You can retire when you have a fully-paid house and 25x your annual spend in savings

I read an article about a man who retired when he was 30 years old. His wife also retired with him and they have a son. He claims that the one secret to their success is their low expenses of US$25,000 a year for a family of 3. [How to retire early — 35 years early]

He said that he and his wife retired when they had a fully-paid house and saved US$600,000 (to be invested to get 4% returns per year = US$25,000). This means that you need to have about 25 times your annual spending + a house to retire. The annual returns on their investment would be able to fund their US$25,000 yearly expenses. They said that this rate of return, there is a good chance that their money would never run out even if they had some medical expenses to pay.

Lucky them!

Let's do the math in Singapore terms. We shall assume that the couple are graduates and Singaporean. The amount of savings per person can be cash+cpf savings.

Scenario 1:

Assuming cost of living is SG$24,000 per year.
Cash required: SG$24,000 x 25 = SG$600,000.
Cost of cheapest 3-room in non-mature estate BTO HDB after deducting grants: SG$120,000
Total: SG$720,000
Assuming both contribute equal share, the amount per person is: SG$360,000.

Assuming the age the woman starts working is 21. She has 9 years to earn and save SG$360,000. Amount to save per year: 360,000/9 = SG$40k
Assuming the age the man starts working is 23 (after completing National service). He 7 years to earn and save SG$360,000. Amount to save per year: 360,000/7 = SG$51k

Clearly, this is impossible! Because if they earned a combined income of over 60K per year, they would not even qualify for BTO in a non-mature estate.

Scenario 2:

Assuming cost of living is SG$12,000 per year.
Cash required: SG$12,000 x 25 = SG$300,000.
Cost of cheapest 3-room in non-mature estate BTO HDB after deducting grants: SG$120,000
Total: SG$420,000
Assuming both contribute equal share, the amount per person is: SG$210,000.

Assuming the age the woman starts working is 21. She has 9 years to earn and save SG$210,000. Amount to save per year: 210,000/9 = SG$23k
Assuming the age the man starts working is 23 (after completing National service). He 7 years to earn and save SG$210,000. Amount to save per year: 210,000/7 = SG$30k

I think this is achievable. The starting pay of graduates is above SG$36k per annum. And there's still the extra 16% CPF contribution paid by the employer. If the couple starts saving as soon as they start working, it is possible to save that amount of money.

So the guy was right. The secret really is in keeping expenses low.

But it is possible for a family of 3 in Singapore to spend only SG$12,000 per year? I think it is possible if they cook their own food, do not take vacations, do not buy a car, do not buy expensive electronic gadgets, do not pay for child care or enrichment lessons for their child, and only buys cheap clothes once a year. Sounds terrible? In today's terms, perhaps. But when I was a child, this lifestyle was common in most families. If you don't mind living this way, there is no need to ever go to work again!


Paul said...

Great article. Personally, I think that the more realistic approach is to increase earning as expenses will always be on the rise which makes it difficult to keep them low. I read elsewhere that skill training and development is a form of intangible form of investment which should be seriously considered. Btw, your calculations do not factor in downtime due to unemployment.

Anonymous said...

The only problem is how to ensure consistent 4% return in Singapore. FD rates are closer to 1%.

Yu-Kym said...

The average graduate in Singapore would hardly find themselves out of a job for more than 1 month if their expectations are realistic. A fresh grad's salary would be above SG$36k per year and normally they would get increments and bonuses. Many people have spent too much money on post-graduate courses. But if the plan is to retire early, spending on higher education is a waste of time and money. This is promoted by the government because it makes "more money go round". It's GDP.

Also, in my calculation I assume that couples should sign up for their HDB flat early so that their combined income does not exceed the limit for subsidies and HDB BTO.

Realistically, there are parents' expenses to pay for and the whole family's medical cost. These can add up to a great sum of money.

Yu-Kym said...

Putting money into fixed deposits isn't actually considered "investing". If you don't have to work, I'm sure you'll find time to research into individual companies and gather the required information to make informed investments.

Paul said...

I thought that the average graduate would be able to secure employment easily in the past but apparently it was not the case from my own personal experiences. Unless your field of training is in great demand, do not count on getting a job immediately at the same remuneration when you leave your current post. Moreover, a fresh civil engineer only draws $1900 back in 2005 and although things have greatly improved since then, the mindset of many people had changed towards a job and rightly so cos a return to those days is definitely possible in this uncertain economic climate. I'll say post-graduate education is more for building stature and credibility in the field of interest than for immediate economic benefit. However, we can't ignore the fact that more and more senior posts are pegged to higher level of education these days.

