You will be able to turn what you spend today into an estimate of what you will spend in retirement.
Download the last twelve months of statements for every bank account and credit card you spend from, and save them in one folder. Your retirement spending estimate starts from these, and you'll work at today's prices throughout.
The common way to set a retirement target is to take some share of your last salary. Jasmine (an example person who appears throughout the course, with made-up figures) tried this first. She is 55, works in operations at a logistics firm and plans to stop full-time work at 60. Taking a share of her salary gave her a number, but the number told her nothing about how she actually lives.
A percentage-of-salary rule treats spending as a fixed slice of pay, and for most people it isn't. Two people on the same salary can spend very different amounts. Someone who saves hard spends much less than a colleague who saves nothing, yet the rule gives them the same target. Your salary also pays for things you'll stop doing once you retire, and it leaves out things you'll start doing. The employer and employee CPF contributions taken from your pay, transport to the office and the lunches you buy near work all end when the job ends. Not every mandatory CPF contribution depends on having an employer, though. If you do self-employed work after leaving your job, you still have to make your own MediSave contributions, so check the current rules with the CPF Board.
Start from what you actually spent last year. Bank and card statements are the most honest source, because they show what happened rather than what you remember happening. Use twelve months. One month on its own misses yearly insurance premiums, festive spending and the trip you take once a year.
Sort the transactions into lines such as housing, food, transport, healthcare and travel, and add up the year. Jasmine pulled twelve months of bank and card statements and grouped them this way. Last year she spent about S$42,000, or S$3,500 a month.
Take the lines one at a time and decide what happens to each cost after you stop work. It will fall, stay the same or rise. Write down the new figure at today's prices, so the old and new totals can be compared directly.
Transport to work falls, though you may travel more during the day. Work clothes, office lunches and coffee runs fall too. Mortgage instalments stop once the loan is paid off, and for many Singaporeans this is the largest single drop.
Healthcare is the cost most likely to rise. Premiums for hospital insurance and any riders go up with age, and most people see doctors more often as they get older. Lesson 6.2, "Healthcare and long-term care costs after 65", works through these costs properly. Travel often goes up in the first years of retirement, when people have the time for it. Further out, many people pay for help at home, which is a cost that barely exists at 55.
Food, utilities, your phone plan and support you give a parent usually stay where they are, since stopping work doesn't change them.
Jasmine lives alone in a four-room HDB flat she owns outright, so she has no mortgage drop. Her transport line falls from S$4,200 to S$2,400 a year, and her work costs of S$3,000 a year go to zero. Her travel goes up from S$4,800 to S$6,000, and her health line from S$4,200 to S$5,000 at today's prices. She expects the health figure to keep climbing after that, and lesson 1.4 gives it its own growth rate. She leaves food, utilities, her phone plan and the S$400 a month she gives her 82-year-old mother unchanged.
Next, label every line as essential or flexible. Essential spending is what you must pay to live safely: housing costs, food, utilities, healthcare, insurance and support for people who depend on you. Flexible spending is what you could cut for a year or two without real harm, such as travel, eating out, hobbies and gifts.
You need the split because later parts of the plan handle the two groups in different ways. Module 2 tries to cover essential spending with income that cannot run out, such as CPF LIFE. Flexible spending comes out of investments, and in a bad year it's the part you reduce. If both groups sit in one total, you can't reduce one without touching the other.
Sort honestly. Eating out a few times a week can feel essential until you see it listed beside the electricity bill. An allowance to a parent may feel like a gift, but if the parent depends on it, put it with the essentials. Jasmine's mother depends on the S$400 a month, so Jasmine puts it in the essential group.
Here are Jasmine's lines at today's prices:
Essential: housing costs S$4,200, food S$8,400, transport S$2,400, phone and internet S$1,200, her mother's allowance S$4,800, healthcare and insurance S$5,000, for a total of S$26,000 a year Flexible: eating out S$4,200, travel S$6,000, hobbies and gifts S$3,000, other S$800, for a total of S$14,000 a year
The two groups add up to S$40,000 a year at today's prices, a little below the S$42,000 she spends now. Most people expect their spending to drop more at retirement than it really does, and Jasmine's figures show only a small fall.
The first check is for costs you pay less than once a year, such as a new air-conditioner, a kitchen renovation or a change of car. You will pay for these at some point, so divide each one into a yearly amount and add it to your lines.
The second check is for spending someone else covers now. If your employer pays for your health insurance, you'll pay for it yourself after you leave. Jasmine's company plan covers her outpatient visits, so she raised her health line to allow for losing that cover.
The third check is about the people in your life. Ask whether a parent will need more support from you, or none, and whether an adult child will still be living with you. For Jasmine, her mother is the biggest unknown in the plan, and she has noted that the allowance might go up if her mother needs more care.
For the activity, you'll need your own twelve months of statements. Group the spending into the same kinds of lines Jasmine used, then decide for each one which way it moves when your pay cheque stops.
Go through last year's spending by category and mark each one as likely to go down, stay the same or go up once you retire.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).