Saving for retirement – How much is enough?

Date: January 16, 2015

Singaporeans are known for having one of the highest savings rates in the world. Singapore’s savings to GDP percentage is approximately 50% and far out-weighs the US and UK at around 20%. But this is attributed to our CPF savings scheme. With this high savings rate, does it mean that Singaporeans are well prepared for retirement? With the CPF savings used for housing, medical and education, it does not leave much left for retirement. So then how much do you need to save?


How would a retiree fare if she saved 5% of her earnings during her working life?

Let’s assume that Jane, a 30-year-old makes $40,000 per year and expects 3.8% raises until retirement at age 67. Further, with a diversified portfolio of stock and bond mutual funds, Jane expects a return of 6% annually on her retirement contributions.

With a 5% savings rate throughout her working life, Jane will have $423,754 saved up (in 2052 dollars) at age 67. If Jane needs 85% of her pre-retirement income to live on, then her 5% retirement savings are significantly short of the mark.

To match 85% of her pre-retirement income in retirement, Jane needs $1.3 million at age 67. So, a 5% savings rate doesn’t even place Jane’s savings at 50% of her expected retirement funds.

Clearly, a 5% retirement savings rate isn’t enough.

So how much do you need to sock away in order to enjoy a comfortable retirement? You’ll find various calculators out there, but here’s what to expect.


Keeping the assumptions constant, then a 10% savings rate yields Jane $847,528 (in 2052 dollar) at age 67. Her projected needs remain the same at $1.3 million. So even at a 10% savings rate, Jane misses her preferred savings amount.

If Jane pumps up her savings rate to 15%, then she reaches the $1.3 million (2051) amount and her retirement will be funded.

Does this mean that the individual who doesn’t save 15% of their income will be doomed to a sub-standard retirement?

Not necessarily.


As with any future projection scenario, we’ve made certain conservative assumptions. Investment returns might be higher than 6% annually. Jane might move to live in a low cost of living area where housing, taxes, and living expenses are below the current Singapore average. She might need less than 85% of her pre-retirement income, or she may choose to work until age 70. In a rosy case, Jane’s salary might grow faster than 3.8% annually. All of these optimistic possibilities would net a greater retirement fund and lower living expenses while in retirement. Consequently, in a best case scenario, Jane could save less than 15% and have a sufficient nest egg for retirement.

What if the initial assumptions are too optimistic? A more pessimistic scenario includes the possibility that she might face some unemployment during her lifetime, thus eating into her savings. Or Jane may not continue on the same financial trajectory she assumes. In contrast with the former caveats, Jane might be posted to live in another higher cost of living city or country with higher taxes. With the gloomier hypotheses, even the 15% savings rate might be insufficient for a comfortable retirement.

No one knows the future or what savings rate is enough. Nor do we know our eventual investment returns. Fortunately, the saver can control how much he or she saves. Nevertheless, there’s no disputing the fact that starting to save earlier and saving as large an amount as possible will pay off in the long run.

If you’re looking for “the number” or the target retirement nest egg figure, there are guidelines. Advisors may recommend saving 12 times your annual salary. Using this rule of thumb, a 66 year old $100,000 earner would need $1.2 million at retirement. But, as the former examples suggest and as long as the future is unknowable, there is no perfect retirement savings percentage.


When considering saving for retirement, you need to understand the impact of several retirement savings concepts. Starting to save earlier gives your money more time to compound. Where you retire and your lifestyle during retirement has a major impact on how much money you need in retirement. Be careful when predicting future investment portfolio returns of 8% or 9% as they may be unrealistic or require taking on additional risk. These types of projections are above historical norms for a balanced stock and bond mutual fund portfolio. Finally, it’s helpful to plan for your retirement savings during the earning years and spread the money across his or her lifespan.

Ultimately, there is a need to make your money work harder. Singaporeans need to learn to invest their hard earn monies. In a recent research by Oliver Wyman on “Improving expected returns on retirement savings”, the report highlighted that only 12% of investible CPF savings are held in equities and S$74 billion of CPF funds eligible for investing are held in these fixed deposits.

Source: Bloomberg

The total return for the STI in 2014 was 9.5% and the 10 year average in 8.7%. That means investors would double their money in 8 years. This is compared with leaving in deposits. At an interest rate of 2.5% investors will take over 28 years to double their money.

If we had a crystal ball to look to identify the best performing assets to put your money, then it would be easy for us all be millionaires. But it is very difficult to consistently choose the best performing stock or investment. Nevertheless, the investment to surely pay a healthy dividend is the knowledge you gain from learning to invest wisely.

Happy investing.

Richard Christopher Dyason

Richard is the General Manager at SIAS and previously Vice President at SGX. He has over 13 years of experience in various management positions in the financial services and over 25 years of management and consulting experience. He has been a trainer for several organisations and he is passionate about investment training and educating investors and has spoken at many SIAS, industry and public events.

This article is adapted from an article first publish in Investopedia.