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Investor psychology and beating our fears.

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What is S$1 million at retirement? Peanuts?

Sunday, January 13, 2013

In my last blog post, I made certain assumptions which would see a 25 year old saving and investing S$650 a month today having S$1,000,000 by the age of 65. As the blog's purpose was to show that retiring as a millionaire is not a dream, I only had to show that it is indeed achievable.

The next question which is of relevance is whether we can retire with S$1 million in cash in Singapore? This led me to search through my stack of The Business Times because I remember reading a recent article on this.

Cai Haoxiang wrote a piece on 7 January 2013 in The Business Times on the topic. In the article, he made certain projections as to what an average household's expenses on a monthly basis could look like in 2042. The projections were made using the Household Expenditure Survey 2007-2008 from the Department of Statistics as a base.

It was revealed that from 1997-1998, an average HDB household's expenses was S$2,681 and 10 years later in 2007-2008, it was S$3,138 or an increase of 17%. By 2042, assuming a core inflation of 2%, an average HDB household's monthly expenses would become S$6,400.

So, over a 34 years period, expenses could increase by some 104%. Let us assume that expenses would increase another 17% over another 10 years like it did from 1997/98 to 2007/08 and we would see monthly expenses for an average HDB household at S$7,488 a month.

S$1 million in the bank would last an individual 133 months or roughly 11 years assuming that the banks did not pay interest on savings and that there would be no inflation. Of course, these assumptions are unrealistic but we get an idea of how things might look like then. So, S$1 million would only last 11 years from 2052?

Let us not be too pessimistic. Remember that the survey is about average HDB households. What is an "average" household like?

In the article, it was mentioned that an average household would mean one with 3 to 4 members. However, it is unlikely that by the time we retire at age 65, we would still be supporting children or our parents. OK, with the former, it is possible if we became parents in our 50s and with the latter, it is also possible if our parents had us when they were very young or are of hardy stock.

However, these would be more exceptions than the norm, I would imagine. As both husband and wife retire in their 60s, it would be more realistic to imagine an average household with only 2 members, therefore. Then, their average monthly expenses would be much lower than a household with 3 or 4 members. Sounds less scary now, doesn't it?

Less scary it might sound but is S$1 million still enough for a couple of retirees in their 60s to live off in Singapore? Enough is really subjective, isn't it? So many questions need to be asked but with a household size of 2 average elderly folks, it could actually be enough.

Remember how I made the assumption of a 5% return on investments in my last blog post? If the 25 year old reader should stay invested, by the time he is retired at age 65, his S$1 million portfolio would be generating S$50,000 annually. Instead of re-investing the gains, it would be time to use it for his expenses in his golden years.

Now, let us not be chauvinistic. Let us assume that the future wife of the 25 year old reader should do the same thing he should be doing, setting aside S$650 a month in savings for investment and at the same rate of return, she could retire a millionairess! At age 65, her portfolio would also be generating S$50,000 annually assuming a 5% annual return.

Pause and imagine that. Smiling?

Remember that the journey is the hardest at the beginning. I would even describe the early years as being rather miserable. So, every time you are tempted to stray, every time you are thinking of giving up, come back and read these blog posts.

We don't have to be very rich when we retire but we should have enough and we should be happy.

Related posts:
1. Retiring a millionaire is not a dream.
2. To be a happy peasant.


RayNg said...

First stop ..... speed up your Special Account in CPF to reach the min. sum and enjoy higher interest rate to compound your return.

Then, when you retire at 60, you can draw down your Retirement Account from 62 and have ~$1K monthly.

If both husband and wife could achieve this, their retirement annuity will be ~$2K.

Assumption: when one retire, it is assume that their house is fully pay-up; children is independent; have adequate medical insurance protection. Of course, everyone have different circumstances.

So, you don't need $1M to retire. If you are fortunate, then you will have extra passive income from this $1M.

skipper said...


You need to add that people need to moderate their expectations and buy what they can afford, like applying for a HDB apartment instead of hankering for private property as their first home. Next would be renovations, which are sunk cost.

Temptations are strong. Cars, luxurious holidays, etc. It would be up to the individual to live within their means and save for the future.


look-good-feel-good.com said...

Hi AK,

wonderful sunday to you ! :)

I would like to know what you think of the "tsunami" of cooling measures on property announced this week? I was wondering if this would only be diverting the hot money into the stocks market ... I guess people still need to park their excess cash somewhere to earn some returns. If property is getting so much flak, then equities could be next. Of course it does impact me as I sold my private property in 2011, and now if I buy a second property will be hit by the 7% ADSD :(

Btw, I subscribe only partially to the retirement nest egg concept - I lean towards a "flowing stream" concept where the retirement goal is to have multiple streams of passive income coming in every month/year so I do not have to worry about emptying my nest egg one day. It's easier said than done but you are doing exactly that with all your dividend-yielding portfolio! Thats why I eagerly anticipate your new posts every time hahaaha!


AK71 said...

Hi RayNg,

A valid point and this is something I have suggested as well in an earlier blog post.

See: Build a bigger retirement fund with CPF-SA.

Today's blog post is really a companion piece to yesterday's which was written to demonstrate how a young person today could have $1m in cash at 65 years old (without counting CPF money and the value of his home).

Still, thank you for the comment which will provide food for thought for all readers. :)

AK71 said...

Hi skipper,

Hey, good to see you here and thanks for taking the time to comment. :)

Well, as a companion blog post, this piece builds on the points I made in yesterday's piece.

