Is $600,000 enough for Retirement?

Recently, the Strait Times published an article explaining why many people

believe that more than $600,000 is enough to retire on.

The article addresses the topic, for a second.

It mentions a Steam Life survey conducted in 2024, in which participants were asked

how much money was needed to be considered financially independent.

They ultimately received $612,000.

By the way, DBS also published another report suggesting that retirees should build

up at least $550,000 to ensure a basic standard of living in retirement.

This figure is quite close to the $600,000 figure in the Steam Life survey.

Interestingly, when I conducted my own survey, nearly 80% of respondents

believed that $600,000 was not enough. You'd need a million dollars or more for a comfortable retirement.

That's why, in this video, we're going to try to determine if you can actually retire

with only $600,000, or do you really need more than $1 million.

And if so, how do you reach that amount?

But before you begin, join my 10,000-member Telegram group to chat or ask any questions you may have.

While Steam Life hasn't explained precisely how they arrived at this $612,000 figure,

this figure seems accurate because Mr. Dane of Strait Stein calculated that with this amount,

a person could withdraw $2,500 per month to cover their expenses from retirement at age 65 until age 85.

As for what happens after age 85, I suppose you can only eat air, drink water, and touch air.

By the way, most monkeys agree that financial freedom is important.

However, given the magnitude of this sum of $612,000, nearly half of them believe they will never achieve financial independence.

When asked about the reasons for this feeling, the three main reasons are insufficient income,

unforeseen health problems that could impact their finances, and job insecurity,

and the risk of being fired at any moment.

Furthermore, nearly half of the monkeys believe that having children will delay their goal of financial independence by an average of 15 years.

They estimate that it will cost them more than $500,000 to raise a child until the child is 21, the same as the cost of a bathroom in an apartment.

That said, I personally believe that the main reason why so many of us think about never achieving financial independence is that many of us don't actually start planning for our retirement until much later.

The CBC 2024 Financial Wellbeing Index reveals that among young people aged 20 to 34,

only 41% begin to develop retirement plans.

It's only at this point that they begin to consider and establish their retirement.

However, DBS notes that even those who have started investing tend to underinvest.

For example, those aged 25 to 34 invest only about 15% of their salary.

This phenomenon is inevitable because salaries are generally lower in this age group, which reduces disposable income for investment.

Furthermore, even those aged 35 to 44 invest only about 17% of their salary despite a salary increase.

This is unfortunate because it's at this age that we have the most time to maximize the magic of compounding.

Furthermore, the longer we invest, the lower the risk of volatility.

For example, if we invest for only one year, the risk of negative returns is high.

On the other hand, if we invest for at least ten years, the probability of achieving positive returns is much higher.

Furthermore, DBS also found that people in their 20s and 30s are overly cautious when it comes to investing

because they tend to allocate more than 50% of their investments to fixed-income securities, such as bonds and treasury bills.

It's no wonder, then, that many Singaporeans feel they can't invest enough for their retirement.

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If you ask anyone, they'll usually tell you that.

It all depends on your lifestyle.

Which is a matter of time.

Luckily, we don't have to guess, as there are various statistics on this subject.

According to the 2023 Household Spending Survey, the average household composed entirely of unemployed people aged 65 and over spends approximately $200,300 per month.

This figure is quite close to the $200,500 in expenses previously estimated by Mr. Fone for working normal hours.

Furthermore, this figure applies to the entire household.

Divided by the number of people, this figure is even lower at $1,384.

Of course, this is only an average that assumes you lead a basic lifestyle with no additional expenses.

For example, by age 65, your children should already be grown and you would no longer have to bear these expenses.

You would no longer need to support your parents and would lead a healthy life without high medical bills.

If you take these factors into account, your expenses will obviously be much higher.

For example, if we consider an average household that doesn't consist solely of people aged 65 and over, the average expenses would be much higher, at $5,931.

This will also depend on your income.

If your income is lower, your household will also spend less, and if your income is higher, it will likely also spend much more.

But the amount you'll need for retirement also depends on the lifestyle you want to lead.

For example, if you simply live in your apartment building, use only public transportation, visit public clinics and hospitals, don't have an assistant, and only travel to neighboring countries twice a year, then $2,500 would be more than enough.

On the other hand, if you live in a private property, drive a car, visit private hospitals, have an assistant, travel all over the world, and regularly enjoy spas and massages, you will of course need much more money for your retirement.

