$100,000 By Age 30? Chill and Take it with a Pinch of Salt

A recent conversation with a friend gave me a nudging urge to pen this article. It went something like this. "SHIT bro, I am a loser. It seems that everybody around me have easily hit 100k by age 30 in their portfolio. Meanwhile, I recently crossed the age of 30 and am just at the half-way mark of 50k." In response, I chirped "Hey, relax bro. You need to chill-out a little and take this financial milestone with A PINCH OF SALT." He loosened up a little and asked "Wah, how can you be so chill about this?" Giving my friend a pat on his shoulders, I sheepishly said "Well, let me give you the brief context and my thoughts on this 100k by age 30 milestone all right. Hopefully this would give you some perspective to financial milestones." Below would be a few of my honest thoughts, so here goes nothing.

1. Understand how this 100k by Age 30 came about in the very first place

To give due credit, the Woke Salaryman can be safely credited with bring this "100K by Age 30" financial milestone to the Singapore financial community in the mid-2010s. Soon after, other authors, bloggers and ordinary people would pen their thoughts on this in the SG financial community. To begin with, the Woke Salaryman has reiterated time and time again that 100k should be taken as an arbitrary number. In short, it is not a hard-and-fast rule that achieving 100k by age 30 means that you have made it in life. It is just a fuse-free way for one to check on one's financial progress, as the age of 30 could be safely said to be an appropriate age to review and measure one's financial progress. This is because most Singaporeans would have clocked in between 4 to 6 years of full-time work by this age (this is dependent on the length of your study, family circumstances and gender. Yes, the 2 years of national service means that the typical Singaporean male would likely have 2 years less of full-time working experience). In addition, the age of 30 could be seen as an appropriate time in one's life to take concrete steps to buff one's financial game for the following reasons: 

i. There is a good run-way of between 20-30 years till one's retirement and any seeds of investment that one sow now (provided if you don't blindly invest in highly speculative instruments like cryptocurrency, penny stocks or high-yield junk bond), could grow into a meaningful sum by the time one becomes an old Ah Pek (old man) or Ah Ma (old lady). 

ii. Moreover, the age of 30 would also require one to be more serious on planning one's finances. This is given that most of us would transition between the care-free life stage of being a single working adult into married life. This is also the life stage where one might have to plan for bigger ticket-items such as wedding (trust me, don't waste too much moolah on this if possible), renovation and potentially the coming of one's first kid. Even the single folks aren't spared, as ageing parents would mean that one would have to make plans for any potential medical bills that they might face in their twilight years. Yes, welcome to the sandwiched generation club.

2. Make your own financial milestone based on your own set of circumstances

"Bro, hear me out first all right. How much you should aim to hit at your various life-stages is actually dependent on how much you earn and how much you need." My friend looked back at me with a set of blur eyes and exclaimed "SIMPLIFY THIS LEH!" I replied "Ok let me paint a set of hypothetical inputs to give you a simple picture of how you can plan your own financial milestone all right."

i. Begin with your personalized financial end goal in mind

"Ok bro, assuming you remain single for life, how much would you need a month when you retire?" My friend laughed and replied "Hmm, I think $2,000 a month would be safe, considering that I am a simple man." Following which I reply "Ok given that you're age 30 this year, at what age do you want to retire by?" My friend looked up, did some magic calculation in his head and chirped back "Well, I'm a bum, so the age of 50 would be ideal so that I can still enjoy life before I become an old immobile Ah Pek." 

ii. Plan how many years one have from retirement age till one's estimated end of life

Taking into account that the average life expectancy of Singaporean males: 81 years old (Department of Statistics Singapore, 2023). We could add in a reasonable margin of safety of 10%, hence we should plan till the age of 90 then. "Hey bro, so we will plan for you to live 40 years of retirement then." My friend replied "Yes, thats a safe bet."

iii. Know how much one needs on a monthly basis in retirement

"Hey bro, refresh my memory, but you'll need about $2,000 a month in retirement right?" My friend replied "Yes, $2,000 a month would be a safe bet, as I keep my needs simple and wants fulfilled." 

iv. Calculate the investment pot one would need

"Ok bro, this is where I will plug in some numbers like rate of returns on your investments, and the dividend yield which you would get etc. So you need to take this with a pinch of salt as well all right, as markets go up and down. But in the long-term of a 20 years time horizon, the returns should more or less be accurate." My friend just shrugged "Yea, life is unpredictable anyways, go ahead man." 

For calculation purposes, I would assume a conservative dividend yield of 4% (Yes, I use 4% as it coincides with CPF Special Account rate and it allows a margin of safety given that most Singapore Blue-Chips and Reits give a 5% dividend yield). Turning to my friend, I smiled and told him "Actually you need to hit a $600,000 portfolio. With a 4% dividend yield, you'll have $24,000 a year. Divided that by 12 months, and you'll have $2,000 a month." He smiled and replied "Eh, actually thats not too bad, its quite achievable. given that right now I earn about $6,000 a month." 

v. Calculate how much one would need to save/ invest a month to achieve the investment pot amount

"Ok bro, here comes the hard part, where you'll need to save up a certain amount of money per month. I'm going to conservatively estimate this based on you not earning any bonuses a year and base this on your $6,000 gross monthly income all right?" My friend nodded for me to proceed. 

Given that 20% would be deducted for CPF. My friend would get $5,000 in cash a month. 

Total amount needed to be saved: $600,000 - $50,000 (he currently has this in his SGX CDP portfolio comprised of local banks and blue-chip SG stocks and Reits) = $550,000.

How much to save and invest a month: In order to retire by age 50, my friend would have to be diligent and save & invest about 40% of his take-home income, which would be $5,000 X 0.40 = $2,000. Taking into account that the duration he has from now till retirement would be 20 years. Assuming a 0% capital growth, he will achieve $2,000 (amount saved per month) X 12 (months in a year) X 20 (years) = $480,000. 

My friend exclaimed "OEI, this amount falls short of the $550,000 to be saved." I grinned and replied "Chill bro, hear me out first. You actually don't have to hit the full amount. This is because firstly, assuming a 0% capital appreciation on your investments is actually a super conservative estimate. Secondly, the short-fall can be made up for by investing your bonuses whenever your financial circumstances allow for it. Lastly, this has been a conservative calculations by purposely ignoring the monthly CPF pay-out you would receive from age 65 onwards. Also this is taking into account that you are not invested into the global equities ETF or S&P 500 ETF which would yield higher returns, thereby allowing you to accumulate the $550,000 over 20 years a tad bit quicker."

My friend smiled widely and replied "WAH, this means that I should aim for $300,000 by age 40, $600,000 by age 50. HUAT AH!" To which I replied "Yes bro, chill and plan based on your own circumstances. You'll be a happy man!"

Yours sincerely,

Finance Kaya Toast

Disclosure: This article was written as me talking to myself as an ordinary Singaporean, wishing to achieve financial freedom. It does not represent any financial advise. All opinions are independent and represent just my two-cents on all matters financially-related.