8 Reasons Why $1 million Might Not Be Enough (For Retirement)

$1 million.

Sounds a lot but actually it doesn’t, if you stretch it over 20 – 25 years.

And there are many things in future that will cost a lot.

They might be necessities or things that you find it hard to forgo or downgrade when you retire.

Below are 8 reasons why retirement will cost a lot of money.

See if you agree.

An elderly man

We are Living Longer and Longer

Currently, we are ranked 3rd in the world for average life expectancy, behind Japan and Switzerland.

So how long do we live?

Let’s look at the life expectancy at 65 (instead of birth).

Life Expectancy at 65

If you are 65 in 2016, you are expected to live till

87.4 for females
84 for males

If you are 65 today or in future, your life expectancy will definitely be higher.

Do you know what this means?

If you are 55 – 60, you are not considered old. You have only lived about 2/3 of your life. You still have another 1/3 more to go.

CONCLUSION

Retirement years are getting longer – 20 to 30 years.
If you need $3000 monthly, 25 years will be $900,000.

And, $900,000 is not inclusive of inflation and GST increase.

General Inflation (2.5% - 3%)

Inflation means the general price of food, transport, housing, things that you need to spend on a daily basis, etc.

In the long term, prices will generally increase.

People spend huge amount of money on houses and renovation. The more expensive your house (that you are living in) is, the less you have for retirement.

Just how much is chicken rice today, compared to the past?

Chicken Rice
Past $1.50
Now $3
Future $4 - $5

I recently went to eat chilli crab with my girlfriend for Valentine’s Day. When I saw the bill, I was thinking how come the figure was so big.

The crab cost $88 per kg. It will eventually hit $100. I remember crabs used to cost $30+ per kg.

Chilli Crab
Past $30+ per kg
Now $88 per kg
Future > $100 per kg

Food prices will always increase. When did you see food prices decrease at hawker centres, food courts, restaurants and cafes? No, never.

And when you retire, you still gonna eat, use transport and buy groceries, albeit at higher prices.

And if you would like to have a car during your retirement, carpark, ERP, fuel prices and other costs are going to increase as well.

CONCLUSION

If you need $3000 a month to survive today, you need $6000 a month 20 – 30 years from now, in order to buy the same things.

GST from 7% to 9%

It was recently announced in Singapore Budget 2018 that GST will increase to 9% soon.

Here’s the history of GST hikes:

1994 3%
2003 4%
2004 5%
2007 7%
2021 - 2025 9%
Future 10%?

If you are retired or retiring soon, food, groceries, insurance premiums, cars and leisure will cost 2% more.

CONCLUSION

If you spend $3000 a month and GST is 10%, you have to pay up to $300 in GST.

Medical Inflation (12% - 18%)

The inflation for private healthcare is 18% and public is 12%. That’s really alarming.

If you compare the medical bill for today vs last year (for the same procedure), it is definitely higher.

Using rule of 72, private healthcare costs will double in 4 years while public will double in 6 years.

(Although I think the rate will be slightly lesser.)

And with the increase of 2% in GST, you will need to pay more.

You might think:

I don’t need to be afraid of hospital bills because I have Integrated Shield Plan.

Yes you are right. But you will need to pay premiums and your premiums will definitely double or triple in time to come.

(I will explain about it below on paying for Integrated Shield Plan.)

GP Clinics

When was the last time you saw a GP? How much does it cost now vs 20 years ago?

I remember when I was in my secondary school days, it cost me $16 with around 3 medicines. Today, it’s $50.

Fortunately, I keep myself healthy and fit, so I visit GP probably once every 2 years.

(But that’s for now only. I cannot predict my health in future.)

Past $16
Now $50
Future $100?

CONCLUSION

During retirement, frequency of visiting the hospital & GP will increase due to old age. You will spend more on medical bills.

Lifestyle Inflation

In the past, there’s only hawker centres.

No food court. No Nex, Westgate, Jem, Bedok Mall, AMK Hub and Paya Lebar Square.

Nowadays, with more restaurants, cafes and lifestyle shopping centres everywhere, you will spend more because you have more options.

