Saturday, May 12, 2018


Dear readers, while Singapore Stocks Investing is about Investing, I would like to advocate that Savings comes first and foremost. It is all about the simple fact that without Savings, we would not have a pool of capital to invest and to make investment profits through wise investing. But savings is not solely just about for Investing, savings is also about ensuring that we have some monies for our retirement. But how much savings is enough and are you saving enough for your retirement? Let me, Tom K shows you how much you should save from your salary each month toward your retirement.

We will take as an example, a young male graduate who enters into the workforce at the age of 26 and retires at 62; that is a working duration of 36 years (for ladies, assuming a typical female graduate entering the workforce at age 22, the working window is longer). And now assuming the life expectancy of Singaporeans as a whole is 80 though life expectancy is expected to increase with modern science (and life expectancy is higher for a typical female), that would give us a retirement duration of 18 years.

If we would like to sustain the same lifestyle as the 36 working years for our 18 years of retirement and assuming we retire fully with no passive cashflows and not factoring the use of CPF funds for our retirement, that means that we would need to use the current 36 years of our working to support our 18 retirement years. That means to say, we need to save 1 year of our salaries to support 2 years of our retirement and hence in a nutshell, we need to save 50% of our monthly salaries.

And this 50% ratio is also probably not reflective since there is the annual inflation which erodes the purchasing power over time that that means we would need a larger retirement amount and hence a much higher saving ratio of our salaries.

Since CPF typically takes up 20% of our salaries, to save 50% of our salaries per month, it means that we need to use only 30% of our salaries for our expenditure. This 30% may be tight for some. To save more, there are a couple of things we could do:

1) First, work towards a higher income. With a higher income but maintaining the same degree of expenditure should have one’s portion of salaries to expenditures reduced; this will increase the savings ratio to more than 30%;

2) Second, I believe many of us will have bonuses. Assuming one gets the thirteen month bonus and a half-month performance bonus, that will contribute 1.2 months of savings (after 20% CPF) to one’s annual savings target of 6 months; that leaves the individual to save 4.8 months of salaries over the year which works out to 40% of savings per month

3) Third, Invest wisely. Through wise investment, with the magic of compounding, assuming a yearly return of 6% and using the “Rule of 72”, one could double his monies in a span of 12 years and possibly more with a longer runway of his investment. That means to say in theory, if one invests his savings of 9 years, he would get his monies doubled to 18 years (the full amounts he need for his monies using the example above) in just 12 years. The caveat is that the investor has to make really wise investing decision to achieve a 6% annual rate of return and also to time his realization of the investment prior to his investment.

Another way of looking at how investments would contribute to one’s saving plan for retirement is via multi-bagger investing. Assume one manages to identify and invest in a multi-bagger stock of 6 times, with just three years of salaries (say $300K assuming yearly salary of $100K), the investment from the $300K will accrue to $1.80 million which will cover the full retirement amount using the example described here. Caveat again: wise investing is very important wlse capital non-profits is inevitable

As someone who has tracked my savings and expenditures since my army days, I would encourage you to track your daily expenditures if you would really want to achieve your retirement goals. For without the diligence of tracking and measuring, how would you measure your success in retirement planning, finacial-wise? Join the emailing list to receive regular Financial and Singapore stocks newsletters too! Like" me on Singapore Stocks Investing Facebook page to receive all posts on your Facebook as well as read more articles. Follow me on Twitter too.

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