Asked 2w ago
I would suggest you take some time off to look at the full picture of your finances first.
Whether or not you can retire hinges on many factors. I'll break them down as best as I can but it won't be totally complete; there's only so much I can breakdown based on a single number of $1.49M. But this is essentially a balancing game of cash inflows and cash outflows.
You'll want to understand your expenses first. As you mentioned, your daily necessities are your liabilities; then in this case, how much are you spending on a month to month basis? This largely boils down to your lifestyle, which depends on what you expect in retirement. A simple lifestyle with the occasional treat or holiday will almost always mean that your retirement funds can last longer, something more extravagant may mean that you may run the risk of running dry in your final years.
Your cash outflows must also include things like your medical insurance premiums, mortgage, etc (if any). Once you have this number, that'll be valid for this year and perhaps the next 2 years, but over the long run, whatever number you have, you'll have to increase it to account for inflation.
The next step would be to look at your income generating assets. There's no way anyone can retire if they do not have income (passive or otherwise). Thus a $1million condo doesn't help one retire unless it's monetized (by renting it out), in fact, I would consider it a liability if you have to pay your mortgage and maintainence fees.
Look at your net worth, and see what assets you have that generate income. This can come from many sources, such as stocks, bonds, unit trusts, CPF, retirement plans, etc. You'll want to reasonably estimate what kind of income you can get from this, and on top of that, know when the income starts coming in (e.g. CPF LIFE may pay out $2K a month, but it's not much help if it only starts at 65, you need income now or you'll have to draw on your savings)
You'll want to build multiple layers of income; consisting of both guaranteed income and non-guaranteed income. Naturally if the entirety of your retirement income can be guaranteed, that is the best as you will have no worries, but it may be impractical to do so.
You'll want to then construct a "retirement cashflow timeline" which shows the expected inflows of income year to year and expected outflows, both accounted for inflation. This will then let you visualise if your income can last forever, if not, when do you need to start liquidating your riskier assets to sit on cash?
The key risks you will want to cater to includes:
Sequence of returns
When you retire, look 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
You have a systematic withdrawal plan from your assets
Proper segmentation of your assets into various buckets and layers
Have a basic retirement income floor with guaranteed income solutions for the essentials.
The finer details of the recommendations (e.g. which areas to diversify to, which asset class) have to be tailored to your specific situation, as without sufficient details, I can only provide an overall picture of your financial plan.
However, I can say this; you are free from the shackles of your job now. It sounded like you really didn't like it, so congrats (in a way) on moving on to the next stage.
The current life expectancy of male Singaporeans is 83 years old.
83 - 53 (since the year is ending) = at least 30 years = at least 360 months
$1,500,000 / (360+60) months = $3,571 per month
I added another 5 years for huat purposes.
Assuming $800/month CPF LIFE annuity (I'm quite certain your annuity should be more than that but that's a secret), that leaves you with almost $4,500 per month.
I did not factor inflation, because I'm counting on you to put part of your wealth in accounts which combat inflation, even if a little e.g. endowments, fixed deposits etc.
Update: Forgot to consider the increasing cost of living... I will leave that to you as homework.
What's left is your insurance coverage. Do you have a hospital plan?
As for critical illness coverage, it's very expensive to get one at your age, so if I were you, I probably would not bother if I don't have that coverage.
Dependents. Any dependents? If yes, you need to share your $4,500 with them. Ensure that they are sufficiently covered too.
Also, you need to plan how you are going to spend your retirement. Some people may spend more during retirement so that they can enjoy themselves. Take that into account and see if $4,500 is sufficient~
All the best!
Hi Maxwell Smart,
Not sure if I should congratulate you or to empathize with your situation but I suppose you are more satisfied than you got yourself out of the job.
At where I work, we have encountered people who came to us in a similar situation. But what is more common are clients that have a plan to retire but they got retrenched and wonders if they can choose not to step back to the corporate life again.
