When the stock and property markets are booming and your investments are performing well, it’s easy to feel like you’re all set up for an affluent retirement. However, this perception of wealth and over-optimism about your retirement savings can heighten the risk of falling short. That’s why it’s important to contemplate the financial foundation needed to sustain the affluent lifestyle you’ve always envisioned when you retire – no matter how successful you are.

Will it take S$3 million, S$5 million or an even grander sum to immerse in a life of leisure and refinement? Estimating the cost of living during retirement is something many individuals grapple with when it comes to the intricacies of retirement planning. While financial consultants can guide you in determining the cost of your desired lifestyle, it is equally prudent to make your own assessments. This will empower you to gain a comprehensive understanding of your unique financial landscape and how to make your golden years truly shine.

Retiring affluent: 6 factors that will determine how much funds you need

Living in an upscale district, golfing thrice a week, yachting on weekends, vacationing in off-the-grid locations, availing of best-in-class healthcare… If you already have a crystal-clear vision of your retirement chapter, now is the time to look at how much you’ll need to sustain it while maintaining financial resilience for life’s unknowns.

Read on for the factors that’ll affect the size of your retirement nest egg.

1. Your desired lifestyle

Consider not just how you want to live – restaurant meals, a luxury home, top-notch cars for you and your spouse, etc – but where. According to Singlife’s Financial Freedom Index 2024 survey, while majority of Singaporeans want to retire in Singapore, 21% intend to retire overseas for reasons such as a slower pace of life and a more favourable climate. Whether you choose Montecito, Lugano or Sydney, the cost of living varies vastly across the globe. There are also foreign taxes to be mindful of, plus legal fees for property purchases, long-term visas, unsubsidised healthcare and education, higher investment requirements, and inheritance laws, which could all affect your retirement corpus.

2. Life expectancy and when you plan to retire

The longer you expect to live, the more money you'll need. If there are nonagenarians in your family, and you eat good food, gym regularly, keep stress levels low and seek treatment at esteemed medical centres, you have a high chance of living to 100 years – and hence, a potentially longer retirement. Your retirement age will also affect your number of years in retirement. While most people spend 20 to 30 years in retirement, those thinking of retiring early at the age of 45 instead of 65 would gain 20 years. In fact, if you plan to retire at 45 and live till 90, you’d be in retirement for half your life, making wealth accumulation important to ensure sufficient income streams to sustain a comfortable lifestyle. So, consider your retirement age carefully. If you have outstanding home loans, for instance, delaying your retirement could give you a longer runway to pay them off as your savings would have had more time to grow and compound and you’d receive higher CPF Life payouts. And if you opt for phased retirement, your money would have more time to grow and compound.

3. Outstanding loans and liabilities, including taxes

Recurring loans, such as mortgages, car loans or your children’s overseas university fees that need to be serviced monthly, reduce your disposable income. Aim to pay off these debts, especially high-interest loans, before retiring so you won’t have to account for them in your retirement budget. This is one reason why many people go for limited payment over regular payment for their life insurance premiums, keeping premium payments to their earning years. If, however, there are still some outstanding payments that stretch into your non-working years, it will affect the overall amount you'll need to either save or have at your disposal in terms of payout or income. Knowing your exact outstanding loans will help in your decision to purchase solutions that would assist you in clearing these loans while still leading the kind of life you wish to have. Another thing to add towards your retirement costs is the taxes you’ll have to pay on your retirement income sources, which can eat significantly into your retirement income. According to the Inland Revenue Authority of Singapore, all retirement benefits including gratuities and pensions are taxable unless they are specifically exempted under the Income Tax Act (for instance, CPF benefits).

4. Inflation

Aside from just budgeting for your desired retirement lifestyle needs based on today’s numbers, you'd need to multiply this figure by the current inflation rate to estimate your needs in 25 or 30 years when you retire. In Singapore, inflation is a common concern and can significantly affect your nest egg, so it's important to consider this when calculating your retirement planning goal. Assuming a flat inflation rate of 3% per annum, S$100,000 will only be worth around S$55,000 in 20 years’ time. If you intend to retire in an affluent city, there’s a chance of a higher rate of inflation and changing wealth tax structures which will lead to sharp increases in the cost of retirement living over time. This means having to save more to maintain an affluent lifestyle throughout your golden years. Inflation will also impact your emergency fund – the amount you have set aside today for times of crisis would likely fall short of your needs by the time you retire. Having adequate savings for unexpected expenses is crucial, especially during retirement.

5. Expected yield from your investments

World events like pandemics and the ongoing trade war between China and the US can trigger stock market fluctuations, which could affect the performance of your investments, which you may then need to adjust to meet your savings goals. Sometimes, other changes can also affect your retirement savings. For instance, starting from January 2025, the CPF Special Account will close once a member turns 55 and any savings in the account that exceed the Full Retirement Sum will flow into their Ordinary Account which earns 2.5% interest per annum. If you’re looking for alternatives to grow your retirement savings, consider plans like Singlife Flexi Life Income II and Singlife Flexi Retirement II.

6. Level of insurance coverage

What if you needed long-term care due to severe disability or dementia and had to spend S$60,000 a year to cover it? Having comprehensive insurance coverage for hospitalisation, cancer treatment, critical illnesses and severe disability – which commonly affect older people – means you won’t have to factor such unexpected costs when determining the size of your retirement nest egg. The level of insurance coverage you choose should align with the high quality of medical and long-term care you would want in the event of the unexpected. You should also consider the impact that healthcare inflation will have on your coverage needs. Medical inflation is typically about three times core inflation while cancer drugs inflation is double of medical inflation. Not having adequate coverage could mean having to alter your spending habits or cash out investments prematurely to cover healthcare and long-term care expenses that your existing financial plans for retirement can’t fully cover.

Conclusion

Planning for retirement early despite juggling multiple commitments is laudable. Once you’ve identified the sum you need to both fund your dream of an affluent retirement lifestyle and cover all liabilities and future expenses, you will be able to formulate strategies and habits to get there. However, remember that retirement goalposts tend to shift, especially as you grow more affluent and used to a more discerning way of life. So, it’s good to periodically get back to the drawing board and see if your retirement goal amount makes sense, then tweak your strategy accordingly. A financial adviser representative who understands the retirement planning needs of affluent individuals could help you maximise opportunities to accumulate wealth before retirement while reducing potential tax implications of any inefficient strategies.

^Notes

^{Singlife Flexi Life Income II and Singlife Flexi Retirement II are underwritten by Singapore Life Ltd.}

^{As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid. Buying a health insurance policy that is not suitable for you may impact your ability to finance your future healthcare needs.}

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