How much is the retirement nest egg?

Back in 28 March 2014, I wrote a blog titled “Monthly amount to save before retirement”. This post is a follow-up on that post.

In the Sunday Times (12 July 2015), the on-line poll indicated $1,380,000 was the ideal retirement sum for the affluent investors. Seriously, do we need so much in retirement sum to retire adequately?

The amount of retirement sum to aim for at the time of retirement is dependent on firstly the interest rates prevailing during retirement and secondly, the inflation rates also. Inflation rate reduces purchasing power of money. More has to be set aside as inflation rises.

For simplicity, I did not consider inflation rates for this blog post. (Read my March blog post for impact of inflation.)

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 (conservative depending on individuals)
What is the retirement sum at age 65? This amount set aside is dependent on the interest rates prevailing during retirement. See table below.

Retirement amount at age 65
Interest rate Retirement amount
0.5 685,000
1.0 652,000
1.5 621,000
2.0 593,000
2.5 566,000
3.0 541,000
4.0 495,000
5.0 454,000

Where interest rate is low like 0.5%, the retirement sum is higher at $685,000 at age 65. When interest is at 5.0%, the amount to set aside for retirement reduces to $454,000.

Part of the above retirement amount can be from CPF Life set aside at age 55. For a person with full retirement sum of $161,000 in CPF, he can draw between $1,220 to $1,320 per month for life. (Source: CPF)

The on-line poll of $1.38 million is indeed a large amount for retirement purposes. This is meant for the affluent and not for majority of us.

Copyright © 2015, 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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