My Retirement Plan At 35

[karlmarx]

[quote='karlmarx' pid='26854' dateline='1340366622']
Not having something to do on a day-to-day basis can be very boring. People continue working because they wanted to be engaged socially, emotionally, be rewarded financially, etc. In other words, being a part of society keeps you sane and healthy.

This part sounded very much like what LKY said many moons ago...

IMO, many continue working cos' they don't have a choice ie. they need the working income to pay bills. In such cases, the above is just used as a noble excuse for continuing to work. Others, like LKY continues working cos' they are so used to the Power they enjoy. Take away the Power.. and like Marcos or any other dictators, they quickly succumb to illness and dies.. How sad... The prophecy comes true...

The more $$ you have, the more choices you enjoy. No way you're going to get bored with nothing to do. I also don't see why one need to continue working just to get engaged socially and emotionally. Don't you have friends outside of work? No relatives you can talk to? Can't make new friends?? Can't just strike up a conversation with anyone you don't know?? If that's the case, I think better brush up your social skill then! The part about being rewarded financially I can understand. But then again, if you're financially free, that part shouldn't hold you back and chain you to a job you don't enjoy.

---

I'm not actually suggesting that the prefered option is to remain in the labour force. There are a lot of stuff that you can do that does not pay (well), some of which Jansen has mentioned. The idea is to remain engaged with people through purposeful work; regardless of whether it pays you a salary.

Yet most of such 'purposeful work' happen to be paid jobs, which is perhaps why people may confuse the notion of 'remaining engaged in society' as remaining in labour force.

I've yet to meet a highly driven, disciplined and motivated individual who goes from working hard, to hardly working. Conveserly, most of the people who are attracted to the idea of 'bumming around' have always been so for most of their lives.

[KopiKat]

I've yet to meet a highly driven, disciplined and motivated individual who goes from working hard, to hardly working.

I believe there're many in this forum...
Their only 'work' now is likely Investing, which is what they truely enjoy and which doesn't tie them down from other more important things in life (like family). I doubt that they'd have any problem channeling their previous good work ethics / habits to a more relaxed and enjoyable pace towards their new 'job'..

Very likely, you're at most in your 30s or belong to the highly paid category (too much $$ at stake to quit), which may explain why you have not really noticed / know such highly driven 'bummers'. Outside of this forum, I know more than a handful of such 'bummers'. They're mostly financially free and no longer working in their original vocations. Some are just 'bumming' around, enjoying life, travelling (on budget airlines), enjoying deep sea fishing or just doing some voluntary work....

[Jared Seah]

CityFarmer and KopiKat,

Thanks for sharing. We have some shared experiences.

How do we explain to the fishes in the ocean there are animals and plants that can survive outside of the water?

We all will have our own epiphany at our own time.

Some by self-reflection, some on our deathbeds, some after our medical review, some after a relationship loss, some after discovering a higher power up there, some after being sent to the glue factory despite a lifetime of dedication and service...

My goal is to leave this world penniless. (As if I can take it with me. How's that for rhetoric?)

Money can do lots of good; though it may corrupt too...

[flinger]

1. The discussion here is great, but only if you have reached that mark where you don't have to worry about your next day meal. The discussion here is on higher levels of Maslows hierarchy of needs.

2. In regard to the thread starters question. I have a very simple but maybe naive question.
It seems from what you say, most of your wealth is in stocks... Isn't that a risk you are worried about? All your money in one asset type? Even though they are in government linked or government owned stocks, there are so many stock related risks in this inter-related world, wouldn't it be better to diversify into different asset types? Not that they don't have risk, but it might help reduce the risk.

3. I am striving for my financial freedom too, as one wise person in the thread said, plans never work out the way you want them too, but I still have a plan and working around, through , under etc... as different things get thrown in the path. My definition of financial freedom is to be able to relieve myself and my family of worrying for the next days meal and to be there for my family in times of need. The goal will change once I reach there, but I am still striving to reach that stage.

I am stating point 3 so as to give another flavor of what financial freedom means to any individual.

