Retirement Planning & Starting Early

As the headline goes. START NOW!!! PLAN NOW!!

I've been building my own portfolio around the Singapore investments and like in my previous post about equity investment, no matter how bias the country investment is skewed into will have to keep them into the Singapore equities in any case. I used to like the USD for a few years now but am not quite sure where they are heading to right now. Our Sovereign Wealth Fund would have to keep their asset allocation consistent to manage their fund and when marked back to the SGD as the reference currency. I believe there would always be a certain floor against some large-cap Blue-chip names in some way. That is of course never ever-green, even without any prior relevant experience apparently anyone can also be the US president so it's good to always keep in touch with markets and be interested but even if you are not interested, you still need to do something about it.

In whichever scenario, I'm always looking in the Singapore equities space as there isn't any FX risk and I assume that we are all thinking about retiring into the same land we are all born into.

Yes it is true that the economy is challenging, US is slowly getting better until the recent political drama, the MAS does have follow an interest rate monetary policy, China is affecting all of us. All these are just noises that keeps the market going at different valuation. A sound company will always stay by its fundamentals while a market driven listed prices will always be driven by emotions. An emotion will result in an action that may run regrets into the future while a stable and sound decision will lead you to making the most calculated and assertive decision during difficult times. The mind can indeed be a powerful tool in challenging environments.

The economics of the business cycle works this way (This is one of my favorite diagram by the way) and it will always be in this manner:

That being said Investments are always trend-setting, perhaps it will go lower from here, perhaps higher from here but we'll never know. What I am trying to say is just to start early.

Like most people, we like income so assuming we take on a income relevant strategy:

With just $1000 and a compounding interest of 3%p.a. (income/dividend) will bring you to $1,030.42 at the end of the year. Effectively, that’s 3.04% p.a.

For calculation sake from 35 – 60 years old (Retirement age is 62 by the way) is a good 25 years to go.

At age 60, at $1000 a month of savings that compounds a 3%p.a. return will allow you to reach the goal of $444,588.62 (That’s 300 months of $1000 contribution) and you receive $144,588.62 after saving for $300,000.00

Is that a lot in my opinion? Not really. But the later you start, the tougher the compounding effect. From 60-80 years old, that’s where we really start to want to stop worrying about money, is $444,588.62 enough for retirement (assuming that the average life expectancy is approximately at 80 years old now)

Now assuming that you live until 80 years old, your monthly income that you will receive will now be at $2,456 per month (Assuming that this amount of return still grows at 3% p.a. and inflation stays flat out at 2% p.a.)

Assuming that the "minimum sum" of CPF Life fulfills the minimum sum by 65, you will get an additional $1,200 per month until the end of life.

So, in a nutshell. Is this enough? All of us have different needs and wants so do some maths with reverse engineering and there you go.

I've not factored in inflation by the way and the reason why I excluded the inflation portion is because while we are working, we still have the capability to fight inflation and when we retire in fact when you think deeper into it most likely the inflation effect should diminish by itself. Why do I say that? When I ponder deeper and longer, when we get out from our jobs our income stream stops so naturally a few things will have to go and your lifestyle will change over time and traveling will probably be the main thing most of us will be thinking about. Unless your savings are plentiful enough to make trips worldwide every year, I do think the type of travel will be scaled down and we no longer will be able to make longer walks or trips that are less travelled by then. Eventually, our diet will most likely shrink and our fashion sense would not be of priority by then.

Just had to sidetrack a bit as my thoughts flowed on to what is in our CPF account and that while our CPF system has it flaws, risk free assets growing at 4% p.a. for first SGD 60K (OA and SA) and the balance at standard 2.5% p.a and 6% p.a. when it goes into the RA when we turn 55 years old. I find no investments that gives risk free returns like this on an annual basis and I've not even compounded them yet.

I've not included the value of our homes yet and I think that real estate is rather illiquid (my definition as you can't sell them now and take back whatever returns immediately)

Now then, have you thought about your own retirement then?

Meanwhile find joy and happiness in whatever you are doing because worrying doesn't solve anything.