How Much Money Do You Need To Retire?

Many of us work for money. But there’s a way to not work and still have enough to live on, it’s called financial independence. In this video, I’ll show you how much money you need to retire, what are the problems with this strategy and how to solve it. Enjoy!

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0:00 - Intro

0:59 - What’s the average expense for retirees
According to a study by Department of Statistics Singapore, titled Household Expenditure Survey 2017/18. It shows that the average month expense per person is around $1628.
https://www.singstat.gov.sg/modules/infographics/hes/household-expenditure

Another study done in a collaboration between Singapore universities, showed that average monthly expense for single elderlies is $1379, and $1721 for single person aged 55-64.
https://whatsenoughsg.files.wordpress.com/2019/05/what-older-people-need-in-singapore-a-household-budgets-study-full-report.pdf

These studies include recreation and entertainment as well as holiday expenses, so it’s not just bare minimum. Based on these studies, we can see that we would need at least $516k in our banks if we were to retire at 60 and live till 85. Add to the fact that inflation is at least 2%, we would need a much larger amount.

2:41 - How to calculate your retirement amount
But luckily we don’t have to have that much because of magic of investment. There’s a study called Trinity Study, which tries to find out what’s the safe withdrawal rates from our investment so that we will never run out of money. It runs simulation from 1926 to 2017, conducted on different portfolio compositions as well as different time frames.

It found that if you have a portfolio of at least 25% stocks, withdrawing only 4% for 25 years, you will never run out of money. But if you were to retire in your 30s and withdraw for 40 years, the 75% stocks portfolio only has a 92% chance of success rate.

To overcome that, you can just reduce the withdrawal rate from 4% to 3.5%,and have a 100% stocks portfolio, you would increase the success rate to 98%.
https://fourpillarfreedom.com/the-trinity-study-updated-for-2018/
https://thepoorswiss.com/updated-trinity-study/

5:35 - Problems with the Trinity Study
There are several problems with this strategy.
It assumes that inflation will stay relatively low.
The success rates are based on past data, and it was during a period where you US is doing quite well, eventually becoming a superpower. And ignores the possibility that we will encounter lost decades for a long time.
It assumes that we are healthy and will continue to have low expense.

7:16 - How to overcome the problem with Trinity Study
1. Live below your means. You can even try to lower your withdrawal rates to 2-3%. That way, you will increase your success rates even if the market does badly.
2. Make your investment portfolio as big as possible to give it buffer. Also after you have retired, you can find ways to make money while doing the things that you enjoy.
3. Protect your finances by getting insurance.
4. Move overseas where cost of living is much lower than Singapore.

*Some of the links and other products that appear on this video are from companies which Kelvin Learns Investing will earn an affiliate commission or referral bonus.*

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