Tuesday, September 30, 2014

How an Average Family Can Retire Within 10 years of Working?

Retirement! It's a word that many people use in their old age. To stop working and not having to worry about money is a dream come true for many. But retirement don't have to happen only when you're old. It can happen when you're young too. When we talk about early retirement, its known as financial independence. This means you don't have to rely on your job for an income to survive any more. Imagine the freedom to do the things you love, the unlimited amount of time you can spend with your kids and see them growing up. Imagine not having to put up with your unreasonable boss and don't have to go through the frustrating mid year and year end appraisals. Then imagine you can pursue what you really like or always wanted to do.

In my previous article, I wrote on how if we saved 75% of our income, we can actually retire in 7 years. Here's the article: Save 75% of your income to retire in 7 years I also wrote that with Singapore's high cost of living, it seems impossible to retire at all with our average household expenses at more than $3600 per month. But, there's still hope for us if we plan it out diligently. With the help of an excel spreadsheet to visualise the numbers and stir up our imaginations, early retirement is certainly within reach. Yes, its early retirement and not late retirement.

So how can an average family in Singapore retire within 10 years of working?

The ideal scenario to retire within 10 years is as follow:

  • Household expenses maintain at $2500 per month
  • Household income at around $7000 per month
  • Invest savings at 5% return after inflation
  • During retirement, passive income at 4%

Here's the numbers that shows how your life will unfold each year:

Click image to enlarge

With a household income of about $7000 and expenses at $2500, this household saves about 65% of their income which enables them to retire in 10 years. The age above is only for illustration purposes only so tweak it according to your age currently.

Is $2500 per month expenses enough for a family?

Now, some of you will probably be thinking will $2500 per month for household expenses be enough at all? Am I crazy or something to suggest $2500?

In that case, let's look at higher household expenses of $3000, $3500 and even $4000 with the same level of income at $7000 per month. How long will it take to retire then?

For $3000 expenses, it'll take the household 14 years to retire.

For $3500 expenses, it'll take the household 17 years to retire.

For $4000 expenses, it'll take the household 20 years to retire.

The more expenses you have, the longer time it'll take for you to retire.

Another point we need to take note is that most Singaporeans use their CPF to pay for housing loan instalments. In this case, we can exclude some of the housing cost that we pay monthly using CPF. Since I did not factor in CPF as savings, we should also exclude housing loans paid by CPF as expenses.

$2500 may be enough for household expenses if we take the effort to live a frugal and simple lifestyle.

Is 5% investment return realistic?

For the scenario to work, the investment return must be at a minimum of 5% after inflation on an annualised basis. With inflation at an average of 3%, our investment return needs to be at around 8%. Is this achievable?

If you've invested in the STI ETF in 2002, you would have achieved an annualised return of 9.2% (with dividends) for the year ending December 2013. Here's an article by Shares Investment which reported on it: Instrumental Returns Of The STI Over The Past 10 Years

Just by investing in the STI index fund, one will be able to achieve that kind of return and retire in 10 years. See for yourself whether its achievable?

Is 4% passive income realistic?

For the scenario to work, the passive income must also be reinvested in the first few years before retirement. Thereafter, we assume a 4% withdrawal rate from passive income to sustain our lifestyle. You may be thinking is 4% passive income achievable? Unfortunately, there's no way I can prove that a 4% passive income is achievable. This rate is debatable but I guess if you ask most people who do invest their money in stocks, a 4% dividend yield for passive income is not hard to achieve. The question is will these dividends be sustainable. There needs to be some active managing and rebalancing of investment portfolio involved. When you're retired, I'm sure you'll have lots of time to do that.

Another way is to have an investment property which you can rent out. If you're able to achieve the desired monthly rental to offset your expenses, you also can stop working indefinitely.

Is $7000/month household income possible?

Income is also important for the scenario to work. $7000 household income means $3500 per person for husband and wife. If you don't have this kind of income, not to worry. You can either reduce your household expenses or try to increase your income.

Just remember, to retire in 10 years, you need to save about 65% of your income. If you save 50% of your income, it'll take 17 years to retire. By now, you should be familiar with the formula of how it all works out.

What if I'm single? Can I retire in 10 years?

Now, here's the truth. If you're single like me currently, then it's actually easier to retire as most probably your expenses will be lower. The amazing thing about the formula is that it works for a family and it works for a single person too. It's all in percentages. If you're single and can save more than 75% of your income, then it'll take less than 7 years for you to retire.

Retirement is not about doing nothing all day everyday

Contrary to the believe that retirement is filled with images of old people idling around aimlessly, true retirement is actually the ability to find your own passion and pursue it. It is the ability to do what you love without worrying about money. This is called financial freedom. When you don't have to work, you can actually have more time to think about life and create products which will be beneficial to people and our society as a whole. You can do volunteer work, do part time teaching to help others or maybe write a book. Some of these will still generate income for you but the gist is even if it doesn't, you're still happy doing all of it.

Early retirement aka financial independence is possible. Numbers show us how it can be done and it will become a reality as long as we can see it. 10 years to retirement for your family? Watch and see how things can unfold for your life.

