## Monthly amount to save before retirement

Back in 28 January 2011, I wrote a blog “How much is enough for retirement?”. In it, I used annuity to work out the lump sum to set aside at retirement in order to receive a constant stream of cash flow from retirement date.

In this post, I will determine how much a person must save each month to achieve the same amount of monthly payout from retirement date till 85 years old.

I use the Retirement Planner available at DBS website to come up with the results.

The parameters are:
Retirement at age 65 years old
Life expectancy at 85 years old (ie 20 years from date of retirement)
Monthly payout after retirement = \$3,000
Member has \$148,000 minimum sum in CPF at 65 years old
Expected annual inflation rate 2.5%
Expected annual return rate 2.5% (conservative rate)

The table below shows the monthly amount a person must save under different scenarios based on number years left till retirement.

 Age No. of years to retirement Monthly savings 55 10 \$5,701 45 20 \$3,340 35 30 \$2,569 25 40 \$2,195

In order to get \$3,000 per month payout after retirement (at today’s dollar and inflation adjusted into the future), a person who is already 55 years old now and has 10 more years of working left must save \$5,701 per month. This amount of monthly saving drops to \$2,195 when he is 25 years old now. The point is that when a person is younger and starts saving earlier, his quantum set aside into saving is lower than an older person.

This amount set aside each month is for retirement use and not for purchase of property or car. For asset purchase, one has to work out a separate sum to achieve that goal. (This is not the subject of this post, eg. monetising a property to support retirement spendings.)

We have to consider that part of monthly saving may come from either cash or contribution to CPF (meant for retirement needs).

So you have it. Start saving early for retirement.

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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### 2 Responses to Monthly amount to save before retirement

1. sgmemories says:

Hi KT,

The calculation assumes that at the beginning of the regular savings plan, there are no accumulated savings to start with, even at the age of 45 or 55. Assuming that there is some savings in CPF or bank deposits or investments such as equity, how can these be factored in?

drP

• limkimtong says:

Dr P,

Your observation is correct. The post is to keep every factor constant and find out the monthly amount to save depending on age-group of a person at the start.
DBS’ Retirement Planner caters to your question somewhat by allowing you to input “expected savings amount available at target retirement date”. This expected savings amount is presumed to be higher for those who has been working for a long while compared to a younger person. (If need be, you can work forward with accumulated savings at age 45 or 55 based on your scenario and find the future value at retirement date in order to use DBS’ Retirement Planner.) The monthly savings required for these age groups would be lower as a result. One would be in a happier position if he has been saving consistently and not spend every single cent of his monthly salary. KT