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We are now at baby step #4 from “Total Money Makeover” by Dave Ramsey which comprises the following 7 steps:

1. Save $1,000 cash as starter Emergency Fund
2. Start the Debt Snowball
3. Finish the Emergency Fund
4. Invest 15% of your Income in Retirement
5. Save for College
6. Pay off the Home Mortgage
7. Build Wealth

My previous 3 parter on “Are You Ready for Retirement” has addressed some of the issues relating to retiring here in the Lion City. The conclusion from that series was you can retire at 55 IF you build up your own personal retirement funding on top of the Central Provident Fund (CPF) because majority of CPF (Singapore’s version of 401k, ROTH IRA retirement fund) members would very likely just about have sufficient funds to meet minimum sum by age 55 and can only live on $5,000 from age 55 to 62/65.

Dave Ramsey’s step #4 becomes more critical if you do intend to retire earlier than 55. [Panzer's sidenote: If you want to be even more radical, you may want to read Timothy Ferriss's "The 4-Hour Workweek" on the outmoded concept of retirement.]

Saving 15% of your income towards retirement

15% is not a magical number and it is a rule-of-thumb rather than a mathematical truth the exact amount required by the time you are aged xx is dependent on so many factors outside your control e.g. health, family circumstances, job circumstances, investment returns, unexpected emergencies etc. So if you can go for a higher or lower percent depending on if you are able to meet all the other steps in “Total Money Makeover”.

15% sounds about right to me because our CPF is already based on a contribution rate of 14.5% from the employer and 20% from your own contributions. In Singapore, if you are already contributing to your CPF, the additional 15% will help make up whatever short-falls due to having a major chunk of your retirement monies from CPF ordinary account being used to pay for our home mortgage. If you are still paying your home mortgage from CPF, you may want to target to put aside more than 15% for your retirement.

Panzer’s Reactions to 15%

Dave’s step 4 challenges the assumptions of many who believe that CPF savings is “enough”. I don’t think it’s enough and hence try to save and invest 30-40% of my income. I may not always hit my  targeted 30-40% but to hit 15% is achievable in the long-run. Having to salt away 15% makes you have to budget and live within the remainder 85%.

If you will live like no one else, then you can live like no one else.

His reference to eating Alpo (a brand of dog food) if you fail to get with the program in “Total Money Makeover”, while hilarious, has a serious message. I remember my maternal grandparents who lived in a one-room rented flat in Kreta Ayer, Chinatown. Their neighbours were samsui women who had no one to take care of them in their old age and literally subsisted on rice and salted vegetables. I shudder when I think back of the annual Lunar New Year visits we made before they passed on.

What do you think you would be eating when you retire at 55, 65 or 85?

Be well and prosper.

Related Posts:

1. Dissecting Dave Ramsey’s “Total Money Makeover” - Start Your Emergency Fund [Part 1 of 7]
2. Dissecting Dave Ramsey’s “Total Money Makeover” - Start the Debt Snowball [Part 2 of 7]
3. Dissecting Dave Ramsey’s “Total Money Makeover” - Finish the Emergency Fund [Part 3 of 7]