Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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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.
I have been asked this question in various forms by various people over the years.
"How much cash are you holding now?"
However, like how I have always sidestepped questions regarding my net worth and the size of my investment portfolio, I have habitually sidestepped the question.
I have published a blog post in the past to explain why.
So, this blog post is going to be the first time since I started blogging in 2009 where I share some specific numbers.
Why the change of heart?
This is because of what someone told me not too long ago.
It would help readers have some kind of yardstick for themselves in their decision making process.
I am always mindful of the fact that all our circumstances are different.
So, there is nothing sacrosanct about what I am about to reveal.
We do what our circumstances allow.
Of course, we could push ourselves to do more and we should but how much to push, that depends on our threshold for pain.
1. War Chest
I have said again and again that is it important to have a war chest.
When opportunity knocks, we want to have the resources to take advantage of the opportunity.
For me, such an opportunity usually takes the form of market pessimism.
Like Buffett said before, be greedy when others are fearful.
It is harder to do well when everyone is feeling optimistic and chasing prices higher.
Then, how much should we have in our war chest?
I get asked this so often.
There really is no magic number or percentage.
It depends on Mr. Market.
When Mr. Market is feeling optimistic, my war chest continues to grow in size.
When Mr. Market feels pessimistic, my war chest could be totally empty.
During the Global Financial Crisis, I emptied my war chest and I have blogged about this before.
What about now?
At the moment, I have about $200K in my war chest.
As I do not have a lavish lifestyle and because my passive income exceeds my expenses, this sum is likely to grow.
The money is stored stored in my T-bill ladder.
See:
So, how to grow our war chest?
Basically, just spend less than we make, either actively or passively.
Want to grow it faster?
Become a better saver.
2. Emergency Fund
Of course, when we talk about cash on hand, we have to talk about emergency fund.
How much do I have in my emergency fund now?
About $250K.
This amount has stayed the same for a while now.
It gets adjusted upwards from time to time to account for inflation and other changes in life.
An emergency fund is important because if all else fails, we have near money we can rely on.
The last time I made an adjustment to my emergency fund was when I decided that I needed $48,000 a year myself and I should give my parents $48,000 a year too, directly or indirectly.
That's a total of about $100,000 in expenses.
I like to keep an emergency fund that would cover at least 24 months of expenses.
So, I have overcompensated.
The good thing is that I have a good size safety net and I wouldn't have to tinker with it for many years to come.
At this point, I must say that it is important to build a meaningful emergency fund first before ever investing any money in risk assets which includes stocks and properties.
I made a related video on this topic:
Of course, while building an emergency fund, our war chest would go hungry but only in the meantime.
If you are wondering how large your emergency fund should be, you might want to eavesdrop on AK here:
This is because fixed deposits pay higher interest and they are easier to break than T-bills.
At the moment, $100K of my emergency fund is in the UOB ONE Account because that is really near money and makes 5% p.a.
Of course, come 1 May, I would have to try and bump this number up to $150K as UOB ONE would be cutting the maximum interest rate to 4% p.a. on the first $150K.
3. Float
What is a float.
Well, it is just money floating in my savings accounts which I can use on a daily basis.
I try to have about $20,000 floating at any one time.
This is not because I need all the money on a daily basis but really because I am just mental.
There is no rational reason for this apart from the fact that I feel safe having at least this much which I can use to pay anyone or for anything while leaving my emergency fund intact.
Any excess money, I should be using to strengthen my T-bill ladder.
However, by now, it is obvious that AK cares more about having peace of mind and feeling comfortable than maximizing returns.
Like I always say, I am fine being approximately right.
What I want to avoid is being absolutely wrong.
My float is currently closer to $50,000 than $20,000.
Bad AK! Bad AK!
4. CPF
I know some will remind me about my CPF savings which is, of course, pretty substantial.
Most of the money in my CPF account will become cash when I turn 55 in another couple of years.
That would be when my CPF account becomes a savings account because I would be able to withdraw the money whenever I want.
I can see my war chest becoming much larger because of this.
