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How Much Do You Need to Retire in Singapore? Here’s How Investing Can Help

Retirement - Silhouette
Retirement - Silhouette

The “FIRE” movement, which stands for “Financial Independence, Retire Early”, has gained traction in recent years.

More people are now aware of the need to build up a source of passive income that can take them through their golden years.

But a key question remains.

How much do you exactly require to retire in Singapore?

FIRE has been popularised by millennials but perhaps even they may not anticipate the amount required many decades later when they hit the retirement age.

What’s clear, though, is that investing can help you on the path to your eventual retirement.

Let’s break down what’s needed for retirement and see how investing can help you to accelerate the journey towards these objectives.

A basic standard of living

A team of researchers from the Lee Kuan Yew School of Public Policy has, back in 2019, computed the minimum household budget for a single elderly person aged 65 and above to get by.

The amount reported was S$1,379 per month and for an elderly couple, the amount is S$2,351 per month.

While this is a good starting point to compute how much you’ll need, two important factors need to be accounted for.

The first is the presence of high inflation in recent months that has raised the cost of living significantly as the prices of food, utilities and other expenses have risen.

The second is that the researchers only computed the amount for a basic standard of living that does not account for the occasional pleasures in life such as travel, dining in restaurants and other pleasurable pursuits.

If we factor in a 5% inflation rate from 2020 to 2022, and then 3% thereafter, a single person will need roughly S$2,000 per month by 2030.

To account for a slightly more comfortable standard of living, we should add another S$500 a month to get a total of around S$2,500 per month.

Working out a retirement amount

Next, you can compute how much you’ll need to sock away based on this target figure.

Singapore’s current minimum retirement age is 63 years and life expectancy as of 2021 stands at 83.5 years for residents.

This means that you can reasonably expect to live for another two decades after you retire.

Using S$2,500 a month, you will need a total of S$600,000.

Note that this amount does not include additional expenses for medical issues, emergencies and other exigencies.

A survey conducted by Manulife early last year showed that the average retirement savings for pre-retirees (i.e. those who are easing into retirement soon) are just S$423,000.

Most respondents in the survey indicated that they need S$1.1 million for a comfortable retirement, more than double what the average had saved up.

Don’t fail to plan

As the saying goes, if you fail to plan, then you’re planning to fail.

Although the CPF system may offer some relief, note that you can only withdraw S$5,000 when you hit 55 and then just 20% of your retirement savings less the S$5,000 withdrawn when you hit 65.

Start parking your money now in strong, blue-chip companies such as DBS Group (SGX: D05) or resilient smaller caps such as Sheng Siong Group Ltd (SGX: OV8).

And if you have spare cash left over every month, you can consider a dollar-cost average method by allocating a fixed amount to your favourite stocks over the long term.

The compounding effect can ensure that you build up a comfortable nest egg that can last you through your retirement years.

Generating an income stream through dividends

Meanwhile, apart from growing your nest egg, you can also consider investing in dividend-paying stocks that can provide you with passive income to offset your expenses when you retire.

REITs are a great option as this asset class is well-known for paying out dependable dividends over the years.

Some examples include Mapletree Logistics Trust (SGX: M44U), or MLT, Keppel DC REIT (SGX: AJBU) and Frasers Centrepoint Trust (SGX: J69U), or FCT.

MLT and Keppel DC REIT both sport distribution yields of 5.6% while FCT’s trailing distribution yield stands at 5.5%.

Elsewhere, growth stocks such as iFAST Corporation Limited (SGX: AIY) and UMS Holdings Limited (SGX: 558) not only pay quarterly dividends but also have the potential to raise their dividends in the future.

By taking steps to grow your investment portfolio and generate a stream of passive income, you can be confident of a blissful retirement.

Did you know there are 5 REIT sectors with a high potential for creating passive income? If you are building retirement wealth, this is crucial information. We have a new report that details all you need to know about them. Find out which sector to pay attention to, and see if you can fit them into your portfolio. Click HERE to download the guide here for free.

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Disclaimer: Royston Yang owns shares of DBS Group, Keppel DC REIT and iFAST Corporation Limited.

The post How Much Do You Need to Retire in Singapore? Here’s How Investing Can Help appeared first on The Smart Investor.