4.2% p.a. interest on fixed deposits, farewell. My strategy.

I received a notification that my 18 months fixed deposits are maturing.

Time really flies.

Seems like it was only recently that fixed deposits were paying as high as 4.2% p.a.

Well, a quick check tells me the highest interest rate I can get now from CIMB is 3.3% p.a.

This is also for a much shorter 3 months tenure.

The interest rate falls to 3% p.a. if we choose a 12 months tenure.

This is probably because every institution is factoring in interest rate cuts towards the end of 2024 and also in 2025.

The news is that the ECB will cut interest rates before the FED.

This is good news for interest rate sensitive risk assets like REITs, for sure.

So, what am I doing?

Like I shared in a recent blog and YouTube video, I maintain $250K in my emergency fund.

I park the money in fixed deposits.

I will continue to do so.

I would do this in batches of $20,000 because if I had to use my emergency fund, breaking smaller sums will avoid losing too much in interest income.

So, if I had $100,000, I would break that into 5 fixed deposits with $20,000 each instead of having a single fixed deposit with the full $100,000, for example.

It could even be 10 fixed deposits with $10,000 each.

This explains what you see in the photo below:

Anyway, this is just something I am comfortable with and it makes sense to me.

All of us have different circumstances and beliefs.

As long as we are maintaining a meaningful emergency fund that suits our circumstances and as long as we are able to access it reasonably quickly, we should be OK.

If AK can do it, so can you!

Retire worry free in Singapore soon.

I have been thinking about really retiring in a couple of years.

Confused?

Didn't AK retire 8 years ago a few months before he turned 45 years of age?

Yes, I retired from active employment 8 years ago and I have been enjoying retirement so far.

However, I am not really retired because to me that would mean not having to look at growing my wealth anymore.

In the past 8 years, I was still pretty active in managing my investment portfolio.

Most notably, I made the move to increase exposure to DBS, OCBC and UOB.

I look forward to the day when I can be absolutely laid back.

Yes, I want to be more laid back than laid back.

Terrible, I know.

However, if I can achieve that, to me, I would be truly retired.

So, can I do it?

I think I can in another 2 years.

1. CPF money

Like I said in a recent blog, I would be 55 in a couple of years and that would be when my CPF account becomes a savings account.

Assuming that I stay with the FRS in the CPF RA, maintaining the prevailing BHS in the MA, I should have $800K or more in my OA.

Simply leaving it in the OA, that would generate an interest income of $20K per year.

I do not expect the low interest rate environment which lasted 15 years from the Global Financial Crisis to return anytime soon.

So, I could possibly get more than $20K per year from the CPF OA savings if I were to continue to buy T-bills with the funds.

Conservatively, if I could get 3% yield from T-bills, that would mean another $4K per year for a total of $24K per year in interest income.

2. Emergency fund money

In my recent blog post on how much cash I was holding, if I were to continue maintaining a $250K emergency fund held in fixed deposits, assuming a conservative 2% interest rate, I would get $5K a year in interest income.

This assumes that the UOB ONE account would have stopped offering a higher interest rate by then.

Seeing how UOB has already reduced the interest rate from 5% to 4%, this is a reasonable assumption.

3. T-bill ladder money

Now, I have about $200K in T-bills, if cut-off yields were to be 3% and this is not unlikely in an environment of higher for longer interest rates, that would generate some $6K in interest income.

However, if I continue to grow this since passive income generated by my investment portfolio exceeds my expenses by about $100K a year, with $400K in T-bill in 2 years from now, I could get $12K a year from T-bills then.

4. Fixed income

Fixed income was not attractive in a low interest rate environment and I had to look for more reasonable returns elsewhere.

Obviously, this has changed in the last 2 years.

From all the numbers I have crunched so far, 2 years from now, if I were to simply continue to buy more T-bills, I could receive passive income of $24K (CPF) + $5K (Emergency Fund) + $12K (T-bills) per year.

That is $41K in total.

5. Investment portfolio

If my investment portfolio continues to bring home the bacon and I am inclined to think that it would, I would be very comfortable.

My investment portfolio generated some $230K in 2023 and this included passive income from T-bills.

If I were to exclude this component, the portfolio would still have generated more than $220K in passive income.

Assuming income generation takes a 10% hit because REITs continue to underperform, I would still see $200K from my investment portfolio.

If we should see disease X striking, resulting in another pandemic, income generation could take a hit like what we saw during the lockdown.

Banks paid less dividend.

So, knocking 40% off passive income generated by 40% of my portfolio would still see $170K generated by my investment portfolio.

This includes the assumption that REITs would perform poorly too as said earlier, if you crunch the numbers yourself.

Assuming that I am still comfortable with living on $48,000 a year and setting aside another $48,000 for parental support, even in such a scenario, I shouldn't have to worry about money.

6. Total passive income

Looking at the above points, with the aid of fixed income in an environment of higher interest rates, in 2 years from now, I would have a truly worry free retirement.

Well, worry free when it comes to money at least.

There will be other worries, I am sure.

7. Conclusion

Having come to this realization, I have decided that I don't have to look at the stock market as much as before in the meantime.

Unless there is another stock market crash, simply hold my stock positions and continue to buy more T-bills.

This is naturally going to translate to fewer blogs and videos on related topics.

This is something I have been thinking of on and off.

It is the first time I have sat down and really looked at the numbers more carefully, projecting into the future.

To be fair, it is the near future I am looking at.

I will have to talk to myself again when I turn 55.

To anyone who is eavesdropping, this isn't a miracle and it isn't a dream either.

I have talked to myself extensively since 2009 here in my blog on the things I have done to make this possible.

Stay prudent.

Have patience.

Be pragmatic.

If AK can do it, so can you!