How you can do better than having $600,000 in your bank account

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Many of us would be pretty pleased to have $612,000 sitting in a bank account when they stop working, believing that the sum will be enough to set them free financially for life.

That precise amount wasn’t pulled out of thin air: It was the sum that came up in a poll of 3,000 people here who said they would feel financially free if they had this much cash at their disposal.

Those polled said this was a comfortable sum, presumably because it would enable a person to have $2,500 a month to pay for their expenses from age 65 to 85. Any financial planner worth their salt will tell you that it is never wise to make plans this way, simply be cause what’s good on paper may not pan out in real life.

It is not practical to focus on a fixed sum as it may not be enough if you live a long life or are hit with big expenses like medical treatment. Moreover, everyone’s needs are different.

Those who live frugally may not even need $2,500 a month, but this sum is certainly not enough for those who plan to travel regularly. But one thing is clear – insurer Singlife’s poll is spot on in sounding the alarm that planning for financial freedom is a long-term affair because most people usually need around three decades of working and saving to set themselves up right.

Being financially free has been a popular clarion call for many people in their 20s and 30s because of the popular notion on social media suggesting that it’s possible to retire at 40 if you have amassed $1 million. But a simple calculation will show that if you need to spend around $3,000 a month from the age of 40, that sum is unlikely to last you beyond 70.

Even this assumption is inaccurate because it does not consider expenses such as medical and insurance costs, which balloon as we get older. No wonder when Singlife carried out that survey here, 40 per cent of respondents worried that they would have problems achieving financial freedom.

Significant roadblocks were cited, including insufficient income (noted by 53 per cent), unforeseen expenses (38 per cent), job insecurity (32 per cent) and debt burdens (28 per cent). Here are three insights from the poll that you should know.

How and where to retire

About 80 per cent of those polled said they aimed to retire by 65 and that they would need about $2,800 a month for daily living expenses. This amount is similar to that in other poll findings, which seem to nominate $3,000 or so as the desired monthly amount for a decent lifestyle after quitting work, and this includes the ability to maintain a car and to travel for short holidays overseas.

This means a couple should aim for about $6,000 a month so that they can keep living as they did before without too many cutbacks. About 80 per cent of those polled said they would prefer to retire in Singapore.

People wanting a change of scene cited countries like Malaysia, Australia, New Zealand and Thailand. They believed they could afford the lower cost of living in those countries, plus enjoy the slower pace of life and milder climate.

About 60 per cent put travelling as one of their top priorities when they are older. About half wanted to spend more time with loved ones, and about the same percentage looked forward to taking up a hobby that they could not indulge in when they were younger.

Frankly, it is good to have an aspiration because it can push you to plan for it today. Understanding that a carefree life does not come cheap should spur you to watch your outlays because you cannot spend every dollar that you are earning now as you need to keep a substantial portion of it for your needs when you are no longer working.

For instance, how will you have enough to travel after you stop working if you spend the bulk of your savings now by taking overseas holidays every year now?

If you think you need $3,000 a month after 65, make sure you do the sums correctly now be cause the amount you would need to meet this from age 65 to 85 alone would be $720,000.

Under-insurance is a concern

Let’s face it. Nobody likes to think about insurance because it is an expensive product and many of us like to muddle along in denial, believing that nothing bad will happen to us. But insurance is one of life’s necessities because it can help lessen the financial burden if calamity strikes.

So it is a concern that the poll showed that fewer than 40 per cent of people in Singapore had critical illness coverage, something all working adults should have. Many people have the wrong idea that they don’t need such coverage because they are covered by their companies’ group medical insurance, or that they have their own private hospitalisation plans.

But these policies pay only for your medical bills and not other expenses you may incur. In the worst case scenario, a critical illness may even result in unemployment if the patient is too sick to continue working. This is why such policies come in handy. If one’s illnesses are covered, one can receive lump sum pay ments or monthly ones over a certain period that make up for the loss of income.

It is prudent for working adults to plan for this, for the same reason you take up travel insurance when you go on a holiday – it lessens the financial pain if something bad happens. Similarly, close to half of those polled did not own any life insurance policies.

While singles might think it is not beneficial to own a policy that pays only upon death, couples should view such coverage as a necessary part of legacy planning for their loved ones, especially when they are still working.

The premiums for regular life pol icies are payable for life, so you should opt for a policy that enables you to stop paying after you hit a certain age, such as 60. If you have such a policy, you can either keep it for your beneficiaries or cash out in old age, without having to pay for it after you stop work ing.

Critical to have retirement income

When the poll finding was first made known, many people expressed concern because not many people would have so much cash stashed in their bank accounts.

Yes, you should put in effort in growing your savings but it is better to plan for a good and continuous income than just banking on achieving a fixed sum.

This is because unexpected expenses often cause us to have less savings in some months, especially when someone in the family falls sick or a house hold appliance breaks down.

Now imagine the same things happening to you when you are no longer working. If you do not have a continuous retirement income, such as decent monthly payouts from the national annuity scheme CPF Life, big unplanned expenses will whittle away your savings.

For instance, a person turning 55 in 2026 can set aside the Enhanced Retirement Sum of $440,800 – a third less than $600,000 – so they can receive $3,400 a month from age 65.

Those who do so can receive $408,000 by age 75, $816,000 by age 85 and over $1 million if they are blessed with longevity genes and live beyond 90. There are no hidden costs or risks for the payout because it is guaranteed by the Government.

It is not easy to produce such results on your own with a similar sum. Some people have even ended up with losses when they tried to plan for similar retirement income, by investing up to $2 million in private products.

So It pays to make use of CPF LIFE to plan for a higher payout because you certainly will not want to still make investment decisions when you are in your 70s and 80s.

Here are three good reasons why everyone should aspire to plan for such an income.

Finally, financial planning is not a competition. There is no need to put in $440,800 in CPF LIFE in one go when you reach 55 because you can continue to top up your Retirement Account as and when you can afford to do so.

Even if you don’t have that sum, putting in a lower amount, say $320,000, will still enable you to receive a decent monthly payout of about $2,500.

So long as you have planned for a good payout, you don’t have to worry about not having $600,000 in your bank account because you will always have money to spend every month, for as long as you live.