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I was taking my usual break from gaming and doing my 10,000 steps with some stair climbing thrown in when I decided to give some thought to how inflation is going to affect how much passive income I need.
To be honest, it isn't something I must really think about because, off the top of my head, I think I have sufficient buffer but once I think about something, I must have closure.
OCD.
Inflation is preferred to deflation which is why central banks in USA, Europe and Japan were trying so hard for so long to get inflation going.
Well, be careful what we wish for.
A cute little thing can become a monster just like that carnivorous plant in Little Shop of Horrors.
Audrey, if I remember correctly.
Anyway, now that inflation has become pretty ugly, we hear people complaining all the time.
If I had remained a wage slave, I would be crying blue murder, for sure.
What is a wage slave?
See:
Wage slavery.
We are lucky that in Singapore, higher inflation isn't as horrible as in some other countries.
Even the USA is experiencing inflation of close to 10% which is pretty bad.
So, roughly, if my portfolio is able to generate 10% more in passive income, I should do OK.
Last year, my passive income was $171,854.30.
So, 10% more means that this year, I should need $189,039.73!
Alamak, very stressful like that.
Not like this lah.
Anyway, regular readers might remember that back in late 2019, I had a pretty lengthy blog in which I revealed how much passive income I needed.
It was $120,000 a year.
$40,000 for my own expenses.
$40,000 for parental support.
$40,000 for voluntary contribution to my CPF account.
It has been almost 3 years since that blog.
So, seems like it is overdue for an update.
Yes, AK is lazy.
Tell me something I don't know.
I will start with the easiest one which is CPF.
Inflation doesn't affect the amount I must set aside to contribute to my CPF apart from the annual increase in the BHS.
So, I think increasing the amount from $40,000 to $41,000 is probably reasonable.
As for my own expenses, I think I will be generous and I am increasing the amount from $40,000 to $48,000 or a 20% increase.
This is more than enough to offset any inflationary pressure for this year and the next, I hope.
The same will go for parental support.
This means that I will have to set aside a total of $48,000 + $48,000 + $41,000 = $137,000 per year from my passive income this year and probably the next.
1H 2022 has delivered a total of $104,678.42 in passive income.
Unless something really terrible happens, 2H 2022 should not have a hard time bringing home the bacon.
Being a retiree, I don't have a kind hearted boss to give me a salary increment to help with inflation.
Have to myself help myself.
Fortunately, consistently investing for income means I am able to do this.
Of course, putting aside more passive income means that I will have less money to invest with.
Still, I am not complaining because early retirement is my choice and I am enjoying it very much.
Hard to believe but it has been 6 years.
I know what some will say about how we must look at real income and not nominal income.
So, if inflation goes up by 10%, our nominal income must increase by 10% too or else we are losing purchasing power.
Like I said earlier, it is so stressful to think like this but it is unfortunately true.
Those who are marginally financially free could fall off the cliff and might have to go back to work.
I am fortunate that 1H 2022 passive income increased 28% year on year which means that my purchasing power has not been compromised.
Hopefully, the inflationary storm does not worsen from here but even so, if I remain prudent financially, I shouldn't have to worry (too much.)
In my retirement, without an earned income, if I am able to meet all my financial obligations with my passive income and still be able grow my wealth even by just a little every year, I am happy enough.
Recently published:
1. Our CPF money is not our money...
2. Lost $300K in cryptocurrencies...
References:
1. Largest investments updated.
2. CPF savings in 2022.
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10 comments:
Congrats on the 6 years of your FIRE lifestyle. If AK can do it, many hopefuls can achieve too!
Not sure my point is correct...inflation should also inflating stocks...that is the main reason we buying stocks to beat inflation...for example 10 years back DBS was at $20...actually I think it was $13 to $15 to be exact...but I just wanted to show a simple calculation...(I also ommiting shares split or bonuses)...4% div is at $800......today DBS is at $32...paying 4% which is $1,280(in actual it's more)....so the returns of this $20 on DBS is not static every year...a good stock like DBS should continued to growth or even compounding it self...so to me all this inflation talk is nonsence....its main purpose it to scares off retail investor so that big boys can buy cheap...so on contrary...I will avg up whenever I can while everyone is fearful...I did when it fell to 29+ last week and now I am 8% richer and also looking forward to the $360 next week :p
Hi Unknown,
Kamsiah you plenty plenty. :D
If AK can do it, so can you!
Believe it! ;p
Hi Desmond,
Alamak, you just increased the stress index for everybody.
Very cham liddat. -.-"
So, it is like having to upgrade ourselves all the time if we are working for an income so that we are worth more to our employers maybe?
Jokes aside, yes, I get your point and it is also a reason why I have been increasing my investment in the local banks in recent years.
Very often, we only look at dividend yields which might make REITs look more attractive than banks, for example.
Missing the forest for the trees. :)
Still, we want to put value before price as share prices could go up because of positive sentiment but value based on fundamentals is more reliable.
DBS is strong which is why it trades at a premium compared to OCBC and UOB but it will have to stay strong in order to justify that premium.
For sure, if Mr. Market goes into another depression and offers to sell me stocks of the local banks at below NAV, I would buy more. :D
“Still, we want to put value before price as share prices could go up because of positive sentiment but value based on fundamentals is more reliable.“ - AK71
Hi AK,
Totally agree on what you’ve mentioned. ����
I’ve actually bought more OCBC shares last month when it dropped further to under $11.30 which is below its NAV.
I guess the recent run up in share prices, especially after their Q2/1HFY2022 good results announcement on 3/8 showed the strong fundamentals & good value in OCBC for investors to invest in. Be it for capital appreciation or receiving dividend income or both. ��
Looking at their latest conservative dividend payout ratio (0.44x), I’m optimistic that OCBC’s full-year dividend payout will likely be increased, when the payout ratio rise towards the 0.5x level. That is, 60 cents per share or perhaps even higher for the full year, FY2022. ������
Hi Eddy,
I agree that OCBC's common stock offers the best value for money compared to DBS and UOB.
For sure, there is room for higher DPS from OCBC due to the low payout ratio and also the fact that their CET1 ratio is much higher than required which gives them a lot of capital headroom.
If they increase their DPS, I am happy but even if they don't, it just means that the stock becomes more valuable which isn't a bad thing either. :D
Absolutely, AK.
Always increases my knowledge when talking to you. Thank you & Cheers! “)
Hi Eddy,
Oh, it is mutual.
I always learn from thoughtful comments from readers too.
Thank you. :D
CPF allocation increased to $41k, but the AL is still $37,740. Where will the surplus goes to?
"The calculator is updated with rates effective from January 2022. The maximum amount of mandatory CPF contributions and voluntary top-ups that a person (employee or self-employed person) can make in a calendar year is subject to the CPF Annual Limit of $37,740."
Hi SnOOpy168,
Long time no see. :D
There is a simple reason and that is we do Top Ups to CPF MA independent of Voluntary Contributions.
So, VC is $37,740 and $3,000+ is for Top Up to the MA. :)
Reference:
Why Top Up my CPF Medisave Account?
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