Of course, I could also continue to treat my CPF savings as the bond component of my portfolio which can be used to invest in other risk free and volatility free instruments like T-bills.
Thus, the bond component of my investment portfolio would remain intact.
Since that 1 year T-bill had a cut-off yield of 3.87% p.a., I received additional interest of more than $6K.
The funds deployed was almost $700K which explains that more meaningful difference.
Better than leaving the funds inside my CPF OA.
Since I received it as a discount immediately upon the commencement of the T-bill, the interest rate really was higher than 3.87% p.a. compared to a fixed deposit where interest earned is received at the end of the tenure.
I also bought another T-bill with CPF OA funds, leaving only $20K in the CPF OA, and that is maturing in March.
That was a much smaller sum.
Like I said in an earlier blog post, I would place competitive bids using CPF OA funds to buy T-bills.
Non-competitive bids run the risk of getting a cut-off yield that is lower than the breakeven using CPF OA funds.
Since the highest breakeven cut-off yield is 3.33% p.a. which is for 6 months T-bills possibly losing 2 months of additional interest from CPF OA, a sensible competitive bid is 3.5% p.a.
So, that is the plan.
When I turn 55 years old in 2026, after setting aside the Full Retirement Sum in the newly created RA and locking up the Basic Healthcare Sum in the MA, the rest of my CPF savings becomes my emergency fund since I could withdraw the money anytime I want.
That would free up my existing emergency fund which would become part of my war chest.
That would be quite a substantial boost since my current emergency fund is able to cover 24 months of expenses for my parents and myself.
Years of careful planning and patient execution is paying off.
This is because if we spend our lives working and doing nothing else, if we should one day be retrenched or if we must stop working for whatever reason, we would be lost.
This is why so many people say if they retire, they would die faster.
For me, I have always thought of work as a means to an end which is to achieve F.I.R.E.
Of course, back then, there was no such acronym.
I was just thinking about being able to retire earlier from work or being able to stop exchanging my time and energy for money.
Anyway, having been a retiree for about 8 years now, I have been spending a lot of time on something that I really enjoy and that's video gaming.
Now, I have to take my own advice but with a twist!
Don't be married to any one hobby!
Recently, my gaming laptop has been a bit wonky.
The video card is probably on its last leg.
To be fair, I work it very hard as I use it for 8 to 14 hours daily.
I have been thinking of getting a new gaming laptop for some time but I decided to wait for prices to come down.
During the pandemic, the prices of computers shot through the roof as people were buying them to work from home and also because they had more free time, online video gaming activity also sky-rocketed.
So, I kept waiting until now.
I took advantage of the 11.11 sale going on now and bought a new gaming laptop, also from ACER.
Still a Nitro 5 which is a value for money gaming laptop by ACER but this is an upgrade with 16G of RAM and a RTX2050 graphics card.
For sure, it isn't top of the line but it is already an upgrade to my current Nitro 5 with 8G of RAM and a GTX1050 graphics card.
Well, my current laptop is 6 years old.
Oh, the new NITRO 5 will also have a SSD that is 4x bigger than what I have now.
However, what is really amazing is how I am paying only $1,100 for my new Nitro 5!
When I paid $1,349 for my current laptop back in the day, people told me it was a good deal.
So, the new laptop is better and cheaper than my old one!
That makes me happy.
Of course, if you have been following my blog long enough, you would know that I am not just talking about my recent purchase.
This blog post is more allegorical.
Think about having contingency plans.
Think about delaying gratification.
Whether stocks or socks, we like to buy better products at lower prices.
The next 6 months T-bill's auction is happening this Thursday.
So, if we are building or maintaining a T-bill ladder, don't forget to put in a bid.
I will be putting in a non-competitive bid again.
No reason to agonize over how much to bid for in a competitive bid when chances are any cut-off yield is likely to be higher than offers from the banks for a 6 months fixed deposit for now.
I just produced a video on a 3.6% per annum offer for a fixed deposit but that is for a 9 months tenure.
