Asked on 26 Aug 2019
We have total SGD $2.5M cash/FDs, $350k investment (SSB, STI ETF, US stocks), $1.14M CPF & no debt.
Medical insurance renewable until 75 & 2 $500k term life policies.
Live in small HDB with lease till our 90s. Have 2 ageing mothers in their 70s.
Projecting $7k monthly expenses post-retirement + 3% annual inflation
2019 avg $7.5k
Last 3yr avg $7.4k
Should diversify into multi-currencies, goes other than asset categories?
Character limit, pardon brevity. Thanks!
I'm sorry to hear of your job situation, and I hope that your wife would be able to keep her job in the coming months as the global economy slows down.
I looked at your numbers and did some simple analysis with the following factors applied:
Your cash/FDs are generating at least 1% a year
Your $350K in investments are generating at least 3% a year conservatively
Worst case scenario assumption (your wife loses her job)
Both of you do not find any employment
CPF Life starts paying out from age 65, and both you and your spouse will receive $2000/mth for life
A quick analysis of the situation predicts that your funds will run out around the age of 72. The numbers will not be exact as it is a rather long time horizon, but it would seem to suggest that you will need to ensure that you increase the returns on your cash/FDs in order to stretch your financial lifespan. Ideally, it would be good to know your expenses on your term and medical insurance (especially medical insurance) as that will make the calculation more accurate.
The key risks you will want to cater to includes:
Sequence of returns
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
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. I would be able to assist you in looking at the planning and options available, to improve the use of your resources, in order to achieve your goal of financial longevity. You can contact me at [email protected] and we can converse there.
Hi Pecah Lobang,
I am sorry to hear about your retrenchment and possibly your wife's too. I hope the situation improves on the employment front.
Working through the assets you have described is a very important step into planning for your financial security. Well done.
It is also heartening to see the clarity in which you have determined your expenses and long-term needs.
With regards to retirement risks, the classic 5 that were mentioned includes Overspending, Healthcare, Longevity, Market and Inflation. In addition, as retiring now means possibly another 45-55 years of non-employment, you do not thus have the usual steady stream of earned income to factor into your planning. It is also important to address additional dependents needs in alignment with your own.
Lastly, on risks, there are additional planning and planner risks to work through.
That being said I must suggest that finding work you enjoy while you still can is a valuable economic resource. Some would say it is your current most vital asset since there will come a day you no longer can work and this ability is out of reach.
Some pre-retirees who visit us often grapple with the disarming thought that they have so much time but so little resource to help them through the retirement years. They thus begin to worry and are in great need and urgency for a reliable, conflict-free and competent retirement solution. This is what MoneyOwl is set up for.
You see when we stop earning an income whether by choice or not, we still need to grapple with spending and to have enough to last us and our loved ones till we pass on. All the while maintaining our current lifestyles as much as possible. The balance can be addressed with lifestyle-based planning. Conventional goal-based planning is not able to account for this fine balance. We often say life begins now and not only when we retire!
With these in mind, I would like to suggest the following ways to sequence your planning considerations:
Cashflow - understand what is important for your lifestyle now and into the future.
Investment and insurance - use only low-cost solutions so that you get exactly the protection you need and choose well-researched investment assets that match your need, willingness and ability.
Retirement - focus on how your cashflows can be carefully layered to provide a reliable amount of retirement income yet be inflation-hedged.
Estate - prepare for undesirable end-of-life complications that may derail the best laid-out plans by reducing leakages, headaches and delays.
Next, you can move to structure your assets to better address your retirement needs. I would suggest looking to the following key take-aways:
CPF Life (65 onwards)- Form a stable stream of income with CPF Life as your foundation. Current analysis puts CPF Life on par with a risk-free 6.5% p.a payout with the Singapore government's backing. Do note current payouts at 65 are not a guarantee of future payouts later on at 65. However, be cautious if you are being touted with insurance-related retirement income plans without a firm consideration for CPF Life first.
CPF OA & SA (55 onwards)- from our experience, most pre-retirees are not aware that you can drawdown from your OA and SA to help provide income from 55 onwards. It is possible to have large amounts of money in OA and SA growing annually compounded at 2.5% and 4% respectively even with RA formed at 55. And to start drawing down from it as you would a bank account with no penalties.
Investment- focus on having a larger portion of your funds in low-cost, research-backed, enhanced beta portfolios. You will need all the clarity you can get for this portion of your asset location into a globally diversified portfolio of developed markets, emerging markets and bonds. This because such a portfolio has been statistically significant in providing at least 30 years of income with the highest probability of success.
What is more fascinating is when we analysed '21 30-year rolling periods, our model shows a 100% probability that one can withdraw 4% of their starting portfolio value and adjust it annually for inflation to last 30 years.'
What this means to you is that $2 million generates $6,666/mth + about 2% more per year over 30 years.
Our research also points to the positive remaining fund value you might expect at the end of 30 years. This, we believe will surprise most people.
Higher yielding but riskier investments- having a smaller portion of your overall assets in such investments may provide additional growth but do so only if you have the confidence and are certain about handling the risks involved. This is optional.
