This week is pretty much drained. So I don’t have any bandwidth to explore things that are new. Weekends is probably to catch some breath.

One of my reader that I met up with some time ago asked me these 2 deeper question about retirement:

1. What amount of principal will you feel comfortable to quit the job & just collect investment dividends, with a not-too-spendthrift lifestyle?
2. How much to “reserve” for medical costs?

I thought it is easier to tackle in this week that requires some decompression.

A Framework to Think about Whether You are Ready for Retirement

Before I shared my answer to some of the questions, I would like to give a shout out to a reader (a different one from above) I met this week.

Sometimes talking to others interested who are interested in similar stuff, would make you realize a perspective that you didn’t think of in the past. So I got to thank him for that.

My reader, in a spectrum of Singapore wealth, put himself in a good position to consider retirement. I find that he has taken care of a few aspect that others would have been struggling with. So the questions are more deeper and harder to give an answer.

Both readers (this and the one asking the question above) questions all revolve around true retirement readiness.

True retirement readiness is not some 10 to 15 item article that after you go through them, you still feel something is missing. It is that if you get passed those hurdles, you should be ready to pull the plug.

It has to be said, that this is for the risk adverse. Because for the risk seeking, don’t like their job, or when the work pain gets much higher than the threshold, they just pull the plug without thinking so much.

I do not profess I have the answer, but this is what I thought about:

This is roughly how I would explain it.

1. Your True Financial Situation

Suppose we know the true state of our financial situation, we take an important step towards retirement.

In true state, you know

1. the exact lifestyle that you want in retirement
2. how your expenses change over your retirement
3. what are the unexpected expenses, or lifestyle that will occur in a few different people’s retirement
4. the true state of your financial assets and liabilities
5. the interest you have to pay for the debt
6. to a high degree, you know the compounded rate of return of your wealth.

When you know the true state, if the retirement mathematics work out for you, this takes care of the mathematics side of things.

2. The Non Monetary Aspects

A lot of people consider the non monetary aspect of retirement to be easy.

The non monetary aspect could be

1. whether you made peace with your professional identity
2. how the society looked at you
3. what you are going to do for the next phase of your life
4. have you been responsible to those who helped you professionally

These items are needed to be considered. Less careful considerations may mean returning to the work force. These are not deal breaking, or life ruining.

3. Your Experience with Wealth Management

My conversation with my reader made me realize the wealth management part is rather crucial.

I realize in some of the past conversations with others, a common problem was finding out a better way to accumulate wealth, or an appropriate way of investing so that it is more conducive for retirement spending.

He has been living with his investing strategy for the past 6 to 8 years. It is one which is based on portfolio allocation and delegating the investing to fund managers.

I do find that he is more ready for this because he is comfortable living with this way of wealth accumulation. This method of investing is also more sensible in spending for retirement.

Without talking to my reader, I failed to realize that one of the reasons why I think this (financial independence) is doable is because I have been investing for years. To extend this into retirement, this looks doable still.

For others, I realize they have the net wealth. However, they are uncomfortable with the way they allocate their net wealth. It is either not high return enough, or it does not cash flow enough.

If we recommend a new investing method that meet the criteria, they will have the uncertainty whether the returns, the volatility will work as advertised.

This uncertainty will make them second guess whether they are ready.

What would retirement feel like if you have not taken care of these three aspect?

There will be different degree of comfortableness living in retirement.

For some, they might eventually become comfortable with this way of investing and getting their retirement cash flow this way. For some, they might just felt that what they have chosen is not sustainable.

If your financial situation is not the true situation, you might suddenly realize there are too much things you have not factored in, your spending is too much and you will need to go back to work soon.

We have briefly went through the non monetary aspects and I think that is enough.

Of course, it may turned out that your true financial situation and investing strategy are really sound, then your retirement would be better than you have anticipated.

Would a Financial Planner Helped?

The financial planner would take care of helping you assess your financial situation. Whether the assessment tells a person the true state of their retirement readiness, I feel, is a matter of competency.

My personal opinion is that non of us can find this true financial situation. If we can consider a lot of realistic scenarios and our numbers looked OK, then it is good to go.

The world is constantly changing, your life is always evolving, so all these parameters will keep changing. Someone sophisticated enough will considered enough and explain to you that you should be ready or not.

My belief is that not many will give a good view of your financial situation.

You could delegate the investments portion away to a professional. However, you will have to learn to live with such an arrangement. Delegating away solves the investing stuff, but you may not know how to live with investing this way.

When your adviser reports this fund and that fund dropped 20% and 30% respectively, what do you do? Those who learn to live with it, gain competency, would be able to make a decision to switch or to stay with the fund. Those who have not learn enough would get really edgy with their retirement.

Some advisers who have enough experience would be able to make you appreciate the non monetary aspect of things. However, I think for that portion it is best for you to figure out yourself.

What amount of principal will you feel comfortable to quit the job & just collect investment dividends, with a not-too-spendthrift lifestyle?

My answer to this question is unique for myself and might not work for others because my:

1. the way of investing is different from you
2. financial situation is different
3. the non-monetary aspect is different

I went from being very spreadsheet based to just figuring out with withdrawal rates.

It is very simple. Every month, if the portfolio value change, I can just look at the withdrawal rate and know this is OK, this is not OK.

