Minimum Portfolio Value for Financial Independence in Singapore

So – if you’re like me – since you’ve learned about this FIRE (Financial Independence / Retire Early) thing, you’ve been super excited to get started. You’re super pumped to plan your savings journey down to the day when you can say “SAYONARA!” to having to work to make a living forever.

However, you’re not quite sure how much you actually need to be completely financially independent. After all, Singapore is known to be a super expensive city to live in. Is financial independence even possible?

Unsurprisingly, given the “expensive” reputation, a lot of people I spoke to has the impression that they would need at the very least S$1,000,000 in the bank to be able to remotely feel financially independent – and this is just for 1 person!

No wonder a lot of people find the thought of retiring “early” and financial independence laughable – it’ll take forever to get to a S$1,000,000! And they’d be right if that was true.

So how much does it really take to live and FIRE comfortably here?

What’s the minimum monthly income that we need in order to live happily in Singapore and how long would it take us to get there?

Well this post is meant to answer that question and the answer is much lower than you’d think.

Getting the comfortable Singapore FIRE number

In order to find out how much we’d need – as you may have read in my “never have to work again number” post – the amount of money we need in order to be completely independent is invariably tied to how much we spend on a yearly basis.

Once we figure out exactly how much we absolutely need to spend on a monthly and yearly basis, we will be able to see how much we need to save up in our investment account – and thus how long it would take for us to get there.

How I’m breaking this down

First, we need to find out what’s the bare minimum we actually need to live comfortably in Singapore. No frills, just the necessities.

Then once we have the necessities down, we will take a look at the optionals and how each of those items will impact your FIRE number and thus also your FIRE date. We won’t be able to cover every possible optional expenses but I hope to illustrate how each item impacts FIRE and give you an idea of how to do the calculations on your own.

This should allow you to mix and match your own expenses to chart your own path. At least you’ll know what’s the minimum you’ll need and understand that for any extra comfort, you will have to sacrifice by working longer to save more – and whether that’s worth it for you.

If that makes sense, let’s get into our first section!

Necessities: The ‘Must Haves’

What’s the minimum monthly income we need to live comfortably in Singapore? That’s the first question we’ll need to figure out. This amount should form a baseline – a starting point – for your FIRE plans.

This is the amount that, once we are able to generate from our passive income, we can basically afford to quit and still live a comfortable existence forever. It’s not going to come with a lot of discretionary spending – your entertainment will mainly be what you can get for free – but you have all you need to live without skimping on the necessities.

So let’s take a look what this makes up of.

House: Mortgage and Rent

First and most important item on the necessities list is housing! It’s where we are going to live, sleep, hangout with family and spend most of our time, so it’s the first thing we need covered in our budget.

Note: I am going to assume that you’ve already purchased a place or have a rental in place as we’d like to estimate your “regular” cost of living, not the initial purchase of a property here. So if you need to purchase your property first, then add that to the total FIRE number you’d need.

Mortgage: If you have purchased a HDB and stay within S$500,000 with a mortgage length of 35 years (definitely doable especially with BTO), your mortgage should be no more than S$1,400 per month at the current interest rate. That’s for a couple so on a per-person basis, you will be able to afford a comfortable HDB at S$750 per person per month.

Rent: If you are Singaporean, it’s probably not recommended to rent if you can stay with family and save on the rental until you get married and get your own place. However, if you are an SPR or foreigner, you may need to rent.

As we are looking at keeping the cost low while staying comfortable, the most cost-effective option for rental is renting a room in a HDB. We should be able to find a good place to rent for S$750 to S$800 per person per month depending on whether you need to cover the utility separately or not. This applies both for singles (share the place with another person or family) or as a couple renting the whole place.

We’ll use the S$750 per month as a baseline for your housing cost.

Running total of annual living expenses: S$9,000

Utilities: Water, Gas and Electricity

With the house settled, next are the utilities. In order to get this cost, I looked at my current bills.

I am living in a home with 4 people who cooks occasionally, does the laundry once a week, turns on air conditioning during the evening and use the fan during the day (unless it’s unbearable) and uses a tank-based water heater for showers.

Our monthly cost is less than S$200 for 4 people so I estimate that we shouldn’t need any more than S$50 per person per month or S$600 per person per year on the utilities side.

Running total of annual living expenses: S$9,600

Food and Drinks

Now we get to the stuff that’s gonna keep us alive, our food and drinks budget. As we’re looking at a minimum comfortable budget, we’re not going to be too extreme with this.