Yesterday, I said I would not tell readers how much to spend but I could tell them how much they need to save and invest so as to retire with $1m in cash.

This blog post builds on that and shows how, given certain assumptions, we could indeed retire with $1m in cash even 40 years later.

Having said this, your comment provides sound advice which I agree with wholeheartedly.

As you can tell from some of my earlier blog posts, I am all for living well within our means and saving for the future. :)

AK71 said...

Hi elsie,

We are on the same boat. I too sold my private properties in 2011. ;)

However, I am somewhat lucky to find what I felt was a good value for money offer in a shoebox apartment middle of last year in a private estate in RCR.

It was bought really as a hedge in case my decision to sell my properties, including my home, in 2011 was wrong which would be terrible as I would then be homeless for a long, long time.

Well, for now, it appears that I am lucky to have hedged because of this "tsunami" of cooling measures. However, whether any property owner in Singapore is really lucky or not can only be known in the next 2 to 3 years when we would see record number of completions. So, the jury is still out of this one.

Will we see hot money flowing into equities next? It could happen as money will go to where it is treated best. So, people who stay invested in equities might benefit.

Indeed, we could see S-REITs' unit prices climbing higher and distribution yields compressing further.

In a reply to Endrene, I actually said that I would like Mr. Market to give me a new home "free of charge". I revealed that it is a hut in the sky somewhere in the RCR and will be ready 2 years from now. Let's see if Mr. Market would be kind enough to oblige. :)

For sure, I agree with you that we should not draw down on our capital for retirement expenses nor for any other purpose, if we can help it.

It is all about delaying gratifications and making our money work harder while we still have some time and while the conditions are favourable. :)

EY said...

Hi AK,

Ah Chooooo!!! Did I just hear my name? :D

Hmmm...don't you think advising readers to invest in chicken farms for the future will be a good idea? Judging from the meteoric rise in the cost of living when we grow old, many of us will probably have to eat eggs goreng everyday lor! :P

By the way, my investment property is also in RCR. Not high-rise though. Got it last year as well. Managed to nab a pretty good value deal. I'm hoping to let the tenant pay for my house. And if Mr Market is generous enough, I'll be extremely grateful too! :)

Oh yes, I gave in to my materialism. Didn't buy VW Beetle. Got the Opel Tigra. Nice colour and depreciation lower than VW Beetle. Germany engine. Collecting it in a couple of days' time. Happy!


AK71 said...

Hi Endrene,

Oh, I am a firm supporter of Jim Roger's idea that food prices are going to shoot through the roof! Be a farmer! Why do you suppose I invested in China Minzhong? ;p

Congratulations on grabbing a good value investment property and a good value car! :D

look-good-feel-good.com said...

hi AK, thanks for your fast response (i had trouble reading the blog on my mobile yesterday and it didnt allow me to respond either hrummphh).

Yes I was wondering if I had sold the property too early in 2011(unlike you, mine is singular hor, not plural hahahah !) But again I told myself one cant time the market so must learn to let go and move on :) Funny thing is I always tell me people I am "homeless" too :) ...not exactly true lah. But you are right, I am waiting to see how the supply of private units coming online will impact prices... keeping my fingers crossed!

Endrene, COE for your car must be sky high! Unless you bought a second hand car. I was lucky cuz I bought mine when COE was $10,000 (yes once upon a time COE was actually only 4 digits) and it has another 3.5 years to go which hopefully by then I am retired and can go "jalan jalan" full time instead lol!


AK71 said...

Hi elsie,

Really? I hope the problem is not a permanent one.

I enabled the mobile version for my blog when it became available free of charge from Google. Prior to that, 3rd parties offered to do it for me for a fee which I declined.

Actually, I tried reading my blog on my sister's iPhone before. Yikes! My eyes were tearing after a minute or so. So small! This is even though the mobile version presents only the blog posts and nothing else. Too much of a strain on my eyes...

I got pretty good prices for my properties in 2011. Of course, now I know that keeping them for another year, I could get even higher prices. Haha.. Well, I have made my money and others will make theirs.

With the latest round of cooling measures (actually, they are freezing measures), we could find it harder to sell our properties now if we still had them.

We cannot make all the money in the world. :)

If I had not found a value for money deal last year, I would not have bought another private property so soon. I buy as and when I find good offers.

The lowest price COE I have ever comes across was $1. Really! This happened to my aunt a long time ago.

Retire and go jalan jalan full time in 3.5 years from now? Gambatte! :)

look-good-feel-good.com said...

Hahha yes I m hving flowery eyes now from reading the post on my iPhone !! I m trying again posting comment on the phone as last night when I tried the frame freezed ! So I gave up :)

$1 ! Wow me want too ! Hahha I thought the uncle who got his $50 COE via Atm bidding was cool or wait was that just an urban legend ? Lol

Yes agree with u we can't make all the money gotta leave some profits to bless others too HEE .. that's the 'prosperous' mentality ! I m hoping to implement the practical wisdom from your blog into my investment portfolio then I am set for full time 'bum'hood in 3 year's time hahha !

Thanks AK have a blessed Monday :) (ps if this comment goes through means the mobile version working now )

AK71 said...

Hi elsie,

The mobile version is working now. Confirmed. ;)

We cannot make all the money in the world. People who buy from us at much higher prices are assuming greater risks. If they do make money even so, they deserve it. I learned this from Mr. Kwek Leng Beng. :)

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