Tuesday, May 19, 2009

How much to save to retire

I was just doing some simple calculations to see how much I need to earn in my working life (assuming I have to retire at 55) in order to sustain myself only till the end of my life. I've a average monthly expenditure of around 2500, all inclusive.

So assuming I pass on at age 85,

$2500 x 12 x 54 = $1,620,000

I probably need this much money now in order to stop working yet be able to sustain my lifestyle till 85. This 1.6 million of course do not include family, or any other commitments that I incurred while I survive till 85...thus it's quite an underestimate.

Reality sucks, isn't it?

Assuming I maintain my expenses after I retire all the way till 85, I need to spend $900,000 (based on $2,500 per month expenses for 30 yrs). I only have 24 yrs to get this amount before age 55, the age I can retire. This means that I need to save $3,125 per month from now till age 55 in order to save up to that amount. That's hard saving only and it's hard saving that amount for that long period.

If I have an investing capital of $100,000 now, I figured that I need to get a returns of around 9.6% per year on average to multipy that capital to reach $900,000 in 24 yrs. That's assuming I didn't add in more capital to that initial capital outlay. Do you think it's do-able?

How can anyone not invest? It's not impossible to reach financial independence, but it'll be very hard if one has to do it by savings alone.


Anonymous said...

Hello LP,

Its me again. Been sometime since I swung by and left a comment.

Your way of calculating is what a lot of financial advisors (insurance agents) used to get ppe. to buy whole life policies.. :P

I have a slightly different take on this.

If one learns to trade and have a simple life style, as long as you can make enough to cover your needs, you are financially free.

Say you have accumulated $400K and are able to generate around 15%. That will give you a comfortable 60K per year, provided you don't have VERY HIGH overheads like cars and condos.

In a good market, like 2007, it is NOT DIFFICULT to make 50% without any leverage.

Of course it takes alot of learning to do it right :)

I have a friend who bot two commercial properties during the last downturn with an initial outlay of 250K that is throwing out $4K of cash flow every month after expenses. He hasn't work for a long time and he is barely 42 :D

He is spending alot of time with his 3 children just like I spend time with my young son.

We all need to think out of the box to avoid the typical retirement mentality of retiring at 55 :)

Life is not a grind, it is meant to be lived :D

Say is say lah.. just talk talk only on my part :D


Jeremy Ow Tai Pang said...

Hi LP,
I think anybody can be financially free depending on the level of lifestyle one chooses. If one does not chalk up high expenses and loans to clear, actually it is quite easy to be financially free. Live simply and it is easy to clear low expenses and be financially free by working less hours. I know of a private tutor who only teaches at most two tuition sessions (maximum of 3 to 4 hours) each day and is still financially well off. He does not drive and lives a simple lifestyle. By doing so, he has quite a lot of free time to pursue his personal interests. This is what I call simple quality lifestyle.

la papillion said...

Hi mm,

I know that someone would say that the way I'm calculating is similar to those used by salesperson :)

I know what you mean...and I'm trying to work towards there now. In a way, you're like a big brother who had been there and done that, so you're now sharing your way with us.

I thank you very much for that!

la papillion said...

Hi jeremy,

Hmm, just one question...is the person you mentioned married with kids?

Createwealth8888 said...

Hi Brolp,

To retire at 55 yrs or earlier, either you are high income earner or/and you are compounding your investment return at good rate and you have sizeable investing capital.

PanzerGrenadier said...


I would think it is achievable if one is disciplined, able to save consistently and invest carefully and to accelerate the process, one may take "calculated" bets on the market to leverage boom/bust cycles to gain fast capital appreciation.

Your computation of $2.5k a mth for living expenses will change with life's circumstances. That is one of the most challenging aspects of planning for the future.

For now, my strategy is to continue working for next 15-20 years because my current job is reasonably fulfilling and income is decent.

But I'm continuing on developing alternate streams of income by investing in skills beyond my job e.g. social media, blogging, self-publishing ebooks and doing business presentations to develop a possible backup career/business as a trainer/coach/public speaker. :)

Many paths lead to financial freedom. It is up to us to explore our potential for different paths.

Be well and prosper.

la papillion said...

Hi bro8888,

55 yrs is just a figure that I keep in mind. It's not essential nor necessary to retire at that age and I don't mind working longer till I'm much older.

It's the option of not having to work if I don't want to.

Still a long way to go.

la papillion said...