Surprisingly, unlike other developed countries, cooking at home in Singapore doesn’t give as much cost savings compared to just eating at hawker centers & food courts. I think this is because food courts get a huge benefit of economy of scale, plus we also get a lot of variety.

If we are careful and eat at economy rice stalls (and don’t go crazy with selecting 3 meats and fish) I think a reasonable budget of S$15 per day is going to allow us to eat quite well and even get a drink each meal – especially if we skip breakfast (which I do.)

So if we calculate this over the entire month (30 days), we have a food budget of S$450 per person per month or S$5,400 per year.

Running total of annual living expenses: S$15,000

Transportation: Bus, Trains, Cabs and Grab

Getting around Singapore is pretty convenient, thanks to the impressively ubiquitous public transportation system. We will assume from the outset that we will not have a car – a car is one of those things that really does not make financial sense in Singapore given how great the public transport system is.

By getting a car, over its life-time, you’re essentially giving up S$1,000 per month in passive income – so yeah, not an option for us here.

So if we assume that we’ll do our best to always use buses and MRTs – if our job does not require taking multiple trips per day – then I think we should be able to get around just fine with S$5 per day (S$2.50 one way and S$2.50 on the way back.)

If we assume that we’re going to be traveling everyday of the month, then our transportation budget is S$150 per person per month or S$1,800 per year.

Running total of annual living expenses: S$16,800

Internet and Phone

These days having internet and a smartphone is almost a human right and I agree. As a blogger, I definitely can’t imagine living without the internet. However, internet and mobile phone plans in Singapore is relatively cheap if you don’t buy a brand new top of the line phone every 2 years.

It’s possible to get a good data plan (20 GB for S$18 from Circles Life) today if you are just getting just the SIM.

Even the home fibre isn’t that expensive if you can share with at least one other person.

For both home internet and mobile data, I’d budget a maximum of S$50 per person per month  or S$600 per year here.

Running total of annual living expenses: S$17,400

Miscellaneous Living Expenses: Haircuts, Clothes, Toiletries, etc.

With all of those survival expenses out of the way, next are the personal grooming and incidentals: haircare, clothing, toiletries, makeup, etc.

It’s hard to plan for how much we’ll actually need here. It also depends on our gender. Guys tend to have a much cheaper time here. Our haircuts, toiletries and personal grooming items are usually a lot cheaper than the equivalent product for ladies. However, ladies also tend to need haircuts and hair work less often (depending on your hairstyle.)

I’d recommend to do all our hair – except maybe haircuts – on our own as much as possible to save the cost. This should help determine the kind of hairstyle that you would like to have, try to choose ones that are lower maintenance.

Clothes can last quite long and does not need to be purchased on a monthly basis if taken cared of properly. Toiletries should last over a month so most of these costs can be spread out across the entire year.

I’d budget about S$50 per month or S$600 per year to be spent on any of the above items depending on our needs. That should be more than enough – especially if you’re a guy.

Running total of annual living expenses: S$18,000

Healthcare: Routine Health and Dental Checks

Now that we have all of our day-to-day living costs down, let’s take a look at all the usual spending we’d have to make sure we are healthy.

Based on my research, health checkup costs in Singapore can vary by quite a lot depending on the hospital (private or public) and the kind of checkup we are getting. After a certain age, we should be looking to get a health checkup at least once a year to make sure we’re in top shape. After all, what’s the point of reaching FIRE if you’re not healthy enough to enjoy it?

After taking a look at this MoneySmart article on health screening costs, I think we can budget on average S$300 year for health checkups if we’re looking for a normal screening and are willing to shop around a little bit.

As for dental cost, the recommended frequency to visit the dentist is every 6 months so we should plan to spend a bit on dental check up at least twice a year.

Again, after looking at this MoneySmart article for cheapest dental clinic, I’d estimate a yearly cost for dental visits for just cleaning and checkup at no more than S$250 per year – so try to stay within that window.

This brings the total for this category to S$550 per person per year.

Running total of annual living expenses: S$18,550

Insurance

Since we’ve covered all of the other living expenses, we’ve come to the last, but absolutely not least, topic: protecting ourselves against risks.

Serious accidents, health issues and injuries could derail our financial independence if we’re not covered or protected against it. Health care costs in Singapore aren’t as crazy as they are in America but they’re not cheap either.

Since FIRE is about generating a regular passive income to cover our living expenses, we want our medical and health expenses to be similarly spread out and regular – not sudden, large, and take us by surprise.

