15 September 2014

Retiring at Age 60 at $2,000 a Month

TODAY had an article about the lovely Tey family of four. The husband is age 37 and wife is 36. Their two daughters are 6 and 2 years old. The couple plan to retire at age 60 with a monthly income of $2,000 per month for 30 years. By age 60, their kids should have completed their tertiary education as well.

It is commendable that they project their income need to be so low. I would assume that they are living in a HDB flat, no aircon, no car, no health issues and no parents they have to look after.  Possibly no mobile phones, no cable TV as well? Else, it's difficult to see how $2,000 is viable.

The couple appear to be risk adverse and have largely socked away savings in fixed income products. Not going to go far with this risk adverse posture. But they don't really have the need to take higher risk given their very low target. Thought they still have time on their side. 23 to 24 years in fact.

My first impression was that $2,000 is easy. If they are both earning a healthy salary and sock up their CPF-SA to the max, they would more than meet that retirement need without requiring further retirement funds. But they would have to tide through the first five years of retirement (age 60 to 64) with another $120,000. Doesn't seem difficult.

I was surprised that the article mentioned $800,000 as the retirement savings goal to fund this retirement. As I mentioned earlier, just max out the CPF-SA (CPF-Life) for both, plus another $120,000, and they would be well on their way. To be on the safe side, add more for an emergency fund. Perhaps they are not Singaporeans?

Even if the retirement is to be funded without the use of CPF-Life payout, I was wondering why $800,000 is needed to meet the $2,000 a month goal? Using the 4% extraction norm, $800,000 would offer $32,000 a year, or $2,667 a month. That's far more than necessary. Alternatively, if we assume $2,000 x 12 months x 30 years, we get $720,000. Again, $800,000 seems excessive. Probably inflation has been factored in, which is reasonable. Otherwise, without factoring for inflation, $600,000 (@4% dividends/income) should do it. Such a later approach carries risk of course if the underlying portfolio value drops.

How would this plan de-rail? My thoughts are:

  • Unfunded education expenses for their kids (also mentioned in the article)
  • Expensive overseas holidays
  • Medical crisis
  • Inflation spike (Internet, phone, power/gas/water utilities, food) 
  • Bought a condo
  • Bought a car
  • Took silly risks with their retirement portfolio (like oil pods, gold and property scams, etc)

Wish them all the best and a steady route to retirement.

Disclaimer: This is just a personal opinion, I'm not a financial advisor, nor trained in the art.


Singapore Man of Leisure said...


I didn't read the original article from TODAY. But base purely from your post, must agree that the math is questionable... If the author is a plain vanilla journalist, it's OK, but if it's a financial analyst... Run!

1) $800,000 to fund $2,000 per month after age 60 for the couple??? $1000 per month per person???

For that, you just need the CPF minimum sum and CPF Life - we'll get $1,200 per month for life.

OK, there's a gap between age 60 and 65 - we just need $1,000 x 12 x 5 years and it's just $60,000 extra per person ;)

2) What's the biggest risk for this couple? I would think it's taking advice from the author of the article?

Just kidding!

Don't get retrenched I think is the biggest risk ;)

Lizardo said...


The problem for this couple is certainly simple.

Looks like the financial planner involved has lost his credibility. *grin*

Rolf Suey said...

Hi Lizardo,

Just on point of buying a condo de-railing the plan. It might not be derailing if the condo is appreciating more than the interest rate by the time they retired. They can then sell it and shift to a smaller flat with more monies for retirement. Of course provided that their income is within range for the condo and the property investment is sound. So far, I had seen many successful cases among my peers/ relatives on long term property investment.

Just my two cents thought!


Lizardo said...

Rolf Suey,

Thanks for sharing your views.

There is an assumption you have made - i.e. the price of property will continue to rise over the long term. While this has been generally true, there were episodes over the last 30 years when the situation went bad. If a retiring couple were to find themselves at that unfortunate point in time, it might be impossible to cash out. If the couple's retirement funds are completely locked up in their property, that would be most unfortunate.

Glad to hear that you've seen many successful cases though.

Rolf Suey said...

Hi Lizardo,

What you say is quite true actually.
Thanks for sharing the view.

Look forward to more of your good articles ahead.