Very simple. Don’t need complex spreadsheet. I can do that because… let me just say I looked at enough Monte Carlo simulations, withdrawal rates arguments, historical simulations that it affected me this way.

No professional will tell you with a single ratio, you are financially ready. So it only works for me.

So here is a rough fast walk through of how I do it:

1. Appreciate your Lifestyle and Expenses

To even begin this you need to know your expenses and lifestyle well. You can take a look at my past annual expense reports.

If you don’t know your expenses or lifestyle, think don’t bother to continue to read this.

2. Categorize your expenses into 4 categories

Your expenses can be broken up into the following categories:

1. Non-Recurring Essential Expenses
2. Non-Recurring Non Essential Expenses
3. Recurring Essential Expenses
4. Recurring Non Essential Expenses

The Non-essential expenses, they are good to have. If your portfolio is not doing well, cut them by 25%, 50%, 75%. If it does well, boost them or take harvest of this so that you can spend it when times are not good.

The essential expenses, you have to make sure that they are there.

The non-recurring expenses are not going to take place every year. In other countries, roof needs to be replaced. Locally, your home needs a 15 year once renovation for example. These are essential but non-recurring.

Even healthcare can be considered non-recurring.

For the non-recurring expenses, figure out the present value of these non-recurring expenses. I will go through this later with the medical sinking fund question.

3. Create a few Lifestyle Schemes

Once you figure this out, create a few lifestyle schemes for the expenses.

I created the following:

1. Survival: Recurring essential expenses only
2. Baseline: Recurring essential expenses + 25% of recurring non-essential expenses
3. Current: Recurring essential expenses + recurring non-essential expenses

Survival is for me to figure out in the worst of the worst case, whether I can survive as a human being. Baseline is a lifestyle that I feel comfortable in living for a long time. Current is how I am living now.

If you need to live like what it is like currently in retirement then #3 will be the most important for you.

You can create a few other schemes, depend on what you prefer.

From what I read, and my observation, a lot of us think we will live the same way as when we are working. That might not be true.

To come up with a scheme, remove the money part. Take yourself through what you will do 30 days in retirement. Then come up with the cost for it. This may be a scheme that you can use to estimate how much you need for retirement.

4. Deduct the liabilities from your portfolio

When you go through the expenses and find the non-recurring essential and non-essential expenses, these are the contingent liabilities that you need to set aside money for.

This will come from your net wealth, or from insurance.

For example, you can compute the present value of all your vacations. They are likely non-essential and non-recurring. Then you can get the present value.

If you are adverse to dementia and would like to prepare for it, estimate when you will get it and for how long. Get the present value for this.

Take your net wealth, deduct these 2 present value (vacation and dementia) from it.

5.Calculate the initial withdrawal rate from the net wealth

For those 3 schemes (Survival, Baseline, Current), you can take the annual expenses / net wealth left after deducting the liabilities.

If your withdrawal rate is low enough for you, congratulations, you are ready numbers wise.

To circle back to my original framework, you probably have to take care of the wealth management and non-monetary aspects.

This table below shows the decision tree whether you are ready to retire or not, and if not, what is the recommendation:

My Withdrawal Numbers:

The Survival Withdrawal Rate is probably 1%.

The Baseline Withdrawal Rate is probably 1.3%.

The Current Withdrawal Rate is probably 1.7%.

Do note that I have not deduct much non-recurring expenses. I treat most of the expenses as recurring. What this means is that the numbers might look a little different.

You can look up that decision tree chart above to see what are the recommendation for myself.

Typically, the recommendation is to ensure you are able to guarantee to have a cash flow for your survival expenses. This will mean you have a withdrawal rate of 3% or less. If you are conservative, the baseline withdrawal rate can aim to be less than 4% if your essential expenses are covered well below 3% ( this will mean you spent nearly 1% on 25% of your non-essential recurring expenses)

Medical Sinking Fund

The question of medical sinking fund is damn tough.

Medical budgeting is so tough that even Lee Kuan Yew School of Public Policy took it out of their paper. (Read this)

As a planner, you have no choice but to try and model this, if you feel that you need to factor this in.

I would break up the expenses into:

• Recurring essentials: The medicine you have to take daily in order for your condition not to become bad, insurance premiums
• Recurring non-essentials: The supplements that are good to have
• Non-recurring essentials: The medical sinking fund for conditions that are likely to happen in the future.
• Non-recurring non-essentials: if there is any

The recurring portions will go into the expense schemes I have explained previously.

Determining the Non-Recurring Essentials

I thought about this at work and it can be rather tough to determine. Do you just keep adding so many contingent liabilities?

An adviser shared with me that if you get disabled, a lot of the other expenses might come down. If you keep adding these contingent liabilities together, think you can continue to work in an unhappy job for a long time.

Dementia Case Study

Likely we cannot find out the true costs. But if you have medical professional as friends, you can find out the probabilities, frequency of occurrences, and how much it costs.

Then you can get the present value, figure out the rough amount you need today.

For example, you are 41 years old. Suppose someone similar tomorrow gets dementia and needs to be admitted to a nursing home.

This form of estimation is probably the most extreme. The idea is that, if you managed to provide for this scenario, you should be able to take care of the smaller ones.

Typical cost of nursing home comes up to $4,000 a month (if there are vacancies). That will be $48,000 a year. Suppose you are worried about inflation. Use 7% inflation. We invest the rest of the money in a portfolio that compounds at 4.5% a year. We estimate that this dementia patient survives for 60 years.

