Why work hard and plan early for retirement? (UPDATED)

Reader said...
Actually retire also hard work to make it work well.

AK said...
Oh, I am working very hard in retirement.
Trust me, I know what you mean. ;)

(F.I.R.E. = Financial Independence & Retire Early.)

If you haven't listened to the song, listen, there is a hidden message.





Our conversation continues:

My reply:

Hi iwimsasl,

I believe that everyone's life can be and should be better.

I know people who belonged to the low income group who took affirmative action to change their lives for the better and I have shared some of their stories here in my blog too.

“If you are born poor it's not your fault but if you die poor it's your fault.” Bill Gates.





This is true especially in societies like Singapore where everyone has equal access to education and opportunities are available to those who are willing to work hard and look for them.

There is no point for the low income workers to complain or feel sorry for themselves. 

Unfortunately, many do and it doesn't change anything.

I see some complaining on FB all the time. 

They have time to complain, why not spend time to improve their lives?






Asking for CPF LIFE to start paying them earlier is unlikely to make a big difference in such an instance since there is probably not enough in their CPF-RA to last them very long. 

Pay them a monthly income from a smaller sum for life? 

The monthly payout has to be much smaller to be equitable. 

I don't think it is a reduction of only 7% or 8%.

Accumulating for only 5 years at 5% per annum (bearing in mind that the first $30K is paid 6% p.a. while the next $30K is paid 5% p.a.), CPF-RA money would only grow 27% while accumulating for 10 years, it would grow 63%!





So, with this understanding, we see that the monthly payout, proportionally, would have to be 22% lesser to be equitable if payout were to start at age 60 instead of 65.

The prudent thing to do for these CPF members would be to continue working for as long as possible, putting off retirement and allowing their CPF-RA money to accumulate for at least 10 years.






Unfortunately, for many low income workers who are much older, it might be the reality they must face as the probability for upward mobility dims for them. 

Younger low income workers who are physically and mentally whole should not give up.

I shared before in my blog that what pushed me to work harder in my younger days, holding 3 jobs at one time, working 7 days a week, and to plan early for retirement was mainly the fear of growing old and destitute. 

人无远虑, 必有近忧.

Many people just don't think ahead and I hope more people will.






Related post:
Worried you won't live to enjoy all your CPF?

What do we call people who want everything for free?

I just wasted half an hour of my life talking to someone on FB.

There are some people who have difficulties despite their best efforts to make ends meet. 

They might be handicapped in some way.

So? What to do? 

We should help these people.

However, there are those who are physically and mentally whole but are complaining day in and day out. 





These are usually the ones who keep asking why must they pay for this and why must they pay for that?

They want free education.

They want free transportation.

They want free medical attention.

They complain until sometimes I run out of patience.

Wah! A poem? 

Not bad, AK!





We are familiar with the saying "there is no free lunch in this world". 

If lunch also cannot be free, how can education, transportation and medical attention be for free?

Hey, AK. Why not? 

In some countries in Europe, really got such free things!

Alamak! 

Then, AK is the stupid one lor. 

Cham liao.

Please lah. 

AK not stupid.





Free education? 

Do these people think that the lecturers and tutors work for free? 

Do these people think that books grow on trees and the libraries are manned by altruistic house elves? 

Do these people think that the lights and machines are powered by magic and water flows clean and freely from Mount Faber?






Please lor.

All these have to be paid for.

If we wish to enjoy something, we have to pay for it. 

If we got it for "free", someone else is paying for it. 

Providing subsidies for financially struggling families is the caring thing to do but if we are not financially struggling, don't cry father, cry mother. 

Pay up!

What? 







We are financially struggling because we must pay for our car, our maid, our twice a year atas family vacations etc.?

Alamak, so, those tax payers who don't have a car, who don't have a maid and who don't go for atas vacations must subsidise our lifestyle, is it?


佛都有火.

So, what do we call people who want everything for free?

Related posts:
Do you need or want assistance?

Worried you won't live to enjoy all your CPF savings?

Added (20 Jan 17):
Reader says:
I was talking to my colleagues today about CPF life.

They are very concerned about the payout starting at 65 and they not being able to live long enough to fully draw out their CPF money.