This is the link to the video for readers who do not follow me on YouTube:
During my recent podcast with The Fifth Person, Adam asked me if I knew about F.I.R.E.
I told him I only learned about F.I.R.E. after I did it!
And there are so many versions of F.I.R.E. since the time I found out about it.
Of course, if you have been reading my blog regularly, you would have read my piece on Lean F.I.R.E. which I published not too long ago.
I didn't think it was a good idea.
Basically, it meant having only enough financially to fund a very simple early retirement lifestyle.
Lean F.I.R.E. leaves little or no room for error.
Without any buffer, if we should have a situation where inflation increases rapidly and stays persistently high, we could be forced to rejoin the labor force, and when we are much older too.
Of course, if we depend on some passive income to fund our Lean F.I.R.E. plan, we would have to depend on the reliability of such passive income too.
Rejoin the labor force when we are older because we have no choice but to do it?
Not a pleasant thought.
Being a worrier, I cannot live like that and would probably not be able to sleep at night.
I remember some people saying I could have retired earlier.
Why did I wait till I was 45 years old?
For one thing, my plan was always to retire at 45.
OCD.
Another thing, I was worried I might not have enough, and having more money is always better.
Yes, I was building a buffer.
Some might even say I was building a buffer for my buffer.
Or was it a buffer for a buffer that's for another buffer?
Whatever we might call it, it's all good.
During the COVID-19 pandemic, we had an acid test for all F.I.R.E. practitioners.
Not everyone could stay retired as we saw some rejoining the workforce.
I think they would have been mostly people who practiced Lean F.I.R.E.
Anyway, this is just my view.
I am not demonizing Lean F.I.R.E. or anything.
I just feel strongly that if we are planning for Lean F.I.R.E., we must be aware of the potential pitfalls.
Then, I recently read about "Barista F.I.R.E."
That name conjured for me a Bohemian image.
Quite an attractive image, to be honest.
I found out that Barista F.I.R.E. basically meant semi-retirement, or at least that is what people my age would call it.
We would continue to be in the workforce but we would be working part time in Barista F.I.R.E.
So, this means we have more time to do the stuff we like.
For people who are tired of working full time, this is certainly an option.
A viable one too.
For people who want to be a full time gamer like AK, of course, this is not an option.
OK, I know.
Bad AK! Bad AK!
Talking about games, this is my latest warship, the Tier 9 Roon, which is a German cruiser.
In my blog dated 28 July, I shared a photo of my warship then which was a Tier 6 German cruiser.
This being a public holiday, if you should be interested in a free to play video game, try World of Warships on the Asian server.
I am having a lot of fun and have not spent a single cent.
Use my referral link and both of us will get some freebies in game.
On a serious note, I think that Barista F.I.R.E. seems like a safer choice compared to Lean F.I.R.E. for people who wish to retire earlier with less money.
Barista F.I.R.E. means never leaving the workforce which means staying connected and probably more employable.
In more difficult times, people who have left the workforce for some time might find it hard to find a job, especially when they are much older, and their skill sets might no longer be as relevant.
So, Barista F.I.R.E. allows more room for error.
There are many ways to crunch the numbers for Barista F.I.R.E.
If I were to do it, I would estimate how much I might need for 40 years if I would like to retire by age 45.
This is because the average lifespan for males in Singapore is 85 years old.
Of course, I am being very cautious here because I would invest for income and not just have the money sitting in a savings account to be drawn down.
However, in an extremely unthinkable situation where passive income froze, then, I would have to draw on my savings.
Then, after estimating how much I might need for 40 years, I would need to estimate how much my part time job would pay me in those 40 years.
Subtract that expected income from the expected expenses for 40 years and I would know how much money I must have by age 45 before I could execute Barista F.I.R.E.
Of course, if we factor in the expected passive income from our investments, then, the amount of money required before we could enjoy Barista F.I.R.E. would be reduced.
Anything to add?
I will say that for Barista F.I.R.E. to be quite comfortable and worry-free, we should still keep an emergency fund.