I found this awesome spreadsheet calculator and it gives the following result:

The awesome thing about this calculator is that it computes the payment at a different rate of growth from the investment rate of return, and when the payment is differed for a number of years.

The formula for present value is this:

=p*IF(i=k,(1/(1+i))^t*n,(1/(1+i))^t*((1-((1+k)/(1+i))^n) / (1-(1+k)/(1+i))))

In our base case, you will need a sinking fund of $6.3 mil.

Suppose you buy some disability insurance which hopefully covers this when you are before 65 years old. We differ the need for this payout by 25 years and we need the money for 35 years.

The present value is lower at $860,000.

If we estimate that onset of dementia happens after 65 and last for 10 years, the figures work out like this:

The sum becomes more manageable.

I feel it is better to figure out roughly how much you need. Like what my adviser friend said, your expenses may be cut down when you are this disabled. The net wealth can go to fund for this scenario.

Hospitalization Case Study

We do not know when we will be hospitalized. Each of us have different genetic profile. Some of us have pre-existing illnesses and so the frequency of future hospitalization are also different.

My suggestion is to plan out a few scenarios and see what is the sinking fund amount you can get to. Then you set aside this amount as a sinking fund.

Suppose we estimate that within a 60 year period, you will have 3 different levels of hospitalization:

1. Small: $3000 per visit
2. Medium: $30,000 per visit
3. Large: $300,000 per visit

This is before your hospitalization and surgical plan, or your shield plan. You will need to pay a deductible and a 10% co-payment at the minimum. Let us assume the deductible to be $3,000.

If we assume medical cost go up by 7%, you can come up with the following:

We can see the year, age, deductible paid, the size of the actual bill for small, medium and large problems, adjusted for inflation. Then, we can work out the total deductible plus co-payment required.

Approximate the value back to present value in the last column.

This figure comes up to $289,000 in present value. Readers let me know if you have such a frequency of medical hospitalization. Every 15 years, there is a major surgery. Every few years there is a big one.

If you have $52,000 in your CPF Medisave, it means you need $237,000 more.

You can vary the frequency. What I can share with you is that, the small problem don’t move the needle.

Removing the major illnesses costing $2 mil and $6 mil cuts the present value needed to $124,000. Removing all the medium problems cut the amount to $66,000.

Play around enough, and you would have an appreciation how many major and medium problems you need to cater for.

Conclusion

This took longer than expected. However, I felt it was a nice exercise to go through trying to find out how much does our future medical cost will be in today’s dollars.

I will probably expand on the medical sinking fund idea, either here or in a work article of mine.

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The department of Singapore statistics published the Household Expenditure Survey 2017/18.

The department published the results every 5 years. And so we have the figures to compare against the expenditure figures published in 2012/13. That is the data 5 years ago.

There is too much data, and we would probably not be able to finish in one seating.

As a researcher of financial independence, I was curious whether the data do show that Singaporean’s will find it challenging to reach their financial independence goal.

How to Judge whether You can easily reach Financial Independence?

In most cases, if you map out your cash inflow and cash outflow, factor in the rate of growth of your wealth, and expenses, you could figure out when a person can be financially independent.

You could however, rely on some rule of thumb to determine if this household can be financially independent much faster than the average folks.

Usually, we rely on two metric:

1. Your long term rate of return of your wealth
2. Your average savings rate through your working career

Long Term Rate of Return

For #1, your wealth are your

1. investment property
2. cash, deposits
3. unit trusts, insurance savings plans, ILP
4. stocks and bonds
5. exchange traded funds

This is net of your liabilities.

We say long term because in any given year, your rate of return can be very high or very low (short term the sample is smaller, you tend to get more extreme results). Over longer term, we are able to see your average consistent rate of return.

The higher your long term rate of return, the higher chances you will be financially independent earlier because your wealth accumulates faster.

Your savings rate

You make $70,000 a year. That can be the amount you take home or gross before deducting your CPF. If you spend $42,000 a year, your savings is $28,000 a year.

Your savings rate is ($70,000 – $42,000)/$70,000 = 40%.

Whatever you do not spend, you save. It has to go somewhere.

What you save, becomes your wealth. The more you save the more wealth you get.

How Long to Financial Independence?

If you pair savings rate with the long term rate of return, that is when you see your wealth built up.

I shown this table in the past. Each number on this grid is how long it takes for you to be financial independent.

Going back to the previous example, if your savings rate is 40%, that means you spend the other 60%. Your rate of return of your wealth can be from 1% to 20%.

It will take you between 11.74 years to 32 years to be financially independent.

So from the table, you can see that if your savings rate is 50%, it is between 10 years to 22 years. If it is 60%, it is between 8 years to 15 years.

The higher the savings rate, the less the long term rate of return matter. You realize when the savings rate is high, whether you get 4%, 6%, 8% rate of return, it does not speed up the number of years that much. (50% savings rate the difference is just 3 years)

What if your annual expenses change?

Then you recompute how long you need. This rule of thumb is easy to recompute. Many people will tell me your expenses keeps going up. There is a lot of truth to that, but for some, they can envision that if they stop working, their expenses will be lower.

Adjust accordingly.

The assumption is that you take out a constant, inflation adjusted amount from your wealth over the next 30 years. You withdraw 4% in the initial year, and adjust with inflation over time.

