60% of Singaporeans Live Paycheck to Paycheck

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:

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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How much money does a couple need to earn in order to afford a Million dollar HDB flat?

10 years ago in 2014, I wrote about how much does a couple need to earn in order to afford a $300,000 HDB flat. The post went viral at that time because HDB prices were rising very quickly which made many young people worried about the affordability of owning their own home. 

Fast forward to 10 years later today, I did a quick check and realised that HDB BTO prices are still kept quite affordable at an average price of $300K to $400K for 4 room flats unless you're getting a flat in the central region of Singapore which will be priced higher at close to $600K. 

However, not everyone will get a chance to get BTO flats. I have friends who have tried many times year after year and still couldn't get their BTO flat. In the end, they had to turn to the resale market to buy their flat which cost much higher. 

When we see headlines such as "Number of million-dollar HDB flats resold hit all-time high in June" & "Five-room resale flat in Bukit Merah goes for record S$1.59 million", it makes us more anxious to know whether we really can afford to buy a flat of our own now? 

How much do resale HDB cost now?

HDB has a website to show all the transacted resale prices of all areas in Singapore. You can access the website here. 

If you're looking at flats in the central area, the prices are all above $1.2M for a 4 room HDB flat with about 85 years remaining lease as shown below:

If you look at less central areas such as woodlands, the resale price of a 4 room HDB flat are in the range of about $660,000 with about 94 years remaining lease as shown below:

Even for areas in the west such as Jurong West, it is selling at about $700,00 for a 4 room resale HDB flat with about 90 years remaining lease. 

Let's say a typical scenario will be a couple will buy a $600,000 4 room HDB flat in a not so central part of Singapore. 

HDB flat price: $600,000 (4 room flat)

Down payment: $60,000 (10%)

Number of years of loan: 25 years 

Loan amount: $540,000

HDB loan interest rate: 2.6%

Monthly housing loan instalment payable: Estimated $2450 

Here are a few things a couple should note when buying a house:

1) Downpayment of 10%.

This means if you don't have $60,000 in your CPF account, prepare to pay some in cash. You need this amount to settle the first part of your house. 

2) Number of years of loan from HDB is limited to 25 years currently. You can't get more than that. It was 30 years many years back but it was brought down during the cooling measures 10 years ago. 

3) HDB loan interest rate is fixed at 2.6% currently. Currently HDB loan interest rates are lower than most banks which are in the range of about 4%. With HDB loan, you don't have to worry about interest rates rising

4) A maximum of 30% of your gross monthly income can go into home loan repayments currently. If you earn $3000, only $900 can be used to pay for your housing loan. This is known as the Mortgage Servicing Ratio(MSR) Also take note that housing loan repayments, after adding all your repayment obligations (student loans, credit card debts, car loans, personal loans, etc.), cannot exceed 60% of your income. This is the Total Debt Servicing Ratio(TDSR). 

How much does a couple need to earn in order to afford a $600,000 resale HDB flat?

If monthly instalment is $2450 for a $600,000 HDB flat with 25 years loan repayment period, you and your spouse's combined gross income must be at least approximately $8166. The magic number is $8166 which means each of you must earn approximately $4100. This is to meet the 30% criteria of the maximum gross monthly income that can go into home loan repayment. Any income below that level and HDB may not grant you the loan you need. 

Even before that, you need to come up with the $60,000 for the down payment. With a combined income of $8166, you and your spouse need to work for 32 months(~2.8 years) before your CPF savings have the $60,000. (calculated based on monthly CPF contributions to ordinary account only. Approximately 23% of gross monthly income goes to ordinary account which includes employee and employer contributions. The rest goes to special and medisave account respectively)

Let's summarise it. To afford a $600,000 HDB flat, you and your spouse should have a combined gross monthly income of at least $8166, work at least for 32 months to save up for the down payment ($60k) and pay $2450 monthly for the next 25 years. 

How much money does a couple need to earn in order to afford a Million dollar HDB flat?

What if you really want the convenience of staying in a relatively central area such as Toa Payoh, Boon Keng, Kallang etc which have resale flats mostly selling at about $1 Million dollars?