We must be ready for the possibility of not only our passive income slowing to a trickle or drying up completely (if we have been wise enough to invest in some income generating assets,) we must also be ready for the possibility of losing our part-time job.
Peace of mind is priceless.
Don't just say it.
Make sure we have done enough to truly have peace of mind.
Neither Lean F.I.R.E. nor Barista F.I.R.E. is for me.
They are watered down versions of the original concept of F.I.R.E. but they could be what some people want.
Quite possibly, some people might even need them.
Have to be fair.
To be sure, I am not judging anyone for choosing these forms of F.I.R.E.
While watching some YouTube videos regarding the economy, a video titled "Are All Singaporeans Rich?" popped up in the right sidebar.
I am usually not interested in videos like this but since I blogged about Singaporeans being obsessed with salaries not too long ago, I decided to give it a go.
Fortunately, the video had timestamps which allowed me to watch the segments I was more interested in.
It is interesting to see that the people interviewed in the streets of Singapore mostly agreed that everything was expensive in Singapore.
Most of them had earned income of $5K a month or more.
Personally, I think I can be quite comfortable with a salary of $5K a month today.
Apart from cars and private housing, I don't think Singapore is expensive.
Why do many Singaporeans think that a salary of $5K a month is insufficient?
Watching the video produced so many "Alamak, AK!" moments.
Someone said he would buy lattes regularly, paying $8 a cup!
Then, there is pubbing on weekends and taking taxis!
(OK, as a ComfortDelgro shareholder, I think taking taxis is a good idea. Please continue.)
Then, some talk about fine dining and how expensive wine is in Singapore!
Hey, we have choices.
If we overpay for coffee and if we choose to take taxis instead of buses and trains, of course, it would lead to a higher cost of living.
If we choose to get our nutrition in fancy restaurants, definitely, it would be costlier.
Such a lifestyle in any country would be more expensive than more humble alternatives in the same country.
Am I right to say that?
So easy to blame others for bad results even when it was our choices that led to those results.
Don't say Singapore is expensive when we make expensive choices.
Wake up.
A lady said that she had to work harder to earn more money.
I don't think that is a bad thing per se.
If she worked harder and put some of the money to work in order to generate passive income, her financial health can only improve over time.
If we do the right things, we don't have to worry too much about our financial future.
If I were 30 years old today and drew a salary of $5K a month, if I were truly prudent, I could probably save 50% of that money each month.
If I were to invest $2K per month in good income generating businesses, with a dividend yield of say 4% to 5%, I would be able to generate a few thousand dollars per year in passive income by the end of the third year.
Yes, it would take only 3 years to see meaningful results!
Over time, if we make more money, we could put more money to work if we stay financially prudent.
I remind myself that it is not how much money we make but how much money we save that will tell us if we are growing richer.
Then, be a pragmatic and patient investor for income and we can only become richer.
Not all Singaporeans are rich but all Singaporeans can be richer.
This blog is just a bit longer than the video because I had a bit of problem with the voice recording.
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I have been asked many times before if I was ever bored in my early retirement.
To be quite honest, I find that question boring.
It was never something I was worried about because I was never married to my job.
I had many things I wanted to do but just didn't have the time for them.
So, I tell people that I am as busy now in my early retirement as when I was gainfully employed.
What I did worry about was whether I would have enough funds to retire early?
I was worried if I planned it right as I didn't fancy the possibility of rejoining the workforce.
That was during a time when I didn't know what was LEAN F.I.R.E.
Of course, if you have been following my blogs, you know what I think of that idea.
Having said this, all of us have different circumstances and, to be fair, LEAN F.I.R.E. could work for some people.
However, for people like me who have aged parents and for those who have children, if we want to retire early, it is financially more demanding.
We cannot afford to be too optimistic that things will work out on their own somehow.
There is only so much belt tightening we can do if things do go wrong.
For people who have dependents, early retirement is more demanding as we have to ensure our financial resources are sufficient to support more people.
Although my passive income seems massive to some people, once we take into consideration my expenses, it doesn't leave much room for error.
