Planning Life After Work: Reaching Rp 3 Billion

Twenty-six-year-old Jean works an entry-level position in corporate communications and earns Rp 5 million net per month (*USD373.19). “I’m living paycheck to paycheck and it’s tight. I do save, but it feels like my savings are hardly getting to where I want it to be,” she said, adding that saving would seem even harder once she gets married and has children.

Many people in their 20s and 30s share Jean’s challenges. Also like her, many don’t put much thought into how they will support themselves when they retire at 55.

In our previous post Living Enjoyable Years After Retire, Can I?”, we calculated that it takes approximately Rp 2.7 billion (*USD201.52) to support 25 years of a modest lifestyle after retirement, and approximately Rp 6.2 billion (*USD462.75) for a more comfortable lifestyle.

Based on Jean’s current lifestyle --adjusted with an annual inflation rate of about 3.5%-- she will need approximately Rp 3 billion (*USD233.91) to retire 30 years from now and continue living a similar lifestyle.

To get to Rp 3 billion (*USD233.91), Jean will need to save 20% of her salary per month and invest that money in something that yields at least 10% per annum. That amounts to about Rp 1 million (*USD74.63) per month.

Long term bonds of at least 5 years yield a return of approximately 7% per year. Blue chip stocks and shares yield approximately 15% per year, and cash savings yield about 0.2% per year.

This following infographic can explain the big picture:

Of course Jean can adjust the allocation based on her appetite for risk, for instance by allocating more on stocks and shares or by re-allocating some of her investments into property. In order to reach her goal in time, Jean should be very strict in never tampering with her monthly savings --which is only one-fifth of her income-- to ensure that she has at least 7.5% to spend on insurance. More importantly, she should keep very little in cash, assuming that her emergency fund has already been secured.

Rp 3 billion (*USD233.91)  is a conservative estimate for a household with a modest lifestyle, so if Jean faithfully practices her savings as such, her retirement 30 years from now should be a breeze.

*Rate per 2nd August 2017

*Rate USD1 is Rp13,398 

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