How much do I need to retire? Is One Million Dollars Enough?
As you probably know from my previous post, my retirement target is 1.5 million dollars in 11 years time. How did I come up with this magic number for retirement? How much do I need to retire? Is 1.5 million dollars the amount that is needed to live a comfortable retirement? What about for yourself? Do you also need 1.5 million dollars in order to retire? Does it mean that if you are short of the 1.5 millions, you got to either rob a bank or slog till you drop?
First of all, 1.5 million dollars is a personal target. How much do I need to retire is dependable on my situation or context as well. My context is likely to be different from you. My country of residence is Singapore and while I may move to another place when I retire, I have to make sure that in the event I decide (or my wife decide) that we should still stay on in this highly expensive country to live in, we have more than sufficient to live comfortably.
Retirement Expenses
My expected retirement expenses will be reduced but unlike many whom have preached that all of us should see a significant cut in spending when we retire, I expect only a marginal reduction. Rather my expenditure patterns will change when I focus on different things in life and spend my money and time on different things. The key is that I will not be eating out less nor will I be shopping less for gadgets. Dun even bother telling my wife to stop buying those hand bags of hers, we are already running out of shelf space.
My key expenditure will be on Food, Transportation, Leisure and Medical/Insurance. For Food, I expect myself to continue to eat out often. This will incur about $2000 per month. Eating is one of my leisure activities as well ? and I seek out good places to eat as one of my favorite past times. For transport, cars in Singapore are horrendously expensive and I do not fancy large fuel guzzlers. I will likely buy a compact fuel savings Honda or Toyota and this will likely cost me $1500 per month; fuel included. As for medical or insurance, I have a hospital plan and term life insurance that cost me minimal currently but I expect the costs to go up to about $500 per month. And on top of these expenses, I intend to spend up to $2000 per month on leisure; travel, shopping, golf etc. These numbers seem general but I have made numerous calculations and predictions (using inflation data) and these numbers should be pretty close to what I will need. All in all, $6000 per month will be just nice. If you asked about my kids’ education or my housing mortgage, I have catered a savings and investment plan separately and will have sufficient funds for a local university education for my child and will also see my mortgage paid fully in 11 years time.
The numbers that I present above will differ for you as our priorities are different. But the key message that I would like you to take away is that we should not be planning retirement as a life in rags but rather we should be planning for a 20 to 40 year vacation. Otherwise we might as well continue to work. I am not saying that working during retirement will be taboo. I am likely to continue to keep myself active by starting businesses and taking part in more social work. Getting an income or profits will also allow me to splurge even more, although the target is to achieve $1.5 million dollars or a $6000 per month withdrawal rate at the age of 45.
How much do I need to retire? How to have $6000 per month during retirement?
Reading the above paragraph, you will probably understand how I arrive at a target of $1.5 million dollars. The goal is to create an investment fund size of $1.5 million dollars when I hit 45 years old so that I can see a withdrawal of $6000 per month or $72000 per year. This is a 4.8% withdrawal rate, which I perceived to be sustainable without drawing down my principal amount of $1.5 million dollars.
The retirement plan will be to continue to be aggressively invested while putting aside 5 years of expenses aside. This will allow me to keep
$1,140,000 in a moderate to aggressive investment portfolio (mainly equities)
$360,000 for 5 years expenses
I will further breakdown my $360,000 into 2 pool. $72,000 for the first year’s needs and keeping the remaining $288,000 in foreign currency deposits. Currently Aussie and New Zealand currencies are attracting the highest return of 8% with relative stability without even taking into account the appreciation. By taking this retirement strategy, I will foresee a need for my main investment of $1,140,000 to return 6.3% annualized over 5 years in order for my retirement to continue without eroding my principal. I expect this to be not only achievable but to also surpass this target. Otherwise I will fire my financial planner 
Ok. I hope I have articulated why I think I need $1.5 million dollars to retire and hopefully this let you also start to think about how much you will need for retirement. Start thinking about it early so that you can plan ahead. If I had started 5 years ago, I would probably be able to retire by 40 years old, but 45 years old is still not too shabby. I am going to write another secret cheque to myself to keep my inspiration alive ?