Great discussion. Hope my question on asset diversity helped in your thinking.

[CityFarmer]

For risk management after retirement, here are my views

health cost risk
- this is a no-brainer, medical insurance with necessary riders may significantly reduce the risk

income risk
- annuity maybe a good choice, which provide minimum income and with zero management, while DIY investment continue.

---

I've yet to meet a highly driven, disciplined and motivated individual who goes from working hard, to hardly working.

I believe there're many in this forum...
Their only 'work' now is likely Investing, which is what they truely enjoy and which doesn't tie them down from other more important things in life (like family). I doubt that they'd have any problem channeling their previous good work ethics / habits to a more relaxed and enjoyable pace towards their new 'job'..

Very likely, you're at most in your 30s or belong to the highly paid category (too much $$ at stake to quit), which may explain why you have not really noticed / know such highly driven 'bummers'. Outside of this forum, I know more than a handful of such 'bummers'. They're mostly financially free and no longer working in their original vocations. Some are just 'bumming' around, enjoying life, travelling (on budget airlines), enjoying deep sea fishing or just doing some voluntary work....

IMO, both of you are right, on their respective group of people you are referring.

Everyone need a purpose to live i.e. a "job". The "job" can be travelling with a purpose, a voluntary work, a paid job cum hobby or normal paid job

[Janjansen]

2. In regard to the thread starters question. I have a very simple but maybe naive question.
It seems from what you say, most of your wealth is in stocks... Isn't that a risk you are worried about? All your money in one asset type? Even though they are in government linked or government owned stocks, there are so many stock related risks in this inter-related world, wouldn't it be better to diversify into different asset types? Not that they don't have risk, but it might help reduce the risk.

Yes, this is one of my key concerns. I did think about allocating some in government bonds, but the 2% yield for a 10 year bond is too low, and is an erosion of real wealth after factoring in a 4% inflation. Corporate bonds in the investment grade space provide around 3-5%, but unlike the stock market which is liquid, the bond market is not accessible to the retail investor. Bonds, I feel, are actually more complicated than stocks because you need to consider the yield curve and interest rate movements, in addition to fundamental company analysis i.e. better not to buy what I do not understand. I will not buy into a bond fund or any mutual trust as it doesn't make sense to pay fund managers a 1-2% management fee when most of them under perform the index.

I considered preference shares as well, until I read an excellent article in this forum on its risks and how the investor is actually shortchanged - it basically revolves around the option for the issuers to redeem the preference shares when interest rate decline.

I don't know what else to invest in

[Drizzt]

2. In regard to the thread starters question. I have a very simple but maybe naive question.
It seems from what you say, most of your wealth is in stocks... Isn't that a risk you are worried about? All your money in one asset type? Even though they are in government linked or government owned stocks, there are so many stock related risks in this inter-related world, wouldn't it be better to diversify into different asset types? Not that they don't have risk, but it might help reduce the risk.

Yes, this is one of my key concerns. I did think about allocating some in government bonds, but the 2% yield for a 10 year bond is too low, and is an erosion of real wealth after factoring in a 4% inflation. Corporate bonds in the investment grade space provide around 3-5%, but unlike the stock market which is liquid, the bond market is not accessible to the retail investor. Bonds, I feel, are actually more complicated than stocks because you need to consider the yield curve and interest rate movements, in addition to fundamental company analysis i.e. better not to buy what I do not understand. I will not buy into a bond fund or any mutual trust as it doesn't make sense to pay fund managers a 1-2% management fee when most of them under perform the index.

I considered preference shares as well, until I read an excellent article in this forum on its risks and how the investor is actually shortchanged - it basically revolves around the option for the issuers to redeem the preference shares when interest rate decline.

I don't know what else to invest in

you might want to build a portfolio ladder of corporate bonds so that when they expire u can renew at a possibly higher interest rate to fight rising inflation (possibly)

[tanjm]

Actually the 10Y SGS is now yielding even less than 2%. Its about 1.8% now. If you wish to keep your principal relatively safe, I'm afraid you'll have to target at most 1-3% above this riskfree rate for now.

