When it comes to financial planning, small and specific goals are best. Aspiring to make $15,000 or $25,000 a month without working is all well and good, but don’t forget to take concrete steps to secure a realistic amount. With some discipline and prudence, it’s not unrealistic to aim for an extra $1,500 a month (on top of CPF payouts) after retirement. Here are three ways:
First of all, why an extra $1,500 a month?
An extra $1,500 a month may not seem dramatic but its effects on retirement can be life changing.
Consider that the average Singaporean, who retires with the minimum sum of $161,000 in CPF, will only get around $943 to $1,017 per month (estimated payout via CPF Basic). That comes to about $33.90 per day.
If that seems enough to you, you’re forgetting to account for the effect of inflation.
Let’s assume an inflation rate of three per cent per annum, and look ahead 25 years. At that rate, something that costs a dollar today will, by rough estimate, cost around $2.09 by the year 2042. This means your purchasing power decreases by around 52.2 per cent.
Now the effect is easier to visualise if you work backwards, so let’s do that.
At a loss of 52.2 percent of purchasing power, your CPF payout of $1,017 per month would effectively be around $530.90 today. If you were retired right now, with that kind of purchasing power, how pleasant would life be?
You would be living on around $17.70 a day. That’s survivable, but it’s far from luxurious. Beyond three square meals and the occasional indulgence, there’s not much to look forward to for the rest of your years.
That’s why finding a way to make an extra $1,500 a month at retirement is important. $1,500 is effectively an extra $783 a month if you take away the 52.2 percent reduction in purchasing power. That’s enough to maybe go on vacation twice a year, replace your television when it’s broken, take up those music lessons you always wanted, and so forth.
The best part is, $1,500 is a small enough sum to be realistic and achievable.
There are three ways you can get it:
- Invest in reliable, dividend-paying stocks
- Constantly reallocate funds to your CPF SA
- Don’t downsize to anything less than a three-room