Are you going to scale down on your lifestyle when you retire?

I asked many. This is what they told me:

I will travel less often.

I will sell off my car and use public transport.

I will cut down on restaurants and cafes.

I will spend less money when I retire.

To be honest, take a few seconds to think about it. Will you really do that?

When you are leading this kind of lifestyle, and tomorrow onwards if you are to downgrade your lifestyle because you don’t have enough retirement funds to sustain, will you want?

Think about it carefully. I can tell you, your answer is no.

CONCLUSION

If your current monthly expenses is $3000, your future monthly retirement expenses should be the same (in terms of today’s dollars).

(Current monthly expenses here do not include property loan or children expenses as they will not be valid during your retirement.)

Paying for Integrated Shield Plan

Did you expect I will be talking about this?

Probably not, I guess.

But let me tell you, this is going to be a significant portion of your expenses.

(Here, I expect everyone to have at least an Integrated Shield Plan for public hospital. If not, you really have to save a lot for future medical bills.)

The graph below shows Prudential premiums for private hospital cash rider.

There are 2 important points that we can see from this graph.

(1) Yearly Premium > Monthly Expenses

As your age increases, the yearly premium will be 1.5x or 2x of your monthly expenses.

This means that you cannot ignore this and you have to factor it into your retirement savings.

(2) Inflation in Premiums

Due to rising claims, medical inflation and GST, premiums will also increase.

What do you think your premiums will be when you retire?

I don’t know. Maybe it will be 2x, 3x or 4x of today’s premiums. But for sure, it will definitely increase much faster than general inflation.

(Just look at medical inflation of 12% – 18% you can guess.)

This means that if it’s $4000 for age 70 today, it might be $8000 or $12,000 in 10 or 15 years time.

What about premiums (cash rider) for public integrated shield plan?

Now you may ask:

I don’t need to stay in private hospital. Public hospital is sufficient for me.

It will still cost you quite a bit.

And with rising claims, medical inflation and GST, expect premiums to increase to 2x – 4x when you retire.

CONCLUSION

If your retirement monthly expenses is $3000 (today’s dollars), you have to factor in another $500 – $1000 more for private integrated shield premiums.

Otherwise, be prepared to spend $500 – $1000 lesser each month.

Maid or Nursing Care/Home

This is very real, you can’t ignore this as well.

As your children might be too busy with work or their family, you might have to hire a maid if

  • you need assistance in daily living, or
  • you are unable to do household chores, or
  • you are used to having a maid

(1) Maid

If you already have a maid, you will know how much.

Cost of Hiring a Maid $13,000 - $18,000 per year
or $1,000 - $1,500 per month

That includes

  • Monthly salary
  • Levy
  • Insurance
  • Food
  • Transport
  • Medical cost
  • Dental cost
  • Passport renewal
  • Medical checkup
  • Flight home

This cost is substantial. If you want to know the break down, I recommend you to read this article on cost of hiring a maid.

(2) Nursing Care or Home

As we live longer, we might have illnesses (e.g. stroke, dementia, cancer, Alzheimer) or unable to bathe, dress, feed oneself or do toileting.

Maids are not trained in handling this kind of situations – you need a nurse.

Nurses are more highly trained so you have to spend more than getting a maid.

Cost of Nursing Home $700 - $6000 per month

This article from The Asian Parent is good. Read it if you have the time.

CONCLUSION

Don’t burden your children although most will do their part. Save up enough money for this if you really need a maid or nursing care one day.

If you are single, all the more you should save because you have no children to support you.

Private Transport & Car

Cost of Owning a New Car $1,500 per month, excluding downpayment
Cost of Owning a Used Car $1,000 per month, excluding downpayment

If you still want to have a car during your retirement, you have to pay for downpayment, loans, road tax, insurance, petrol, ERP and parking.

If you occasionally take Uber or Grab, you still have to cater at least $200 for transport.

Let's Tabulate The Figures

Alright, now you have a rough idea of what you need to cater for during retirement, let’s do some reasonable calculations:

(Per Month in today’s dollars and taking into account GST increase.)

