Can you retire whenever you want to?

The question of “when” to retire is naturally the focus of many in retirement planning. After years of hard work, it’s understandable to have a specific date to look forward to for a well-deserved long vacation. However, the equally crucial consideration of "how much money" is required to retire comfortably often gets less attention.

How much you need to retire in Singapore has been a recurring question – a good one that is, but there is never a nuanced-enough answer that tells you exactly how much you need for your own unique circumstances. This is why it's important to take ownership of your finances to come up with an achievable, comfortable retirement sum to support yourself and your dependents.

Regardless of your current age, it's never too late to set the wheels in motion now. Understand how to make time and compound interest your allies in retirement planning, and put them to work to make your ideal retirement age a reality.

Why it's important to start thinking about retirement now

A recent survey found that 74% of Singaporeans perceive a gap between their current savings and the funds needed to sustain their ideal retirement lifestyle, and one-third admit to not having comprehensive retirement plans.

The uncertainty and complexities of financial planning deter many from thinking about their retirement. However, there are opportunity costs that come with this delay – besides shortening your runway to accumulate sufficient savings, leaving your retirement in the hands of fate can create a lot of anxiety along the way.

While it is true that we cannot possibly foresee the future, it is entirely possible to take small, simple steps now to build up a retirement nest egg for our future selves.

Generally, how much do people need to retire in Singapore?

The official retirement age in Singapore is 63 years old, and the average life expectancy is 83 years. For an average Singaporean, you will need to have enough retirement funds to last at least 20 years after retirement.

Experts estimated that retirees need approximately S$1.3 million for a comfortable lifestyle. With healthcare and housing costs projected to rise significantly, retirees may need between S$1,200 and S$3,500 per month to maintain a modest to comfortable lifestyle. Again, this is an estimate and the true amount will differ from individual to individual, and it's good to keep in mind that these values will also increase over time due to:

• Rising prices and inflation, which diminish the value of your money
• Increasing life expectancy, which means you are likely to need a bigger retirement sum
• Healthcare costs with old age, including increasing health insurance premiums as you age

Are your CPF savings really enough for retirement?

People tend to overlook their CPF Ordinary Account (OA) savings except for mortgage payments. Most employed Singaporeans or PRs would have their OA contributions credited automatically throughout their working life, and it is often left unattended until the first CPF withdrawal age of 55 years old, and subsequently payouts at age 65 (depending on your birth year and assuming you meet the conditions).

Why is it important to pay early attention to your OA savings for retirement? When you turn 55, savings from your OA and Special Account (SA)– closing from January 2025 –will be transferred to your Retirement Account (RA), which will eventually determine the amount of monthly payouts you get from CPF LIFE when you turn 65.

CPF LIFE is a national longevity insurance annuity scheme that provides you with monthly payouts from age 65 for as long as you live, and your RA savings will be used to pay the premiums for it. Before assuming that your OA-turned-RA savings will cover you for life, here are a few things about CPF LIFE you need to consider :

• There are three CPF LIFE plans: the more RA savings you have, the higher your monthly payouts. You will be automatically placed under CPF LIFE if you have $60,000 or more in your RA when you approach 65 years old.
• Monthly payouts from the lowest-tiered Basic Plan will get progressively lower when your combined CPF balances fall below $60,000, so you will need to find other sources of retirement income to meet your needs, or lower your lifestyle.
• If you don't have at least $60,000 in your RA nearing 65, you can still opt in and get monthly payouts, but the amount will be low and may not be enough to support your retirement needs. Use the monthly payout calculator before you decide to opt in.

Ultimately, what is considered "enough" for your retirement will depend on your lifestyle, so it is important to remain prudent with how you choose to spend your retirement days. Additionally, consider other sources of retirement income in addition to CPF LIFE to ensure sufficient funds for your ideal retirement lifestyle.

Your money starts work as early as you want it to

Compound interest receives so much love from investors because your money is actually earning more money for you. Especially in retirement planning, the power of compounding becomes even more significant, as it leverages a longer timeframe to grow your money exponentially. Basically, the more time you give your money, the more it will reward you.

Did you know that 99% of Warren Buffett’s net worth was accumulated after he turned 65 years old? And that's because he started when he was 10 years old – the time in the market allowed him to compound gains way earlier than most people. This goes to show that even small contributions can snowball into substantial sums when given decades to compound.

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To accumulate $1 million by 65, you will need a monthly investment of $506 if you start at age 30 (assuming a 7.64% annualised return on your portfolio). 

If you start a decade later, you will instead, need a monthly investment of $1,161. That's an average of $655 worth of free work by compounding that you are missing out on.

Besides, starting early affords you the luxury of taking on more risk. With a longer investment horizon, you can afford to venture into higher-risk investment products with potentially higher returns. This approach allows you to balance aggressive growth strategies in your younger years with more conservative options as retirement approaches.

Here's where to get started on retirement planning

Regardless of your current age, there's no better time than now to start. Knowing the time horizon between now and your ideal retirement age is actually a useful guide towards what level of risk you should take with your investments. The rule of thumb is to lower the overall risk of your portfolio the nearer you approach retirement.

• Use a retirement calculator to estimate how much you will need in the future, using current expenses as a gauge, and factoring in inflation and future expenses
• Use the Endowus Investment Plan Calculator to develop an investment plan to grow your savings and achieve your desired retirement sum

Goal-based investing for your retirement

Endowus is an award-winning digital wealth platform that offers our clients access to best-in-class funds, and provides advice on wealth management.

We are the first and largest CPF digital advisor, offering CPFIS-included funds through our globally diversified Flagship CPF Portfolios. The Portfolios are designed to outpace inflation and offer better outcomes than the current CPF-OA interest rate of 2.5% per annum.

Understanding that everyone has a different time horizon and risk tolerance, we offer six Portfolios at varying risk-reward ratios, each with a different allocation to fixed income and equities funds. 

Not sure which one is the right Portfolio for you? Schedule an advisory call to get personalised advice from our team of MAS-licensed client advisors to guide you through your investment journey.