Retirement

[Retired@52]

A Talk on "Managing Your Retirement" on 17th Nov 2018, Saturday, 10am to 12 Noon, organised by “Bless Community Services” Supported by C3A Ageing Well.

Free Admission.

To register, go to this link: 

https://docs.google.com/forms/d/e/1FAIpQLScczhHMfxNaXG0IrlTxzeL9WLvR_-tLJoRow4xGOeKEomzxCg/viewform


This Talk will take place be in One week's time.

Financial Planning covers 7 Areas of Financial matters. 2 of which are Retirement Planning & Investment Planning.
 
This talk will cover 2 areas: Retirement Management & Simple Investing in Retirement.

[dreamybear]

These people left their jobs behind to retire early — then life got in the way. Here’s how they coped with FIRE plans gone wrong

Maria LaMagna,MarketWatch•November 30, 2018

Gwen Merz, 28, is doing something she thought she’d never have to do again: hunt for a job.

Earlier in her 20s, she set a goal to “retire” from full-time work at age 35, but she later decided to move that date up to 27.

She wasn’t going to “retire” completely, but work flexibly after quitting her job. At that time, she planned to move to Minneapolis to be with her boyfriend. She saved more than $130,000 in a 401(k), about $25,000 in a Roth IRA and kept $20,000 in cash. She also had about $5,000 in a taxable investment account and $10,000 in a health savings account. She also hoped to access a pension she had been entitled to.

To supplement her savings, she planned to rent out a property she purchased. She also co-hosts a podcast, freelances doing content management and sells craft items on an Etsy store.

She took the leap into “financial independence” in March 2017, “ecstatic” to experience her new freedom.

But life had other plans.....

Read more : https://www.marketwatch.com/story/these-...yptr=yahoo

[corydorus]

Doesn't look like a lot of money to retire. I wonder what are they thinking. Maybe waiting for inheritance.

.

[soros]

“At the beginning, I had to evaluate the risks,” she said. “I knew the worst-case scenario is that we would break up, I move out and move in with my parents … I was able to do that because I don’t have anybody depending on me. I can take these risks knowing I’m only affecting myself.”

The worse case scenario happened when she broke up from boy friend ".

[opmi]

Good thing to be out of FIRE lifestyle when they are young and still can get a job.

it would a challenge if forced to get job when 60 and older and your skills already obsolete.

I would not encourage people to FIRE when they are less than 40 years. 30-40 years are prime years
for income growth and work and life experiences.

Keep jobs during 40-50 years with an option to fire boss is best. Then progressively spent time on enjoying life while you have the energy.

[dreamybear]

Good thing to be out of FIRE lifestyle when they are young and still can get a job.

it would a challenge if forced to get job when 60 and older and your skills already obsolete.

I would not encourage people to FIRE when they are less than 40 years. 30-40 years are prime years
for income growth and work and life experiences.

Keep jobs during 40-50 years with an option to fire boss is best. Then progressively spent time on enjoying life while you have the energy.

Agree.  

I feel if one wants to live a F.I.R.E. lifestyle, it must be for a purposeful / meaningful purpose/reason(which is subjective), for e.g. taking care of kids when they were young(once you miss the prime bonding stage, you can never get the closeness back again no matter how many millions you spend in the future), or taking care of the aged in their last stage of their lives(coz no more chance already), or maybe once-in-a-lifetime adventure like climbing Mt Everest(where a young physical prime body can make the difference), or maybe struck with unfortunate illness etc.

If one simply wants to FIRE and live a simple life(or enjoy life only), then it may not be wise because SH*T happens in life.

In our first world(or some say almost perfect) city state, I do not forsee cost of living to trend lower. It is always good to work, but with a choice of being in a less demanding job(although earning much less). Afterall, time is money, and health is wealth too !  

[dreamybear]

What I always emphasize to my offsprings : 自强不息 - 自觉努力进取，不懈怠，不停止 ( Never Stop Improving ) like the "read 500 pages a day" wise words.

But sadly I am not as frugal as the person featured below, and in fact, as age is catching on, getting more YOLO !  

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CHRISTOPHER NG: Retired at 39 on astute dividend plan
Published: 01 June 2019

At Dr Wealth, Christopher Ng Wai Chung teaches his students investment strategies designed to allow a single person to retire within 5-8 years. Since he retired at 39 with a passive income of $8-$11k a month, we felt he was eminently qualified to teach others how to do the same.....

Rule #1 – Invest Early, Maintain Your Discipline and Stay Focused
....
Rule #2 – Develop Your Investment Knowledge
....
Rule #3 – Act with Logic, Even in the Face of a Bear Market
....

