Tan Kin Lian's Blog: Sufficient funds for retirement

Monday, December 24, 2007

Sufficient funds for retirement

According to a recent survey, 80% of Singaporeans want to retire at age 60. Do they have suffiicient funds to retire? How much money do they need to retire?

I carried out a survey with the participants in a class on financial planning. Most of them come from the lower income group. The results surprised me.

To cover food, utilities and other essentials, a couple needs about $1,000 a month. This assumes that they have a home that is fully paid for. It may be possible to get by with $800 a month, but this does not leave any margin for unexpected expenses.

To provide a monthly sum of $1000, with adjustment for inflation, a person retiring at age 65 needs accumulated savings of $200,000 to last an average remaining lifespan of 20 years. If the person wishes to retire at 60, he will need $230,000.

If you wish to have a more comfortable lifestyle, you will need $2,000 a month. Your accumulated savings has to be $400,000 when you retire at 65, or $460,000 when you retire at 60.

If you do not have this sum of accumulated savings (that is needed for the bare minimum or a comfortable lifestyle), you have the following options:

a) Extend your retirement age to 65 to 70 years.

b) Retire from full time work at 60 to 65, and continue to work part time to earn a supplementary income.

To ensure that you have sufficient savings to last a lifetime, in case you live a very long life, you need to buy a life annuity (which provides pooling of longevity risk).

When you are working, it is important for you to make adequate savings for retirement. You must save 10% to 15% of your earnings, and invest in a low cost investment fund that can earn you a good rate of return.

Do not spend too much money on unnecessary insurance that depletes your savings for retirement. Do not buy financial products that give a poor return, due to high expenses.

Read this FAQ:
http://www.tankinlian.com/faq/fptips.html
http://www.tankinlian.com/faq/life.html

8 comments:

Anonymous said...: I think Mr Tan should also mentioned that the children education fee is excluded. The couple need to prepare that sum separately.; December 21, 2007 9:00 AM
Anonymous said...: but I thought buying insurance, I can get back a certain sum when I reach 60. that will be savings that I will not have if I do not buy insurance?; December 21, 2007 10:05 AM
Anonymous said...: That was the insurance agents' idea. Did it work? Ask those who are of retiring age whether they are retired or still working for money.
Don't make another mistake. Insurance plans whether whole life or endowment cannot help you to accumulate enough funds for retirement.This is the stupidiest way of investing. If you are rich you might want to squander your money on the insurance agents but if you are POOR the FIRST important thing to do is to get an adviser who is qualified, honest and have your interest at heart.Forget everything till you get that adviser otherwise your future is at risk, not volatility but the incompetence of the agent. If you get this right everything will fall in.; December 21, 2007 8:40 PM
Anonymous said...: Even You have accumulated the funds you need, do you stop there or continue to stay invested? I can't help asking this question after reading that Iran's inflation has hit 19.1%. Imagine you do nothing to your painstakingly saved fund and to see it loses its value by 20% every year.It shrinks and shrivels.
So don't sit on that pile of money you accumulated, you still need to do something. The minimum is to keep up with inflation.
Sometimes I wonder investors understand the destructive power of inflation.They look for 'safe' instruments like endowment, Growth and whole life without realising the dangers ahead.They only look safe or your insurance agents want you to think it is safe.These instruments or investments are AT THE BEST hedge against inflation and the probability of losing its value is high when inflation hits over 4% which is very likely in the years to come.
If you have not invested in equities, ILPs or unit trusts it is time that you consider. Dump your traditional products if you can and don't waste time on them because you regret.Change your adviser if your usual 'adviser' has never proposed or fearful of proposing this kind of products
and has been recommending only products that were safe for him or herself and not for you.
Get a qualified , honest and competent adviser to help you before it is too late.; December 23, 2007 5:23 PM
Anonymous said...: If you are planning your retirement my advice is never get an insurance salesman to plan.I am biased and this is a fact that insurance agents do not know how to plan for you. Check this out with the retirees and they will tell you how miserable their retirement is right now because their insurance portfolios only give 50% of the projected cash value.
Instead of planning your retirement the insurance salesmen will be planning theirs'. They are not trained. They only know how to use insurance whole life and endowment and these products failed the current retirees.
Heed Mr. Tan's advice. Accumulate your fund in a broadly diversified
portfolio. This will meet your goals and will deliver well above
inflation return. The real return will be at least 4% adjusted after inflation.

Ah Long; December 23, 2007 9:29 PM
Anonymous said...: We need to spread the egg, planning towards retirement.

I have got Endowment policy, Single Premium Endowment Plan, regular premium ILP, single premium Flexilink, etc.

Some funds are in risk instrument like ILP, and others in risk free plans like Endowment plans.

There need to be a balance, than to think to invest on funds only for long term.

Contribute to SRS and invest it as a form of long term retirement need as well as to save on income tax liabilities.

So far the Combined Funds gave me better return than Endowment Plans, but Endowment plans give me peace of mind, though the yield may be lower. They balance up.

Cash are in fixed deposit, and this is the worst return instrument. After so many years, still thinking and considering to shift it out to other instruments.

So it depend alot on one's risk profile.

Important is one should have peace of mind.

- Thomas Phua; December 23, 2007 11:29 PM
Anonymous said...: Endowment is NOT risk free.Invest in CPF is risk free.This is mistakenly or unknowingly, or deliberately touted by insurance agents.In fact it can be riskier than the ILPs when inflation is spiraling.It is a sitting duck, a target,for all kind of risks.Worse , endowment, over the long term, is likely to return about 3%. Is this good? Inflation early next year is hitting 5% and looking at all the economic indicators it is going upward.
Equities only can beat it.; December 24, 2007 9:05 AM
Anonymous said...: Thomas Phua,
You are right in that one should have peace of mind. But my experience with buying insurance from NTUC is no peace of mind. And I told the ceo so in an email. He does not even bother to reply.; December 26, 2007 5:05 PM