The way to do this is to make sure we’re protected by a good set of insurance. However, the most important thing is to not pay too much.

Disclaimer: I am not an insurance expert, I do not sell insurance and I do not know your individual situation. I’m just a guy who loves thinking about personal finance, so do not take this as insurance advice. Insurance is deeply personal and must be tailored to your specific situation. Thus, before making any drastic decisions with regards to your insurance, make sure you consult a qualified insurance professional to make sure you are making an informed choice that fits your situation.

Life Insurance: Death & TPD

As I mentioned in my post on my move from Whole Life to a Term Life insurance, we’ll need Life Insurance to protect our loved ones and ourselves if something catastrophic were to happen. We want to make sure we have enough insurance to allow our loved ones to live if we can no longer work or are not around and also cover all the costs to take care of us in the case that we are permanently disabled.

I opted for a Term Life, which is a cheaper on a yearly basis and to invest the rest of the money. Life insurance tends to be much cheaper if you purchase it when we’re young so it’s recommended to lock in a cheaper monthly price and purchase life insurance right when we start our first job.

Life insurance cost is highly variable but I think a reasonable yearly amount to pay per year for this would be S$1,500 per person per year. This should cover Death and TPD and Critical Illness.

Running total of annual living expenses: S$20,050

Health & Hospitalization Insurance

Another very important insurance to have is the hospitalisation insurance to make sure that if we need to be admitted to the hospital for any sort of operation or care, we want to make sure that we don’t have to pay out of pocket.

Luckily, in Singapore, there’s integrated shield plans that will help cover our hospitalization – up A Ward and even private hospital. A portion of the payment can be made through our CPF Medisave Account so we only need to top up a portion out of pocket in cash.

The plan I have costs me about S$800 per year out of pocket and it covers all the way up to A Ward or private hospital. It will cover up to S$1,500,000 in hospital cost per hospitalisation with protection of any costs related to the hospitalisation up to 180 days before and after the hospitalisation.

I think this is a reasonable estimate we can use for this. If you can live with a lower level of protection, you can reduce the cost here a bit and not get the exact plan I have.

Running total of annual living expenses: S$20,850

Accident Insurance

Accident insurance covers us if we get into an accident but isn’t severe enough that we require hospitalization. We may still need medical treatment but a hospital admission isn’t required. An example would be a broken leg or broken arm where casts and maybe some stitches are required.

These costs associated with these types of accidents and treatments aren’t as large as hospitalization but could still get into hundreds or even a thousand. So I’d still want to make sure we change that immediate surprise high cost into smaller regular expense. Since potential costs here isn’t as large, the insurance price won’t be as high.

I think we can get a reasonable protection for this at no more than S$150 per person per year.

Running total of annual living expenses: S$21,000 (or just S$1,750 per month per person!)

The FIRE number

That’s it – all of the necessities! Roughly S$21,000 per year per person to completely cover all of our expenses. I’m sure for those who are even more savvy and frugal, you can squeeze this number down even lower. However, I think this amount will allow most people to live comfortably in Singapore albeit with just the necessities and low-cost entertainment.

So if we use our trusty 4% rule, the amount that we’d need in our investment portfolio in order to generate S$21,000 in passive income forever is a flat S$525,000, no where close to S$1,000,000.

Now, depending on where you are in your career, this may seem like a lot or a little. But let’s think of it this way, it’s basically a price of a HDB flat. To be able to never have to work again and live comfortably in Singapore forever, that’s a surprisingly small amount if you ask me! Any additional savings or income that you can make above this amount will allow you to add more “creature comforts” to your life.

Remember, this accounts for all of our living expenses including housing so you don’t actually have to have finished paying off your mortgage to FIRE with this number.

How long would it take to save up this much?

Since we now know how much we need to FIRE, we can start calculating how much we need to save each month and how long we would need to invest in order to amass S$525,000 in investments.

It’s impossible to predict how well our investments will do in the future but we can try to run a few simulations to see the results and draw some conclusions from there.

So here are the assumptions:

1. We will assume that for every dollar you save, you will be investing it by following the Bogleheads 3-Fund Portfolio so that it earns some returns (and not rot away due to inflation.)
2. All returns are reinvested so we make sure to get compounding working for us.
3. We will simulate regular investment returns of 5%, 6%, 7% and 8% in “real returns” or “inflation-adjusted returns” – which are reasonable range of returns we could expect from the stock market given historical returns.
4. We will simulate investments assuming we’d like to FIRE within 5, 10, 15, 20, 25 and 30 years to see how much we’d need to save each month at each rate of return to reach FIRE within those number of years.

