Why Graduates Earning $40,000 per Annum Will Not Get to Retire Early!


Here’s a question more than 95% of Singaporeans cannot answer.

Do you know exactly how much you will need to retire comfortably at 65?

Let’s work out the sums together shall we? Let’s assume you want to have a retirement income of $4000 a month.

Some would say…

“That’s too little! I want to travel the world and enjoy my retirement.”

“I don’t need that much, I won’t be spending so much after I retire.”

Of course, being comfortable is a very subjective concept as everyone has their own levels of comfort.

For the sake of having a constructive discussion, let’s make a few general assumptions based on averages (If not we will never be able to calculate anything).

Assuming…

  • You just finished school and started working at age 25
  • You live the life of a regular Singaporean lifestyle that requires $4000 per month during retirement
  • You have a car to maintain
  • You aim to take 1 vacation a year during your retirement
  • You retire at the age of 65  (Current Retirement Age)
  • You live till the ripe old age of 85
    (Average Life Expectancy in Singapore is 80 for Men and 85 for Women)

That means you would need…

$4,000 x 12month = $48,000 a year

$48,000 x 20 years = $960,000 (Approx. $1 Million)

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Can you imagine? You would need almost a million dollars to retire!

How long would it take for you to save a million dollars?

If you are earning $40,000 per annum, that is 25 full years! Don’t forget you are only working for 40 years (from 25 to 65), and you still have to pay for your house, provide for your family and spend on daily expenses.

How are you ever going to save a million dollars just by working?

It is honestly a rather impossible task, which is why you definitely have to find other sources of income.

Now, even if you manage to scrimp and save to obtain your one million dollars worth of savings, I have another piece of bad news for you…

You mustn’t forget to add in the effects of inflation.

Remember how you always have to put up with your grandfather stories about how coffee used to cost only 10 cents and a bowl of noodles was only 30 cents? By the time you retire, you would be in those grandfather shoes!

Instead of citing boring figures like increase of 2.1% in 2007 and 6.5% in 2008, let’s compare the price of daily lifestyle items we use.

Item In 2004 In 2014 Price Increase
Cup of Kopi $0.60 $1.20 +100%
Chicken Rice $2 $3.50 +75%
Long John Silver’s (2pc Chicken Meal) $3.60 $4.50 +25%
Starting Cab Fare $2.40 $3.20 +33.33%
University Tuition Fee per Semester * (NUS Faculty of Arts & Social Science) $6110 $7850 +28.48%

*In 2007

These were prices of necessities just 10 years ago (except for university tuition fees which only had information up till 2007).

So what?

Your one million dollars is probably not going to be enough 40 years down the road!

Photo Credit: highperformanceadvocates.com

Do you think those prices would double or triple in 40 year’s time? Of course they will…

I personally think there might even be a possibility of it quadrupling! However, let’s just take a very conservative approach for this calculation.

I don’t want to scare you off with my estimates. Let’s assume prices will only double once.

So if I were to adjust the calculations for inflation…

$960,000 x 2(Adjusted for Inflation) = $1,920,000 (Approx $2 Million)

You will need about two million dollars to retire in 40 years time!

There’s absolutely no way you can achieve that target just by working at your day jobs.

That is why I’m so convinced that everyone needs to pick up some financial literacy classes to learn how to invest.

Unfortunately, these are classes that are not normally taught in your schools or universities.

Entering the stock market without the proper investment education is like driving a car without first earning your driver’s license – it is a disaster waiting to happen.

Which is why over here at WealthMastery.sg, we aim to provide each of you with bite-sized values in each of our articles.

We hope that each piece would guide you towards achieving financial freedom… one idea at a time.

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Shocked at the cost of retirement? Share it with your friends to warn them!

Any thoughts? Do share them with us in the comments below!

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