There are a lot of debate whether 4% is a safe initial withdrawal rate. I think let us leave that out of the equation. If you think it is not safe, because the duration in which you need the money is longer, use 3.5%, 3%, 2.5%. Come up with your own metrics. I have already say this is a rule of thumb. It is a gauge how close you are to financially independent.

To stop working, you need more thorough planning.

Once we established this we can take a look at the Singapore Statistics

The Household Income Analysis

I won’t be able to cover all demographics in one article, thus let me focus on just a few prevalent ones.

Singaporeans work a spectrum of jobs. They live in different kind of dwellings. Different age group earns a different salary.

My way to tackle this is to pick out the prevalent household types, and take a look at the prevalent jobs categories and age group.

The majority of Singaporeans lived in 4 room and 5 room HDB flats. For work purposes, let me look at the upper echelons of Singapore as well. These will be those that stayed in the Condos and Landed Property.

The statistics show the income and expenditure on a monthly basis. The income also factored in the employer’s portion of CPF. It is likely they took the annual taxable salary and divide by 12.

We could factor in our CPF portion in our analysis but most of us would like to see how much we could achieve with our take home. My struggles are that above $6,000, the income does not contribute to CPF. It is a pain but I worked out the figures.

We presented the following Take Home Income data:

I found that the most common home types are the 4 room and 5 room. I found that the education level most prevalent are the university and diploma.

I would also like to see the take home income of different age group. I did not list all age group. My focus tend to be on the 30 to 54 year old that are accumulating towards financial freedom. They are the group that are not able to access their CPF currently.

I would also like to see the take home income of those above 65 years old.

Some observations:

1. There are those who have diploma qualification but lived in landed property
2. University take home income higher than diploma
3. Those who stayed in landed has higher take home income than those in condo, and 5 room and 4 room
4. Those older than 65 years old and staying in 4-5 room HDB and landed take 60% less income than when they are working before age 54
5. Those older than 65 years old and staying in condo, saw their income cut by 50%

Let us see the income progression for different age group:

You would notice those living in 4 room and 5 room showed stagnating or declining income. They peak at 30 to 34 years old, before stagnating and declining.

In contrast, there is a reason why those staying in condo and landed was able to stay there. Those staying in condo and landed saw their income go up.

The condo ones peaked earnings at 45-49 years old. They either get retrench here, or manage to retire here.

If a lot of us are staying in 5 room, then many household have an annual take home income of $120,000 to work with. Those living in condo have $200,000 a year to work with.

The Monthly Expenses Analysis

The Singapore statistics provides many angles to household expenses. I have picked out some which are more relevant.

I think that for expenses, we have to look at various angles.

So I looked at:

1. The expenses of the 61-80 decile and 81-100 decile. These tend to be those above average income
2. The expenses based on household size
3. The expenses of the PMETs and managers

Here are some observations:

1. Overall, there is a big monthly expense gap between condo and 5 room HDB
2. The expense differences between 61 to 100 decile for 4 rm, 5 rm, Condo is small. The difference is bigger for landed properties
3. The expenses for a single is almost the same, despite living in 4 room or 5 room
4. The expenses for a single is almost the same, despite living in condo or landed
5. In fact, the expenses difference between 2 ,3, 4 person household for condo and landed are almost the same
6. There are synergies when the household moves up from 1 person to 2, 3, 4 person. Expenses do not double, triple or quadruple just because the household has more people
7. Managers earn more than PMET
8. The average expenses seem to match those with a 4 person household

We can then take the average expense for the following expenses:

1. 61-80 income decile
2. 81-100 income decile
3. 3 person household
4. 4 person household
5. PMET
6. Senior officials and managers

We get an average expense of

• 4 rm HDB: $4,711
• 5 rm HDB: $6,176
• Condo: $8,418
• Landed: $10,973

Let us look at the expenses based on age group:

Here are some observations:

1. Expenses for 4 room, 5 room, landed dwellers stayed largely consistent
2. Expenses for condo dwellers rose over time
3. Expenses for those older than 65 dropped by 50% for 4 room, 5 room and landed property. Condo dwellers went down by 30%

The previous average monthly expenses coincide with those in the age group 45 to 49 years old.

Analyzing Singaporean’s Savings Rate

With these figures, we can work out the spectrum of savings rate. This would enable us to see whether Singaporeans have any chance to be financially independent.

We can compute the savings rate based on the different monthly expenses. We compute based on the average take home pay for the various housing categories.

A clear observation is how high the savings rate we get!

The single household should be looking to be financially independent in 5 to 8 years due to the 75-80% savings rate!

A 70% savings rate means their years to financial independence takes between 6 years to 10 years. If the rate of return of your wealth is at least 6%, it will take 8.5 years for you to reach it. If your rate of return is less it will take you a long time.

Those with the larger household have a lower savings rate. But even the 4 person household have a 40% savings rate. PMET have at least a 40% savings rate.

This is based on take home pay.

A 40% savings rate means their years to financial independence takes between 11 years to 32 years. If the rate of return of your wealth is at least 6%, it will take 20 years for you to reach it. If your rate of return is less it will take you a long time.

Now let us look at the savings rate, for different age group:

The Savings Rate are as high. But we observe for those living in 4 and 5 room HDB flats, and from age 45 to 54, the savings rate are going down.

