Monday, September 22, 2014

Why it is hard for most Singaporeans to retire early?

I was about to publish some of the post on early retirement which I wrote over the weekends until I saw an article by business times today which shows how much Singaporeans are saving? These statistics was from the recent household expenditure survey which was published last week. Most of us would already have read that average monthly household income increased to $10,500. This number was met with many sarcastic remarks on social media. We would think how can this be true when most of us do not have that kind of household income? Is their average really average?

The purpose of my post today is not to debate on whether the income figures were correct or not. Rather, it is all about the report by business times which showed another angle of that report. How much are Singaporeans saving?

Here are the saving figures:

  • The 41st-60th percentile, who are essentially the middle class, are saving about 44%. 


This 44% seems to be a good savings rate but if we look closer, this savings include employer and employee CPF contributions. This is essentially not cash savings which we have in our bank. If we deduct away those CPF savings, we're left with about 9% to 15% cash savings since most of our CPF contributions is around 30%-36%. 9% savings is quite a low amount. If you calculate, saving just 10% of your income will probably take you 51 years to retire.


Furthermore, the figures do not include non consumption expenditure such as income taxes and house purchases. We know that house purchases make up a big chunk of our expenditure. This makes the figures rather distorted.

It is no wonder Singaporeans find it hard to retire in Singapore. Most still rely on their CPF savings but the problem is most of us also use the CPF for housing purposes. If we continue to do that, we'll always realise that we can't meet the minimum sum and can't retire comfortably.

If we want to retire early at age 55 or even earlier, then we need to have more cash savings. It is no use depending on the CPF for savings and then realise you can't take most of your money out at retirement age. CPF was structured as a social security or safety net. It is not for us to take the money out in lump sum for enjoyment in old age. If we want some enjoyment and not having to worry about not enough money, then we need to plan and save up in cash.

In the next few posts that I'll be publishing, I'll show you how most of us can retire early. Early retirement means in 10 years and possibly within 7 years. I've done up some calculations which will show you how exactly it is done. Watch out for the next posts soon.

Once you reach that stage, you can continue working but you don't have to work for money any more. You can start to work on the stuffs you love, spend more time with your family and kids and even contribute more to society. People who have enough money to retire don't usually sit there idling around. In fact, they become more motivated to produce things which are beneficial to the society as compared to when they are just working for money.

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12 comments:

  1. Hi SGYI

    I spoke to hundreds of people of none of them are interested in savings and retiring.

    I attended alvin vimc course yesterday and spoke to a few people and they are all keen to save and retire early.

    Different places different people different action.

    ReplyDelete
    Replies
    1. Hi B,

      That is probably the 10 or 20% of the people who're interested in saving and retiring. In fact everyone wants to retire but few can sacrifice now for a better future.

      Delete
  2. Nice take about the evergreen topics (saving and retiring), looking forward to your subsequent posts

    ReplyDelete
    Replies
    1. Hi Richard,

      Saving is the most important aspect in retirement. Unfortunately most ignore this and try to find a shortcut.

      The subsequent posts is a big discovery even for myself. As I punch in the numbers, it all worked out for me to see how early retirement is indeed possible.

      Delete
  3. For early retirement, we need help and blessing from bosses and future bosses for better bonuses and rapid promotion to the top or alternatively become savvy investor with double digits CAGR. Then may have a shot for early retirement.

    Of course, we have to save more. That is the basic requirement.

    ReplyDelete
    Replies
    1. Hi Uncle CW,

      Indeed income is important for early retirement. Controlling expenses is also important for early retirement. If we save only 10% of our salary, it'll take at least 51 years before we can retire. Bump it up to 50% and it could possibly take 19 years. Save even more and it'll be shorter.

      Delete
  4. I have semi retired at 37 and do agree that having a plan in place early and FOLLOWING it is vital to reaching your destination.
    Quickily convert active income to passives and at same time learn to live well below your own means.

    ReplyDelete
    Replies
    1. Hi Paul,

      Thank for sharing your personal experiences. It is good to know another person who has achieved early retirement.

      Delete
  5. That savings is based on Gross or Take home?

    ReplyDelete
    Replies
    1. Hi,

      It is base on take home. Cpf savings are not included since you can only see it after age 55.

      Delete
  6. The soup needs time to cook and the paint needs time to dry.
    Waste no time in starting to invest n let dividends compound.
    Yet most pple start planning after 40yrs of age. They have already let 20yrs of compounding power slipped past.

    ReplyDelete
    Replies
    1. Hi Paul,

      Yes time is precious. Lose it and it'll never come back.

      Delete