More details at : https://nextinsight.net/story-archive-ma...idend-plan

[mobo]

CHRISTOPHER NG: Retired at 39 on astute dividend plan
Published: 01 June 2019

At Dr Wealth, Christopher Ng Wai Chung teaches his students investment strategies designed to allow a single person to retire within 5-8 years. Since he retired at 39 with a passive income of $8-$11k a month, we felt he was eminently qualified to teach others how to do the same.....

Rule #1 – Invest Early, Maintain Your Discipline and Stay Focused
....
Rule #2 – Develop Your Investment Knowledge
....
Rule #3 – Act with Logic, Even in the Face of a Bear Market
....

More details at : https://nextinsight.net/story-archive-ma...idend-plan

I am very careful of individuals claiming to have achieved fabulous financial success and wanting to “teach” others on how they can do it too. It is often implied that one either needs to learn a few techniques, get into a "correct" frame of mind or be disciplined to stay the course and somehow extraordinary results will happen as you go about your daily life. To explore this topic a little further, I will use the above linked article as a case study.
 
In order for this not to be yet another qualitative opinion piece, I am laying down mathematical calculations to examine the feasibility of such stories and discuss its implications on what it has for most people who harbour hopes of retiring rich and early. 
 
Let’s investigate the above claim about the course trainer, Christopher Ng, being able to retire at 39 years old with a passive income of between $8k-$11k a month through an "astute dividend plan". That works out to be an average monthly dividend income of $9.5k and $114k on an annual basis. The fact that he is mass marketing the course implies that he thinks anyone with a normal income, intelligence and capital access will be able to replicate his early retirement success.
 
To give him the benefit of the doubt, I will assume that he is only going after riskier investments such as equities and REITs instead of investment rated bonds, government securities or various forms of capital protected instruments which will yield much lower. Going to http://reitdata.com/, one can see that REITs are currently yielding anywhere from 4+% - 8+%. REITs yielding above 7% are high risk, weak-sponsored, hold short tenured properties, exposed to all sorts of forex and developing market risks and have a patchy record of calling for additional capital frequently. This is not an area a retiree should be holding large proportion of the portfolio in.
 
Realistically speaking without taking excessive risks, a retiree would have to target a portfolio of quality REITs that are yielding around 4.5%-6.5%. That works out to be around 5.5% average REIT yield. Business Trusts though high yielding have such a bad track record I really don’t think it should feature significantly in any retiree’s portfolio.
 
Let’s now take a look at high yield stocks of mid to large market capitalization. Quick reference at http://yieldstocks.reitdata.com/ shows they tend to yield at 3%-5% other than the 2 telcos and SPH for the obvious reason that the market is anticipating significant drop in profits due to unfavourable industry dynamics. So a decently diversified mid-large cap dividend stock yield is around 4.0%.
 
What all this is leading to would be that a 5% portfolio yield is a reasonable indicator for a retiree portfolio consisting mainly of stocks and REITs. Working backwards, $114k/0.05 works out to a $2.28 million investment value at the age of 39 for retirement.
 
Let us now plonk in some salary numbers for calculation. For that, we head to the official MOM published report https://stats.mom.gov.sg/Pages/Labour-Fo...yment.aspx and download report #23 which lists the median monthly salary of Singaporeans by age and qualification. For the purpose of our study, lets’ be generous and use a Singaporean male who finishes NS and university degree at the age of 24. So this degree holder guy will have a 15 year earning span from 24 – 39 in order to meet the $2.28 million investment goal.
 
Here’s what the MOM data says (MOM only publishes figures including employee CPF, so I added another column to strip off CPF to arrive at take home pay):


These numbers already include allowances, AWS and bonuses but have not taxes, so let’s again be generous and assume this male never pays a single cent of income tax throughout his working life.
 
If one does a back of the envelope calculation of all the take home pay this male will receive during the 15 years of his working life before “retirement”, it would be 3,266 x 12months x 5 years + 4,556 x 12months x 5 years + 6,650 x 12months x 5 years = $868,320
 
Get this - our median degree well educated Singaporean guy who spends no money at all and pays no taxes would only have accumulated $868,320 by the time he reaches 39! That’s just a miserable 38% of the $2.28 million needed even if he does not eat, sleep and play. The numbers would be far worse off if we take a population wide median number which includes diploma, NITEC educated people who are paid much lower!
 
Cleary then, this leads one to a natural conclusion. In order to accumulate a $2.28million portfolio by 39, you will either have to be a super saver with a high flying career earning big income way above median or you will have to generate portfolio returns every year at an extraordinary rate. The question of interest then would be, what sort of high flying income career trajectory or investment return will get our Singaporean male $2.28 million a.k.a. 9.5k dividend passive income by 39?
 