For those that are above 65 years old, the savings rate is low but this may be understandable.

With such a high savings rate, financial independence seem to be within reach for Singaporeans.

So why do we have so many articles explaining that retirement is not possible in Singapore?

I think the savings rate is high enough for most Singaporeans to have a chance to be financially independent. Based on the data. Being financially independent early or later demands a high enough savings rate. The singles will have an easier time. The DINKs will also have an easier time. It is a choice. Those with a good job can achieve it.

The formula is to have an income in a higher decile and spending in a lower decile.

How I Think Expenses was Collated

The first thing is to study how the expenses is formed. What was omitted. There were two areas that I noticed not included:

1. Their insurance figures only factor in term insurance not cash value insurance
2. They did not factor in mortgage

This savings rate will look incredulous to you but you got to think if have cash value life insurance policy. If you have then those are considered as savings.

The rate of return in the past are usually around 2.5% to 3.5%. You can read my article here on some historical return rate.

I have noticed that aside from the monthly expense, there is an imputed rental for owner-occupied accommodation. This seem to be simulating the additional expenses should they be renting a similar properties. I thought some of the figures look low.

But if you factored in this “rent”, the expenses will be higher.

Some observations:

1. The Singles still have high savings rate
2. So does the Dual Income No Kids (DINKs)
3. You start seeing the savings rate for the 4 to 5 room, 3 and 4 person household come down
4. For some reason the managers living in 4 to 5 room look to be really struggling
5. The 45 to 54 year old living in 4 room and 5 room flat drop off over time while those in Condo and Landed Properties stayed well

Despite this, for a large part, we still have a savings rate of 30% at least for those living in 4 to 5 room flats.

A 30% savings rate means their years to financial independence takes between 14 years to 46 years. If the rate of return of your wealth is at least 6%, it will take 26 years for you to reach it. If your rate of return is less it will take you a long time.

I do not think we should factor in the Imputed Rental from Owner Occupied Accommodation. This is because most of household own a property. The way our mortgage finance rules are set up is such that we are deterred from using our CPF after retirement age. So majority will have owned their property after retirement age.

Furthermore, the mortgage were usually funded with CPF. So this cost is not part of your take home pay.

The above expenditure data shows the monthly expenses spent on other transport services. These data were broken down by full fledged air fares to different parts of the world. The way the data is group together do not feel natural to me.

I felt the only way this data could exist, is that the expenses were take from some Airline database, NTUC Fair Price database. These data are than correlate back to the different demographics.

In the table above, we are able to see the top categories of expenses. I have sorted based on 5 room and executive flats.

The first thing to note is that this is average cost. And this is likely to make things…. weird.

We have those living in 1 or 2 bedroom flats owning cars. Generally, we should not expect a lot of them to. So why are there vehicle owning costs? This is because if you have a retiree downgrading to a 2 bedroom but still able to afford a vehicle, this cost is spread among all the 1 or 2 bedroom household.

It may be right that the costs for this group is low. For other expense categories, the expenses might be pulled up due to the average spending amount.

The top 5 category for 5 room flat accounts for 65% of the costs:

1. Transport entails purchase of vehicles and what comes with it. It also includes your public transport costs. For the 4 to 5 room HDB, this is the highest
2. Food serving typically takes the data collated from restaurants, pubs, fast food restaurants, hawker centers, food delivery
3. Miscellaneous goods and services includes personal care (hair dressing, grooming, electrical appliances for personal care), insurance (no whole life type insurance, those expense only)
4. Food and Alcoholic beverages should be the data taken from the supermarkets. It is your groceries
5. Recreational and culture includes your holidays, reading, pets and photography

The way to use this is your mileage may vary. This might be less applicable to you. If you are the frugal sort, your expenses could be 10 to 20% less than this average amount.

Analyzing the Expenses of those 65 years old and Older

It is likely the 65 years and older cohort makes up of those that are semi-retired, retired and working. Their expenses should reflect that of a retirement lifestyle.

The average expenses are:

• 4 rm HDB: $1,989
• 5 rm HDB: $2,992
• Condo: $6,334
• Landed: $6,730

In June 2019, a team of researchers from Lee Kuan Yew School of Public Policy released their research on working with a few focus group to determine the household budgets necessary for older people to meet their living needs.

I have written about the interesting takeaway from this report here.

This public policy school study is based upon a focus group and what the people think constitute a budget that is meaningful enough.

So how far are these figures from the stats in general?

• Single monthly without housing: $1,223
• Couple monthly without housing: $2,162

The LKYSPP survey’s budget look lower than the 4 to 5 room actual spend. Probably at the lower bound of the Singapore statistics.

I can see that $2000/mth for a 4 room HDB flat be a good spending rate for retirement.

If a couple has CPF Full Retirement Sum (FRS), they should be able to provide that amount. But not everyone has the FRS. They have used their CPF to purchase their HDB.

That would mean they need a retirement fund. Since their retirement is not in an annuity (unless they top up their CPF to be ready for CPF Life), they might be looking for at least $600,000 in wealth based on the 4% withdrawal rate.

Of course, if they meet the CPF Basic Retirement Sum (BRS) which is half of the FRS) they may be able to offset this.

