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Are you saving enough money for retirement?
By James Yeo
When I first entered the workforce, a question I had on my mind was: “How much money should I save from my salary every month?”
And the answer I kept hearing was: “As much as you can.”
In my opinion, this non-definitive answer isn’t really helpful and tends to push people into bad money habits, such as saving only the last few dollars left over at the end of every month.
How much to save per month?
According to an online poll reported in 2015, it is estimated that the ideal retirement nest-egg is estimated to be about S$1.38 million, although respondents varied in how they arrived at this figure.
With this mind-boggling figure in mind, we came up with an illustration to determine the amount of monthly savings required.
These are our basic assumptions for a person who we shall call Harry (For simplicity’s sake, we have excluded the CPF portion):
Desired retirement age: 65
Start working at age 25 with a salary of S$3,000 with 1 month fixed bonus and 3 per cent increment annually.
Percentage of savings: 20 per cent
I crunched the numbers in a spreadsheet, and guess what?
Harry’s savings only come up to S$613,574, less than half of what is the supposedly ideal amount.
In order for him to hit the magic S$1.38 million mark, he has to increase his savings rate to 45 per cent. This, however, is totally impractical given that Harry probably needs to save up for his wedding, renovation and other big-ticket items.
Playing around with the figures
Desired retirement age: 65
Start working at age 25 with a salary of S$3,000 with 1 month fixed bonus and 3 per cent increment annually.
Percentage of savings: 20 per cent
Annual Investment Returns: 5 per cent
In this case, I added an additional investment portion into the calculation where we can achieve a return of 5 per cent every year. The total came up to S$1.65 million, well above the S$1.38 million target.
On the other hand, if Harry is lazy and decided to save only 15 per cent of his salary, he would miss his target and ‘only’ harvest S$1.23 million at age 65.
Automation comes into play
As we can see from the above calculations, saving and investing have to go hand-in-hand in order to allow you to retire comfortably.
While you can set up standing instructions to send a fixed amount after your pay day to another savings account, it may seem difficult to achieve the desired investment returns (i.e. 5 per cent) consistently every year.
Luckily, these days, it seems like there is an option for you to automate even the investing process.
Welcome the ‘robots’ that will help you to manage your money – robo-advisers. According to Seedly, Robo-advisers represent a good way to invest your money regularly given their diversified, passive and low-cost investment methodology.
Conclusion
All in all, I feel that leading a carefree retirement isn’t difficult as long as you plan way ahead. Personally, I wouldn’t want to scrimp and save towards the last few years of my career knowing that I were still far from my retirement goals.
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