Last Updated on 26, January 2023
Many individuals base their career and academic choices on their interests and the potential salary of the job or field. However, it's important to also consider the minimum salary required when making these decisions.
Take, for example, a 25-year-old person with a monthly expense of $1,000. If we assume an inflation rate of 5% per year, a retirement age of 62, and a life expectancy of 90 and putting money into just fixed deposit of 2% (the discount rate), this person would need a retirement fund of $3.2 million at age 62. While this may seem like a large sum, this is achievable by saving $2,500 per month and assuming an investment return of 5% per year, it's possible to reach this goal.
Using the calculation provided above, if we assume a 50% saving rate, an individual should earn an income of $5,000 per month in order to achieve a sufficient retirement fund.
From my experience with clients, there are those who believe that paying a mortgage for a residential flat is the same as saving for retirement. However, this is not accurate because a person cannot sell their home upon retirement as it serves as a necessary shelter. Additionally, a place to live is a daily necessity that cannot be compromised.
How about married couples? It is common for one of the partners to stay at home and take care of the family full-time. In this case, the salary requirement for the sole breadwinner would need to be doubled.
Using the examples provided above, if both husband and wife have identical expenses, ages, and life expectancies, then the salary required would be $10,000 per month assuming a single-income family. This can be a daunting figure, which is why many married couples choose to delay their family planning or maintain dual incomes in order to meet their financial goals.
If you are thinking of increasing investment return to solve the problem of not having enough money for retirement, you are not alone. While it is possible to increase returns through investing, this comes with a higher level of risk. Higher potential returns means greater risk, and there is no way to increase returns without also taking on additional risk. Do consider the possibility of massive losses that can occur with high-risk investments, which can result in not having enough money for retirement. Do remember to balance the potential for higher returns with the level of risk that you're comfortable taking on, and to make sure to diversify your investment portfolio.
Increasing one's salary can be a safer way to address the problem of not having enough money for retirement. Here are some suggestions to consider:
- When you are just starting out in your career, understand the future prospects of your job within your company and in the industry as a whole.
- Research the average pay of those in higher positions, and ask HR managers, friends, and HR consultancies for information.
- Consider the future demand for your experience and expertise, and how it relates to the country's economic trends and government policies.
- Evaluate whether there will be a supply constraint or an oversupply of people with similar qualifications and experience as you.
- Differentiate yourself from other candidates by identifying your unique skills and attributes.
- Make sure to obtain a degree that is recognized and has value in the job market.
- For those with an entrepreneurial spirit, consider starting a business, but be aware of the high-risk nature of this occupation and plan accordingly to protect your assets.
In my experience, after working with clients from various backgrounds for the past decade, I have discovered that the most effective way to increase one's salary is through strong interpersonal skills, also known as emotional intelligence (EQ). I am confident that if you are able to understand and anticipate the needs of your boss or communicate effectively with clients in their preferred “language”, your career will soar.
This reminds me of an individual I know who was offered a promotion, but declined it due to the preference for the status quo and comfort zone. In my opinion, the main reason for this decision was a lack of confidence in people skills. As one climbs higher in the corporate ladder, people skills become increasingly important and technical skills take a backseat. Even if one is not familiar with the technical aspects of a job, all it takes is to have the emotional intelligence to ask for help.
The conclusion is that investing time and effort in career development and exploring new opportunities for higher pay is a safer way to ensure a secure retirement than relying solely on high-risk investments.
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How I wish I’ve read this article back in 2008! Yet another straight-talk. Could you elaborate more on how you get the 3.1m at age 62? Don’t quite understand how the interaction of 2% annual return and 5% inflation rate reach to 3.1m.
Wilfred Ling says
N = 12*(90-62) = 336
R = [ (1+2%)/(1+5%)-1]/12 = -2.86%/12
PMT (first payment) =1000*(1+5%)^(62-25) = 6081.41
Using an excel, PV at 62 = $3,135,690.47 (ending mode).
You can also use the formula:
Thank you Wilfred!
May I suggest that you repost this excellent piece of information every year or so with updated figures – this will greatly benefit many of your younger and new readers who just join the workforce.
Definitely a good start for them.
Heheh, most people never go into the industry for which they are supposedly trained for. Famous example in Singapore will be the hordes of BEng grads going into banks & finance sector in general (*wink*).
For the past few years, many good scoring grads (2nd Upper & above in local Unis) are going into civil service (including stat boards & MOE teaching service). Although not quite the iron rice bowl of previous generations, but it’s still very stable and hard to go wrong even if you just do the bare minimum. Plus the salary scales are very good, with starting pay for fresh grad being $3.6+K, and certain stat boards paying minimum $4+K starting pay for even general Biz Ad degrees (of course must be at least good local Uni degrees; good Ivy League degrees better). And quite common to hit $7+K salaries after just five or six years of service. This route is the recommended one for those with general degrees or Humanities.
Suspect PSD over-estimating private sector salaries & keep on benchmarking against middle- and senior-level in MNCs and major banks. But of course civil servants happy lah!