If a couple have $75,000 each in their CPF Life, and they chose the CPF Basic option, each of them would have $450 a month. This would offset 45% of the $2,000 per month expenses. This would approximately reduce the wealth they need to $330,000 at least. Alternatively, they can top up their CPF so that it is fully funded. Instead of needing $330,000 at 65, at age 55 they would just need $150,000.

Some Conclusions

The way the data is pieced together makes me question whether I could conclude our take home savings rate is at least 30% of our take home pay.

Yet the way it works is that those frugal folks will buffer those spendthrifts. So perhaps the data is about right.

Let me summarize some big observations for myself.

The savings rate of 30% to 40% looks better than a lot of other countries. But because we do not have a government supported system in Singapore, we have to come up with lot of the costs (above the bare minimum) ourselves.

This means Singaporeans take between 11 to 46 years roughly to be financially independent. A lot will depend on your rate of return:

1. Rate of return of 2%: 28 to 39 years
2. Rate of return of 4%: 23 to 30 years
3. Rate of return of 6%: 20 to 25 years

Most will need to start building wealth at least at age 35 to 40 years for it. This is so they can retire at age 65. If the rate of return of your wealth is low (1% versus 5%), you probably need to work 10 to 15 years more.

There seem to be a wealth divide. This wealth divide is based on income. Those that seem to do better in their career, their careers continue to flourish.

In contrast, those whose career seem to stagnate, their income does not allow them to upgrade their comes. It seems to be meritocracy at work. Those who do well get rewarded with a higher social economic standing.

Those living in 4 to 5 room HDB, their income peaked around 30 to 34 years old. Those living in Condo peak much later at 45 to 49 years old. Those in Landed seemed to drop off after 55 years old.

There is a big expense gap between the 5 room HDB dwellers and the Condo dwellers.

The expenses for single household largely stayed the same despite some upward mobility.

We can make use of some average expenses in our planning:

• 4 rm HDB: $4,711
• 5 rm HDB: $6,176
• Condo: $8,418
• Landed: $10,973

Your mileage may vary.

Other than condo dwellers, expenses do stay the same over certain age groups from 30 years to 54 years.

When you are 65 and below, your expenses go down by 30-50% (leaning closer to 50% instead of 30%).

The average expenses are:

• 4 rm HDB: $1,989
• 5 rm HDB: $2,992
• Condo: $6,334
• Landed: $6,730

For those with CPF Life, you might be able to offset a large part of your retirement expenses.

I think that based on the figures, it seems financial independence for most would coincide with the defacto retirement age. The problem it seems, is the rate of return for wealth for most.

I write more about financial independence and retirement in the retirement section below:

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

Few things ran through my head currently but I will keep this post on some of the struggles and what I think about these struggles.

In the short span of three months, I have had friends dealing with grief and great struggles.

B wrote about the sudden turned of events when his dad suddenly came down with ischemic stroke while his dad is overseas. Due to that, he would have to shift his plans for financial independence. You can read about it here and here.

My friend Chris also shared a little more about his dad who has to be in and out of hospital recently. We discussed more about his dad situation, twice. Ironically these discussion was during two different funerals for a friend of ours. He had to organize 2 funerals in a short span of time.

I thank both Chris and B for their sharing and we wish both dad a speedy recovery. Their courageous sharing to me is frank. If you have read about their investing, and life experiences, you would be thinking we all got all these money & life stuff figured out.

These experiences just shows that everyone of us is trying our best to figure out the best path going forward.

In the financial independence community, we face a lot of naysayers. We were told a lot of times we didn’t factor in this, we didn’t factor in that.

In short, we either didn’t considered something that may happen or that we consistently underestimate certain things we already know.

This looks like a victory for them in a way.

I tend to think not. And I can provide some perspectives.

If you choose not to pursue Financial Independence, it does not mean you can handle Sudden Uncertainties better

Firstly, it is not that the pursuit of financial independence, will increase the chances of these events from happening. These events are likely to occur to most of us regardless whether we pursue this odd and niche lifestyle goal.

Someone could be still slogging in the corporate world, have a wife and two kids, with aging parents. While on holiday with the extended family, a similar situation befall them.

Secondly, what gets to critics is that there are so many known unknowns that could occur in you. If you do not plan for it, and you retire fully, then it is not going to work out for you.

It is the fully stopping work, and not earning anything but still got passive income coming in that gets people really riled up. In a way, we are going to live the life they wish they could live. A life that they think, they cannot have.

So the best way to solve this is by throwing known unknowns at us.

Financial Independence is a journey. Here is the typical process:

1. Try to earn more
2. Know what makes you happy in life. Spend enough to get you that
3. For the rest, mercilessly cut down on the expenses that means less to you
4. With the usually high savings rate, build wealth well with them
5. Check in once in a while to see if you are there

This looks like a more intentional, escalated and advance version of personal finance.

And I do struggle to say whether it is wrong to pursue this.

What is the alternative?

1. Try to earn more
2. Spend on things that make you happy
3. Spend on things that don’t make you happy
4. Spend on other people that, deep down inside, is not really close to you
5. Have a normal savings rate of 10% or less
6. Don’t build wealth wisely. Don’t know any other alternative method to build wealth. So you put down a down payment on a 99 year old leasehold condo and continue to service the mortgage

A catastrophic situation occurs that would require you to come up with $20,000 to $120,000.

What do you do?