I don't track or blog about my expenses in detail, but I have blogged about my budget in whole numbers before.
In an earlier blog in 2019, I said I would need around $120,000 in passive income to cover my own expenses, parental support and CPF contribution.
$40,000 per item.
Then, in another blog sometime later, I said that given the higher inflation we were seeing, I would increase by 20% the money for my own expenses and parental support.
That would bring total passive income required yearly to $136,000.
Fortunately, passive income generated by my investment portfolio, excluding interest earned in my CPF account, has been able to cover this.
Of course, regular readers know that I will not be making any voluntary contribution to my CPF account in 2023 and 2024.
This is because money earmarked for this purpose has been used to buy Singapore Savings Bonds when they offered 10-year average yields of more than 3% p.a.
My plan is still to continue saving money in my CPF account or buying Singapore Savings Bonds till I turn 55.
When I turn 55, I could continue with this plan, or I could decide to enjoy life a little more.
I was more inclined towards continuing to save more money in the past, but the COVID-19 pandemic got me thinking.
Life could be cut short quite unexpectedly.
Yes, the COVID-19 pandemic changed the way I look at many things, including investments.
So, there is a high chance that in another few years from now, I would only need $96,000 a year in passive income as I stop earmarking money for CPF contributions.
Just need money to cover my own expenses and parental support.
Of course, we don't live forever.
Although I wish my parents would be around for a long, long time, I am not sure they want to outlive me.
The day I become an orphan, I would only need $48,000 in passive income per year, all else being equal.
When I think of this, melancholy sets in.
It is bittersweet.
OK, I shan't be maudlin about it.
I am just going to talk about finance here.
Well, it seems that, over time, I will become richer than I ever was without having to do anything differently from what I am doing now.
My investment portfolio should still be generating passive income and even if that doesn't grow, over time, my wealth could grow as my expenses shrink.
I don't think I would ever need to draw on my CPF savings.
So, over time, just from compound interest, that should grow too.
Anyway, what is the message here?
Early retirement is definitely financially more demanding for people with dependents.
However, if we are able to achieve this, we are likely to do better financially over time even when we become aged.
Just remember that we cannot be too adventurous, and we should be able to avoid financially catastrophic mistakes which might force us to rejoin the workforce.
Anyway, this is just me talking to myself about my experience and perspective.
If you have made it this far, you could be just as mental as me.
In recent weeks, I settled into a routine of producing videos and then publishing the transcripts here.
Both the video and the blog would be released within minutes of each other.
I kept doing that because I had an inkling that most people who "eavesdrop" on AK don't really enjoy eavesdropping.
They really enjoy reading AK's diaries.
Tsk, tsk.
Terrible.
Anyway, looking at the viewership and readership numbers, it is quite apparent.
As I am a hobbyist YouTuber just like I am a hobbyist blogger, this isn't a tragedy.
In fact, it could be a blessing in disguise.
Although I still enjoy making YouTube videos as a hobby and I have produced videos almost daily for more than a year, I might do it less often as it is more time consuming.
So, in future, there might be more blogs like this where there would not be a corresponding video.
I need more than 24 hours a day to do all the things I want to do in retirement!
I really have quite a bit of catching up to do in the online games I am still playing, for example.
Second update is on the subject of "money".
Some readers might know that my retiree parents are invested in AIMS APAC REIT and IREIT Global too.
Apart from their CPF and SRS savings, the two old folks have rental income from a shoe box apartment and dividends from some stocks.
As I am paying the property tax and maintenance of their rental property, they are able to enjoy the rental income in full.
Being retirees, they are living off passive income as they should.
However, total passive income they get in a year is only about half of what their total yearly income was before they retired a few years ago.
I remind myself of the following.
If not for us children, for sure, they would have been able to save a lot more money for their retirement.
There is also the fact that their CPF and SRS savings would be depleted in their mid 80s which is only another few years from now.
For readers who have been following my blogs on the topic of providing financial support for my parents, this probably throws more light on why I have significantly increased the quantum in recent years.
