JPMorgan had a study that suggested that 70-90% of income must be replaced.

If we use the lower end which is 70%, that means that if you're spending $5,000 now, you will only need $3,500/m passive income.

If you spend $3,000, then you only need $2,100 per month in terms of income to feel sufficient in terms of retirement.

DEFLATING EXPENSES IN OLD AGE

But isn't this amount going to inflate over time? Well that depends whether you believe that actual retirement spending patterns drop over time correspondingly also.

Take a look at the chart below, it shows findings that while healthcare cost steps up, just about every other spending drops over time.

That's reasonable because imagine old age. You'd eat less, stay home more than go into office (in any case there is concessionary transport passes for elderly) and you'd spend less on travel and entertainment.

In Singapore, mortgage loan is typically to age65. Of course, you could refinance to age75 but that isn't prudent because working income is probably gone by then. So most people here actually fully own homes in old age.

If you need $2,100/m for 40years, your capital needed to retire can be viewed as

$2,100x12x40= $1,008,000.

A big amount BUT that does not factor in inflation. Let's assume inflation long term in Singapore goes back to 3.5%.

With inflation of 3.5% what amount is needed? That will be $2.2M!

The solution is quite obviously some form of investment return on your retirement capital.

If you put your retirement capital in equity markets, there are risk. Volatility also impacts withdrawal.

Why not put it in a bank accounts? Fixed deposits are 3% right now? But we should expect inflation to drop somewhere in future right? Correspondingly, fixed deposit rates could go back to 1%+ again.

Key observations is that you'd realize that fixed deposit rates are ALWAYS going to be below inflation! That means it is eroding away.

So instead of investing fully in equity or fully in fixed deposit, what if you have assets or plans that pay you 3%pa in combination.

Or a simpler way which is an annuity plan in Singapore. It gets you at least 3-4%. It's still pretty conservative. An annuity plan works best to complement your CPF payouts for life time.

$914,589 needed instead of $2.2M

A return rate above inflation cuts the quantum you need to retire.

What it means is that if you need $2,100/m for 40years and can get 4% return with 3.5% inflation rate, your capital needed will only be $914,589! Less than $1M!

But for a buffer, like unexpected housing renovation cost, maybe still aim for $1m?

Doable? If you start today and have enough time, it definitely is.

If you are keen for a fee based full retirement plan, check https://www.theastuteparent.com/josh-tan/ or the links below