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?

Before we go into the calculations, you should have an idea of when you want to retire. The current official retirement age in Singapore is 63 years old and will progressively increase to 65 years old by 2030. 

These numbers don’t mean that you necessarily have to retire when you reach the official retirement age – you may continue to work if you wish to, and under the Workplace Fairness Act (WFA), it is illegal for employers to dismiss employees based on protected characteristics, which include age. 

Additionally, employers must offer re-employment to eligible employees who wish to continue working for the company up to the current re-employment age of 68 years old. These measures are put in place to protect older Singapore employees who prefer to delay their retirement, which if you do, means protecting your employment income in later years.

That said, many Singaporeans want to retire before the official retirement age, with 56% indicating preference to retire at 60 years old or before. 

The average life expectancy in Singapore is 83 years. For an average Singaporean, you will need to have enough retirement funds to last more than 20 years after retirement, and probably even more.

It is estimated that Singaporeans will need approximately S$1.3 million to retire comfortably. 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. 

These are just general estimates, and the actual amount could differ significantly, especially if you want to retire early. It is important to calculate how much you need to retire based on your personal circumstances, needs and preferences. 

How to calculate how much you need to retire (early)

A common method to calculate how much you need to retire is the 25x rule, which is that you should have 25 times the annual amount you plan to spend during retirement saved before you leave the workforce. 

‍This pool of savings is assumed to be invested in a portfolio of 50% stocks and 50% bonds to allow you to withdraw 4% of your portfolio in the first year that you retire, and then withdraw the same dollar amount (adjusted for inflation) annually thereafter. This is known as the 4% rule.

‍However, this method has its own set of limitations. First, it assumes that you will spend 30 years in retirement. If you are retiring early, you will need a lot more than that. Besides, with longer life expectancy, we may have to expect to spend more years in retirement.

‍Secondly, you are assumed to keep the same lifestyle throughout your retirement. Overspending in one particular year could impact the principal amount in your portfolio, which impacts the interest returns. 

‍As with most rules, they are meant to provide guidance and should not be adhered to strictly, as it does not work perfectly for everyone.

Personalise your retirement plan

The best way to plan for retirement is to tailor it to your individual needs and preferences. Of course, that will take more time and effort, but early planning will pay off in later years. A thorough calculation to find out how much you need at retirement can be more helpful for your retirement planning, and here are a few areas you should look at:

1. Estimated number of years in retirement: Take life expectancy (buffer a few more years than the average life expectancy) and minus the age you wish to retire. 
2. Living expenses at retirement: Extrapolate from your current spending habits and adjust for inflation (about 2% per annum). You should also factor in your desired lifestyle at retirement, insurance premiums, and emergency expenses such as medical bills.
3. Legacy planning: If you have dependents or children, you also need to allocate how much you want to set aside for them.
4. Wealth accumulation from now until retirement and after: Calculate your projected total savings and investment returns, factoring in income increments and potential drawdowns. You may wish to continue investing after retirement to secure a stable source of income. Your total wealth should at least cover the above points throughout your retirement.

If you are planning to retire early, don’t forget that you will need to fork out extra for medical coverage, which may have been previously offered by your employer. Additionally, without employment, your lifestyle could change significantly. More time on hand could compel you to spend more on leisure, so spend prudently. 

Lastly, don’t forget that life could always throw curveballs, so also create buffers in your calculations. This includes ensuring that your wealth continues to grow after retirement – you may wish to explore investing for passive income to do so.

Are your CPF savings really enough for retirement?

People tend to overlook their CPF savings except for mortgage payments. Most employed Singaporeans or Permanent Residents (PRs) would have their CPF 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 CPF LIFE payouts at age 65 (depending on your birth year and assuming you meet the conditions).

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. 

When you turn 55, savings from your Special Account (SA), followed by your Ordinary Account (OA) will be transferred to your Retirement Account (RA) up to the Full Retirement Sum (FRS). 

You may also choose to make further transfers up to the Enhanced Retirement Sum (ERS), and the total amount of RA savings will determine the amount of monthly payouts you get from CPF LIFE when you turn 65. The more RA savings you have, the higher the payouts.

As you can see, CPF plays a huge part in the retirement adequacy of Singaporeans and PR. Pay early attention to your CPF savings, and in your calculations for retirement planning, CPF should be part of the strategy to secure your retirement goals.

 You can work backwards by calculating:

1. How much CPF LIFE monthly payouts you want to receive during your retirement
2. How much RA savings you need to achieve this payout amount
3. Whether your current CPF contributions and projected increments are on track to achieve this amount in your RA

CPF has a Retirement Payout Planner calculator for you to calculate your estimated living cost at retirement, adjusted for inflation and assumes retirement at age 65. It subsequently calculates how much you need in CPF retirement savings to provide a CPF LIFE monthly payout matching your estimated living cost.

*Note: If you don't have at least $60,000 in your RA nearing 65, you can still opt in to CPF LIFE 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.

Your money starts working 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. This goes to show that even small contributions can snowball into substantial sums when given decades to compound.

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.

How to start investing for retirement

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.

Using your earlier calculation for your projected retirement expenses, you can use our Investment Plan Calculator to develop an investment plan to accelerate your journey towards your retirement goals.

If you would like more resources on investing for retirement, read our takes on decumulation and bucketing strategies.

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.