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How to have enough for retirement and to do charity?

Monday, August 17, 2015

In many ways, this is a heartwarming email from a reader:

Hey AK,

I am going to retire at Age 27!!!!! 

Just kidding. I am 27 and if I retire now, I'm gonna hafta eat grass for half my life. :D:D

Nevertheless, I emailed to say how your recent blog posts on retirement and financial freedoms came at a time when I was just putting some of my "how to retire at 55" strategies to paper! 

Gave me quite a few ideas I could work on.

But first, I had some thoughts after reading your "Wake them up before they get financial nightmares" post. 

You shared how a reader saw how his friends were wasting money and tried to get his friends interested in investing. 

But they basically bo hiew him. And he felt very dejected about it. 

Actually, I want to say to him: 

There's no need to feel affected about how others are spending their money or feel dejected that you feel your friends are not exercising enough financial prudence. 

Everyone came from a different starting point and everyone is on their own journeys in life. 

For instance, my mum came from a poor family of 10, worked hard to see her siblings through school, sacrificed her own material comforts when young. 

Now that I have grown up and have earning power, I don't begrudge her anything, e.g. so she travels comfortably, I got her a car; supp cards etc. 

If someone had nothing growing up and when he wanted to blow his money on things he never had, during those young careful years, who are we to stop them or judge them you see? 

If someone wanted to zhng his house or car cos he derives great pleasure from it, who are we to say they are "wasting" money? 

I think the best way is to simply share rather than scare people into financial prudence. But that's just me thinking lah.

Okay, onwards to retirement strategies. 

I have a more realistic plan of easing off (semi-retiring) at age 55, so hopefully when 55 hits I will have multiple streams of monthly income. 

My target income streams are 

1. Sharebuilding, 
2. Dividend stocks, 
3. corporate bonds, 
4. Annuities.

I wanted to seek your advice (or thoughts if you are scared of the word advice, haha) on 2 matters:

Annuities - Is it too early to start at Age 27? I only want to start drawing at age 55. At my age now, would it be better to use the cash going to pay premiums to instead accumulate shares or buy corporate bonds? 

Or do you think it is more feasible to accumulate a basket of shares now and use their dividends at age 40 to pay off the premium for the annuity? 

Would you recommend annuities even?

Another way I thought of was using SRS money to buy annuities and draw down from 62...

Cash flow - each mth combined my husband and i will have 16.5k of cash savings (nett of everything) I don't do anything with it, just put into CIMB star saver. 

In your opinion, do you think given our age profile, we should be a tad more adventurous?

I know what you will say, haha. Hard to analyse cos nothing is said of my debt situation right? You are right, I am still paying off a HDB home loan. 

But suffice to say that after accounting for home loan, we will be 50k positive. 

Given this, would you have any advice for me on my above 2 queries?

Lastly, I have been inspired by your frequent calls to give back to society. 

I always read in the papers how the poor and elderly Singaporeans cannot benefit from Singapore's growth (inequalities widen in Singapore etc etc). 

Even though now they have lowered the lot size so that lesser well off can participate in the stock market, 

1) The commission fee is still geared to benefiting those who buy more than 1000 and 

2) I don't think the elderly destitute have any notion of the stock market. 

So I have decided I am going to do it for them. 

I will use 5k seed money of my own, perhaps with yearly top ups. 

And I will distribute the dividend money each time I see the truly poor e.g. buy them a hot meal when I see them foraging for scraps. 

If this "fund" grows, I will realise the profits as well and distribute them as and when needed. 

I know this is probably a drop in the ocean and very geographically limited, but this is as best as I thought of on how I can help the elderly poor participate in the growth of Singapore. Any better ways you reckon? 

Do you have any recommendations on what stock to buy for this "fund"?

Thanks and regards,

See: To be a happy peasant!

My reply:

Hi T,

First, a general impression. You are young and your income is definitely way above average. You have time on your side and the resources to plan for a very comfortable retirement by age 55. It is definitely good to have advantages. :)

OK, this is where I talk to myself.

Annuities. In Singapore, I believe that the best annuity money can buy is actually the CPF Life. 

4% risk free returns and a monthly pay-out for life? Sign me up! 

Max out our CPF-SA early if we have the resources to do so and we are set for a nice lump sum withdrawal at age 55 and a lifetime monthly pay-out from age 65. 

I like low hanging fruits.

Having time on my side in my 20s also means that I am able to ride the ups and downs in the stock market. 

So, after making sure that I have a sensible emergency fund and necessary insurance in place, I will put aside money to invest in equities for greater returns instead of having all my money in fixed deposits or bonds. 

After all, in the long run, equities outperform bonds.

Of course, if we have spare money to invest in the stock market, we are considered very fortunate. 

We should not forget the less fortunate amongst us. 