Since I do not expect my own expenses to grow significantly in future, I am ready to provide even more financial support to my parents if required.
This is so that they would not have to make too many changes to their lifestyle in retirement or compromise on their standard of living in their old age.
Alamak!
This is supposed to be a quick update and I just went rambling off.
A thousand apologies!
Back to AIMS APAC REIT and IREIT Global.
I have decided to help my parents pay for their rights units.
Of course, consistent with what I have said before, I will keep an eye on the current unit prices as well.
Mr. Market seems to be feeling rather pessimistic and if I should be offered prices which are much lower, I would buy from the open market.
In such an instance, I would be leaving the sponsors of the REITs to pick up my rights entitlement in the form of excess rights for them instead.
In fact, I have overnight BUY orders to buy more units in AIMS APAC REIT at $1.16 a unit and IREIT Global at $0.42 a unit as, technically, these look like strong supports to me.
To be honest, it would be a pleasant surprise if my orders are filled but I know never to say never.
Of course, helping my parents to increase their investments in the REITs this way would mean that I would have less money to add to investments in my own portfolio.
However, trying to make more money for myself really hasn't been a priority for me for quite a while now.
Why do I say this?
Is having more money no longer important to me?
Am I OK with growing poorer over time?
Hmm.
I really don't want this to be a long blog.
So, I might blog about this topic a bit more later in the week.
The latest 6 months T-bill auction gave us a cut-off yield of 3.78% p.a. which was decent enough.
Some crazy kiasu people put in very low competitive bids which drove down the cut-off yield.
This is evident when we look at what the average yield was.
Why would anyone place a bid of below 3.26% p.a. is beyond my comprehension?
Even if we were to place a 6 months fixed deposit with OCBC using CPF OA money, we would get 3.3% p.a.
This is why I say many people are selfish and this is actually worse because it harms themselves and others at the same time with a lower cut-off yield for everybody being the result.
Simply inane.
I am not doing any shameless promotion for OCBC because it is my largest investment but take a look at their promotional interest rates: HERE.
Anyway, by now, we shouldn't be surprised anymore.
I am just happy that the cut-off yield is still much higher than what DBS, OCBC and UOB would offer for 6 months fixed deposit at this point.
This is because I am just rolling money from maturing T-bills into new ones by now.
Yes, my T-bill ladder is complete and it is another source of meaningful passive income for me.
Is this going to continue?
To be sure, I do not have a crystal ball.
However, for various reasons, inflation is likely to be sticky which means interest rates will probably stay higher for longer.
The front end of the yield curve is still elevated even as the Fed has signaled a pause in rate hikes.
I know there is talk of a Fed pivot by end of the year and it could well happen but worrying about whether it will happen or not does nothing to generate income for me.
I would rather make hay while the sun shines.
Anyway, my expectation is for 6 months T-bills to remain relatively rewarding in the near future, taking into consideration that it is risk free and volatility free just like the CPF.
This helps to grow the base of my pyramid which I mentioned again recently during "Evening with AK and friends."
As for Singapore Savings Bond, like I shared last month in a blog, my mission for the year was already accomplished.
Fortunately, that was the case too as the 10 year average yield has declined significantly in this month's offer.
A much lower 2.81% p.a. 10 year average yield doesn't cut it for me.
Better off just doing voluntary contribution to my CPF account.
Not doing shameless advertising for DBS because it is one of my largest investments but if you have a shorter duration of two years in mind, a 2 year endowment plan offering guaranteed 3.92% p.a. by DBS is a not a bad idea.
I imagine that as doing a top up to my CPF SA which I am not allowed to do anymore.
Why am I doing what I am doing in the fixed income space?
I want to invest in strong businesses to have peace of mind but, even more than that, I want to make sure I have a portfolio which has a stable footing as that really helps to promote peace of mind.
I always say don't do a Chicken Little.
The sky is not falling.
Don't go to extremes and have, say, 90% of our portfolio in T-bills unless we are old retirees nearing the end of our lives.
Of course, I am not saying that my way is how it should be for everybody but this works for me.
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