A recently published report from global payroll and HR solutions provider ADP featured in a Singapore Business Review article reveals a staggering truth for Singapore's workers — in 2024, 60% of workers subsist on paycheck to paycheck, a number remarkably higher than the normal global average of 48%.
When we walk around Singapore, it seems that people are generally living quite well off with restaurants full of people and seeing your friends travel multiple times a year. Yes, Singaporeans enjoy higher salary but it seems like many are not saving up.
Why are people not saving up despite higher salary?
After working for more than 10 years and interacting with people both young and old and from all walks of life, I've seen different lifestyle habits but always not able to tell if the person who seem to be having a good life spends all their salary or they do save a portion of it. This report from ADP now confirms that 60% of Singaporeans are likely not saving up at all. Why is this so?
One reason is that cost of living is high. Yes things are expensive in Singapore. But I also observed that our lifestyle habits have changed. One good example is on travelling. In the past, we don't really see many people travel multiple times a year, most travel 1 time a year 10 years ago. Now, I see many people travel more and even I have also travelled 2 times a year for this year alone. Restaurant meals in Singapore is much more expensive now. Personally for me, I think restaurant meals have cost me at least 50% more compared to 5 years ago.
Another reason is Singaporeans believe that they don't need to really save up as they can depend on their CPF for retirement. Yes CPF can take care of our basic needs but I don't think it can give us the lifestyle we want during retirement especially so if you want to continue enjoying the lifestyle you have now.
CPF is inadequate for your retirement?
I've been trying to figure out if CPF is sufficient for the lifestyle I want for retirement so that I don't need to save so much of my salary now. This is always the worry for me. Unfortunately, the way to find this out is not so straight forward and it took me quite some time to find the right tools and resources to figure this out.
The conclusion is CPF is enough for my retirement only if I continue working all the way through to age 65 without stopping. Based on special account alone, I should have about $600K+ which gives me a payout of about $3500 per month on CPF life when I reach age 65. Is this sufficient 30 years later? I really doubt so if we factor in inflation. How did I derive this figure? You can actually use the CPF retirement payout planner and it will automatically compute for you based on your current CPF SA sum which you can use your Singpass to link to this planner.
Moneyowl also wrote an article on "Building $1m of housing and retirement assets with CPF working contributions". It basically shows how we all can have $1M of CPF savings but includes the savings you use for housing. Here's a graph from their article:
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| Adapted from Moneyowl: https://www.moneyowl.com.sg/articles/building-1m-of-housing-and-retirement-assets-with-cpf-working-contributions/ |
If you look at the chart above, you can see anyone with a starting salary from $2400 to $4000 can have more than $1M with a 3.8% annual wage growth from the age of 25 to 65.
Now, if you are rejoicing and did not realise a major problem, let me reveal to you why it is not a case for rejoicing. The $1M includes the CPF you use for your house. If you buy a $900K or $1M HDB flat which is a typical price of a 4 or 5 room flat in many areas in Singapore, your CPF is left with almost nothing if you did not start with a $4000 montly salary at age 25. Even if you started with a $4000 salary, if you bought a $1M dollar house, you will be left with less than $500K in your CPF at age 65 which will give you a monthly payout of less than $3000 per month. This is because your $1M dollar house will cost you about $1.3M with interest, assuming you take a $800K loan for 25 years at 2.6% interest.
This shows how important financial planning is when it comes to retirement. As the saying goes, if you fail to plan, you plan to fail. Many people maximise their CPF savings to buy the most expensive house they can get but did not realise this will impact their CPF retirement payout.
If you realise your CPF most likely will not be sufficient to fund your retirement lifestyle, it is better not to live paycheck to paycheck now. The earlier you start your retirement planning, the more well prepared you will be when you finally are able to get out of the rat race and live your golden age to the fullest.
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