/save/invest well with 2 kids. This is because they paid for the COE cheaply between 08-09 and hang on to their car. Similarly, there is another group of individuals who purchased their car in 03-06 on the cheap and are opting/have opted not to buy a new one. Here there is a timing element and a lifestyle choice

[CY09]

Hi Ray,

True and may not be true. Our STI has companies listed in SGX but have businesses activities related to the global economy. Thus their current CAGR is rarely restricted to SG but a proxy of the global economy. Best examples will be Kep Corp, Semb corp, Marine, St Engg, GLP, Comfort and Jardines who are in our constituents. Jardine Strategic has the Mandarin Oriental hotel portfolio and JLT who have worldwide exposure. If one has the expertise in stocks, I will recommend investing in a portfoilo of good STI constituents, but removing the bad eggs such as SIA, Olam, Noble, HPH Trust, wilmar etc. VB forum serves as a good source of information for picking good STI constituents. Secondly, do note the STI is an market-cap weighted, so there may be way to outperform it

http://www.fool.sg/2013/06/19/a-simple-w...he-market/

Lastly, as "there is always a seed before there is a rose", so too must one save when young to serve as the seed for a flower of $15k passive income to bloom. The problem for many Singaporeans is that they live a lifestyle where they do not prepare the seeds. I am referring particularly to the 20s and 30s age group who many fall into 1) spend money at Tiong Bahru/Clarke Quay and don't save much, 2) Saves a tidy sum of money monthly, wishes to invest but money still sits in POSB accounts or 3) the group who has finally overcome the inertia to save/invest but do it in the wrong avenue of endowment funds and REITS.

[Big Toe]

My opinion is that people generally know and worry about retirement but not many are actively doing anything.
I think moderation is key to getting ready for retirement. If one spends too much now, there may not be enough for retirement.
The opposite can be true as well. We are living in the present and there are things that one can do only when younger, excessive saving and scrimping may lead to regrets later in life as well.

I was recently faced with an issue of investing in a relatively risky project that requires substantial amounts of cash(RnD/product development on new product, not available in the market before). If it fails it will wipe off a huge part of my cash. If successful, should see some significant returns and cement a working relationship with a very large & successful company.After many meetings and sleepless nights, I went ahead anyway because I understood fully the risk/reward equation and it's probably one of the better opportunities I had in a long time. The way I see it, it's better than blowing money away on a luxury car, why do you need a luxury car anyway? (My old beat up car expired and I traded it in for an old beat up van as 2nd hand cars are way too expensive now)