Emergency fund- in retirement the most difficult times are when you need to tap into your assets mentioned earlier to meet an unexpected emergency. While insurance can address healthcare worries, a pool of money for a 'rainy day' still holds true. Consider SSBs for continued growth, about 1.9%, but are as liquid as a bank account. Set aside and do not touch this fund unless you absolutely have to.
I hope these broad strokes will help you understand what can be done to address your retirement outlook.
If you would like to consider a research-backed process to retirement planning, I invite you to visit us at the MoneyOwl office here at Keong Saik Road (beside Outram MRT).
MoneyOwl is a joint venture between NTUC Enterprise and Providend Holdings- where we combine decades of trusted service excellence with expertise in financial advisory and fund management.
If interested, you can reach me at [email protected] for a deeper conversation. I will be happy to introduce our diverse team with CPF, CFP and CFA expertise to assist you with your planning needs.
But before I sign-off, I hope you will be happy to hear that you have done well in having no debt and various funds to plan around with. But DON'T forget your current number 1 asset- yourself!
I hope you find meaningful work and passion and purpose for life so you can truly enjoy the fruits of your labour!
Or et labora.
5 more comments
Mid-40s. Based on the current medical provision, you are only 1/3 of your life!
Your wife and you can still get a new job, and maybe even higher pay than current.
Stay trained, stay employable. (Or start a new business if you can).
There are so many government incentives such as SkillsFuture. Go for more training, more learning, and stay happy in a new good job!
Dear Pecah Lobang,
I am sorry to hear about your situation as well as the possibility that your wife might lose her job too. However, I did a quick number crunching using my firm’s RetireWell methodology and found out that you are actually in a good position to stop work now and still meet your goals.
I did 2 scenarios for you:
Based on $7,000 per month income that you need
Based on $8,000 per month income possibility
This is what I found out:
On Retirement Withdrawal
Based on $7,000 per month retirement income needed now
Capital needed (I am assuming that both of you are age 45): $2.5 million to be invested across different asset classes with different risk/reward characteristics.
You will start receiving a payout of $7,000 p.m. adjusted for inflation from age 45 to age 64 years old using the $2.5 million invested.
At age 65, both your CPF LIFE payout will start and it will be $4,000 p.m. and will form part of your $7,000 p.m. needed. As CPF LIFE is an annuity and is not subject to market risk and it pays out for life, this will be your safe reliable income floor.
You will be able to have $7,000 p.a. adjusted for 3% inflation till age 90
But If death happens to you unfortunately at age 70, you will still have a potential unused capital of $3.8 million + unused capital from CPF + your home + your
Based on $8,000 per month retirement income needed now
Capital needed (I am assuming that you are age 45): $2.887 million to be invested across different asset classes with different risk/reward characteristics.
You will start receiving a payout of $8,000 p.m. adjusted for inflation from age 45 to age 64 years old using the $2.887 million invested.
At age 65, both your CPF LIFE payout will start and it will be $4,000 p.m. and will form part of your $8,000 p.m. needed. As CPF LIFE is an annuity and is not subject to market risk and it pays out for life, this will be your safe reliable income floor.
You will be able to have $8,000 p.a. adjusted for 3% inflation till age 90.
But if death happens to you unfortunately at age 70, you will still have a potential unused capital of $4.4 million + unused capital from CPF + your home and
On Coping With A Medial Condition
I am not sure if your ageing mother and mother-in-law have good medical expense insurance above CPF Medishield Life, if they do not and are no longer insurable, you might want to set aside some cash as a medical sinking fund for them
I also notice that your medical insurance seems to end at age 75. If you have an integrated shield plan or MediShield Life, it should cover you for life. If you do not have an integrated shield plan, I will encourage you to get one if possible so that you have coverage for medical expenses for life.
On Advanced Planning
As both your wife and you are still relatively young and you have amassed pretty sizeable assets, it would be good that you consider the following areas of advanced planning:
A trust, or
A will and making your CPF nomination (as a will does not cover monies in our CPF accounts), and
Lasting Power of Attorney (LPA)
As you have long retired years, you will be faced with market risks that are caused by geopolitical situations such as the current US-China trade war, terrorism, recessions, structural breakdown, etc. The investment and withdrawal plan must be able to deal with this. The RetireWell methodology that I mentioned above will be able to mitigate this risk. In fact, it would be able to mitigate inflation and overspending risks as well.
The other risk has got to do with your ability to cope with the emotional roller coaster when markets go through a meltdown. During the 2008 financial crisis, we witnessed how fearful investors were and we had to do a lot of work to risk coach our clients.
On Living A Meaningful Life
Holistic retirement planning is not just about having enough money. In our work with retirees over the past 18 years, we found out that the biggest concern for retirees is how they can remain engaged in their retiring years. The first 2 years for a retiree is the toughest as they try to get used to not getting an income and also losing social connections. This emotional journey of a retiree cannot be underestimated. That is why in our very first meeting with clients, we usually don’t talk about the financial aspect of their retirement first as this is usually not the problem with our clients. They have enough money, they just need to know how to structure a good withdrawal and investment plan to spend it. What we would prefer to do is to spend time to ask a series of questions to understand what does money mean to them and how it can enable them to live the purposeful life that they want to and should live in retirement. I think not thinking through this part is the biggest risk.
