A Million-Dollar Question

OCBC senior vice-president Anne Tay, a wealth management specialist, explained why Singaporeans will have a tough time retiring on a $1 million savings. There’s nothing wrong with your eyesight; it’s $1,000,000. I can imagine Miss Tay smiling sinisterly with her little pinkie next to her lips like Dr Evil in Austin Powers, demanding $1 million from us poor folks.

This estimate is worrisome. Assuming Singaporeans, in addition to their CPF contributions, save an equal amount in their bank accounts for retirement or rainy days. Even so, less than 2% of Singaporeans would have $1 million in savings when they retire. This large population of aged and poor will put severe strains on our social structure and economy in the future.

However, the problems of an aging population in Singapore aren’t as serious as other industrialised countries. We should examine whether the astronomical $1 million figure is a realistic estimate.

According to Miss Tay, a retired couple would have slightly more than $4,000 to spend monthly. But 60% of households in Singapore earn less than $4,000 a month, and 80% of households spend less than $4,000 a month. Do we really spend more after we retire, when our mortgages are paid and our children no longer dependent on us?

It’s reasonable to assume at the time of retirement, most Singaporeans would either have paid their mortgages or downgrade to smaller homes, which will free up lots of cash. Furthermore, their children would have grown up and the need to finance their education is gone.

Most retirees should then be able to reduce their monthly expenditure by about 25% since 21.6% of household expenditure is spent on housing and another 3.3% on education. It appears Miss Tay has miscalculated the costs of living for retirees in Singapore.

However, the financial rule of thumb that we need 70% of our last drawn salaries to enjoy a pre-retirement standard of living. Since the average monthly household income is about $5,200, she probably did her calculations in accordance to industry standards.

Also, my simple calculations didn’t take into account the higher medical expenses for retirees. It would be a safer bet to set aside some money in case of emergency since nearly one in three deaths here arises from heart disease or kidney failure.

Assuming there’s no inflation and my investments earn an annual return of 8%, I’ll need to save $1,200 every month for the next 25 years to have $1 million when I retire.

I think I’m going to die poor and lonely.

04 November 2003 · Money

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