17 Apr 2021
IF I have 1mil cash and based on 5% rule, I would have $50k per yr or $4.1k per month. How would you recommend for me to earn $50k interest per year. I'm open to work at MCD or starbucks as part time.?
Assumption that Inflation aside, I'm 45, healthy male, Non-smoker, dont drink. Should be easy to find a 3k salary job, but would like to take it easy. House paid off, monthly commitment is just ~$700 insurance till age 60. simple lifestyle with occasional travel, but wont exceed yearly expenses of 50k.
You will be looking at investing for income, particularly for retirement. $50K/yr is actually quite decent for a comfortable life, but over time, you must manage the risks of retirement. The key risks you will want to cater to includes:
Longevity - you definitely don't want to out live your money. Annuities prevent that from happening.
Health Risks - any unexpected health issues will derail your plan and force you to liquidate or drawn on cash in your portfolio. You need hospitalization insurance Long Term Care, and critical illness cover to mitigate such financial disasters
Inflation - This is probably the biggest risk of all, since needing $50K a year now will translate to $90K a year in your 70s. Your portfolio needs to keep up by either increasing yield (which translates to more risk) or increasing in capital (probably the less risky option)
Sequence of returns - This is another killer. Those who retired this year on a portfolio of stocks and REITs have seen their incomes hammered as REITS went from quarterly to half yearly payouts and banks were capped at 60% of previous DPS. Furthermore, selling equities to raise funds is not an option as you need the future income, and selling now also equates to realizing a paper loss for many stocks. Double whammy.
Market volatility - Can your heart still cope with the swings of the market in old age?
When we retire, we are looking for income that is stable, inflation hedged, and with low volatility. To that end, I would recommend you create a 3-pronged retirement strategy, ensuring that
1. You have a systematic withdrawal plan from your assets - Plan ahead and always prepare for the worse
2. Proper segmentation of your assets into various buckets and layers - 5% yield can be attained from a good mix of equities and fixed income, the question is, how will you want to construct the portfolio. Also, you'll want to grow it with side income eventually as you need the portfolio size to increase to cope with the effects of inflation as mentioned above. I don't wish to turn this answer into an essay, but there is a lot of things to discuss when preparing your layered income strategy, as well as allocating your money into various 'buckets'.
3. Have a basic retirement income floor with guaranteed income solutions for the essentials - If the markets crash, you still need income. One word: Annuities. CPF LIFE for starters, is a very good annuity and I highly recommending that you are on track to hitting FRS at a minimum (or hopefully you are already there). After that, private plans from insurers can also supplement your income, especially in your retirement years where you may not have the capacity to monitor your investments much.
I'm assuming that at your age, you are looking at retirement planning. The safest way to generate a non-guaranteed 4% interest is CPF SA. Of course there is also a maximum cap you can contribute to your CPF.
The other alternative for you is to invest it. At your life stage, I will strongly encourage you to allocate a higher percentage to more safer assets or instruments to complement your CPF eg. Annuities etc since investment returns are not guaranteed. You should be opting for a diversified investment portfolio whereby a part of it is fixed income related.
There are various instruments for you to invest, whether it's engaging an advisor for an investment plan or through a roboadvisors, these are great ways for beginners. All the best!
Financial planning is an integral part of life. You can reach me here to find out more.
You are about 10 years to 55yo where you can tap on the lifelong interests from CPF. You can maximiz...
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