A recent survey by DBS showed that there is potential disconnect between targeted retirement goals and the retirement income they expect to live off. According to the survey, 73% of the people planned to retire between 55 and 65 with an average savings of $571,715. More than 85% of them expect to live on a retirement income of $3,500 for the next 15 years or more.
When I look at the numbers, instantly I knew that there is a disconnect between the targeted savings $570k and the $3,500 income. The savings required are definitely not enough. Let’s look at the factors involved.
[Free Ebook] How should you invest your first $20,000?
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Assuming that $3,500 is the targeted present value of expenses required during retirement, inflation will make the number a lot higher by the time you retire. Assuming a 3% inflation rate, and that you are 30 this year and you intend to retire at 60, the expenses required to buy the same level of lifestyle will be $8,495!
2.Number of years to spend in retirement
The average life expectancy is about 83 to 85 years and that is the number to plan for. So assuming 85 years expectancy and 60 years retirement age, the number of years in retirement would be 25, which is significantly higher than 20.
So how much do you really need for retirement?
Dr Wealth provides a retirement calculator which makes it easy for you to calculate your retirement needs. The calculator takes into account inflation, current age, age of retirement and number of years spent in retirement.
The example above is that of a 32 year old who desires to retire at 65 with a targeted expenses of $3,500 per month in present value. For the money to last for 20 years, the required amount is closer to $2 million. That’s a huge disconnect between the $570k and the actual $2 million required.
While the number seems astoundingly high, it is not impossible to save for it especially if you start right now. Dr Wealth also provides a planned savings schedule to meet this. Based on a 4% investment rate of return, the user needs to save approximately $30k every year to be able to meet the required amount. Sign up an account with Dr Wealth now to calculate your retirement goal and setup your savings schedule to achieve retirement.
About the Author
Calvin Yeo, CFA, CFP is the Managing Director of Doctor Wealth Pte Ltd (www.drwealth.com), which is is revolutionizing the financial advisory industry by building an online platform to provide high quality and comprehensive financial advice for free.