Is S$1 million enough for retirement? There is no magic number; what counts more are good financial habits

[SINGAPORE] The retirement age in Singapore will rise to 65 by 2030. Raising it makes sense as life expectancy increases.

Indeed, I hope I never retire and continue to be gainfully employed – perhaps on a part-time basis way past the official retirement age.

Still, many people who have toiled for decades in the workforce may welcome retirement. A new chapter opens where one is free from meeting work deadlines and can devote more time to family, travel, hobbies, religion, serving the community, fitness and so forth.

Certainly, financial adequacy is essential to a fulfilling life in retirement. But how much is enough? Is a kitty of S$720,000 for S$3,000 of monthly expenditure from age 65 for 20 years sufficient? How about aiming for a higher standard of living – S$1.2 million for S$5,000 of monthly expenses over 20 years?

Finding the magic number

Ascertaining what is sufficient to fund one’s retirement years is tricky.

One, the rate of inflation can upend one’s plans. The quality of life one hopes to have based on spending S$5,000 a month today might cost much more in 10 or 20 years’ time.

Potential hot and cold wars among countries, rising trade barriers, more climate-related regulations and so forth could drive higher inflation in the years ahead.

A retiree may be hit particularly hard if dreams of travelling extensively are dashed by much costlier air fares due to higher levies on flights, amid efforts to combat climate change.

Two, long-term planning involving one’s needs can go awry. A costly new hobby, for instance, may be great for one’s mental health but not for one’s finances.

Perhaps even with comprehensive medical insurance, annual insurance premiums might escalate far more than anticipated. Also, when diagnosed with a major illness, one may choose a treatment option outside of the coverage of one’s medical insurance policy in the hope of a better outcome.

Three, there is much uncertainty around the number of years one spends as a retiree.

When one retires at 65, living into his or her 80s seems reasonable. Yet, this assumption might be way off. With continued medical advances and healthier lifestyles, more people could live into the late 90s or be centenarians.

In short, a plan to fund 20 years of retirement expenses may be off by a whopping 10 to 20 years.

Occasionally, when I think about financial adequacy for retirement, I feel like burying my head in the sand. That is similar to the feeling that I frequently have these days when looking at the wider world. Is enough being done to combat climate change? Why is there so much conflict within countries and among countries? Sure, the rise of artificial intelligence offers much promise, but great peril too.

Possibly, in tackling financial adequacy for retirement, it is best not to be fixated on achieving a certain magic number for one’s savings and investments, but to have good financial habits and be prepared.

For someone with S$500,000 in savings and investments at age 55, maybe achieving a target of S$1.2 million at age 65 is difficult. When confronting such a situation, one should try harder to grow one’s savings and investments, but not get overly upset or worried.

Looking at the big picture, having oodles of money helps one to enjoy retirement, but many other factors impact quality of life. 

For example, engaging in meaningful activities or having a good network of friends can be great for mental and physical well-being. Maybe learning new skills will help one to keep the mind sharp and stay abreast of technological changes.

Good financial habits

Some points are worth bearing in mind to help one better handle retirement from a financial angle.

One, receiving payments for life from CPF Life, a national longevity insurance annuity scheme that provides monthly payouts, is useful. 

By putting S$213,000 into one’s CPF Retirement Account at age 55, one can receive a monthly payout of S$1,610 to S$1,730 from age 65. The Full Retirement Sum for those turning 55 this year is S$213,000.

A 55-year old who puts aside the Enhanced Retirement Sum of S$426,000 in 2025 can enjoy a monthly payout of S$3,100 to S$3,330 from age 65.      

By deferring payouts under CPF Life, one can enjoy higher monthly payouts later on. If one pushes back one’s payouts until 70, the payouts rise by 35 per cent. Also, one can opt to receive lower payouts initially, which then grow by 2 per cent annually for life. 

Getting monthly payouts under CPF Life can be akin to a salaried worker receiving a regular pay cheque. Also, it is a hedge against longevity risk.

Two, taking some risk helps. For example, shareholders of DBS have in recent years seen the bank’s share price rise and enjoyed higher dividends. DBS pays quarterly dividends.

One can buy blue-chip Singapore-listed equities to help hedge against inflation. Such equities are issued by entities that are subject to strict rules. The equities could be Singapore dollar-denominated and have ample trading liquidity. Meanwhile, efforts to support equities market development here may drive higher valuations of local-listed equities.

Three, balance exposure to equities with having some money invested in Singapore dollar-denominated instruments where capital is protected, such as Treasury bills, Singapore Savings Bonds or fixed deposits. 

Four, life always involves trade-offs. Knowing what to prioritise and making adjustments based on changing circumstances can enable one to lead a satisfying retirement life.

For example, if one needs to splurge on business class air travel to avoid aches and pains from being crammed in an economy class seat, the trade-off may be to make fewer trips.

Ultimately, I hope to stay positive and have good financial habits to help me navigate this new life chapter if I ever have to retire – preferably far down the road.