After running the calculations based on the above settings, here are the results!

Looking at it another way would be to calculate the number of years that we’d need to save and invest based on the amount we can contribute:

How do we interpret the results?

Note on Real (Inflation-Adjusted) Returns vs Nominal (Non-Inflation-Adjusted) Returns

Keep in mind, the above rate of returns that I used are already inflation adjusted. Which means if inflation is 2%, to get 5% real rate of return we’d need a nominal return of 7%. So we have already assumed that we’ve removed inflation from this equation.

For comparison, the current maximum CPF SA return of 5% is actually “nominal return” which is not adjusted for inflation. If the inflation is 1.5% then CPF SA’s real return is only 3.5%. Let’s see how this difference affects our timeframe:

So let’s break this down:

1. In order to reach the FIRE number in 5 years at 5% return, we’d need to contribute S$7,700 per month (holy moly!)
2. If we are ok to retire in 30 years with 5% annual return, we’d only need to contribute just S$630 per month.
3. Any amount we can contribute above S$630 will move our FIRE date up.
4. If we increase our savings from S$1,000 per month up to S$2,000 per month at 5% return, we’re going from 23.23 years to just 14.81 years – a huge 8.42 years reduction in working years!
5. If we are ok to retire in 10 years instead of 5 years, we’d only need to contribute S$3400 per month (less than half as much as needed for the 5-year option.)
6. If we are currently making S$3,750 per month and can afford to live off of the S$1,750 per month FIRE amount and save the rest of the S$2,000, then we would be able to FIRE within 15 years.
7. If we’d like to retire within 10 years, the magic number seems to hover around S$3,000 of contribution per month.
8. These amounts assume we hold our contributions constant for the duration of our FIRE journey, but it’s likely that our salary will increase year-over-year so if we start by saving at S$2,000 per month and slowly increase by S$100 per month each year, it’s likely our FIRE date is somewhere between 10 and 15 years.
9. Given that the median fresh graduate pay is S$3,500 per month (in 2018), getting to this number by 40 is definitely doable for a majority of graduates – as long as they’re willing to cut back and live on the above list of necessities (especially if you can continue living with your parents to reduce housing costs.)
10. The more we can afford to save and the less we can afford to live on, the less time we’d need to get to FIRE.
11. The more we can afford to save, the less important the rate of returns become. There’s simply not enough time for the compounding to make much of a difference. If we can save less, it’s very important to make sure we get compounding working in our favour.
12. The difference between 3.5% (CPF SA) and 5% real return is 6 years at S$500 monthly contribution and 4 years at S$1,000 monthly contribution. Pretty significant! However, it’s just 1 year difference at S$2,000 per month contribution.

Using this chart, you should be able to see how much you can afford to save on a monthly basis and what that would mean for the amount of time you’d take to get to this “necessities” FIRE amount – you’re welcome!

“But wait!” you may say, “What if I can’t live with just the necessities? What if I want to have kids and travel at least once a year?”

Well, good question! You’ll be correct to assume that it would drag out your FIRE date, but I’m sure you’d like to know by how much. So let’s take a look at some of these “add-ons” shall we?

Accounting for the ‘Add-Ons’

I won’t be going through all the possible things you can add on top of the necessities here but I want to illustrate how some of these – once added – will impact the final FIRE date. Let’s take a look at 2 key ones: children and travel.

Children and Children Education

For those of us – like my wife and I – who wish to have children, we know that raising a child in Singapore can be expensive so we should plan for this early and understand the full implications of this choice.

How much does it actually cost to raise a child in Singapore? Well based on this article, the current estimate is about S$1,000 per month per child on average from the day they are born until we send them off to university (assuming we also pay for their university fees.) This means S$500 per parent.

Since this is a cost that we’d be paying for at least 20-24 years, I think it’s best to just factor this in as a permanent fixed cost of having a child. So now if we have just one child, our annual expense per parent goes up to S$27,000 per year.

This means our FIRE number goes up to S$675,000 – over S$150,000 (or 28%) more!

How does this impact our FIRE date? How much longer would we have to work in order to make sure we can support the additional expense for a child? Here’s the chart:

Quick breakdown:

1. If we’d like a child and are only able to contribute S$500 per month, look at adding another 3-4 years to our previous FIRE date.
2. Look to be adding at least 1 full additional year before we can FIRE. Even at S$6,000 contribution per month, we are still looking at almost another 1.5 years more of savings before being able to FIRE by adding a child.