David said...


Forbes magazine has an article that contest the 4% plan for retirement.


Old Advice Could Put Your Retirement At Risk

For more than a generation, the 4 percent rule seemed a fairly safe bet—withdraw no more than 4 percent of your retirement nest egg each year, and you’ll have enough money to last a lifetime. The strategy, however, does not necessarily hold true for those planning for retirement today.

Financial planning expert Rebekah Barsch from Northwestern Mutual says there are three key reasons why following the 4 percent rule today puts us at risk of outliving our money.

1. We’re all living longer. When the 4 percent rule was established in the early 1990′s, it was based on retirements that lasted a maximum of 30 years. Today, we’re living longer. “Let’s say you’re 65 today and part of a couple. There’s now a one-in-ten chance that you or your spouse will live past the age of 100,” says Barsch. “With longer life expectancies, we simply can’t afford to build retirement income plans that require us to die at a specified time.”

2. Timing is everything. The success of the 4 percent rule is tied to the timing and the sequence of market returns, and growth over the past decade plus has been sluggish. “So to the extent that our retirement income is tied to the market, there’s always going to be some uncertainty,” says Barsch.

3. The 4 percent rule doesn’t consider the impact of taxes. When we eventually start withdrawing dollars from qualified accounts like a 401(k) or 403(b), we need to pay taxes on that income, a consideration Barsch says is often overlooked.

Watch this video excerpt for a more in-depth overview of why the 4-percent rule may no longer apply.

The Northwestern MutualVoice Team is a group of professionals who share insights and opinions from experts and industry leaders across the enterprise. Our vision is to inspire others to take action and plan for their financial future through topics ranging from financial planning, retirement planning and distribution strategies, wealth accumulation and preservation, to leadership, philanthropy and innovation.

In the final analysis, one has to look at individual goals. Withdrawing or earning 4%/yr may not be enough with an investment fund of 625,000.USD.

I trust you can present other retirement options to your readers.


Yu-Kym said...

The 4% annual returns on investment would be to fund the yearly expenses. This means that capital amount does not get withdrawn and used as expenses.

Anonymous said...

Singapore graduates gets SGD 3K per month! That really is 3rd World’s pay in a little red dot with 1st world cost of living! Even China, where most brainwashed Sinki ( including their US cousins ) think is the poorest country on earth earns more than that in yuan.

It took the straight talking wealth manager Anton Casey to expose the truth of such poverty in SG. Of course the garment’s Cyber Army was mobilized to discredit him with death-threats and eject him from SG.

Then news releases were issued claiming SG per-capita gross domestic product is SG$65,048 ( ie AUD $58,250 which is about the same as an ordinary Australian worker’s pay) in 2012

This means the above statement claims that average SG worker earns almost as much as an Australian worker, then why on earth can’t an ordinary SG worker afford the same living standard as an ordinary Australian worker?

Take some very fundamental benchmarks :-
(1) Car ownership. In Australia = yes, in SG = little chance.

(2) House ownership. In Australia can purchase anywhere 300K – 800K . In SG, you are asking and expecting too much lah.

(3) Food, clothing, transport – no problem lah in both countries

(4) Overseas holidays – In oz, more often. In SG, you don’t see that many Sinkis.


Well, it lies because it is just like in the USA, even though the GDP per capita is high per Yank, published data shows more than 60% of Americans do not have over US $80,000 to their name. Why? The GDP per capita figure is skewed by the fact that 1% of the population owns 80% of the country’s wealth.

It is the same in Sinkiland, the multi-multi million dollar salaried ministers, with each minister’s pay able to employ 10,000 graduates, skew the GDP per capita figure to give a false impression. SG’s ministers are the most expensive in the whole galaxy!

When over 85% of SG population live in cheap garment subsidised HDP flats ( and every where you look, you see those bland ordinary looking HDB flats with their ugly void decks and exposed hallways and urine alarmed lifts which do not stop on every floor ) , take cheap garment owned and subsidised transport system, eats instant noodles daily etc, you can easily draw your own conclusion whether Sinkis are rich or poor!

Unfortunately Anton Casey exposed the truth which is not allowed in this little red dot. Locals must be kept stupid and ignorant so that they will always be obedient, that is most important!