August 3rd, 2008 at 10:59 am
dear sir
i am maddahi from iran i belong to a poor family
please help me financially
September 30th, 2008 at 5:00 am
Have you taken tax into consideration?
Then inflation which would probably increase your
72K to 210K a yr, 30 yrs from now, meaning you’ll
need 2.1M when you are 65 living until 75 yr old.
The last years of your life is also the most expensive
due to both inflation and your health.
Also have you seen currencies move? you might earn
8% but the value could be cut in 1/2. Just look at
the dollar.
November 12th, 2008 at 11:19 pm
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November 13th, 2008 at 5:42 pm
Dear Tom,
agreed that tax is probably one consideration but luckily there is no capital gains tax from where i come from. on the other issue on health..i am covered under a comprehensive health plan which covers all my hospitalization charges..cost me minimally now but will go up to 2k per annum when i am 50..still cheap. as for currencies..i got to agree that the risk are high:)
May 30th, 2009 at 5:24 am
The primary mistake in the above analysis is inflation and cash flow. I retired at the age of 35 (now 48) and I can tell you from experience that living off assets rather than the cash flow the assets produce is difficult. It forces you to grow the assets not only fast enough to outrun inflation and your spending, but it has to achieve that goal net of any drawdowns and interim volatility along the way. The reason that is such a big problem is that large volatility in returns causes dramatic differences between average returns and compound returns (the only return you can spend). In addition, growing longevity and governnment responses to the financial crises around the world tells me you are underestimating the importance of inflation in your calculations.
Hope this helps…
September 9th, 2009 at 11:55 pm
Hi,
Interesting article. I am a single 35 year old male Singaporean who has recently chosen to retire. I have worked for about 10 years in the corporate world and have a regular stream of income that allows me to get $30k per year (without working) until the day I die (assuming its 85). I have insured myself to death too.
However, I find my early retirement depressing. All of my peers are still slogging out in their careers and too busy to spend time with me. The only people who have time for me are retirees in their 60s, 70s and 80s and I am not ready to be mingling with these group at my age. A bit of volunteer work is good for me but I don’t see myself making friends with only senior citizens. Housewives and homemakers are too busy taking care of their family.
I am seriously thinking of getting back to work just to kill my boredom. At least I have a chance to be alongside people of my age. Since money is not an issue, I should do something that can benefit society. How about me becoming a teacher?
Ian
September 16th, 2009 at 3:56 am
as a matter of curiosity, may i ask how are you generating your passive income stream of 30k?
why spend your time with retirees who cannot stimulate your minds? they are many young minds who u can engage in the university or polytechnics..maybe you can engage them in entrepreneurial ventures?
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May 3rd, 2010 at 7:52 am
Just came across this post in trying to figure out how much that one needs to retire if living in Singapore. I have property that is fully paid off, and I also have S$1.5M and yet I do not believe I have enough to retire on. I am in my 40s. My calculations show that I need a minimum S$3M to live on, S$5M to live comfortably. Income generation of 4%, as most retirement planner will tell you, is a good estimate. Inflation and increased health costs (health costs rise faster than inflation) will quickly consume your assets. You need assets to generate enough income, without the need to touch your assets, till say last 5 to 10 years of your life.
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February 6th, 2011 at 5:06 am
2k a month for food? Wow, you must eat at some great places. Also are you overweight? Restaurants smother their foods with butter. I can’t eat out more than one time a week.
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simple easy…just need discipline.
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October 31st, 2011 at 11:36 pm
Your plan is terribly flawed and we’ll see you back to work in ten years. 6% rate of return? Dude your health care expenses alone will have a 10% rate of inflation when you hit 55 and you don’t even mention those in your plan.
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January 15th, 2012 at 4:24 pm
Hi,
Now it is 2012, some 3 years passed since you have written the article.
Like to receive your feedback on how your plan is progressing.
Also like to know what are the investments you made to try to achieve the growth in value of your portfolio.
Thanks
AC
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