Most Singaporeans expect to retire at 62 or 65. However, some Singaporeans are ambitious or have other goals. Climbing a mountain at age 65 is hard! That means there are a few Singaporeans who aim to retire by 50 at the latest. But can you do that, and how much would you need? We take a realistic guesstimate.

First, work out the Income Replacement Rate (IRR) after Retirement

The IRR is, quite simply, the percentage of the income you have right now. The “correct” IRR is not the same for everybody, as we all have different goals. If you want a particularly lavish lifestyle at retirement, the IRR can be well over 100% (that is, you want to have a higher income than you have now, when you retire).

If you are content to live a simple life, with no travel and only home cooked meals, your IRR can be as low as 35% (it is inadvisable to aim any lower, due to the hardship it would inflict). Most people would be comfortable at an IRR of 70% (because even before retirement, most of us only have 70% disposable income).

That would more or less allow you to live the same quality of life you have now. The median income in Singapore is around S$4,000 a month, or S$48,000 a year. Therefore, an IRR of 70% for most of us would mean S$33,600 a year after retirement.

Work out the total we’d need to last till 90

It’s predicted that Singaporeans could live to the age of 90. It’s better to overestimate your lifespan than underestimate it. To be blunt, dying with excess money is not as difficult as living without it. Now assuming you retire at age 50, this means you have another 40 years to live. Your money has to last throughout that entire time.

Earlier, we deduced that you need S$33,600 a year to maintain your lifestyle. Over four decades, this would seem to mean you need around S$1.34 million. However, this isn’t enough because you also need to factor inflation. In developed countries like Singapore, the cost of goods tends to increase by around 3.0% per annum.

$1.34 million in the year, say, 2037 will buy you a lot less than it will today. So let’s say you are 30 years old today and have 20 years to build up sufficient funds to retire at 50.

The total you would need to accumulate over the next two decades is: S$1.344 million x (1+3) ^ 20 = $2.42 million

Now, that’s still not entirely accurate

Remember, inflation still keeps going, even after you reach 50. That means your retirement fund of $2.42 million must – even as you spend it – keep pace with the 3.0% rate of inflation. To do that, you’d need a balanced portfolio of different assets, which provides a regular income stream.

You’ll have to talk to a qualified financial adviser for details on how to do that. But at least now, we have a ballpark figure as to how much we need to have by 50; and S$2.42 million sure seems like a lot.

The bad news is, at S$4,000 a month you just aren’t earning enough to retire at 50

We’re going to exclude windfalls, like winning the lottery or inheriting a load of money. Let’s assume you have to do it the hard way. You have a target of $2.42 million, and you can reliably obtain a return of about 4.0% per annum on your investments.

Mind you; there are many products out there – such as Investment Linked Policies (ILPs) or stock trading algorithms – that will claim you can get much higher returns.

However, these are risky, and we’re going with an amount that most people can safely manage. (It’s not our place to endorse financial products that give higher rates of return; you’ll have to decide which qualified wealth manager or financial planner to trust for that).

At returns of around 4.0% per annum, over 20 years, you would need to be investing somewhere around S$78,500 per annum, to reach S$2.42 million on time. That means that, at the very least, you would need to set aside S$6,541 a month to reach your target.

Given that most people can afford to set aside 30% of their paycheque for investment, this means you’d need a monthly income of about S$22,000 to retire at age 50.

That sounds really hard

That’s because it is. Trying to retire 12 or 14 years before the usual retirement age is no mean feat.

After all, there’s a reason most people don’t manage to do it. However, difficult is not the same as impossible, and there are ways some people have managed this.

For example, you can lower some of the amount of money you need, by working less instead of not working at all, once you retire. You could also consider moves such as downgrading to a smaller house – given the appreciation of your property; this could cover a significant portion of the retirement fund you need.

Perhaps the most important consideration, however, is to stay insured and keep healthy. A chronic medical condition, or severe illness, is a common factor that could change this goal from being just difficult, to being impossible.