I would like to retire... How much do I need?
9/05/2015 12:31:00 am
Bismillah.
Assalammualaikum everyone. Salam Jum'ah mubarak.
In this blogpost I will be touching on the topic on Retirement. I understand that majority of us would like to retire when we get older. Some of us ever thought about retiring early and reap the harvest that had been sown over the past years. Have we ever thought how much do we need in order to sustain our life when we retire? Before I go in depth, I would like to share some facts which I have researched during the course of drafting this blogpost.
Based on recent online news articles, it is said that the inflation rate is currently at 0.5-1.5% range. Click on article below to read it.
What does inflation rate got to do with Retirement?
= Inflation rate basically affects our daily life, from our daily needs to our hospital care, which in turn affects your planning on Retirement.
I am sure that all of us would like to retire comfortably without having to work in order to make ends meet. Statutory retirement age is 62 years old in Singapore. The following is an example of an ordinary person for easier illustration and understanding on how much do we really have to have when we retire.
Example:
Mr Ali, age 45, civil servant, plans to retire by the age of 62 (35 years to save up for his retirement). He needs at least $2000 every month when he retire, for his daily needs and medication as he is a diabetic. (*civil servants holds a CSC card which covers their medical needs)
- Life expectancy for man is 80.2 years old
- Number of years (n)
- Inflation rate (i) in 2015 1.5%(taking the highest)
- Present Value (PV)
- Payment (PMT)
- Future Value (FV)
Projected Ideal Retirement Amount:
n= 35 years (80-45 years)
i=1,5%
PV= $-649,814
PMT= $2000 x 12= -$24,000
FV= $1,094,210.109 (Calculation done on financial calculator)
Reality:
n= 17 years (62-45 years)
i=1,5%
PV= $-357,783
PMT= $2000 x 12= -$24,000
FV= $460,832 (Calculation done on financial calculator)
Mr Ali requires $1+ million in order for him to retire comfortably. In order for him to accumulate that amount, he is required to save $649,814 per year. This is quite a huge some of money for him to save up per year. As you can see, based on reality, Mr Ali is only able to accumulate $460,832 when he retire at the age of 62 years old. Definitely not enough for his retirement.
Don't be intimidated by the large amount. You can start re-analysing your financial and personal plan by checking in my previous blogpost and also get your financial adviser to check your portfolio and discuss with them.
My advise is for you to start planning for your retirement. Here's another example of a young adult who starts planning for retirement.
Example:
Ms Hani, age 25, a banker, plans to retire by the age of 62 (37 years to save up for her retirement). She needs at least $2000 every month when she retire, for her daily needs.
- Life expectancy for woman is 84.6 years old
- Number of years (n)
- Inflation rate (i) in 2015 1.5%(taking the highest)
- Present Value (PV)
- Payment (PMT)
- Future Value (FV)
Projected Ideal Retirement Amount:
n= 59 years (84-25 years)
i=1,5%
PV= $-935,303.35
PMT= $2000 x 12= -$24,000
FV= $2,251,380 (Calculation done on financial calculator)
Reality:
n= 37 (62-25 years)
i=1,5%
PV= $-677,691.06
PMT= $2000 x 12= -$24,000
FV= $1,175,642 (Calculation done on financial calculator)
Ms Hani requires $2+ million in order for her to retire comfortably. In order for her to accumulate that amount, she is required to save $935,303.35 per year. As you can see, based on reality, Ms Hani is only able to accumulate $1,175.642 when she retire at the age of 62 years old. Which in turn shows that Ms Hani accumulated $714,810 more than Mr Ali.
Start planning your retirement when you are young.
Solution to the shortfalls, Mr Ali and Ms Hani can do investments as per mentioned in my previous blogpost on the various investments that match with each individual's needs.
"But they plan, and Allah plans. And Allah is the best of planners."-Surah Al-Anfal (8:30)
Wassalam.
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