Are You Sure You Know How Much You’ll Need for Retirement?

When it comes to retirement, a lot of investors have a specific number in mind that they would need to retire in complete comfort. What many people don’t know is how to actually come up with an accurate estimate of how much money you’ll actually need. Here’s a quick guide to help you get started on your planning.

Estimate your annual expenses

You have probably heard of various estimates on how much of your previous income is needed to maintain a similar lifestyle in retirement, and around 75-85% seems to be the consensus. In other words, if your pre-retirement income is $100,000 per year, expect to draw around $75,000-$85,000 annually from your investments and other income sources.

However, this is not a one-size-fits-all formula. If you were a big saver in your working life, for instance, you are already used to living on a lower percentage of your salary. If you were paying a housing loan and your home is now paid off, that is an expense that no longer needs to be considered. So, it is very possible that the annual income you’ll need in retirement is much lower than you think.

In your pre-retirement planning, it helps to try and eliminate as many expenses as possible before you retire (like a mortgage). Sit down and list all of your monthly expenses and consider how they might change once you retire. For example, if you have a long commute to work, you’ll certainly be spending a lot less on gas or MRT/bus fares!  Smaller expenses like that can really add up fast.

There have been studies that suggest that post-retirement expenses are not as much as experts think and that overall costs actually decline consistently after retiring. A recent study by the University of Michigan found that post-retirement spending for Americans is less than 60% of pre-retirement income, on average, so that could be silver lining as well for us Singaporeans.

Don’t count on help!

While your expenses may be less than you may think, one thing that you should not depend on solely for income would be your Central Provident Fund (CPF) account. Last June, some statistics on CPF were compiled and for local residents above the age of 60, more than half had less than S$100,000 in their CPF account.

Houses in Singapore require a huge capital outlay and a bulk of that cost stems from an individual or couple’s CPF accounts, leaving a smaller amount of liquid-cash for future use.

As such, you should be having your own savings and investments outside of CPF in order to help fund your retirement.

How you want to invest

The idea of equating the word “shares” with “risk” in retirement is a flawed one. Not all shares are risky and volatile any more than all corporate bonds are perfectly safe. Now, it would be good to stay away from exorbitantly-priced companies, but dividend-paying blue chip shares can likely be a good idea to fill up a substantial portion of any retirement portfolio.

Bonds can be great for income, but for retirement investors truly in it for the long haul, the concept of “total return” is what will keep your portfolio growing in perpetuity.

For instance, take the SPDR Straits Times Index ETF (SGX: ES3), an index tracker that basically mimics the movement of Singapore’s overall stock market as represented by the Straits Times Index (SGX: ^STI). The ETF has averaged a compounded total return (dividends and share price appreciation) of 8.2% annually in the 12 years since April 2002. Depending on the time period, dividend yields could be around 2-3% with the rest of the return coming from price appreciation.

Is the “4% rule” right for everyone?

The short answer is “no”, but it can be a good starting point. The “4% rule” of retirement essentially says that if you withdraw 4% of your retirement portfolio per year through interest and dividends and increase your withdrawals with inflation, your account will last for as long as you do.

The 4% rule should work if you have a healthy mix of investments, specifically, at least half of your money in dividend-stocks that will allow your portfolio to appreciate over time. If you decide that you need $60,000 per year in retirement, your “number” would be $1,500,000.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. This article was written by Matthew Frankel and first published on It has been edited for