What if we would like 2 children? Assuming that each additional child costs the same (S$500 per child per parent) the total annual expense per parent will go up to S$33,000 per year – or a FIRE number of S$825,000. Here’s the chart of additional years required for 2 children vs having no children:

This seems to scale quite linearly, so plan to work at least 2 years more (at S$6,000 per month contribution) up to almost 8 years more (at S$500 per month) compared to having no children at all.

Of course, this is not meant to dissuade anybody from having kids, I know I’ll be still having mine, but we should all know the implications and how much we’d need to save in order to make sure that we have enough investments to take care of our kids as they grow up.

We wouldn’t want to find out later when our kids are getting into their teens that we ran out of money and can no longer support them financially now would we?

With children out of the way, let’s move on to every Singaporean’s favorite hobby: travel.

Travel and Holidays

Singapore is the first place I’ve been where yearly international travel is like a given to almost everybody I’ve spoken to. I attribute this to the relatively small size of the country itself as in other countries, you could actually “get away” and relax without feeling like you’re still couped up at home by getting out of the city and cheaply find other places to travel to within the country. You can’t do that in Singapore. The closest places for cheap travel would be other countries in SEA: Malaysia, Indonesia, Thailand, etc.

So if you are a person that needs to take a long trip outside of Singapore at least once a year, then you better plan for it on your budget. The amount you’d need will be dependent on where you go and how long you want to travel each year.

For this calculation I’ll use S$4,000 per person per year. This an amount that should cover the entire cost of travel for potentially 1 to 2 weeks depending where you’re going. This includes airfare, hotels, food and local transportation.

With this kind of budget, if we want to go to more expensive locales or stay longer, then we can save up such that we travel just once every 2 years so your travel budget every 2 years is S$8,000 – more than enough for most people for most places you’d like to go.

So with S$4,000 per year per person, this increases our yearly expense from S$21,000 per year to S$25,000 per year. This makes our new FIRE number for the necessities + yearly travel equal to S$625,000.

Let’s take a look at the number of additional years you’d need to work to get there:

Surprisingly not too bad! If we are only able to contribute S$500 per month, we’d need to work a maximum of maybe 3 more years. If we can contribute S$2,000, we can cut that down to just 2 additional years for the ability to travel quite comfortably on an annual basis.

Conclusion

There you have it! I think that we can live comfortably in Singapore for S$21,000 per year – any additional “creature comforts” you need will add to this cost. This works out to needing just S$525,000 in investments in order to sustain this quality of life forever at 4% withdrawal. That’s just about the price of a fully paid off HDB flat!

Depending on how much you can save and invest each month, this could take you 35 years to achieve or it could be as fast as within 5 years (although the amount you’d need to save to do that is pretty ridiculous.)

However, this gives us a good idea on the floor and ceiling of investment horizon. If we can simply start out at S$500 in investments per month and slowly increase this amount over the years as we get increments to our salary – and don’t get into debt, we can continue to cut the time needed as we go along. The most important part is to start saving early and often, stashing away any extra cash we have and invest it.

Once you reach S$2,000 per month in savings, you’re within 15 years of reaching this number.

Then we can begin to top up this amount to add on any extra “creature comforts” or life goals we’d like to have like children and fully understand how it will impact our timeline. This allows us to think about whether the trade-off is worth it. Would having children be something that I’d like to sacrifice 4 – 8 more years of work for? For me this is worth it, for you maybe not, at least we fully understand the implications.

At the beginning of this exercise, I honestly thought that the number would be much higher. Like most, I expected the number to be closer to S$1,000,000. This is highly encouraging and, I believe, brings early retirement into the realm of possibility for a large number of Singaporeans. With median fresh graduate pay hovering around S$3,500 (especially if you still live with parents) should be able to save at least S$2,000 per month and that means you can afford to retire before you’re 40 if you really work at it. If you do not, then understand that it is a trade-off that you are making.

My current annual expense is about S$36,000 per year, but that includes vacation budget as well as S$12,000 per year (S$1,000 per month) in allowance that I send back to my parents in my home country – so pretty close in line with my estimates above – and I save & invest the rest.

So that’s it folks! I hope that this post has been interesting and gives you a new perspective, a new way to look at your finances. I’d love to know what you think as your “minimum” comfortable living amount. Are the numbers above too high or too low for you? Can you imagine living on just S$21,000 per year? What would you cut down on and what could you not live without?

I’d love to hear your thoughts in the comments down below or tweet at me @firepathlion on twitter!

Until next time!

FPL