25 April 2016

Do we need $1.5 to $2 million to retire on?

$1.5 to $2 million seems to crop up often as the typical range for a retirement investment portfolio. It seems daunting and extreme, especially to somebody who is single and below 35 years of age.

But as one progresses into the 40s and starts to have a family, the maths starts to be a lot more serious.

What is $2 million? If one works on the basis of a perpetual income, then $2 million at an extraction rate of 5% each year would work out to be $100,000 per year, or $8,000+ a month. If it is $1.5 million, that would work out to be $75,000 a year, or $6,000+ a month.

The range of $6,000-$8,000 may seem a lot to those living below this level of income today. But once we take into account that this is a family unit, and seeking a comfortable retirement (certainly not trying to live at the poverty line!), it may well be typical?

Where would the money go to? Here's a possible distribution (monthly):

- $500 for parents (two sets!)
- $250 for utilities (too many aircons, laptops, etc!)
- $350 for broadband, mobile lines, cableTV
- $500 for transport-related (car petrol, maintenance, parking, bus, taxi, MRT)
- $500 for housing-related maintenance, property tax, etc
- $1,500 for meals and entertainment
- $1,200 for groceries and households
- $600 allowances and education expenses for 2 kids
- $150 newspapers, magazines, books
- $50 donations
- $1,500 healthcare and other insurance, medical expenses
- $50 sports

That's $7,150. Add on holidays and other miscellaneous, and it starts to look like $8,000 and beyond. Reasonable or extravagant?

The profile will change as the kids grow up and moves out to morph their own family nucleus. But even as such reductions happen along with key life events, inflation will continue to creep and raise the bar.

I'm sure we don't aim to retire poor and settle to a lower standard of living. For sure, we're looking for that sunshine at the end of the rainbow, for a life of comfort and happiness.  So there, being a millionaire is not enough, unless you're single and intend to remain so. But that's too lonely. I figure we need to be a millionaire twice over.

How much does a household spend a month?


Cory said...

You are absolutely right. A million dollar is nothing to shout about 10 to 20 years later. For some even today.

starlight said...

It depends when to retire. If one retires say at 50s, surely he needs a bigger sum of money when compared with one retiring at say 65.

Lizardo said...

Hi Cory,

What would you figure would be the right target for yourself?

Lizardo said...

Hi Starlight,

I so agree. Retiring at 50s cost a lot more than 60s. For me, it's mainly because of the kids. What would be your considerations?

As the kids complete their education and start working, get married, move out and so on, cost of living should come down as the number of dependents reduce. My estimates work out to be $7,800 (before 55) to $6,2000 (55-64) to $4,900 (from 65) without accounting for inflation. What I am less certain is whether medical costs would escalate in substitution.

starlight said...

My main worry is the medical expenses. When we are old, falling sick is inevitable and health insurance does not cover all medical expenses

Lizardo said...


Guess we need to track medical expenses to trend and project.

Serendib said...

unless you plan to retire in a lower-cost country, your cash burn rate is going to be very high. Honestly I think this option is one we all need to consider..

FFE said...

Hi Lizardo,

If one is retired, does one really still need to spend $150 on publications? He would have all the time in the world to go and read them for free in the library.

Quite a bit of the expenses are indirectly incurred due to one's working status whereby the busyness of work necessitate the expense in order to save time.

Perhaps the expenses might reduce?


Lizardo said...


Retiring overseas can be attractive. But it does involve some uprooting, potentially being separated from other love ones, going into unfamiliar grounds, possibly language and culterual differences which could be make or break conditions? Interesting option.

Lizardo said...


Library would be an option. I find my family spending that much as I subscribe to some hobby magazines that can't be anywhere found in our libraries, and wifey also subscribes to several weekly magazines. I'm also old school and prefer to read hardcopy newspapers.

There are indeed expenses that will go away when retired. I find myself spending cab fare to travel home after work to trade for time. Sometimes, even working while in the cab. Those would go away. I have discarded those in my own computations of retirement expenses.