Thursday, 22 November 2012

How Much Can A Middle Class Family Save?

According to an article published on Yahoo News, "People who earn S$4,000-S$7,000 are considered middle and upper middle classes." I could not find the household income range for a middle class family and thus, I will take the $7,000 (highest salary range for a middle class individual) as the combined income of a typical middle class family.  This makes more sense as the combined income of 2 upper middle class individuals would amount to $14,000, which is considered quite well to do.

Hypothetical scenario:
  • Newly wed couple in their mid thirties making a combined $7,000 a month. Combined savings of $50,000 left after wedding, renovation and honeymoon.
  • CPF contribution (20%) is $1,400 per month or $1,000 if only one person is working. (Salary ceiling for CPF contribution is  $5,000). 
  • Parents allowance of $500 per month
  • Bought a second hand car with monthly expenditure of $1300 (including  monthly installment, yearly insurance, road tax, petrol, hdb parking, ERP + coupons, maintenance)
  • Bought a resale flat and take up a loan of $300,000 at 2% per annum interest for 20 years -Monthly installment is $1,518 in this case. For an income of $7,000, monthly contribution to ordinary account is $1,610 or $1,150 if only one person is working (cash top up of $368 monthly)
  • Electricity bills = $150 per month
  • Internet + cable tv + handphone bills = $200 per month
  • Familly insurance = $300 per month
  • Monthly food expenditure = $900 - $5 for each meal per person. Assuming 30 days a month and 3 meals per day.
  • Has a new born baby - assume monthly child expenses to be $500 per month at this stage. Note that this expense will increase over time due to enrichment courses, school fees, etc as the baby grows older.
  • If the couple wants to sponsor child's future university fees in 20 years, saving $300 per month for 20 years would amount to $72,000. (current university tuition fees is around $30,000 to $40,000 excluding other miscellaneous fees such as textbooks, hostel fees, etc)

I did not include caregiving expenses or additional allowance for parents should they take care of the couple's child. So to simplify things, let's just assume the husband is the sole breadwinner and his wife is a full time housewife. By assuming one person is working, CPF contribution will reduce by $400 while cash payment for mortgage will increase by $386 and so, there is essentially not much of a difference. 

Tabulating the raw data above:

Assuming income and expenses remain stagnant, the family will be able to save $1,482 every month. Also, assuming that they started out with $50,000 and are able to generate a 3% return consistently on their savings, they will be able to accumulate $578,064 by the end of 20 years. Personally, I feel that this amount is far from enough for a comfortable retirement in Singapore.

As mentioned, this is only a hypothetical scenario for a middle class family. The family might have more than 1 kid or not give birth at all. There might be unforeseen circumstances such as illnesses, retrenchment, etc. There could also be positive events such as salary increment, job promotion or even striking lottery. So just take this with a pinch of salt.



  1. Can include CPF savings as well?

  2. Unfortunate but true. Even those who save hard will not have enough to retire on comfortably.
    Hence, need to keep working until really cannot work anymore.

  3. Perhaps if they don't drive, and save the $1300 monthly, they can save slightly over $900k at the end of 20 years.

  4. Actually, different people have different life, even people with 1500 family income can survive, of coz, no car, no cable tv, etc.

  5. Like the analysis.
    Better if the family can avoid buying "car" and use public transport (including occasional taxi). If it costs 500 for transport, the family can still save 800 more every month. If invested in gov bonds which can give 2.5% return per annum it'd be an additional 250,000 after 20 years.

    Invest in ETF/medium yield blue chips to get 4%, it'd be addl 300,000 :) So not far off from 1 million after 20 years.

    Of course, for majority of Singaporeans "holiday" is important and must be overseas. So that could be an additional expense of 200-400 every month.

    As long as we stay prudent and splurge when need to, Singapore is still a great place.

    1. Yes Komantineni. I agree that Singapore is a great place! Like you said, the family could invest in government bonds or ETFs to achieve a higher rate of return but unfortunately, not all are financially savvy. From what I see, the middle class people I personally know mostly buy mutual funds from banks or insurance products such as endowment, investment linked policies, etc. And most of the time, achieving a 3% return consistently can be quite tough for them.


  6. Good Afternoon,

    A very interesting write up. Correct me if I am wrong. But your projection is based on 20 year scenario. And I do not see you adjusting for the inflation or the fluctuations in the cost of capital.

    The key issue here is the cost of living is going up. But salaries for PMET's have been levelling and in certain cases even regressing, so how is it possible to even end up with a net saving of $1,400? There are of course a host of other anomalies in your projections. But due to brevity sake, its best, if we just focus on the salient.

    I will however say this, its good that you saw fit to include a disclaimer,

    "As mentioned, this is only a hypothetical scenario for a middle class family. The family might have more than 1 kid or not give birth at all. There might be unforeseen circumstances such as illnesses, retrenchment, etc. There could also be positive events such as salary increment, job promotion or even striking lottery. So just take this with a pinch of salt."

    This I agree completely with only with a slight modification, a pinch of salt doesn't quite fit the bill - maybe a warehouse load will be better. Please understand, I am not here to cause offence - only I feel very strongly your write up misleads terribly.

    Do have a productive week ahead.


    Darkness 2012

    1. Hi Darkness,

      Thanks for the detailed comment and I appreciate it. My projection is based on a 20 year scenario. At the end of 20 years, the couple will be 50 to 55 years old, which is my ideal retirement age. So my point is whether a middle class family is able to retire earlier than the default age of 65.

      To simplify things, cost of capital is assumed to be constant. Also, I did not adjust the figures for inflation as I made an implicit assumption that income increment will match inflation over the long run. There are just too many variations and this is just a specific hypothetical scenario. Can just take it with a warehouse load. :)


  7. I think the family insurance @$300 is way too little. there are 2 person and $300 shld be just enough for hospitalisation plan. how abt other insurance plans for death etc. Moreover for neborn at a later stageinsurance is a must too. thus additonal expenses again.

    1. Hi,

      If I remembered correctly ,cash portion for private Medishield(covering co-insurance + deductible) is about $50 per month for a middle-aged person. Also,I assume the family take up term insurance(with critical illness) which will cost about $50-$70 per month for each person.

      If I assume they take up life insurance policies, I will have to take into account the surrender value of the policy and the portion of the monthly premiums which is being allocated to investments, which I feel that should not be categorized as an expense per se.

      To simplify things, I assume the couple upgraded their medishield plan to a private one and also insured their death and critical illnesses through term insurance.



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