facebookMy wife & I are in our mid-40s. I have just been retrenched, she could lose her job soon. Advice needed on whether we can sustain our outflow till 80. Any recommendations and potential risks we should cater to? - Seedly
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Pecah Lobang

Posted on 26 Aug 2019

My wife & I are in our mid-40s. I have just been retrenched, she could lose her job soon. Advice needed on whether we can sustain our outflow till 80. Any recommendations and potential risks we should cater to?

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

  • 5yr $7k

  • 10yr $6.9k

Should diversify into multi-currencies, goes other than asset categories?

Character limit, pardon brevity. Thanks!

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10 answers

Discussion (10)

Hi there,

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:

  1. Your cash/FDs are generating at least 1% a year

  2. Your $350K in investments are generating at least 3% a year conservatively

  3. Worst case scenario assumption (your wife loses her job)

  4. Both of you do not find any employment

  5. 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:

  1. Longevity

  2. Health Risks

  3. Inflation

  4. Sequence of returns

  5. Market volatility

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

  2. Proper segmentation of your assets into various buckets and layers

  3. 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.

2

Pecah Lobang

Pecah Lobang

27 Aug 2019

Thank You! Curious how you arrive at the funding depletion by age 72. Will reach out to you to discuss more.

Bryant Tan

Bryant Tan

01 Mar 2020

This is so helpful 👍

Post

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:

  1. Cashflow - understand what is important for your lifestyle now and into the future.

  2. 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.

  3. Retirement - focus on how your cashflows can be carefully layered to provide a reliable amount of retirement income yet be inflation-hedged.

  4. 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:

  1. 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.

  2. 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.

  3. 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.

  1. 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.

  2. 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.

Warmest regards,

Colin Lai

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5 more comments

Colin Lai

Colin Lai

06 Sep 2019

Kenneth, thanks ah for calling me an 'old bird'! Seriously, love the work you and the team at Seedly are doing to make financial matters easy to learn. MoneyOwl has been a place where comprehensive bionic planning comes together for ano-pressure, research-based

Colin Lai

Colin Lai

06 Sep 2019

And truly cost-effective only financial solutions. Thanks to Seedly...we are slowly getting recognised for this! (Accidentally pressed Post previously while trying to edit it)

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Mid-40s. Based on the current medical provision, you are only 1/3 of your life!

Your wife and you ...

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