Retirement in Singapore: calculating how much do you really need

Factors to consider include how long you intend to work (not always your decision) and your monthly expenditure.

The answer to this question is never easy or straightforward. No one can really tell you a magic number that you need to have or save towards so that you ensure a comfortable retirement when you are older. The reason for this is simple - everyone lives in their own unique situation.

Each and every one of us face varying degrees of challenges trying to save up for our retirement. Some of us may be caring for aged parents, paying for our children's overseas education or even nursing a health condition.

There are also those who may have tried to start their retirement planning only to be overwhelmed be the amount we need to save to be able to retire comfortably.

Even more daunting is that we don't actually know what will happen in the future.

These are easy excuses to kick the can further down the road whenever we think about our retirement needs.

However, doing nothing about it is the worst thing you can do. Here's what you can start doing to understand how much you really need to retire in Singapore.

Estimate Your Monthly Expenses

The first thing you can do is estimate your monthly expenses. Of course, this will never be an exact science no matter how thorough you are but it nevertheless offers some insights into your spending habits.

For a start, you should not be spending more than your monthly income. Doing this will also expose many of the unnecessary expenses you are incurring on a monthly basis. Besides letting you know what you should be cutting back on, you will be forced to question the kinds of expenses you want to take on in your retirement years.

For those who are extremely unsure or unwilling to do the math, one lazy way to estimate this number is to use about 70 per cent of your current income. Many experts tend to use this figure, but you should try to avoid using it as it may be overly simplistic and too generic.

Your monthly expenses today may be quite different to that when you retire. You may have paid down some expenses such as your home, student or personal loans, education and pocket money for your children as well as certain insurance plans. However, you should not bank on your monthly expenditure to vastly decrease.

This is mainly because of your propensity to spend that amount each month. Expenses in other areas such as leisure, travel or healthcare may also rise during retirement.

Add Up Your Retirement Savings

This sub-point reads retirement savings and not just any savings. This means that if you have savings set aside for your children's education or are halfway through saving for your dream European holiday fund, it does not count.

You should calculate how much you have saved up for your retirement already, as well as how much you can continue to save each month. This part should be simpler once you've figured out your expenses.

The reason you're doing this is so that you can estimate how much you'll have at 65. This isn't only about adding up all the money you'll be stashing away over the years, it also includes the investment returns you'll get by compounding your returns over the years.

If you're daunted by figures you commonly hear financial advisers and insurance agents calculate with regards to a retirement nest egg, you can rest easier knowing that you don't have to actually save all of it. A good investment plan will be able to help you along the way.

We've done some of the calculations for you in the following article link. In it, we crunched the numbers to show you how much you would have in your retirement nest egg if you saved $5,000 every year from 30 years-old.

You Also Have CPF Life

CPF Life is an annuity scheme that provides a monthly payout for Singaporeans. If you have the Basic Retirement Sum (BRS), of $83,000, in your Retirement Account by age 65, you will receive a monthly payout between $700 and $750.

You can also receive larger payouts, between $1,280 and $1,380, if you have the Full Retirement Sum (SRS) of $166,000 and, between $1,860 and $2,000, if you have the Enhanced Retirement Sum (ERS) of $249,000.

You may also be able to receive a bonus payout if you meet certain additional criteria.

This will supplement your monthly requirement when you retire and you should aim to achieve the BRS at the minimum. You can also factor this into your calculations for how much you will need to save toward your retirement.

How Long Will You Be Working?

Even when you are 65, you may want to continue working. There's a difference between being forced to collect cardboard boxes and doing it to continue being active and supplementing your income.

With Singapore's re-employment age increased to 67 recently, we should expect further increases in the time between now and when we turn 65. This will also mean that people may choose to continue working and earning even past their retirement age.

This will no doubt enhance your retirement nest egg. You can choose to use less of your retirement savings if you're still working or even continue saving towards a time when you stop working entirely.

You should not rely on this method to prolong and supplement your retirement income as you may face health conditions, be made redundant in your industry.

Sometimes, just being willing to work doesn't mean you would have a suitable job waiting for you, especially if your health condition does not permit you to work.

You may even choose to have more leisure time during your retirement years.

Live Within Your Means

By doing these calculations, you will be able to paint a more complete picture for your retirement. You will understand that you can make certain lifestyle decisions today to contribute more or less towards your retirement savings.

In the same token, you will understand that your lifestyle in your retirement may not be the same as it is today.

The importance of having a good investment plan is also vital. By earning returns on the money set aside for your retirement, you will be able to reach your goal faster and retire earlier or beat your goal and have more for discretionary spending every month in your retirement.

If you are willing and able to work past your retirement age, that's an additional benefit to supplement your retirement income as well.

One other area you can look at is your home. You can choose to downgrade to a smaller house in your retirement years if your children have moved out and it is only you and your spouse.

Lastly, you will also be able to know if you are likely to fall short of adequate savings in your retirement. You can make adjustments for this starting today so you do not have to live in stress when the time comes for you to retire.