Never bored! (Thoughts on preparing for early retirement.)

UPDATED (19 DEC 16)

She is one scary lady!

It would be nice to be strong!

Recently, when I met a few friends for dim sum, one of them asked me if I was bored in (early) retirement? 

It is a question I get asked a few times before, online and offline. So, it was no longer a surprise.






I have a list of stuff I want to do. Some people call it a "bucket list" (i.e. a list of things to do before we die or kick the bucket). 

In retirement, my bucket list doesn't get shorter. It gets longer! 

I am discovering more things that I want to do in retirement.





Let me share a bit about my childhood. 

I always liked the arcade as a boy but didn't have the luxury of visiting regularly. 

I always envied friends for having game consoles as a boy but didn't have the luxury of having one. 

Something happened many, many years later:

I bought a Nintendo Game Cube for myself more than 10 years ago as a birthday present but as I still had a busy working life, I didn't have much time to play. 

Now, I have plenty of time and I am living one of my boyhood dreams. Bored? Impossible!




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


Reader says:

We have seen many old retirees becoming aimless in their life and it’s becoming a waiting game.


I can understand for many, they have little money after retired and for some, they are rich enough but their life evolve around having dinner with a few friends and family members, travelling around as long as they are healthy enough.






Nothing meaningful and to fill their time, some even continue working….it’s sometime reminded us what is soon becoming to us but maybe we can do it differently.

I would ready like to know if you can share with us your personal experience when one retired early ?

How do you prepare yourself ?

How do you manage retirement mentality and physically when you retired early ?

What do you do daily ?

Do you plan ahead for 10 years and more ? If you start all over again, what would you have done differently ?

Any advice is much appreciated ?

Thanks !

AK says:


I don't know about doing it differently but here are my thoughts.


I am a worrier and I plan almost everything in my life. 

Of course, I am aware that I cannot always get it exactly right but being approximately right is enough to make me happy.





I think it is important not to be married to our jobs and I have seen many people who do not have a life outside their working life. 

The danger for these people is having a feeling of emptiness if they no longer have their jobs.


I can understand that sometimes we really have to work very hard to make more money. I have been in that situation before. 

So, I know the feeling. 





For a few years, I was monetising all my free time to make more money because I wanted to retire early.


However, at some point, if we have free time, we should find something else to do. 

Hobbies we enjoy. Spending time with people we love. There must be quite a few things to do that is not work related.

I won't tell you what I do in my free time because each of us will have different likes and dislikes. 

To put it crudely, have a "bucket list". :)






Retirement is not about being unemployed and having nothing to do. 

It is about having the time to do things we enjoy and not having to work for money.




Related posts:
1. To retire by age 45, plan...
2. Retiring before 60 is not a dream.
3. Work not because you have to.
4. AK answers questions on early retirement.

(Added 1 Jan 17 from FB wall.)

Confused and wondering what to do with $500K yearly.

Reader:

I read your blog and have a few queries on houses and all. Might be a long post.

Im would like your help to see whether u can talk to yourself? Hhahaah

My wife and i are grateful we have a few businesses giving us very decent cashflow.

We rent small and manageable house(follow rule of 15) and have abt 200k in stocks and a good allocation for gold and silver.

Where im stuck at is every year we will have 500k in cashflow that needs to be utilized. I would like to ask. If you have 500k every year net net. How would you allocate ah.

Thats for stocks. For house. Im also stuck. I would like to buy a small hdb and let my parent stay and be happy and all. But i feel if i do that. I was told by an agent then lose 2 opportunity to buy a property. Zzzzz

I would like to ask if you are free. Can talk talk to urself? Or if u prefer. Can i buy u large lunch?

Regarding cash my main concern is im hoarding cash and is that a good thing?

So many qn so confused. Whole new ball game outside of the biz world im familiar in haha.

Paiseh. Thanks ah

AK:

What people should always ask is what do they want? For me, I am concerned about having a comfortable level of cash flow since I am retired. So, most of what I do will have that in mind.