(A) Food (incl. eating out at times) $600
(B) Misc Household Items $150
(C) Misc Bills
(Electricity/Water/Mobile/Property Taxes/Conservancy Charges or Maintenance Fee)
$150
(D1) Public Transport with Uber/Grab occasionally $200
(D2) Car $1500
(E) Leisure/Entertainment $300
(F) Travel (2 times a year) $200
($2400/yr)
(G1) Premium (cash rider) for Public ISP $200
($2400/yr)
(G2) Premium (cash rider) for Private ISP $500
($6000/yr)
(H1) Maid $500
($1000 ÷ couple)
(H2) Nursing Care $1200

Let’s see how much you will spend each month for each scenario:

A + B + C + D1 + E + F + G1 Public ISP, no car, no maid $1,800
A + B + C + D1 + E + F + G1 + H1 Public ISP, no car, with maid $2,300
A + B + C + D1 + E + F + G2 Private ISP, no car, no maid $2,100
A + B + C + D1 + E + F + G2 + H1 Private ISP, no car, with maid $2,600
A + B + C + D2 + E + F + G2 + H1 Private ISP, with car, with maid $3,900

How Much Do You Need For Retirement

In the following 2 examples, I will be using $2,600 for monthly retirement.

These examples are very realistic.

(1) Male, Age 50

Retirement Age 65
Life Expectancy 85
Return on Investment (During Retirement) 2%
Inflation 3%

We can learn 2 things here:

  • You need $1 mil (future value) at 65 to retire for only $2,600 a month (present value)
  • Because of inflation, to buy the same things, you need $4,051

(2) Female, Age 45

Retirement Age 65
Life Expectancy 90
Return on Investment (During Retirement) 2%
Inflation 3%

Again, 2 things here:

  • You need $1.58 mil (future value) at 65 to retire for only $2,600 a month (present value)
  • Because of inflation, to buy the same things, you need $4,696

If you wish to calculate for yourself, go to CPF Retirement Estimator. Remember to select the 2nd option.

CONCLUSION

Think about how much you need for retirement now and work towards it.
$1 mil might not be enough for your retirement.

Don’t wait till you retire halfway and find out you don’t have enough = have to continue working.

Cash in Bank is Losing Value

Everyday, you are working very hard for money.

What is the purpose? Ultimately, it’s for retirement.

But is your money working hard for you as well?

Are you Mary or John?

If you put money aside in better yield plans, are you afraid that you will lose your money or…

worried that your money will be stuck and you can’t take it out.

Don’t worry, it is safe and capital guaranteed. And you can take it out after a certain period.

How Much Will You Lose?

Back to Mary and John on an illustration. Both have $100,160.

Mary puts all her cash in savings account of 0.05% interest. John puts all his cash into a safe and capital guaranteed plan.

Are you surprised?

For $1,324 a month, her initial $100,160 can only last her 6 yrs 4 mths.

As for John, it can last him 24 yrs.

This is just an illustration showing the difference. Of course, you might be putting your money into fixed deposits.

And you need to have some cash for short term usage. But you get the idea.

Do you want to be Mary or John?

CONCLUSION

If you don’t put your money into good use, you might not have enough for your retirement. 

Similarly, if you put your money into good use, you will probably have enough for your retirement.

Take Action!

The question is:

Do you want to work till 70 because you don’t have enough to last till 85 – 90. Or you want your current cash to work hard for you so that you can retire earlier, say 60.

What if you are sick, can’t work and forced to retire early at 55? Where are you going to find the money to last you till 85 or 90?

After reading, do you think that it is important to estimate how much you need for retirement?

When you stop working and retire, you will find your bank balance dropping everyday.

If you are single, all the more you should save more because no one is going to support you.

Leave me an email below and I will help you to determine how much you need for your retirement.

Alternatively, leave a comment below or contact me. I promise I will reply you.

And if you think that this article is useful, share it with the people around you!

About Junhao J Tang
Junhao J is a financial consultant, a blogger and founder of rightpolicy.sg

Junhao J has been providing valuable advice – educating people on the importance of financially protecting oneself and saving up or investing for future needs.

Through rightpolicy.sg, he hopes to bring this message to all who stumble upon this blog.

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