For some it is possible. For others, they might not have accumulated adequate resources to do that.
Perhaps your liabilities are not your daily necessities. Your daily necessities are your essential expenses. Liabilities would be whether you owe personal loans, credit card debts, and have outstanding mortgages.
You can have a rough gauge of whether your wealth is enough for you to retire.
First, work out your expenses. You have your essential expenses (these are your daily necessities) and the less-essential expenses (such as your restaurant food, vacations, the gift to family members). Tally them up and see what is the annual amount. Suppose your annual essential expenses are about $35,000 a year and your less essential is about $20,000 a year. Your total expenses are about $55,000 a year.
Second, work out the net assets that you are able to redeploy to provide you with a recurring income. These will typically be your cash, brokerage accounts, managed investments such as ilp, unit trust, or savings insurance LESS any debts that you need to pay off to have a peace of mine in your retirement. Let's say this figure works out to be $1.49 mil - 200k = $1.29 mil.
What you do is take these expenses to divide by this 1.29 mil and you will get a percentage. In this example, it will be $55,000 / $1.29 mil = 4.2%
We called this your initial withdrawal rate. If this ratio is near 4% or below, then you may have enough assets to retire. If this ratio is lower than 3%, then as a rule of thumb, you may have enough assets to conservatively not have to work again. If it is below 2%, its luggy safer.
Now, this withdrawal rate is good as a rule of thumb, but you have to come up with a sustainable spending plan. That is more of the nuance.
How would you need to allocate your assets? What kind of rate of return do you need? How to incorporate your CPF retirement income into it (I assume your 1.49 mil does not include your CPF).
So these are some questions that you have to answer.
At 52 years old, 3 years from now, you would have more assets if your CPF has more than the full retirement sum. This means that you would have additional assets to work with. At 65 years old your CPF Life is available to provide you with a lifelong annuity income.
So you need a plan that is able to structure and give you income factoring different asset sources. For example, from 52 to 65 years old, the income will come from your $1.29 mil. From 65 onwards, part of the income will come from the CPF life annuity and the income generated from your $1.29 mil.
So a lot depends on your expenses versus your net assets. For some, if they take out their less-essential expenses, they are able to hit lower than 3% and its very assuring to know that your wealth can at the bare minimum cover your essential expenses.
So find someone that is able to do a more detail sustainable spending plan.
From our experience, some people in their retirement can have more spending income, but for some, they might need to adjust their income along the way due to more challenging market conditions. This is because going forward, your life will change, the environment around you will change.
Your spending do not stay static. You may think that you need $35,000 a year and you plan with that, but 4 years in, you realize actually spend $43,000 a year at the bare minimum.
Would your plan still be safe? Should you go back to work?
I think all these things will change but that does not mean you cannot retire. IT means either you need to learn about all these retirement stuff to ensure you have a good retirement or you need to work with someone competent and trusted.
Here is my article where I do a deeper dive into How much you need to be financially independent
Disclosure: I work as a senior solutions specialist at Providend. Not an adviser but my role is to structure the investment, retirement solutions that our advisers use to help their HNW clients live the kind of life they want.
Elijah has provided a comprehensive answer, and I just have some points of consideration to add on:
What do you exactly mean by "retiring"?
Not having to work again?
Or being able to choose what you want to do?
If you have dependents, you have to factor in as well.
To summarize, whether or not you can "retire" depends on:
1) choice of lifestyle
2) assets and liabilities
3) how do u picture yourself spending your retirement years
At least it sounds like you have one less thing to worry about, so congrats and wish you a fruitful journey ahead!
Mr Maxwell Smart, let's get you to do a fullyear of lifestyle adjustment and reorientation to gauge your exact monthly retired expenditure 1st. I guess you don't have much liabilities left thus the full amount can go into disciplined savings and partial investments.
Never be rushed or too early to jump into anything yet. Always take yourself out of the picture and ask the 4w's. You'd be clearer then anyone else after awhile.