Is It Enough to Retire with S$6,000 In Monthly Expenses Given The Current Inflation Rate?

OCBC Bank released their findings from their 2022 Financial Wellness report on 22 November. In one section of the report, they conducted a survey with 2,182 participating working adults, ages ranging from 21 to 65 years old, on their preferred retirement lifestyle.

Surveyees were presented with three different retirement lifestyles to choose from with three different price tags. These retirement lifestyles ranged from basic and essential to luxurious. Participants were then asked what their preferred retirement lifestyle was.

Retirement Lifestyle A, the most basic retirement lifestyle: With such a lifestyle, one would expect to own and be living in an HDB apartment, commute by public transport, use government-assisted healthcare services and be able to take up to two regional holidays a year.

Retirement Lifestyle B is more of a middle ground. With such a lifestyle, one would own and live in an HDB apartment, commute by private transport, be able to consume a combination of private and public health care, employ a part-time domestic helper and take regional holidays up to three times a year.

The more luxurious Retirement Lifestyle C entails owning and living in a private property, driving a high-end car, consuming private healthcare, employing a full-time domestic helper, enjoying lifestyle and wellness experiences and being able to take long-haul international holidays up to two times a year.

The Results Are In — Singaporeans Prefer A More Comfortable Retirement Lifestyle

The survey found that of the participants, 34% of respondents in their 20s, 28% in their 30s, 21% in their 40s and 50s, and 22% in their 60s preferred Retirement Lifestyle C. Overall, 25% of all respondents preferred the retirement lifestyle with a price tag of S$5,760.

Also notable is how this trend has changed over time. While the percentage of those who preferred Retirement Lifestyle C has remained unchanged from 2021 to 2022, the percentage of those who preferred the middle-ground Retirement Lifestyle B increased by 6%, from 35% in 2021 to 41% in 2022.

Read Also: Best Endowment and Insurance Savings Plan in Singapore

Is S$6,000 Enough?

One question this survey result raises is, are the calculations done by OCBC truly representative of the cost of living at the point of retirement? For simplicity, OCBC calculated the costs of the three retirement lifestyles using today’s prices. However, with the levels of inflation experienced today, it is likely that people’s purchasing power will be eroded by the time they actually retire.

Singapore, like the rest of the world, is currently experiencing high levels of inflation. In a report released by the Monetary Authority of Singapore on 14 October 2022, MAS core inflation — a measure of inflation that excludes the cost of accommodation and private transport — was 4.7% year-on-year in the quarter of June–August 2022.

This was largely due to the cost inflation of discretionary goods and services as well as electricity, gas and non-cooked food.

The CPI-All Items Inflation, a measure of inflation that includes accommodation and private transport, has risen to 7.3% in the same time period.

Singapore historically has seen inflation rates of -1.8% to 22.4%, with an average of 2.5% per year between the years 1961 and 2021. We are currently experiencing inflation at higher than average rates due to government fiscal policies and supply chain issues first caused by the COVID-19 pandemic.

Assuming a year-on-year inflation rate of 4.7%, a whopping S$38,590 in 2052 would be the equivalent of $6,000 today. This means that for a 35-year-old today to enjoy their desired retirement lifestyle by the age of 65, after adjusting for inflation, that would incur an incredulous monthly expenditure.

This sounds like an extremely demoralising reality. However, an important caveat to remember is that we are currently experiencing a very high level of inflation.

Our current levels of high inflation are unlikely to persist in the long term. If we look back 30 years, according to the MAS’s inflation calculator, Singapore has experienced a historical compounded inflation rate of 1.5%. This represents a 53.89% increase in wages required to maintain the same level of consumption.

That would mean that a 35-year-old today who is looking to retire at 65 years old would need S$9,233 for monthly expenses in 2052. This is a much more representative estimate of how much one should budget for retirement when accounting for inflation.

Read Also: Guide to the CPF LIFE Scheme

Conclusion

The demographic that most prefer the luxurious retirement lifestyle is younger people in their 20s and 30s. They have the longest time horizon leading to their retirement and hence are the most impacted by inflation.

It is not enough to just save for your retirement; it is imperative that you make your idle savings work for you so that your purchasing power does not get eroded by inflation.

One way to go about doing this is by investing, either in stocks or ETFs. You can either go for undervalued stocks that will appreciate over time or build a robust dividend stock portfolio to give yourself an additional source of passive income.

Regardless of the approach you choose, you should always be mindful of the risk involved and ensure that you are not investing more money than you feel comfortable losing into high-risk assets.

Check out our best brokerages round-up to get started on your investing journey and work towards the retirement lifestyle you desire.

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The article Is It Enough to Retire with S$6,000 In Monthly Expenses Given The Current Inflation Rate? originally appeared on ValueChampion.

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