facebookWhich funds to buy for about 4-5% returns (more or less guaranteed or low risk)? Trying to plan for retirement passive income based on S$1.5M capital. - Seedly
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Lek H.S

Posted 4w ago

Which funds to buy for about 4-5% returns (more or less guaranteed or low risk)? Trying to plan for retirement passive income based on S$1.5M capital.

Plan for retirement passive income based on S$1.5M capital. Any advice?

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Discussion (5)

Hi Lek,

While there are funds that can provide a 4-5% payout, I need to highlight that none of them are guaranteed by any means, as they are an investment. I can't consider them low risk either, either they have risk, or they do not.

In fact, there are many instruments that you can deploy your funds into that will generate passive income for you, but take note that some are guaranteed and some are not. For example,

  • Stocks/REITs - Need to look for stable dividend players but take note that dividends can be reduced or suspended in a crisis; just look at our local banks

  • ETFs - Not known for dividends but are well diversified

  • Income mutual funds/UTs - Those with bonds inside, may have lower volatility and such mutual funds are also the only thing that can pay out monthly. Otherwise, you can seek out balanced funds as well.

  • Retirement income plans - To complement CPF Life after ERS is reached, guaranteed and stable returns with upside, but returns may not match that of stocks/REITs. Having said that, it's not a fair comparison this way, due to the nature of the asset classes

What is more important is to approach the problem of retirement planning in the form of income. Take a moment to ask yourself, how much income do you need in retirement? How much of that needs to be guaranteed? How much can you afford to be non-guaranteed? Once you can answer that question, then you will be able to address the allocation problem.

  • To determine how much income you need, you'll want to understand your expenses first.How much are you spending or expect to spend on a month to month basis? This largely boils down to your lifestyle, 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.

  • To address the allocation problem, 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). For example, a $1 million 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 already have that generate income. 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 you $2K a month, but it's not much help if it only starts at 65 and you are 55 now, and want your income in 5 years.

You'll want to build multiple layers of income; consisting of both guaranteed income and non-guaranteed income as I mentioned above. Naturally if the entirety of your retirement income can be guaranteed, that is the best as you will have no worries at all, but it may be impractical to do so. CPF LIFE will be your first layer of retirement income, but beyond that, there are many possibilities and permutations.

Knowing how much you need (in terms of guaranteed and non guaranteed) and how much you already have, will then allow us to determine how much to allocate for your remaining funds. If, by allocating your funds to guaranteed income solutions will allow you more than a comfortable retirement, then why would you want to take risks? Conversely, if there is no way to retire as you desire unless you take risks, then we will have to allocate your available monies to risk based assets like funds/stocks, etc in order to meet your income needs, and risk management must be done to protect your capital. So this all depends on your personal situation.

You'll want to 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 such as the funds to sit on cash?

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 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

  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.

With the right allocation of your funds to the right asset classes, along with the right strategies and plans to manage your portfolio over your retirement years, you'll be able to achieve a peace of mind during your retirement.

Ultimately, retirement planning is not something that can be covered in a forum answer such as this, as much as I may wish to give a comprehensive answer. The nuances of each and every individual's situation would necessitate that you spend time with an advisor to address all your concerns and have a tailored strategy drawn up for you. Good luck!

1

Lek H.S

Lek H.S

3w ago

Thank you Elijah for taking time to explain the different aspects and considerations to take.

Post

Beside topping up CPF SA to prevailing FRS before 55 and CPF RA to prevailing ERS after 55, you may consider the recently launched Fullerton MoneyOwl WiseIncome (exclusively distributed by MoneyOwl):

https://www.moneyowl.com.sg/wiseincome/

It comes with 3 options:

  1. Accumulate Option: where dividends are reinvested, projected returns 4.7% (net off fees).

  2. 4.5% Payout Option: where payouts are distributed from dividends keeping capital intact.

  3. 8% Payout Option: where payouts are distributed from dividends as well as drawdown from capital.

If you don't have MoneyOwl account, you may sign up a free account with my referral code:

MoneyOwl account sign up link:

https://www.moneyowl.com.sg/app/accounts/sign-up

My MoneyOwl referral code:

5FZY-58AG​​​

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Central Provident Fund....

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