In your case, cash flow is not an issue. So, what are you looking for? When you know what are you looking for, you will know what to do with the money. Don't ask me how I will allocate the money because we have different circumstances and different aims in life. For example, I would probably allocate a huge chunk of the money to charities if I had an annual cash flow of $500K. ;)

If you know you want to invest the money to grow your wealth, there is nothing wrong with having an overflowing war chest while you wait for opportunities. :)

As for buying a flat for your parents, I think I understand your concern. Well, you could buy a small flat for them in their names. You won't lose the opportunity to buy a HDB flat or EC for yourself in future then. Consider it a gift. Or you could buy a shoebox condo for them to stay in but in your name. Of course, you won't be allowed to buy a HDB flat or EC for yourself then. With your level of cash flow, either option will be easy financially.

Related posts:
1. Get the most out of ASSI.
2. Enough for retirement and do charity?
3. Is it bad to receive dividends and sit on cash?

PREH is likely to continue trading at a big discount.

My experience with Perennial Real Estate Holdings (PREH) started from its days as Perennial China Retail Trust (PCRT).

PREH has a portfolio consisting mostly properties in China in terms of asset value (75%) and the balance being properties in Singapore.

Some numbers:

NAV/share= $1.68
Gearing= 0.45x
EPS=6.88c






At 90c a share, we are looking at a PE ratio of about 13x.

I believe that PREH is a long term value creator. 

The investment thesis is somewhat similar to that for CapitaMalls Asia which I had an investment in before. Similarly, PREH's Chinese investments will take time to deliver the goods. 





PREH is definitely not for the impatient investor. 

Although not comparable in many ways, for something similar in terms of gearing and EPS, the purist income investor might be more interested in Croesus Retail Trust (which holds Japanese commercial properties) and regular readers know that I have a significant investment in Croesus Retail Trust.

...

At the moment, I have a smallish exposure to PREH and I am likely to add to my position if its stock price should decline further.

I like PREH's longer term growth story and I am quite willing to wait for it to do better.

I bought into my investments in both OUE and Wing Tai Holdings at a 50% discount to NAV or more. 

So, I will probably add to my investment in PREH using the same yardstick.






Related posts:
1. Perennial Real Estate Holdings.
2. Perennial China Retail Trust.
3. Croesus Retail Trust.
4. CapitaMalls Asia.

Pay down mortgage or beef up emergency fund?

Dear AK - 

Thank you for all your sharing, I have learnt so much from your blog.

 

I have one quick questions that I am not sure if you have touched on previously.

 

My situation is that I am expecting to receive a lump-sum payment by end of this year, an amount that while would be meaningful for me, and around 12 months my monthly expenses.

 

I currently have a separate emergency fund allocation of 4 - 6 months monthly expenses buffer.

 

I am wondering if it would make sense for me to use this lump-sum payment that I would be receiving to pre-pay my mortgage. 

 

Or shall I keep it into an emergency fund account (One UOB/ OCBC 365)

 

Thanks for your thoughts.

Best regards

 

Hi,

If the interest rate on your home loan is much higher than the interest rate you could receive from UOB ONE or OCBC 360, then, it makes sense to pay down the home loan.

I don't know how old you are but if you are older than 30 years old, you might want to beef up your emergency fund. See: http://singaporeanstocksinvestor.blogspot.sg/2015/05/how-much-should-we-have-in-our.html

Best wishes,
AK


We want to remember that there is a cost for holding liquidity but because it is important to have liquidity, bearing some cost to do so is acceptable.

We are lucky that in the current low interest rate environment, it is also less costly to do so.

When will it rain again? You tell me.

Related post:
UOB ONE or OCBC 360?

Downsizing our homes for better financial health.

Hi AK,

My husband and i are in our late thirties. 

Right now we own a 5-rm hdb flat. 

We do not have children yet, but are planning to. 