Hi PG,

Yes, i agree. The 2.5k per month is contingent and is not necessary a fixed amount. I think pple are flexible enough to expand or contract their lifestyle according to the circumstances.

I'm trying to do what you are doing too - doing a lot of projects in the hope that it'll start up to something fruitful in the future :)

Jeremy Ow Tai Pang said...

Dear LP,
I do not know the tutor personally. I just know from one of my students who is having tuition with him. I think he may not be married yet.

la papillion said...

Hi Jeremy,

Not being married and without kids is one sure way to be financially free - but of cos one must be sure of the cost of doing so. It's all very personal decisions to be made.

I calculated that I too can survive pretty okay just by working 3 days in a week. But I guess that's not the kind of life that I want, so I'll have to work harder.

I think there's a difference between having no choice but to live a simple life and having the choice to live a simple life. The choice is crucial to me. I'll work hard to achieve that :)

Createwealth8888 said...

When kids come, your assumption or forecast on family expenses may all be wrong. It is really wild cards on expenses until all your children are nearer to their university days. Education and medical are costly items and can eat up most of your future saving if your earning cannot rise faster.

Anonymous said...

Hi LP!

Beside kids, many things are unpredictable too. Our ability to work, the rental mkt, i/r etc.

We can buy insurance(to cover ourselves), lower the leverage (to reduce risk), make conservative predictions (say i/r up to 8%).

There were periods where people who invested in commercial properties during low i/r environment like now generating fat net cash flows but wiped off when i/r went up and tenants stop renewing. Risk is reduced if property bought way below valuation so rental yield is still better than i/r even if i/r increase. (mm's friend should have bot them at great bargain)

Banks lately give around 50% financing for commercial properties. Few yrs ago, was up to 80%?. With 250k, 2 commercial prop. with 60-99 yr lease, the gearing could still be high.

I have a close friend who did that for past 10 yrs. From one property, fully paid, he has 7? or 8 now. Net income is around 20k. Owe the bank quite a big sum although individual unit borrowing is not more than 60%. He could have sold some and almost fully pay (for interest expenses, not so wise to pay 100%) around 3 properties but he perfers to have 7!. The latest addition is a penthouse at 670k, rental around 3-3.2k, OK rental yield. But could he make it for the next 10-15 yrs?

Wow.. such a long post :)

LP, lately I revisited this quote:


I am learning. Our portfolios value will always fluctuate but giving away to others, is sure gain. Still learning.


Anonymous said...

When you buy the shares of an excellent company, you do not want to sell it. Because the longer you hold, the better it will be for you.

The price of an excellent company will not come cheap. Let's say the initial investment is 5%, hardly exciting. But let's say the company is growing at 10%. That is to say in 20 years time, the rate of investment is about 35%!

The tricky part is, it's more of an arcane art to find a company that can grow at 10% for 20-30 years. We are not Warren Buffett!

Let's say you are eyeing at a "monopoly", it's not particularly exciting because it is growing at 3%. If the initial investment is 6%, in 20 years time, it will be 10%. That is to say the obvious company that you know, will continue to grow for 20 years may not be such a good investment - in normal times.

However the market is sometime so pessimistic that it sells everything at a great discount. Now this company is earning 10 cents per share and selling at a dollar. Things get interesting because in 20 years time it will yield around 20%!

Hardly Warren Buffett, but I can bet with you, it will be tough to find a safe investment that yield 20% per annum.

The time to go big into the market is now! And I see you in 20 years time. Take care!

Market Uncle said...

Personally, no amount is 'enough' I guess. Happiness occurs when:

happiness = possessions - expectations

so, if you can't increase your possessions, then reduce your expectations. Haha, easier said then done.

Anyway, I came up with a personal finance matrix that you might want to take a look. It became sort of a map for myself :)

la papillion said...

Hi HH,

I've problems with the giving part. Cannot really open my heart and give freely...sigh..need to change.

la papillion said...

Hi anon,

Sigh, I lack the confidence you hve in the market leh... perhaps it's a good time to buy now then :)

I'm always vested, having said that. Wanted to put more though :)

la papillion said...

Hi market uncles,

Saw your matrix, posted in your blog already :)

QUESTRADE COUPONS - All Coupons, discounts, promo codes, offers, and reviews said...

I tend to live frugally and so the amount i need to save will be considerably less. I also dont have a family and dont plan to.

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