Want An Early Retirement? Find Out How Much It Costs

Are you already thinking of the day you retire? But while an early retirement may be the dream for many, would this actually be a feasible option? This is because while Singapore's official retirement age is currently set at 62,¹ a third of Singaporeans are expecting to only be able to retire after the age of 70.² Furthermore, with Singaporeans estimated to experience a 6 year saving shortfall, an early retirement without proper planning could then result in us outliving our savings.³ Hence, it is important for us to estimate our retirement expenses while also building our retirement nest egg so as to ensure that we would then have enough to sustain our retirement lifestyle.

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#1 The numbers

To begin planning for your retirement, it is important to first be aware of the retirement figures. For example, Singaporeans on average have a life expectancy of 82.9 years.⁴ Hence, if you expect to retire by the age of 55, you would then be spending approximately 27.9 years in retirement. If we assume that one only needs S$1,200 a month to lead a basic retirement lifestyle, a nest egg of at least S$401,760 would then be required in order to retire by the age of 55.⁵

However, it is important to note that the expenses stated above are calculated based on a modest retirement lifestyle and have yet to account for inflation. Hence, should you wish to travel frequently or lead a more luxurious retirement lifestyle, a larger retirement nest egg may then be required.

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#2 To retire by 55...

Assuming a monthly retirement expenditure of S$1,200, this would then amount to a yearly expenditure of S$14,400 before inflation. Therefore, if we were to spend 27.9 years in retirement, the annual 1.9 per cent inflation could then result in us requiring up to S$1.4 million if we were to retire by the age of 55.⁶ As such, should you wish to enjoy an early retirement, it would be advantageous to begin planning for your retirement early. This would then give you a longer time horizon thus allowing you ample time to build your nest egg.

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#3 But what if...

However, would a retirement at age 55 still be sustainable if you were to incur unexpected expenses? According to a study conducted, Singaporeans above the age of 65 are more likely to have health-related conditions with the average age for good health being 73.65 years old.⁷ This implies that approximately 10 years of your retirement may then be spent with poor health. Furthermore, with Singaporeans aged 65 and above spending an average of S$51,140 on healthcare, it is essential that you also account for potential future healthcare expenses when planning for your retirement.⁸ This may then result in a larger sum required to be set aside for your retirement. Likewise, obtaining adequate insurance also ensures that you receive sufficient coverage and would not have to worry about the hefty medical bills should you unfortunately be hospitalised or diagnosed with a critical illness.

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#4 Retirement planning

To calculate your retirement expenses, consider using the income replacement or the expense methods. The income replacement method estimates that you will require 70 to 80 per cent of your current salary in retirement. Therefore to calculate your retirement expenses, inflation is factored into this amount before multiplying it by the number of years required. Alternatively, the expense method requires you to determine your current monthly expenses before multiplying it by the required number of years.

It is also important to note that while all Singaporeans and Permanent Residents will receive monthly pay-outs from CPF Life, this may not be enough to supplement your retirement lifestyle. Hence, should you wish to receive additional income in retirement, consider investing or using annuities to supplement your retirement savings.

(See "Want To Retire By 55? Here's How Annuities Can Help")

How FSMOne can help you get on track

Our team of friendly advisers are able to help you review your financial objectives, long term commitments, and offer you investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan,

Contact Our Advisors Here >

^{1Source: http://www.mom.gov.sg/employment-practices/retirement}

^{2Source: http://sbr.com.sg/financial-services/news/3-in-5-singaporeans-are-unprepared-retirement}

^{3Source: http://www.straitstimes.com/business/most-sporeans-fret-about-retirement-savings-study}

^{4Source: https://www.moh.gov.sg/content/moh_web/home/statistics/Health_Facts_Singapore/Population_And_Vital_Statistics.html}

^{5Source: http://www.channelnewsasia.com/news/singapore/retirement-planning-how-much-is-enough-8123970}

^{6Source: https://www.statista.com/statistics/379423/inflation-rate-in-singapore/}

^{7Source: http://www.straitstimes.com/singapore/one-in-four-singaporeans-aged-above-65-developed-chronic-disease-in-past-year-study}

^{8Source: http://www.businesstimes.com.sg/government-economy/tenfold-rise-forecast-in-annual-healthcare-costs-of-elderly-in-singapore-by-2030}

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