1. Can you liquidate enough assets to have that amount of money that you need immediately?
2. Some medical condition requires a recurring monthly treatment cost
3. Could you be so flexible to shift your expenses to accommodate these recurring treatment costs? Bear in mind that at this point, you are of the frame of mind that all your expenses are necessary

There are certain things about the pursuit of financial independence that gets lost in the noise:

1. These folks who are on the path tend to be good performers or aspiring to be one. If you want to earn more, you are likely to want to learn from others, try to get better. You tend to be more employable
2. When you try to get better, you tend to be someone that people like to have around. Your professional network tend to be better as well. If you have started some side businesses, it is seldom likely that you have a good business but a poor network
3. If you are #1 and #2, there is little chance that at 40-50 years old, you are happy with an existence that you do not work at all. Most likely you will do some kind of work, be it volunteer or not. Often you will earn some form of compensation
4. Those who pursue, tends to develop competency in various sub life disciplines. Some even developed mastery in some of these sub life disciplines
5. As they are often trying to find the best framework to do things, trying to balance pros and cons, they also tend to be more open about possibilities
6. They tend to know the levers that they can pull when it comes to their life. They lived a more nimble life.
7. Financial Independent does not mean you quit

In a way, those who decide to be on this path, tends to be those who are trying to scale the social ladder.

Whether they managed to reach financial independence, that matters less.

The essential tools to reach financial independence includes a lot of things that would put you in a better position then if you are not on the path.

There are lots to think about…. When it comes to Uncertainties

How do we address these uncertainties that the detractors talked about in financial independence?

In financial planning, this can be solved by baking in more cash flow requirement. On a present value basis, baked in 30-40% more to what you think you need.

This is a rule of thumb.

If not, you can plan for the worse case scenario that needs the most money.

One good example can be when one of the parents got dementia, need to stay in a home. The monthly cost is $4,000 a month. On an annual basis that will be $48,000 a year. Let us estimate that the parent need to be there for 15 years.

On a discount rate/inflation rate of 4%, the present value is $533,682. Realistically, if you can be closer to financial independence 10 years from now, what you need may be, $789,980.

For every uncertainty you can come up with, we can compute a cost for it.

Then you can save towards it, with your standard savings rate.

If you feel your current retirement is hard to save towards, note that you have to factor in these uncertainties as well, so that is either $500,000 to $800,000 on top of your retirement sum.

The naysayer wishes for the perfect plan. In the absence of that, they conclude retirement is impossible.

If you are trap in a well paying job with an overbearing boss, and you have not accumulate enough for retirement or financial independence, should you stay in the job?

The naysayer would stay in the job and be unhappy. The naysayer would probably move to another place. As luck would have it, the naysayer would feel the world is against him or her.

Those who are on this path would:

1. Re-look the numbers
2. How realistic is his or her plan to fully be financially independent
3. If it is not, what are the risks he or she is exposed to, if he or she takes the leap
4. What are the alternative lifestyle schemes to consider?

B and Chris took the plunge I think, because the job just suck too much out of them.

Too much bullshit. Too much time away from self and the family.

If we want a full proof plan before pulling the plug, then this is what they call FAT FIRE. It means you decide to retire but with a cash flow that can sustain your current lifestyle that is not bare-bones.

FAT FIRE is very comfortable. With a lot of buffers.

You can aim for that. Hope you have a nice salary because most often you would need it.

We should have done better to think about some of these uncertainties.

To make such a niche and incredulous concept looked realistic to the masses, the message must be easier to digest. When the message is more simple, a lot of deeper stuff is not discussed. These became some of the uncertainty.

Whether you can take the plunge or not depends on how risk seeking or risk adverse the person is. To address the anxiety of the risk adverse, we got to discuss this better.

There will always be Chink in One’s Armor

What I do observe is that no one has everything plan out so well.

We have folks we chat with in Telegram chats that seem to have every shit nailed down so well. And then he or she goes on to share some befuddling financial boo boo.

In the span of 3 months we are presented with a few different healthcare situations.

The insurance advisers will be using these case studies to prey on the availability bias and tell you to get this insurance, that insurance.

One common similarity with these 3 of my friends as well as myself is that the chink in the armor is the parents.

In all three cases, you realize, the kids cannot run away from this. This eventually becomes wholly your problem, or partly your problem.

Protecting parents can be hard. For some, they have enough pre-existing conditions that the insurance cost is high, or it renders them not insurable.

The cases I been through with, I have not heard many that gets a big critical illness payout. With a critical illness payout, it goes some way into help alleviate some new cancer treatments.

These new cancer treatments, most often, are not subsidized and are not cheap. To pay a 6 month out of pocket cost might set you back $100,000 to $200,000.

My stance for this has not changed:

1. Insurance covers those low probability but high cost impact situations. Do your best to get them cover within your own abilities
2. Keep your insurance cost in control
3. You do not wish to fall into these medical shit, so a lot of it comes from trying your best to live a life that reduces your changes of getting them. You cannot avoid them but you could try not to escalate it
4. Keep nimble and flexible. A rich and fixed life would give you a bigger issue when these stuff hits

Chris probably balance things up with his reflection of the medical care his dad is getting.

Conclusion

I guess the overall idea is that, you can failed in your pursuit of financial independence.

However, if you have truly learned enough on this path, it puts you in a better position.

Some of my readers did not reach there. They got some stuff thrown at them along the way. I do find that they are less lost. They would ask questions like they thought about doing this and that. They lean towards a certain path but just wanna hear what I think.