I tried to explain that they might outlive the $166k and receive free income for life, but they are skeptical that they will live beyond 80+...






AK says:
I rather have the assurance that I won't be old and destitute than worry about whether I would be able to enjoy all my savings before I die... chances of us living past 85 are quite good.



---------------------------------------------------------------------------


A reader's questions after reading a recent blog post of mine:

My reply:
Hi iwimsasl,
If we do not believe that having an annuity is a good idea to help fund our retirement, then, this is probably a bother. 

However, if we believe that an annuity is a good idea, then, there isn't a better annuity offer than the CPF Life out there.





CPF Life is meant to start paying out at age 65 but we can choose to defer the starting age till 70. 

The benefit is that the payout will be bigger monthly because the CPF-RA funds will have another 5 years to accumulate. 

Allowing earlier withdrawal would translate to a less meaningful monthly payout which is why it is not a good idea.




Will the minimum age be raised from 65 to 67? 

I don't know but I don't think it is a bad thing if it should happen.

It would probably mean that Singaporeans are living longer and we would receive larger monthly payouts because the accumulation period is longer.

See: 
Upsize $100K to $225K?

Insurance is about transferring risk and also the sharing of risk. 

Annuity is an insurance. 





For having the certainty of a basic level of lifelong retirement funding in my old age, I think bearing some cost is reasonable. 

What if we happen to be blessed with longevity? 

It could happen and insurance is about guarding against what we cannot foresee.




Very often, the preoccupation with trying to get back some money from buying insurance after X number of years leads many to overpay for insurance. 

This is probably why so many are under insured or pay too much to be adequately insured.

Know which insurance products are essential and get the best value for our money. 




I believe that an annuity is essential and as an annuity, CPF Life gives me the best value for my money.

FB (31/12/16)

...





Related posts:
1. Mom stunned by what happened to her CPF-RA!
2. Retirement funding for our parents.
3. Funding XX% of our retirement with CPF.

Mom stunned at what happened to her CPF-RA money!

Alamak, another blog post on the CPF?

Quick, those who are tired of the topic, close the window!





Still reading?

OK lor.

My mother is going to be 70 years old next year.

When she turned 55, $65,000 was moved into her then newly created CPF-RA. 

That was the minimum sum for her cohort, apparently.

My mother is still actively employed but is thinking of retiring soon.






Mom:
"Ah boy ah. Can help me go into my CPF account online or not? I want to see how much I have now."

AK:
"You want to see how much money government gave you, is it?"

Mom:
"Aiyoh, cannot be a lot lah. Maybe now my CPF-RA will have $80K or $90K lor."

AK:
"You will be pleasantly surprised."


After 14 years, what has happened to the money in her CPF-RA?





This happened:

Click to enlarge.

$118,709.04

Mom:
"I so stunned like vegetable! Haha."

Stunned already can still laugh?

OK, no need to call ambulance.





If there is a need for it, this will provide her with a monthly income.

What? 

People say don't be stupid to top up your CPF-SA?

OK lor.

Related posts:
1. Get 6% from CPF?
2. Financial strategy for elderly?
3. Retirement funding adequacy.

How younger members can get 6% per year from the CPF?

I have regularly blogged about how CPF members should grow our CPF savings and make it a cornerstone of our retirement funding strategy. 

I have shared my own approach and also my results here in my blog which I have been told have inspired many readers to adopt similar strategies.

Over time, some readers have written to me to share as well and I am happy to share one email here today from a regular reader:








AK,

My mother is 77 years old. Her CPF Retirement Account has about $300. I would like to top up her RA account to $60,000 to take advantage of the interest rate of first $30,000 is 6% and second $30,000 is 5%. 

I am planning like in 10 years time the growth will be sizable and relatively risk free. I will get her to nominate me as the beneficiary of her CPF savings. 

What do you think?

Respectfully,
SM

A screen shot of one of  my many blog posts on the CPF.

Hi SM,

I like the idea and you will also get income tax relief for up to $7K Top Up to her CPF-RA each year. Gambatte! ;)

Best wishes,
AK


AK likes this. 





See also:
3 reasons to top up parents' CPF

Find out more about the role of the CPF and enhancements to the CPF here: www.cpf.gov.sg/bigRchat.


