29 July 2019

Where Does a $120,000 Annual Retirement Income Go To?

I am most grateful to a reader who shared his monthly expense figures. I'm not even sure if I should say "he" or "she"? But for convenience, I'm going to just call him Adam (A).

[To: 'Adam' - Give me a shout out if prefer to be called by another name?]

It looks like Adam's household is made up of a couple, an elderly and a maid.  Not sure if there are any children? In contrast, my situation (B) is that of a couple and two children.  While the specifics are not the same, there are high similarities - i.e. four persons in the household, close to retirement.

I took the liberty of regrouping Adam's data so that I could make reasonable comparisons.

Expenditure Item  A   B 
Condo maintenance   $      330  $      295
Car/transport related  $      670  $      594
Property tax  $      280  $        33 A's is for 2 condos
Utility, broadband, phone  $      350  $      474 B's includes replacements
Insurance  $      300  $        40 B's exclude Medishield using CPF-MA
Food/meals, groceries, households  $   1,500  $   2,392
Medical  $      100  $      750
Gifts, clothings, misc  $   1,750  $   2,286 B's include contributions to parent
Donations  $      150  $        53
Condo maintenance (investment property)  $      350
Maid (to look after elderly parent)  $      650
Maid levy and medical  $      150
Travel  $   1,500  $   2,110
TOTAL  $   8,080  $   9,027

One key difference is that Adam has a second property, an investment property, from which he is earning rental income. And he has a maid to look after an elderly folk.

Adam also mentioned that he owns a car, which he views as essential to ferry the elderly. And he is concerned whether there is enough money to buy a replacement in time to come. This is clearly something he needs to prepare for. Buying a replacement car is a hefty investment, perhaps $100,000? This is an expense that is going to happen once every 9 to 10 years. But as one age, perhaps we would reach a point where it is no longer safe to even drive one? But the removal of car-related expenses (road tax, car inspection, insurance, maintenance, fuel, parking - they really add up!) would be substituted by other public transportation expenses.

Going through the data, I was wondering if I might have missed out something in my insurance. Wifey and I do have Integrated Shield plans, ElderCare plans, and property insurance. But nothing else. With the income stream from our investment portfolios, there didn't seem any reason to need anything else for retirement. With most of it paid via CPF-MA (and therefore not reflected in above), there is little cash involved, for now.

Our medical expenses are higher, as both wifey and I have certain conditions that require regular treatment. That explains the much higher medical expenses compared to Adam's.

My family is probably spending a lot more on food (groceries and meals out) and household expenses. That is something of a lifestyle desire. Or perhaps we are just eating too much and growing fat!? Hah.

Adam's family has been fortunate, investing early in their career in property and shares, and that has paid off.  My family started investing late, much of that only in our 40's, in shares and some unit trusts. It was too late to go into properties, but we were lucky to have gotten a decent condo at a fairly low price.

Adam's family is also comparatively more generous with tithing/donations. This is an area I am prepared to contribute more on if my investments pay off.

My family's travel expenses are higher. Perhaps Adam's family travel expenses do not include one or two persons in the household? This is probably seen as a major luxury item. But it is certainly something meaningful to my family, exploring the world around us. For sure, this is an item that some flexibility can be exercised on if financial circumstances vary - especially, during market downturns.

In time to come, my family's expenses will drop significantly once the children are working and eventually, moved out.

In summary, neither hit $120,000 a year, although close to. But with inflation, both surely will soon.


Anonymous said...

Hi Lizardo,

I am that "Adam". I am guessing that by now, you would have "connected the dots" and concluded that I was the same guy who commented on your other posts, namely "A Lifetime of Income for Retirement." where I shared how I modelled our expected retirement expenses and ran a few scenarios to see if our nest egg can last the distance covering nominal, sunshine and nightmare scenarios.

And this post on "Can You Top-up CPF-RA Beyond FRS to Achieve ERS After Age 55?" where I still "owed" you a reply on how one can "ring fence" your SA money from being transferred to form your FRS in your RA upon reaching 55 yo. I prefer to remain anonymous (for now at least), thats why I didnt reply you.

Back to this post on retirement expenses, the figures I provided were from one of the nominal cases. Meaning it could be much higher in nightmare scenario (for eg., major house repair / renovation, which by the way, we are doing one now while we are still working and earning an income, replacing our car, which we also just did. These two expenses set us back by $160k), or lower in a Sunshine scenario where our two children step up to help with the household expenses.

You have shown quite a fair bit of interest and concern in your retirement nest egg adequacy. Like you, I have also been putting quite a bit of attention to my retirement planning, but only after I turned 50 yo. (I am now past 55) I enjoyed modelling and running simulations on various scenarios so much that I actually developed two programs - and customised to our local context. Meaning it considers CPF, CPF Life, SRS sources of income. I developed the program because most online retirement calculators are designed for US users. And those provided by the local banks and insurers just couldnt meet what I was looking for. Some of them couldn't handle the scenarios I entered.

My first program enables one to have a quick overview of where their finances stood in relation to their expected retirement expenses and for how long their nest egg can last them. The results are plotted graphically for easy reading. This program is really easy to use and at one glance you can see if your nest egg is going to run out before your turn is up, or even grow as you enjoy retirement.

The second program takes a more detailed look at your retirement over the entire duration of your retirement. This program requires more detailed inputs which you can choose to input on year by year basis or a single input to represent your whole retirement period if you think there would not be any change to your lifestyle/ expenses. This is the program I used to run my scenarios. It really helped me to visualize how our nest egg will respond to various scenarios such as increased / decrased spending patterns, and investment changes.

Some of my friends have tried my first program and they enjoyed using it and found it "enlightening" to see how "robust" their nest eggs were. The second program which requires more detailed inputs has yet to be tried by others, as it needs a little handholding from me, so I am guessing no one wants share their details on their retirement plans.

Lizardo said...


Car replacement is a hefty expenditure. I made my assumption that I would replace mine after 9-10 years of use. I set aside a separate budget to handle that.

Housing renovation is another. I figure one needs to be done every 10-15 years. But the buggeration I have is whether I should downgrade to a smaller property in time to come, when the kids move out, leaving two empty nests. Additionally, an EC's value drops off drastically when the leasehold period goes below 70-80 years. And having lived in a 20 years old HDB property before, I can anticipate that all kinds of stuff in the house will start failing too. House also suffers from old age sickness.