Is our effort just a drop in the ocean? I think every drop helps. :)

In the past, I would give a portion of my income to a list of charities that I support but starting this year I am putting such money away in a charity fund which I will not be taking much risk with. 

This is consistent with my idea that we should not risk money that has been earmarked for purposes other than for investment.

As I make money from my investments, crossing fingers, and as I make more public appearances, I will put more money into this fund. 

It will hopefully grow to a size that is big enough for me to do what I want to do with it in a few years from now. 

In the meantime, I will probably park money in the charity fund in fixed deposits or the Singapore Savings Bonds.

This email exchange took place quite some time back. Should have been published earlier. 

I only discovered that I overlooked this when I was clearing my mailbox. Terrible.

Bad AK! Bad AK!

Related posts:
1. Wake them up before they get financial nightmares.
2. Retiring before 60 is not a dream.


Solace said...

For certain group of people who can earn much higher salary than normal people, they do not have to take excessive risk in investment.

Coupled with a saving mentality, one who live well below his means and a earn a high salary would have done very well without additional contribution from investment.

I would agree to max out CPF min sum in this case at the earliest opportunity. Learning about equities investments takes effort and time. Even people who has reasonable knowledge of FA and TA might not have the temperament/mindset to execute the plans well.

I would tend to believe that a well paying job would demand lots of time to be committed to it. If the job is sustainable, majority of the time should go towards building that career.

Spending too much time on equities investment and research might be counter productive in this case. No guarantee of absolute return and volatility of market might distract the person unnecessarily, which might affect one work performances.

AK71 said...

Hi Solace,

I have a blog post which says that whether we are millionaires or not, we should plan for retirement but the emphasis was more on personal finance. Millionaire or not, plan for retirement.

If we should be lucky enough to do quite well in our careers and be paid very well in the process, we would have received a leg up in our efforts towards planning for a comfortable retirement. If we do invest in some stocks, we might not have to be too worried about growing our wealth. Even if we should be successful only in simply keeping pace with inflation, we would have enough to be quite comfortable. :)

I am somewhat philosophical now. It is about how much do we really need in our golden years. It is about whether we should subject ourselves to dominant ideas that if we are not beating some benchmark, we are not doing a good job. It is about knowing what we have and what we need.

So, for a couple who retire at age 60 with savings of S$3 million, for example, is it such a disaster if they simply leave their money in fixed deposits that pay 1.5% to 2% per annum if they together only need $5,000 a month? That S$3 million would last maybe about 40 years (taking into consideration inflation of 3% per annum). Is that such a bad thing?

Just talking to myself. :)

Solace said...

Hi AK,

Given the above said scenario, If i and my wife could retire at age 60 with S$3 million, i would also presume that we would also have set aside the prevailing retirement sum in our CPF Retirement Account.

Receiving payout of $5000 a month on average from fixed deposit plus CPF life pay out from age 65 onward, It would be a very comfortable retirement in my opinion. Given my lifestyle, i don't think i would be able to use finish all these money even if i reach 100 years old.

I do not know about others, but to retire as a couple with $3 millions cash and with a CPF life annuity pay out, i would be very delighted :)

Still wanting to beat the index and vexing over the next multibagger stock at age 60 plus? Solace at age 60 plus would like to have it easy :) give me a break hahaha.

apex property investment said...

"Somebody said when someone passed on, 90% of the times, the most proportion of Wealth lies in their principal place of residence. If that is the case, why not have 2 house, 4 houses, 8 houses and so on and so forth...." said an accountant.

This accountant went on to quit his job and concentrate on full time property investment for rental income.

His philosophy is simple. Personally, I believe not in a retirement nest egg as in X amt of money but in having income streams and the knowledge of creating income streams. Knowledge is power. cheers!

AK71 said...

Hi Solace,

I share your sentiments. Why have all the stress when we could sit back and relax? ;)

AK is plainly lazy. -.-"

AK71 said...

Hi Apex,

Knowledge is power and knowing when enough is enough is something that could help us have a more grounded perspective on wealth. This is something we must discover for ourselves, of course. No absolutes. It is all relative. Just perspectives. :)

Matthew Seah said...

Hi AK,

With her monthly household savings, no need to embark on unnecessary risk.
At 16.5k/mth and 28 years ahead for her, she could easily accumulate $25 million by putting savings in a tin can. Split this $25 million into 12 tranches and put in 1% FD and she will get $20k a month in income.

She could do more with asset allocation... but you never touch that.

AK71 said...

Hi Matthew,

I was wondering about the longevity of their relatively high earned income and savings. Are they sustainable? Is it wise to assume that their earned income and savings will always stay higher than average?

Would you like to do a guest blog on how she might approach the issue of asset allocation? ;)

Matthew Seah said...

I'm busy with business strategy right now... need to handle 20+pages of case study each week...

Ok, I'm lazy... not hardworking...

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