Related posts:
1. A cornerstone in retirement funding.
2. Retirement funding for our parents.
3. Parents say don't be stupid to top up SA!
4. 2016 changes to the CPF and SRS.


"If you are 55 years old or older, you will also receive an additional 1% interest on your first $30,000 in CPF savings which means you get 6% interest per annum, risk free!


"It would be a good idea for younger readers to communicate this change to their parents. If at all possible, consider topping up your parents' CPF SA or MA if they do not have that first $30,000 in their accounts." AK 

"Compared to anger and fear, shame is 1,000 times worse."

UPDATE (30 Dec 16):
If we are prepared, we need not fear the big bad letter "R".

"About 120 employees from Toyota agent Borneo Motors and Suzuki agent Champion Motors will be retrenched in the coming weeks, in one of the largest downsizing exercises to hit the local motor industry. 

Their parent company, vehicle distribution giant Inchcape, is restructuring its operations here. The cohort represents 12 per cent to 14 per cent of Inchcape's headcount in Singapore. 

The latest retrenchments come amid a gloomy economic outlook."
Source: The Straits Times.





------------------------

This is a very touching letter from a new reader. I edited the letter before publishing it. 

However, I tried to keep the original tone and definitely the content:

Dear AK,

I am a father of 3. They are 16, 14 and 10 years old. I was retrenched last year and felt very bitter towards the company. Being retrenched at 48 and with a family to feed is no joke.

That bitterness became fear with passing time. How was I going to support my family? My wife tried to find work too in those months but having been out of the workforce for so many years, she was unable to find suitable employment.

Bills still had to be paid. Our savings were used up quickly and I had to borrow money from our families to meet expenses. It was shameful.

Compared to anger and fear, shame is a thousand times worse.







I was going crazy. I was about to break down. I thought of killing myself.

My children are the reason why I was able to continue living and I finally found employment two months ago. It pays one third less than my previous job but I am grateful that the months of not knowing how to provide for my family are over for now. 

When I visited my younger brother last month to return some of the money I borrowed from him, we had a long talk.

I told him I was angry and fearful. 

He asked if I was still angry. 

He asked if I was still fearful. 





I told him that I no energy to be angry anymore but I will always be fearful.

He gave me a few suggestions and he referred me to your blog. He has been following your blog.
AK, you opened up my eyes! 

I read all the blog posts I could find on personal finance in your blog. I did not waste time on the blog posts on investment because I am not ready for that.

I did save some money but I did not plan. Now, I know I have to save for:

1. An emergency fund - 24 mths of expenses.
2. Topping up my CPF - for my retirement.

My salary is lower now and I have to return money borrowed from families. 

I know I don't really have a choice and I am prepared to work till I am 65 when I have a monthly allowance from my CPF like you said in your blog. 

All my children should be independent then.





My retrenchment is probably a good lesson for my children. 

They saw how it got me badly. I hope they remember. 

My eldest is reading your blog too because he got interested when I explained to him.


By sharing my story, I hope that others will avoid the bad feelings I had when I was retrenched.

见贤思齐焉

LHY







If we had an umbrella handy, we wouldn't have to fear the rain and we wouldn't be angry because we got drenched.

(If someone could help me decipher the Chinese phrase accurately, please do, because Google Translate isn't very helpful.)




Related posts:
1. Don't depend on wage increases...
2. Best insurance to have in life...
3. Emergency fund...
4. Too late to plan at age 57?
5. Retirement adequacy (CPF Life).

How many 20 years and $29,000 do we have?

Friend, sighing, "I should have listened to you."

AK, "Huh?"

Friend, "I finally surrendered my PruLink policy."

AK, "Oh, congratulations!"

Friend, "Congratulate what lah? I put in total of $29,000 since 1996. Every year put in money. 20 years and I took back less than that! I lost money!"

AK felt like saying "I told you so" but AK kept quiet. 

Friend, "Leave money in the bank or fixed deposit also better. Should have terminated long ago. My agent told me to continue paying for another few years and maybe it will make money. Stupid, right?"

AK, "Er... Ahem..."

Friend, "I still remember you said to terminate and put the money in my CPF-SA. How much would I have now if I did that?"