Having gone through your financials very quickly, I will like to assure you that in terms of the financial aspect of your retirement, you will be more than fine. This is probably due to your prudence in living life simply. So a big congratulation in that regard. Losing your job now may be a blessing in disguise as it “forces” you now to do something not because you have to but because you love to.
If you would like to read more about our RetireWell methodology, you can go to https://www.providend.com/retirewell-part-1/. We have published a series of 9 articles on the topic of retirement withdrawal on the Business Times from late 2016 through 2017. You can also visit our website at www.providend.com to read other articles as well as watch our short videos.
If you would like to discuss more, I would be happy to meet up with you. You can contact me at [email protected]
Thank you once again for sharing your concerns on this platform.
The question you asking is whether you can retire now and whether what you have now can sustain you and wife to age 80.
You have quite a lot of money + 1Mmid40s, a lot of advisors/consultants will be queuing up to help you with your money. Choose one that will outlive you by a lot is the most important.
Numbers aside, the answer is a very very strong maybe YES.
For now, do your usual: Will/LPA because of the interstate act, potentially half of your money and your wife’s money could go to your mother in law, leaving your mum with only half of your money.
Your mid-40s and you’ve accumulated quite a fair bit, I would take a small amount to move to a place where the lease can outlive you for sure. You can drop some cash there without loaning a cent for this.
Maybe can spend 1-3 years writing a book on how you and your wife accumulated this much and remained debt-free. After publishing the book, can also open courses. Get paid to talk about your life.
You did well in accumulating so much, should not be a problem to get more. Take a long holiday and think about doing what you want in life because you have financial resources and vigour now than in the future.
Congrats on firing your boss, your life starts now.
Hi Pecah Lobang. Well, you have a unique name. Not sure if it's for trolling for what. But still, it's a good thought process if the situation is indeed true.
(1) I will do a reverse way to determine what is suitable (and sustainable instead).
Kyith from InvestmentMoat has a great resource for you to read through (and I do gain quite a number of my knowledge from there too). Which you can explore further.
Safe withdrawal rate. Most point to it being at 3% real withdrawal. That would mean a 6% drawdown of the assets you have (when you include inflation).
(2) for this to last, we are looking at $84,000 a year. So reverse that with a safe withdrawal amount (assuming your capital is untouched), you would need $1,400,000 (or 1.4million) achieving a 6% returns.
to be even safer, let's assume a 4% drawdown (with capital untouched) and that means a $2,100,000 million.
(3) with these numbers in place, the additional amount is to hedge for retirement drawdown and other unexpected expenses. So if there is a proper retirement plan done, you are safe anyway.
For products, recommendations and ways to invest, drawdown, insurance planning, etc etc. just speak to a few advisors who have a fiduciary duty to you, and you are pretty much set to implement some strategies.
S$2.5m in cash and FD seems like a bad idea. I'd be allocating a much bigger chunk of my funds to investments with a stronger yield. Even the STI ETF returns more than 4%, and a conservative portfolio of the better REITs and banks should deliver rather better than that. Of course, you shouldn't go all-in with stocks but working on the rule of 25 you should be in a fairly comfortable position. I'd be increasing my equity position to something like S$1.5m. That alone could return around S$6K per month fairly safely, with interest from your FDs you're already close to meeting your S$7k monthly expenses.
1 more comments
02 Sep 2019
Before I will think of investing, I will first max out CPF as it gives guaranteed returns of 4%. You can consider topping up 2 old folks RA and MA, if not already max. RA will give them or you monthly payouts while earning 4% yearly, 5% for first 30k and 6% for first 60k. MA can help cover their and your medicals. Make sure CPF nominations are done for them with u or wife as beneficiaries. Next top up you and your wife's CPF (including MA) if not already max. Any spare cash, VC to all CPF accounts. Why top up you/wife CPF, so at 54, you can use this hack to give you max balance in SA after 55 to continue to earn 4%, interest withdrawal on demand. Hack read this http://smartinvesting18.blogspot.com/2019/06/how-to-stop-sa-to-ra-transfer-at-55.html
Read some FIRE tips: http://smartinvesting18.blogspot.com/2019/06/fire-focus-on-free-activities.html
Read how to get your will for free: http://smartinvesting18.blogspot.com/2019/06/write-your-will-for-free-with-ocbc.html
Is your cash earning you high interest rates, eg up to 3.65% with DBS multiplier? http://smartinvesting18.blogspot.com/2019/05/dbs-multiplier-account-bigger-at-100k.html
Hi folks, anyone sees the need to diversify into multiple currencies (or even multiple countries) instead of all assets in SGD? Does the advice "don't put all your eggs in one basket" hold true for this too? Any advice? Thanks.
Have you considered diversifying your asset classes into gold holdings?