HDB flat price: $1,000,000 (4 room flat)

Down payment: $100,000 (10%)

Number of years of loan: 25 years 

Loan amount: $900,000

HDB loan interest rate: 2.6%

Monthly housing loan instalment payable: Estimated $4084 

If monthly instalment is $4084 for a $1,000,000 HDB flat with 25 years loan repayment period, you and your spouse's combined gross income must be at least approximately $13,613. The magic number is $13,613 which means each of you must earn approximately $6800. This is to meet the 30% criteria of the maximum gross monthly income that can go into home loan repayment. Any income below that level and HDB may not grant you the loan you need. 

Not forgetting you'll still need to have the $100,000 down payment to be paid upfront. 

With median income of Full-Time Employed Residents hitting above $5000 in 2023 according to MOM statistics, it is no wonder we are seeing more million dollars HDB flats as many are able to afford it now. 

For private property, the loan quantum is even higher at 60% of your gross monthly income which is the total debt servicing ratio (TDSR). Maxing out your loan to 60% of your gross monthly income can be stressful especially if you lose your job. You will also not be able to take further loans such as car loans in the event you really need to buy a car for family needs as the TDSR is the limit set for all loans and not just housing loans.

I hope the above information helps you in planning to buy your first home. 

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Do I Still Believe In Financial Freedom?

In my younger days when I started this blog almost 10 years ago, I believed a lot in financial freedom and had the passion to live this out in my life through saving and investing. I was in my mid 20s back then. In 10 years, I've grown older and no longer too young anymore. Somehow, my views towards money have changed as I progress in life and I no longer focus so much on planning my finances anymore. The weird thing is I still believe a lot in financial planning but there is a fear in me that the plans don't work out. Life gets more stressful as I grow older and its no longer as simple as what I thought it would be. 

The different struggles for different income groups

$2K-$3K income

Having conversions with my others makes matter worse. I've seen people struggling with finances. For those who have low income of $2K+ to $3K+, they are mostly living from paycheck to paycheck. If you're single and young its ok but those at my age or older are mostly married or have kids. Many of them are waiting for their pay to come in each month and some even have to rely on government subsidies to survive. Some have to take loan just to survive the month. 

$3K-$5K income

This is an income group where many middle class workers are in. $3K is probably too low but the median is around $4K-$5K to be sufficient. Singapore's median gross monthly income from work is $5,070 in 2022. This includes employer CPF contributions so the actual monthly income should be lower at about $4106. The take home pay is then $3285. For average (mean) gross monthly income, it is higher at $5832 (including employer CPF). Excluding employer CPF will be around $4732 and take home pay is $3779. If its only a single income supporting a household with 1 kid, this is barely enough. From my conversations with my peers, I've seen people who are earning $4K plus and still struggling with their finances. While most months they will have enough to live by, some month they will have to tighten their belts when they need a sum of money to replace faulty home appliances etc. Another thing to note is that the median and mean gross monthly income already includes commissions and bonuses so the actual basic gross income will be lower. 

$5K-$8K income

This is probably quite a big range and can make a difference between someone earning $5K vs someone earning $8K which is much more comfortable. However, I do notice a trend where people who earn more will generally spend more also either they buy a car, go for more overseas trip, upgrade to private property, eat out at restaurants more and generally have higher standards of lifestyle. This group of people will still think that money is not enough to maintain their standard of living and worry about retirement if they need to upkeep this lifestyle. 

$8K and above income

Those who earn above $8000 are in the top 20% of earners in Singapore based on the statistics from MOM. I know of a few peers in this category and they are fairly comfortable in life. However, because of current economic uncertainty, the fear of retrenchment for this group of people can be scary as they would probably be in higher management position and if they were to get retrenched, they will be worried if they cannot find a job easily as there are lesser higher management jobs available as compared to a middle management position. 

Do You Struggle in your finances?

At every stage of life, we have something to worry about. I get depressed once in awhile when I compare myself to others and in Singapore, it seems like we can never earn enough. When we thought that we are comfortable, someone else seems to have a better life and somehow, the stress of keeping up strikes again. Someone would have a better house, better car, living a seemingly better life. While competition can be healthy sometimes to push ourselves to be better, its what makes us unhappy in life.

Do I still believe in financial freedom? I think its getting harder with the desired Singapore lifestyle and inflation going up. The struggles are real as a Singaporean. 

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