AK, "Well, I don't think you want to know..."

Friend, hesitating, "Ya, you are probably right. Haiz. Sad lah."






My dear readers, are you curious?

If my friend had placed the yearly contribution of $1,450 into his CPF-SA for 20 years instead of the Investment Linked Policy (ILP), how much would he have today?

About so much:

Calculator at:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

$48,000.

A hard truth and the truth hurts.




That's not all. 

My friend would also have had the benefit of income tax relief which is given for the first $7,000 of Minimum Sum (MS) Top Up. 

In my friend's case, the income tax savings would have probably been a few hundred dollars a year. Multiply that by 20 years? Ouch.




The long and short of it, buy insurance for the sake of insurance. 

Don't mix insurance and investment.


Related posts:
1. Should I terminate an expensive ILP?
2. Free ILP or Term Life policies?
3. How to upsize $100K to $225K in 20 years?
Hey, sexy S A! Oppa AK style!

She is $600 richer each month without any risk.

I have been doing quite a bit of cooking at home instead of eating out. 

Er, I think I heard a few of you going "Isn't that something you always do?" 

OK, I have been doing a lot more cooking at home.

Today, I received a message from a reader:

"My hubby and I are your readers. I started first when I asked a colleague who sat next to me at work what was she reading on her phone. She showed me your blog. She suggested to follow you on fb because you do a lot more sharing there than in your blog.

"For months now, we would prepare food to bring to work for lunch. Recently, we started lunch pooling. We are very pleased with the idea. It doesn't take much more to make another set of lunch for each other. 

"We have you to thank for this because you are constantly sharing about preparing your own meals. Please keep sharing photos of your meals. They keep us going.

"Since doing this, we have saved much money. We were eating out everyday before this. It also made me examine our family food expenditure. Instead of eating at restaurants every weekend, we now do it once a month or not at all.

"My husband is actually more enthusiastic about the changes now than I was when we first started because he sees the money. Roughly, we are saving $600 more every month now.

"Since preparing our own meals saved us so much money in the last few months, we have bought tickets to your first meet the readers session next month. lol"

I usually update my wall on Facebook with photos of my cooking but not here in my blog. 

OK, for those who do not follow me on Facebook, here are photos of my lunch today:

Fried rice with potato and egg.

Steamed some vegetable.

AK's Donburi!

If AK can cook, so can you!

Remember, saving money is probably difficult in the beginning but you will get better at it. It will become a habit and, suddenly, that $100,000 target doesn't seem too far away.

“The first $100,000 is a bitch, but you gotta do it. I don’t care what you have to do—if it means walking everywhere and not eating anything that wasn’t purchased with a coupon...” 
- Charlie Munger

Related posts:
1. My food bill and my weight.
2. First "Evening with AK and friends" in 2016.

First (and only) "Evening with AK and friends" in 2016.

For quite a while now, some readers have been asking me when am I going to have another "Evening with AK and friends"? It has been many moons since the last time we had one.

A thousand apologies but AK has been lazy this year, amongst other things.

OK, finally, there will be an "Evening with AK and friends" in July. Yes, that's next month. 

Depending on the response, it could be the only session this year or we might have another one. 

Actually, I hope that it is the only session we will run this year.

Yes, AK is lazy.

Bad AK! Bad AK!

Here are the details:

Date: 

15 July 2016 (Friday).

Time: 

7.00 pm to 9.45 pm.
Location: 

Lifelong Learning Institute, Event Hall 1-1.

This is next to Paya Lebar Square and the nearest MRT station is Paya Lebar. (Duh...)

My good friend, Kenji Tay, from The Fifth Person is helping me to organise this event and I am very lucky to have Victor Chng and Rusmin Ang join me on the panel. Some of you might know these two very intelligent young men who are brilliant investors too.

For those of you who are not familiar with how "Evening with AK and friends" operates, it is basically a gossip question and answer session. 

Fun and laughter with a bit of sharing thrown in? 

Yes, in that order. 

What? You think attending "Evening with AK and friends" will make you a successful investor?

Best to ask those who attended before.

If you still want to come to the event, tickets are priced at $28.00 each. Get your tickets: HERE.