For that, we will need to do a little bit of Excel hard work. Let us simulate 2 scenarios:
 
1) A degree educated male earning average pay with a high savings rate of 50% and see what sort of annual CAGR investment returns is needed to hit the magic $2.28million number
2) Assume normal investment returns of 7% p.a. high savings rate of 50% and find out what sort of income trajectory is needed to hit the magic number
 
Scenario 1


Conclusion – As an average earner with a white collar degree job, in order to end your career at 39 with an investment portfolio of $2.28million, you will need to figure out a way to generate a compounded investment return rate of 23.8% consistently even with a very aggressive savings rate. As a general reference, Warren Buffet’s rate is around 20% and most top fund managers go for 10-15% p.a. Good luck on your quest if you think some investment workshop guru is going to teach you how to do that.
 
Scenario 2


Conclusion – If you are targeting a reasonably good but not stellar investment return of 7% p.a. and want to accumulate a $2.28million portfolio by 39, you jolly well  earn an income that is 3.4X of the median degree earner all the way in every single year from the time you start work to the time you “retire”.
 
I will end the discussion with some personal thoughts.
 
First off, some might inquire whether we are more likely to see Scenario 1 or Scenario 2. Undoubtedly, I would say Scenario 2 is more plausible. Although earning an income that is 3.4x that of median is by definition rare, I believe most of us will still know 1-2 individuals in our social circle who look like they can achieve that. 23.8% 15 year CAGR returns on the other hand, quite honestly I don’t know of anyone.
 
The simulations are of course for two extreme scenarios, but if you think about it mathematically, when and how much you can retire with is really just a combination of 3 levers – 1) savings rate, 2) income (capital supply) and 3) returns. In practice, most people will not rely solely on 1 lever, so a more likely approach to retiring early and comfortably would be to use all 3 levers to a certain extent.
 
However, the simulations are also very useful to debunk the notion that any Tom, Dick and Harry can just attend a course, read some books and simply pick up a few investment tips and tricks and control your monthly costs to be on your way to retire at 40 as a multi-millionaire.
 
Barring exceptional talents in investment or career, a person who scores above average on all 3 levers should be able to retire comfortably perhaps somewhere between 55 – 60 years old, but if your target is something like our case study of 10k passive income by 40, you better make sure all your levers are top 1% calibre. This also presupposes your luck is reasonably good, i.e. you don’t get slapped with big unpredictable negative events like illness, retrenchment, prolonged recession, family issues needing to spend huge amounts of money and time etc.
 
Any comments on how to improve the model and make refinements are more than welcome!

[Porkbelly]

Barring exceptional talents in investment or career, a person who scores above average on all 3 levers should be able to retire comfortably perhaps somewhere between 55 – 60 years old, but if your target is something like our case study of 10k passive income by 40, you better make sure all your levers are top 1% calibre. This also presupposes your luck is reasonably good, i.e. you don’t get slapped with big unpredictable negative events like illness, retrenchment, prolonged recession, family issues needing to spend huge amounts of money and time etc.

Hi Mobo

Thanks for sharing your views... and all that extra work to churn out factual numbers...  


Without inheritance, and no ToTo ( 1st prize only ) winnings,
the average Joe will find it almost impossible to attain retirement by 39 years old.

I was able to retire only around 45-50 years old.. and only with retirement income from my stock portfolio that cost me
around $900K. The yield would fluctuate between ( and still is ) 3.5%  to 4.5%. Thats about $36,000 annually ( $3K p month ). No car, no maid, no old folks, no young kids to feed ( all grown up now )

Most people fail to understand fully the costs required to live a life without employment salary. They would forget about insurance premiums that has to be paid till 99 years old or till death. Dental servicing ( if you want to chew on that juicy steak ), car maintenance and illness or chronic care ( High blood pressure is a given after 40 years old ).

Yet they want to live a life just like before retirement.. with maid, dog (or cat, fish, bird) travel in business class, stay at the Hilton, Hyatt, Marriot. For all that $10K a month is the minimum... and that is just for 1 person only.

[ghchua]

Hi mobo,

I think you got to follow his blog posts closely in order to understand his strategy of generating that amount of passive income per year. You have ran a few scenarios here but none of it mentioned the main strategy that he is using - i.e. gearing. He is using a margin account of high dividend stocks and REITs to generate the amount of passive income per year. Therefore, the amount of investment capital might not be as large as what you have stated here to generate that decent amount of passive income.