$300 monthly to get $1m at retirement?

February 15, 2016

1 in 3 S’poreans not planning for retirement

I refer to the article “1 in 3 young Singaporean adults not planning for retirement: Survey” (Channel NewsAsia, Feb 15).

Most willing to save $300 monthly to have $1m at 65?

It states that “Of those in the 25 to 35 age group, 86 per cent are willing to set aside S$300 a month to accumulate S$1 million by the time they retire at 65”.

How to get 7.9 or 11.8%? 

I think there seems to be something not quite right because one would need an annualised return of about 7.9 per cent in order for $300 monthly to accumulate to $1 million from age 25’to 65.

If its from age 35, the returns would have to be even higher at about 11.8 per cent.

How realistic is it to expect a return of 11.8 or 7.9 per cent?

Each S’porean “lost” about $300,000?

The $300 monthly savings at 3.5 (estimated CPF weighted average interest) and 6 per cent (estimated GIC’s annualised return from inception) from age 25 would only accumulate to about $314,314 and $600,435 respectively, at age 65.

In other words, every Singaporean in this “$300 savings” scenario may be losing about $286,121 – due to the lower CPF interest.

Moreover, this “loss” may actually be much more, as from age 65 to death – the interest continues to be lower.

Need to save $954 monthly instead?

If we assume the estimated weighted average return on all the different CPF accounts to be 3.5 per cent – the monthly savings required would be about $954 – more than three times of $300.

Half the savings required if % higher?

If we assume the returns derived from our CPF funds is about 6 per cent – the monthly savings required  is much reduced to about $500.

As to “The survey found that retirees aged between 60 and 69 had saved only one-third of the funds they perceived to be sufficient for retirement.

CPF’s low % the dominant factor in retirement?

Two-thirds of retirees – 66 per cent – said they wished they had started planning for retirement earlier, with 65 per cent indicating that they do not expect their savings to last throughout retirement” – the dominant facor why Singaporeans have so little when they retire, is arguably the low CPF interest rates.

Leong Sze Hian

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About the Author

Leong
Leong Sze Hian has served as the president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), Hotel Mumbai (associate producer), invited to speak more than 200 times in about 40 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of 2 countries. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.