We know you feel like your life has barely started, but retirement should be something you think about while you’re young, healthy and financially stable. Depending upon difference in life expectancy, people spend 25% to 33% of their lives during retirement.

The general principle is that you need to have at least 75% of your present income to spend during the retirement period. That said, you will probably not be enjoying the same lifestyle you are leading at present. To start, you should you should plan to cover 100% of your current expenditures during your retirement.

Find out how much you need to retire with our Retirement Calculator.

Apply these steps to calculate the amount needed for retirement:

  1. Calculate Your Expenses

Remember, your expenses will change with the passage of time. By the time you retire, some of your expenses, like work-related expenditures and the amount spent on your kids, won’t be there. But as you grow old, your medical expenses will grow as well.

Include all possible categories you think you are, or are going to, spend on. These are:

  • Utilities: Include all expenses you bear on account of utilities, such as electricity, water, gas, maintenance, phone, internet, satellite or cable, or any other utilities.
  • Property: Includes yearly expenses incurred on your real estate. For example, mortgage payments, property taxes, maintenance, insurance etc.
  • Vehicle and Transportation: You may include license fee, insurance expenses, loan payment (if required); or you can include the cost of transportation.
  • Healthcare: cost of treatments, critical illness, periodic medical checkups, medicines, medical insurance premium
  • Food: includes annual cost you incur on groceries, hotels and restaurants
  • Clothing and Accessories: It is recurring cost and it will change with fashion and taste. Expenses include laundry, dry cleaning, new clothes, tailoring, jewelry, footwear, and other accessories etc.
  • Personal Care: This is important as well. For example, skincare, haircuts, cosmetics, massage, physiotherapy etc
  • Vacations and Traveling: If not before, people normally go out for vacations during retirement. So include the expenses to be incurred on travel, lodging, entertainment, food and souvenirs
  • Entertainment: Include the cost of tickets, DVDs, movie rentals, books and other similar items you like to buy more often.
  • Licenses and Memberships: Include membership fees for fitness centres, sports clubs and social clubs
  • Contributions: Add the amount you spend as charity
  • Others: estimate how much you spend on tech gadgets and upgrades. You may include more categories for better estimation.

Dont Forget About Inflation

If you budget $50,000 for the first year of retirement, it won’t be enough in the tenth year of retirement. While estimating for your retirement, make sure you that the amount you’ll be having in your pocket at the start of each year keeps pace with inflation rate.

With inflation factor added in your calculation, the estimate will be more realistic and worth following. Although, not all of the above mentioned expenses increase at the same rate – some of them remain constant for few years while others may increase more steeply, you can refer to country’s current inflation rate to get as close to your estimated saving figure as possible.

The following example will help you understand how inflation can affect expenses.

  • Jane is 35 years old; she wants to retire at the age of 65; and expects to live a retired life of 15 years.
  • Jane’s expenses totalled to $50,000 in 2014 and the inflation rate last year was 2 percent per annum.

Jane’s projected expenses will amount to $90,570 at the time of her retirement, 30 years later. We can further calculate the amount of expenses Jane needs each year during retirement period.

A compound interest formula is used to determine the future value of loan or investment on certain rate of interest, after given number of years. The formula is:

Future Value = Present Value x (1 + rate of Interest)number of years 

In Jane’s case, the formula will be 50,000 x (1 + 0.02)30 .

  1. Evaluate Your Assets

Now, determine how prepared you are to meet these expenses at the time of retirement.

  • CPF:

Contributions to the CPF are distributed into Ordinary Account, Medisave Account, Special Account and Retirement. Take note on the requirements for each account.

A majority of the of retirees expect to get $3,500 per month for up to 20 years. Yet, they do not have sufficient funds to main this lifestyle. This is the main reason why majority of workers keep working, or delay their retirements.

Talk to financial advisor, login to the CPF website to know how much you will be getting and devise your saving and investment strategy accordingly. Login to CPF website and find out how you can optimize your CPF via shares scheme and investment scheme.

  • Savings and Investment:

If you’re not getting enough from your CPF, your ability to save can relieve some of the burden. Increase your saving by investing in stocks and create a well-diversified portfolio. You can open IRA and save your money, invest in mutual funds, and buy some bonds to secure your savings.

  • Insurance Policies:

Family protection has been the major concerns of retirees. Certain unanticipated expenses may arise during the course of retirement which can eat away your savings. You can consider CPF insurance schemes to protect your family and assets, in case of incapacity or death.

  • Dependants’ protection ensures, you and your family remain protected for first few years in case of your incapacity or death.
  • Home protection scheme prevents the fear of losing home. If you’re a CPF member and buy an HDB flat, your outstanding loans based on the insured amount will be paid by CPF board.
  • You can consider medical insurance scheme to share your hospital bills and outpatient expenses at approved hospitals.

Read more on the kind of insurance you need and purchasing your policies.

No matter how old you are, your efforts today determine your retirement lifestyle.

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C.E.O @ The New Savvy
Anna Haotanto is passionate about finance, education, women empowerment and children’s issues. Anna has been featured in CNBC, Forbes, The Straits Times, Business Insider, INC and The Peak Singapore. She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen). Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).



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