Is S$550,000 enough to retire? What I learnt from DBS

I came across a lively discussion in the Beansprout community today. 

One of our members shared a BT article titled "Retirees should build nest egg of at least S$550,000 for ‘conservative’ needs"

The article was based on the DBS’ Life After Work report, which analysed data of around two million DBS and POSB customers to understand Singaporeans' retirement preparedness and adequacy. 

As with other reports that suggested a minimum amount required for retirement, this sparked a flurry of questions.

"Does it include CPF LIFE?"

"Isn't S$550,000 too low?"

Hence, I decided to dive deeper into the report to find out how this will affect our financial planning, and if there are practical steps we can take to bring us closer to our desired retirement. 

#1 - DBS recommends S$550,000 to S$1.3 million savings for retirement

One of the first things I learned from the DBS report is that the amount you should aim to save for retirement depends on the lifestyle you want. 

For a 65-year-old retiree in Singapore, DBS suggests targeting S$550,000 to S$1.3 million by 2030.

• If you’re more focused on keeping things simple and sticking to the basics, S$550,000 should be enough to cover living expenses for the next 20 years. This is suggested for those who are happy with a more conservative lifestyle with a monthly expense of S$1,600 per month.
• For those looking for a monthly expense of S$2,800 per month,  S$950,000 is the amount of savings to work towards.
• But if you want to live life on your terms—perhaps travel, explore new hobbies, or give back through charity—then S$1.3 million is the target to aim for. This amount will support a more aspirational retirement with a monthly expense of S$4,000 per month, ensuring that you don’t just get by but enjoy the rewards of all your hard work.

This amount can comprise one’s liquid assets, CPF savings and other income sources. However, it excludes illiquid assets such as our HDB flats or private property. 

The above calculations for the retirement target is based on the average retiree’s monthly expenses, while the figures for the top 20^th percentile reflect more aspirational lifestyles. 

The targets also assume that the savings are used to sustain monthly expenses over 20 years. 

#2 - How much should you invest each month to hit your retirement goal?

Okay, so now you know how much you should aim for, but how do you get there? 

The report also broke it down into manageable monthly investments. 

As a 25-year-old aiming for a retirement target of S$550,000, I’d need to invest S$360 per month, assuming 5% annual return on my investments. 

If I’m aiming for a retirement target of S$1.3 million, I’d need to invest S$850 per month, assuming the same returns. 

While that may sound intimidating, I’ve learned that the key to reaching this goal is to start early and be consistent.  

Even if you start with smaller amounts, like S$360 a month, the power of compounding works in your favour over the years. 

The other important takeaway here is that the earlier I start, the less I’d need to invest on a monthly basis to get to my retirement targets. 

With a retirement target of S$550,000, I’d need to invest S$360 per month consistently if I start at the age of 25. 

This monthly investment required will increase to S$660 if I were to start the age of 35, and S$3,540 if I were to start at the age of 55!

#3: Work your money harder with equities

This one really got me thinking. 

Equities, or stocks, are often seen as higher-risk investments, but the DBS report emphasises that they can be an important asset class to help grow your wealth over time. 

DBS notes that equities have historically delivered 10-15% annual returns over the past 15 years—far outpacing bonds and other fixed-income assets.

For example, the 15-year historical average total return on the Straits Times Index (STI) was 9.5% from 2009-2023. 

The 15-year historical average total return on the S&P 500 index (US) was 14.9% from 2009-2023. 

While past performance is not indicative of future returns, what this means is that I need to be willing to let my money work harder for me, if I want to meet my retirement target of S$1.3 million (or event S$550,000). 

That means investing in assets with higher growth potential, like equities.

I know equities come with their risks, but the longer your time horizon, the better equipped you are to ride out the volatility.

This is because the range of total returns across different equity indices narrow with a longer time horizon, such as over 10-years compared to 1-year, based on historical data from 2004-2023.

For example, the highest 1-year annual total return of the STI was +70.8% over this period. However, the lowest 1-year annual total return of the STI was -47.1% over this period. 

This means that if I have S$1,000 invested in the STI, the maximum gain over a 1-year period from 2004-2023 was about S$708, while the maximum loss I would have incurred over a 1-year period was S$471.

This S$471 may not be something that I would be able to stomach, especially if I am risk-averse of am close to my retirement.

On the other hand, if we were to look at the 10-year rolling return across this time period, then it would tell us a different story.

The highest 10-year rolling return of the STI was +13.9% over this period, while the lowest 10-year rolling return of the STI was -3.1% over this period. 

This means that with a longer time horizon, I am better able to weather a sharp or sudden sell-down in my portfolio, as markets tend to recover with time. 

Earlier, I shared that I will need to invest S$850 monthly from the age of 25 if I want to reach a retirement target of S$1.3 million, based on a 5% expected return.

However, if I am able to get a 6% return on my portfolio rather than a 5% return, I would need to just invest S$650 monthly over the same time period. 

What would Beansprout do? 

Looking back at these insights, my takeaway is clear: invest early and consistently to be able to reach my retirement target. 

For me, the plan is to start allocating more to equities while being mindful of diversification. 

The idea is to gradually shift towards more stable, lower-risk investments as I get closer to retirement.

DBS also suggested a few ways for us to get on track with meeting our retirement targets. 

Integrating POSB’s Money Habits—Save, Protect, Grow, and Retire will allow us strengthen our financial foundation and stay on track for a comfortable retirement.

The DBS Retirement digiPortfolio allows us to build our retirement nest egg with ease by offering a simple way for us to shift our portfolios towards more stable assets as we get closer to our golden years. 

For young investors, I'd also consider exchange traded funds (ETFs) as a simple and low-cost way to gain exposure to a diversified portfolio of stocks. 

Some of the ETFs that investors commonly start with include the Singapore STI ETFs, Singapore REIT ETFs and S&P 500 ETFs.  

Investing in ETFs through a regular savings plan  allows you to invest a fixed sum of money consistently, thus avoiding the stress of having to find the perfect time to start investing as your entry price will be smoothed out with time. 

The key takeaway? Don’t wait until you’re 60 to start planning. The earlier you start investing, the more time your money has to grow!

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