Image credit: s.jfch.net

Enjoyed my articles? 
You can Subscribe to SG Young Investment by Email 
or follow me on my Facebook page and get notified about new posts.

Related Posts:
1. Save 75% of your income to retire in 7 years
2. The 3 Big Decisions in Life - Marriage, Buying a House and Retirement
3. Will we have enough CPF savings to retire on after using it for housing?


  1. IMO, very hard to
    1) live on 2500/month...unless no car, very basic eating/wearing...cannot have tuition, cannot give much money to parents, lots of cannot.
    2) save 3500/mth on 7k combined income, what if child comes and wife stops work, then 7k cannot achieve.
    personally i believe in starting small and regular investments
    smell the roses as one goes by...not sure how many agree with me.

    visit me if u r free!


    1. Hi Paul,

      Good points there. Life is all about trade offs I guess. I believe in starting small too. Regardless of how much we can save, we should still save as much as we can. Then, after that sort out how we can reduce expenses or increase income.

  2. Hi SGYI

    I think most people would rather earn more income. Because earn more , means bigger purchasing power , can spend more .

    1. Hi small time investor,

      Earn more to spend more is very common. However, if we do that, retirement becomes very hard. A person may be earning a five figure salary but if he has a 5 figure expense also, then its no use.

  3. Hi SGYI,

    Interestingly, the numbers you have quoted in your theoretical example (like $2,500 in expenditure, retire in 10 years) are pretty close to the targets wife and I are setting for ourselves. Not easy, but definitely possible.

    And actually, I feel it might be harder for singles to retire early, especially in Singapore. Besides economies of scale (groceries, meals), subsidised housing is not available for young singles. Still not impossible, but harder?

    Glad you are inspired by MMM. Can see his influence from the "Random Article!" button. =p

    1. Hi 15HWW,

      Wow, you and your wife can retire really young.

      If single, most likely won't buy a housr anymore. Unless you're 35 and can get a 2 room HDB flat which is the only cheap housing available for singles.

      I've been reading MMM posts and the random button is so addictive. I think I almost finished reading 70% of his posts. :p

    2. Hi SGYI,

      Still not proven although 35 seems quite possible for both of us to enjoy a semi-retirement. It's all a projection now so fingers crossed. =p

      One would still probably need a place to stay and unfortunately, not everyone can be "subsidised" by parents. But for those that are more fortunate, it's also apt that we live in a society that actually views not moving out as some "form" of filial piety.

      You can check out MMM's "All The Posts" page to see which articles you haven't read. Have to admit some of the content of his posts do get a little repetitive but still, good reinforcement from time to time. =)

    3. Hi 15HWW,

      Semi retirement is my goal too. Don't want to sit around and do nothing also. Its always good to be able to do something not just for the money.

      I think most singles in Singapore continue staying with their parents. But of course they take over the household bills and expenses. I have many colleagues who do that.

      I do use his All the posts page. I like the fact he uses real life examples to substantiate what he writes. So even when its repetitive, its still ok.

  4. hi
    i'm a fan of thefinance.sg on and off to get ideas and also keep abreast of what's happening out there. your article on retirement is well written and the part for the singles attracted me.
    What i find interesting is some people have the misconception that they have to arrive at retirement before they can venture out to volunteer, write a book, etc

    This cannot be further from the truth as I had just recently completed mine (after years of procrastination and whatever excuses i could think of). The fact is it isn't as scary as everyone thought about it.

    It is one thing to write a book and another thing to have it become a best-selling book, haha ( a goal i am working towards).

    A recent book I read , The myth of happiness by Sonja Lyubomirsky talks about how many of us tend to think of happiness in this way.
    I am happy when ..................(fill in the blanks) In her book , she mentioned that happiness is not a destination but rather a journey filled with ordinary activities but frequent ones that we do that make us have that sense of peace, calmness, joy and fulfillment.

    I believe your analytical and deep thoughts into researching and blogging about retirement and finance matters will help many who may not have the time , who need a little push to make that decision and for those who failed and failed to try just one more time.

    Happy to read your blog :)

    1. Hi Desmond,

      Life to me is an adventure. I think most of us will want to make happiness a goal in our lives. Many thought that being very rich will make them happy. That is a misconception.

      Happiness to me is to be able to do the things you love. To be able to do that, we need to have time and not spend all our time at work just to earn more money. Time is precious.

      I hope what I wrote will inspire many to take on the path of frugality, simple living and early retirement to have freedom of time. It is not hard to retire happy.

  5. Hi SGYI!

    This is somewhat similar to my retirement plans. And you have explained it well!
    As for passive income, we can always look into bonds ;)
    A good guide is either Retail bond (5-8% return pa) or SGS bond (2-4%) depending on the risk the retiree can take!

    The IA

    1. Hi The IA,

      I guess you subscribe to early retirement too. Retail or corporate bonds does have its risk of being redeemed early at a lower price thus the higher returns. SGS bonds is a good choice but its lower in yield. We can consider some REITS too. Will be good for passive income.

  6. Hi the 7,000 is based on nett income per household? ( that is the take home pay?) So, the family needs a combined gross income of 8,750?