Let's assume we have a modest retirement income and only spend about $2,725 a month.

How much money will we need to save, then?

Obviously, we can't simply save this amount and gradually withdraw it each month. First, we don't know if we'll die, and then we'll see our savings gradually deplete, which can be quite frightening.

Therefore, we need to invest our money to ensure its continued growth without losing value due to inflation.

To do this, we use the 4% rule.

This rule states that if we invest our money and withdraw only 4% of our portfolio each year, this amount should cover our retirement expenses for at least 30 years.

So, using the $2,725 in expenses we just received, we can multiply this amount by 12 months to get our annual expenses.

Then we divide this amount by 4% and we get $800-750.

This is the amount we'll actually need to live comfortably in retirement.

Of course, it's much more than the $600,000 or $550,000 from the SimLife and DBS plans.

But that's also because this $2,725 in expenses is quite generous.

And according to statistics, you could have covered all your household expenses if you and your partner were already retired.

So how can we save this amount?

Fortunately, we don't need to save that much.

In fact, a large portion of our retirement expenses is already covered by the CPF.

If we manage to reach the full retirement capital in the CPF, we'll receive a monthly payment of around $1,500-1,600 from the age of 65.

This means that instead of having to account for $2,725 in expenses, we can actually budget for smaller amounts, right?

Well, yes and no. Yes, $6,000 covers a large portion of our monthly expenses, e.g., $1,500 to $1,600.

But no, because this amount is fixed.

It's a lifetime investment and doesn't take inflation into account.

This means that the longer you live, the less purchasing power your CPF payments have.

Nevertheless, those $1,500 to $1,600 will be very useful for covering expenses.

That's why it's essential to break even; it's a simple way to achieve it and live.

This is to tell us that it will be a problem, but it's safe to say it will be a problem.

If you do it regularly, you'll eventually break even.

Furthermore, by voluntarily contributing to your CPF, you can also reduce the income tax you'll have to pay.

So that's a good thing. Then, the next thing to do is to start investing now so that our money has more time to compound.

In a podcast from the fifth person, it's important to invest early.

If you had invested in good dividend stocks in 2008, not only would you have made a profit when the stock price increased, but you would also have earned a higher return.

In other words, good dividend stocks regularly increase their dividends over the years. This means that the new yield on your initial investment would have increased, significantly boosting your overall return over time.

Moreover, by starting early, you will learn to become a better investor.

Indeed, even if you made a mistake and lost money, the good news is that you didn't lose much.

Because you didn't have much money to invest in the first place anyway. This allows you to learn from your mistakes at a lower cost and gain valuable investment experience without jeopardizing your financial future.

Furthermore, even though the fifth person used the example of dividend stocks, given the uncertainty of the future and the demand for many Singaporean dividend stocks, such as banks and interest rates, it's still wise to diversify your investments globally, for example by investing in the MSI or World Country Index, which invests in both developed and emerging markets.

While the returns achieved will likely be lower than those of simply investing in individual stocks or the S&P 500, global diversification helps diversify risks while reducing the risk of these investments exploding in downturns.

Finally, another reason many people think they need more than $1 million to retire is because they have high expenses.

Whether it's because they spend a lot of money on real estate, food, travel, etc., if you earn a lot of money, that $1 million is easy to achieve.

Otherwise, you absolutely must start budgeting your finances. To do this, DBS recommends the Florine strategy to help you optimize your retirement budget.

To do this, you must first identify your needs and wants.

Needs correspond to your essential expenses such as food, transportation, phone bills, etc.

Then, discretionary expenses such as fine dining, vacations, leisure activities, gadgets, and gifts.

Next, you can match your income sources to your expenses by trying to finance your needs with safe, predictable, and inflation-protected investments,

such as CPF life insurance and Singapore bonds like SSBs and Treasury bills.

This will allow you to cover all your basic expenses with very safe assets.

This way, you won't have to worry about the impact of market volatility on your essential needs.

Finally, for your basic needs, you can combine them with riskier investments whose returns are not guaranteed,

such as dividend-paying stocks, ETFs, and rental income.

This way, if your investments perform well, you'll have additional income for your discretionary spending.

But if your investments don't perform well, at least your basic needs won't be compromised.

So, here are some tips for saving enough for your retirement.

That's it for this video; I hope you found it helpful.