Seats are limited. So, fastest fingers first.
---------------------------
UPDATED ON 
4 JUNE 16 (11.30 PM).

----------------------------
I have received requests from some readers for more tickets to be released. Unfortunately, we have already exceeded the room's "official" max capacity.

So, in the weeks leading up to the event, those who bought tickets but are unable to go might want to post a note here. There will be some appreciative buyers. 

Related post:

Evening with AK and friends: Photos.

Reader is upset to have missed the boat.

This is an email from a reader:
Hi AK,

I had not been checking the news on Saizen reits. But i had been following the price.

I am disappointed to hear that it has completed their transfer of assets to Triangle TMKback in March 2016.

Just wanted to share my disappointment with you, as you know i am accumulating my funds in hope that i could start buying SAIZEN Reits.

Now i felt completely demotivated.

Is that why its at 0.09cents? Excuse my ignorance.

Regards,
B

Others might have missed the Saizen REIT boat but for different reasons.

They missed it because it is Japanese. Many were fearful because they heard from people that Japan is going the way of the Dodo. Well, it easy to believe that. 

Japan has been suffering from deflation for 20 years and housing prices are so depressed that a studio apartment in Tokyo is way cheaper than one in Singapore's CBD by a big margin.


Well, I am not going to tell B or anyone if they should buy or sell anything. I always say that my blog is a place where I come to talk to myself but it just happens that there are people listening in. Ahem...

All of us want to make money from Mr. Market. No one wants to lose money.

It has been said that the fear of losing money is a much stronger emotion than the feeling of greed to make more money. 

That is easy to understand because we want to protect what we already have in hand.

We don't have any emotional attachment to money that we have yet to make.

Anyway, there are many boats out there and there will be another boat we can board.

Don't be upset if we have missed a boat.

"Money not made is not the same as money lost."

Related posts:
1. Saizen REIT: Why did I buy and would I buy more?
2. Saizen REIT: Offer of $1.172 per unit.

More speculation, bigger the bubble.

I had dinner with a friend (and let's call him G) who is the academic sort. He spends a lot of time with plants and I have been picking his brains with regards to caring for my little planter in the sky. 

One of the things we talked about during our after dinner chat was real estate investment. We were really gossiping because a mutual friend bought a condo unit a year or so ago and is now under water (i.e. the developer slashed prices for the remaining units).

I said to G that since this mutual friend of ours bought it because he likes the condo and wants to stay there, then, let us close an eye. It is a consumption item. For many, it is hard to be rational about a highly emotive thing like a home.

G told me that I was mistaken. It was bought as an investment. Alamak, as an investment, it was a bad idea. Price too high. Yield too low and likely to become lower. Throw in capital loss and we have a pretty horrible brew, I said.

Not surprisingly, many people think that property prices will always go up and are willing to pay the price as long as they can afford it. 

We must remember that it should never be about affordability. It should always be about value for money.

I highlighted USA's lost decade and also how property prices in Japan deflated for 20 years which means that the Japanese experienced not one but two lost decades.

Why did Japan become a nation of mostly renters? 

The Japanese people don't want to take the risk of buying a house today only to see its value half 10 years later.

G said, "This is Karma!"

Well, to be fair, G doesn't have any training in Economics and he probably did believe that there were Karmic forces at work.

I said, "Bubble."

I think I was somewhat curt.

Bad AK! Bad AK!

So, I am making up for it with this blog post.

Basically, when people pay high prices expecting that future earnings will justify those prices, there is an element of speculation.

More speculation, bigger the bubble.

So, if we remember the Rule of 15 which really means a property should have a rental yield of at least 6.6% (or a price earnings ratio of about 15x) before we think about buying, buying a property that has a gross yield of only 2% or 3% is highly speculative. (See related post #2 for more on the Rule of 15.)

Well, if we somehow know for sure that renters will be willing to pay two times or three times more than the rent they pay today, then, these low yielders could turn out to be pretty decent investments in future.

A working crystal ball, anybody?

The same goes for investing in stocks and I will let the related posts below do the rest of the talking.

So lazy!

Bad AK! Bad AK!


Related posts:
1. Affordability and value for money.
2. To buy or not to buy? Rule of 15.
3. $1.14 a share cheaper than 93c a share?