A 25-year-old aiming for a retirement goal of between $550,000 and $1.3 million will need to invest between $360 and $850 per month, assuming an annual return of 5%.
Despite this, Gen Zs and millennials are the least invested among all pre-retirement age groups, according to a new study by DBS. Those aged 25 to 44 allocate just 15% to 17% of their salaries to investments, and over half of investments are allocated to fixed income, which generates lower returns.
DBS’s Feb 12 report comes after analysing aggregated and anonymised data of around two million DBS and POSB retail customers as at June 2024.
Among pre-retirement age groups, people aged 35 to 44 are the most stretched financially. Their debt, in the form of home, car and credit card loans, outweighs their liquid assets. Individuals in this age group often have to balance multiple demands such as child-raising and career-building, foregoing long-term retirement planning for short-term financial needs in the process, says DBS.
Among retirees, median expenses among those aged 65 and older are 62% lower than those for pre-retirees aged 55 to 64, with liabilities at a mere 3% of liquid assets. This group, the report notes, is particularly vulnerable to healthcare inflation.
According to Singapore’s 2023 Household Expenditure Survey, healthcare accounted for 11% of monthly expenses for households with non-working individuals aged 65 and above, significantly higher than the 6.7% average for all resident households.
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For a comfortable retirement, DBS recommends that, by 2030, a 65-year-old retiree should aim to accumulate $550,000 for more conservative needs and up to $1.3 million for more aspirational wants. This amount can comprise one’s liquid assets, Central Provident Fund (CPF) savings and other income sources.
Today, CPF continues to form the bedrock of retirement planning for most Singaporeans, with median payouts covering more than half of retirees’ expenses. As of 2023, 60% of all members have set aside the Basic Retirement Sum.
Still, if retirement goals include aspirational wants, solely relying on CPF might not be the most effective strategy.
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Individuals may consider leveraging their CPF savings to enhance their retirement income, through contributing the Full Retirement Sum or Enhanced Retirement Sum, or participating in the CPF Investment Scheme.
Across generations, the question of whether $1 million is enough for retirement remains a hot topic, says Derek Tan, DBS’s head of regional property research. “Seniors will need to address the dual challenge of managing rising healthcare costs while ensuring their wealth continues to support a comfortable lifestyle in their golden years.”
In addition to diversifying one’s investment portfolio, Singapore’s high home ownership rate offers seniors a “significant advantage” to boost their liquidity upon retirement, Tan adds. “Notably, 99.7% of our retired customers have fully paid off their mortgages by age 65, underscoring the potential to unlock home equity as an additional retirement income source to secure a more comfortable retirement.”
Infographic: DBS