I believe that pursuit have made them fit mentally. They are also nimble because they have paid down, or could pay down their debt. Being unencumbered is a great position to be in.

However, we should absolutely discuss the things that could go wrong and considered them.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for first meeting to understand how it works

I have been single for a large part of my life. And if you are doing some planning for your finances going forward, some aspects that you will think about as a single will be whether there are things that I didn’t realize I need, just because I am single.

There are some things that I am concerned about, and they do not start with money. The clearest is that in the event of different degrees of disability, how would that affect my life? How much higher cost would I need to support such a change in lifestyle?

Kiplinger came up with an article titled Planning for Retirement as a Single Person that I thought is pretty good. I thought it will be those articles we can gloss over but turns out it covers different aspects.

I listed out some of those points without the flowery words. For the singles like myself, it might be good to take a look and see if you will need to cover some of your bases.

1. Build a team

Singles do not have a parent or adult children to take care of them. 

You need to build your supporting cast of:

1. Family. Find siblings, nieces, nephews or cousins
2. Trusted Friends. Long time friends that you have good relationships with
3. Paid Professionals
   1. Certified Financial Planner
   2. Estate planning attorney
   3. Accountant
   4. Geriatric care manager

They are there to:

1. Help with the finances
2. Make medical decisions if you are incapacitated 
3. Prevent isolation at old age
4. Need people to stop by, run errands and drive you to appointments

How to get started:

1. Take time to talk to them
2. Find out what they are willing to do
3. Outline your relevant plans and wishes
4. Revisit the plans often

2. Create an Income Safety Net

1. Have enough income for major illness or other calamity
2. Instead of the usual 3 to 6 months emergency fund, have 9 to 12 months of emergency funds
3. When planning for retirement, use the cash buffer strategy to mitigate sequence of return risk. Have roughly 2 years of expenses for that
4. If you are working, disability insurance is more important than if you are a couple

3. Funding your Retirement

How much you need for your retirement, sometimes is a security issue. Some folks are more risk adverse, some are more risk seeking. 38% of singles reported feeling “not at all secure”. This compares to 23% of married men and women in a 2016 Northwestern Mutual survey.

1. Save 15% of your take home pay for retirement
2. For those whose company give you an employee match, contribute enough to get that employee match
3. Even if you started late at 55 years old, putting more into building wealth will make your retirement a higher reality than not doing anything at all. 

No other advise here

4. Dealing with Government Pension Plan

The advise here is pertaining more to USA Social Security but I think there are some useful considerations for our own government pension plan, the CPF as well.

Singles have less complications compared to married folks. For context, married folks need to consider:

1. Married seniors are encouraged to postpone claiming benefits. This will leave a larger survivor benefits to a lower earning spouse
2. This is not a concern for never-married single retirees
3. Delay claiming bad if you have health concerns and family history that you do not live past mid 80s. If your family have history of great longevity, then delaying might be worth it

5. Long term care

Nearly 70% of seniors will eventually need some form of long-term care.

Estimate 20% of seniors need this amount for more than 5 years.

Women typically need it for longer periods than men.

Long term care insurance covers the health care costs that are not covered by your standard health insurance.

They are not cheap. Premiums increase as you age

An example given in the article:

• Healthy 55 year old woman
• Premium $5,100/yr for a Genworth policy
• Benefit: $250/day for 5 years ($7,500/mth, $90,000/yr, $450,000/5yr)

In contrast, the revamped CareShield Life:

• Healthy 55 year old woman
• Premium $759/yr (but will increase over time) (without subsidies)
• Benefit: in 2020 $600/mth and increase over time and as long as you remain disabled ($7,200/yr, $36,000/5yr, $180,000/25yr)

6. Estate Planning

1. Most childless singles find friends and family to carry out their wishes
2. Find backup (called a successor) in case first person chosen is not available
3. USA lawyers charge $1,500 to $2,500 to do up the trust documents
4. Durable power of attorney. Give someone the authority to manage your wealth if you are unable to do so. Or you simply need help
   1. Springing power of attorney: does not take into effect unless you are declared incompetent
   2. Limited power of attorney: the person can only make certain decisions on your behalf, such as pay monthly bills
5. Living will or health care proxy (LPA).How you want to be treated in certain medical situations
   1. Find someone to make medical decisions for you
6. Information release.Give the doctors permission to share information with selected people you choose.
7. Will. If you passed away without a will, your assets might be distributed to relatives you do not know. Having a will allows you to have some control over how your wealth is divided. (you can read about MoneyOwl’s free digital will writing service here)

7. Housing Options

1. You might need to make structural changes to your current home to make the home safer and more accessible
2. Home sharing. Think of my favorite sitcom growing up in The Golden Girls
3. Continuing care retirement communities. Range from independent living to skilled nursing. Cost range from $100,000 to more than $1 million. Average fee about $320,000 and you have to pay a monthly fee of $3,300!
4. Naturally occurring retirement communities. A cluster of homes which cater to older folks. The people living in their home but subscribe to an annual membership fee for access to transportation, social activities and health care management servicess
5. Co-housing. Pay monthly membership dues to be part of community. Common area for meals, socializing and events 

I write other stuff on Financial Independence and Planning for Retirement below in Planning for your Retirement.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

Here are My Topical Resources on:

1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free