The good news is that I believe there's a "Singapore premium". The Singapore govt is flush with reserves and has been known to use these reserves wisely in an economic downturn. I think that good quality Singapore corporate bonds are worth a look, keeping in mind the low interest rates may rise in the future, so keeping your bond portfolio duration fairly low (like 5-10Y) and planning to hold till maturity, would be a good bet.

[d.o.g.]

My personal view on bonds is that:

1. In general, inflation favours the borrower over the lender. Therefore if you want income it is better to buy the stock of a dividend-paying company than its interest-paying bonds. The dividend has a chance of rising to match (or even beat) inflation. The bond coupon has no such opportunity.

2. For the active investor, bonds offer a lower-risk route to capital gains. In a crisis, investment grade bonds often get marked down below par. This means that a buyer at that point can reasonably expect to obtain capital gains when the bonds are redeemed at par. Since there is a maturity date, he locks in his rate of return at the point of purchase.

In other words, stocks for income, bonds for capital gains. Totally at odds with conventional wisdom. But then, success is by definition not the normal state of affairs and therefore unconventional, is it not?

Living off the portfolio:

Someone who is entering early retirement has a very long investment horizon as he/she may have 30 or more years to go before death. I would not suggest buying bonds at all in such a situation. I think it would be more sensible to buy the dividend paying stocks of very well established companies in a few major economies. The older the company and the more stable the economy, the better. Current yield is not as important as sustainability.

Given the poor performance of major stock markets in the last 18 months, I think it is actually a good time right now to be building up said portfolio, there are many strong companies now paying 4% or more. As the portfolio must last 30+ years it is not worth sacrificing safety for an extra 1% in yield.

Although it is best to match the currency of assets and liabilities, the need for safety suggests that a mismatch may be necessary for sufficient insurance i.e. if one of the major economies blows up, the portion invested in the other economies is still OK. So don't allocate everything to Singapore stocks, or only to US stocks, or only to Australian stocks etc. Have some in at least 2 markets. I think 3 is the sensible minimum. More than 5 may not be necessary.

Just my $0.02.

[Zelphon]

My personal view on bonds is that:

1. In general, inflation favours the borrower over the lender. Therefore if you want income it is better to buy the stock of a dividend-paying company than its interest-paying bonds. The dividend has a chance of rising to match (or even beat) inflation. The bond coupon has no such opportunity.

2. For the active investor, bonds offer a lower-risk route to capital gains. In a crisis, investment grade bonds often get marked down below par. This means that a buyer at that point can reasonably expect to obtain capital gains when the bonds are redeemed at par. Since there is a maturity date, he locks in his rate of return at the point of purchase.

In other words, stocks for income, bonds for capital gains. Totally at odds with conventional wisdom. But then, success is by definition not the normal state of affairs and therefore unconventional, is it not?

Living off the portfolio:

Someone who is entering early retirement has a very long investment horizon as he/she may have 30 or more years to go before death. I would not suggest buying bonds at all in such a situation. I think it would be more sensible to buy the dividend paying stocks of very well established companies in a few major economies. The older the company and the more stable the economy, the better. Current yield is not as important as sustainability.

Given the poor performance of major stock markets in the last 18 months, I think it is actually a good time right now to be building up said portfolio, there are many strong companies now paying 4% or more. As the portfolio must last 30+ years it is not worth sacrificing safety for an extra 1% in yield.

Although it is best to match the currency of assets and liabilities, the need for safety suggests that a mismatch may be necessary for sufficient insurance i.e. if one of the major economies blows up, the portion invested in the other economies is still OK. So don't allocate everything to Singapore stocks, or only to US stocks, or only to Australian stocks etc. Have some in at least 2 markets. I think 3 is the sensible minimum. More than 5 may not be necessary.

Just my $0.02.

Hi D.O.G,

Can name a few good stable companies giving dividend that is more than 8% at the moment?