How much is enough for retirement?

Whether you choose early retirement or retiring at statutory retirement age (62 years with re-employment till 65), there is still a need to set aside a sum of money at retirement since employment income will cease. How much must one set aside at time of retirement?

This will depend on how much you need to spend every month till the end of life to retain same standard of living just before retirement.

Assuming, we do not consider medical expenses (which will increase as one gets older), no more housing mortgage and holiday travel is minimum, global standard suggests one spend two-third of last drawn salary. Say, your last drawn salary is $5,000 per month, retirement income should be $3,350. If you opt for early retirement at 50 years old, based on current life expectancy is about 80 years, you will need 30 years of living expenses. What is the lump sum to be set aside now to draw on monthly annuity of $3,350 assuming that annual interest on investments is 2 per cent? That will be a staggering $908,000! You really cannot retire early unless you have that kind of money.

Let’s say, one will to work until age 65 and last drawn salary is still $5,000 and no change with other parameters, the lump sum to be set aside for retirement will be reduced to $521,000.

A retiree at age 65 may think that he can do with less than $3,350 per month, say $2,000 per month, then the lump sum becomes $310,000. Does a person have that amount in the CPF and cash on hand to purchase an annuity that pays $2,000 per month?

One must save and do retirement planning and it not too soon to do so now. This field of retirement planning is a big area and one must be interested in it to seek information.

Copyright © 2011, limkimtong for Living Investment

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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