We have plans to downsize our hdb to a 3-rm flat because:

1) there's only the 2 of us. 
Even if we have children, the size of a 3-rm flat is still considered ok.





2) we can pay off a bigger portion of our mortgage loan as the loan amount will be much lesser compare to our current one. 

We do not plan to buy a 3rm which is more expensive than our current 5rm. 

(However, we may have to take up bank loan as I have already used up my 2times hdb loan quota - one with my family before i got married and the current one.)





3) i have a couple friend who downsize their hdb from 5rm to 3rm, fully renovated it nicely and was able to pay off the housing loan in full. 

Now their income are purely for living expenses and savings/investments. 

That also gave me the idea of downsizing.





Please advise if there is anything which i may have overlooked and anything to look out for.

Thank you!

Best Regards
Blue

Hi Blue,

I like the Tiny House movement. 

Very often, people over-consume when it comes to housing. 

In a country where housing is so expensive like Singapore, over consuming on housing can really set us back financially, everything else remaining equal.





1. If you feel that a 3rm flat gives you ample space, then, you don't need any flat bigger than a 3rm flat. 

You might want a bigger flat but you don't need a bigger flat. 





2. If you would like to have a smaller mortgage, downsizing and downgrading definitely makes sense. 

Keep the monthly repayment for your new home loan the same amount as what it is for your current home loan and you will pay up the mortgage faster.





Alternatively, you might want a longer term loan, taking advantage of the low interest rates now and improve your cash flow. 

However, you should have the resources to pay down the loan rapidly in case interest rates go much higher.





3. To have a home fully paid means you have both control and ownership. It is an asset. 

As long as a home is not fully paid, we do not have ownership despite claims to the contrary. It is a liability.

Related posts:
1. My home is a hut in the sky.
2. Housing and my CPF money.

52 year old lost $200K and unsure about next 30 years: Discussion continues.

Reader says...
Hi AK,

Thank you so much for responding to my email and providing your thoughts. I have been thinking over it for the past few days.

1.

I am pretty frugal and current monthly personal expenses on myself is about $1k. Another $1k spending on the maid, and $500/mth on insurance.

So roughly $2.5k/month.

2.

The sad thing is I haven't been able to build up any passive income at all, except for the $1.4k monthly rental from the 2 rooms let out.

3.

Friends ask me to move to the condo and rent out the 5-room flat for passive income, but the rental market seem weak with all the property cooling measures and tons of new hdb flats launched.




4.

I do not have any dependents, just myself to take care of.  Would it be a good idea to take up a loan (6% p.a.) from the whole life and continue to let it run vs surrendering the policy?

5.

I popped by the bank and opened a SRS account today and will transfer in the annual max $15,300.  I am at the 14% income tax bracket, so hopefully it will help to bring it down a bit (maybe a few hundreds).

Hope to go into ETFs and REITS for passive income, in your view is it ok to enter at current level or i should wait for market to go down a bit?  I am very worried because i cannot afford to lose too much at my age, and am really clueless which ones to go for..

AK says...

1. Frugality can only help in your wealth building effort. Good on you.

2. Try to build up passive income to improve cash flow but it is easier to improve cash flow by reducing expenses first. You still have room for this.





3. Rental market is expected to remain soft. My stand on the condo remains the same if you are concerned about cash flow. (Readers who are interested, please see related posts below.)

4. If you have no dependents, you don't need life insurance. (Dispense with this expense and have more savings.)





5.1 SRS makes sense for anyone who is paying quite a bit in income tax.

5.2 If you are worried about losing money at your age, obviously you are worried about volatility. If you cannot stomach volatility, staying away from the stock market is not a bad idea. Peace of mind is priceless.







Related posts:
1. 52 year old lost $200K and unsure about next 30 years (Part 1).
2. Should we buy a shoebox condo in NE Singapore?

52 year old lost $200K and unsure about next 30 years.

hi AK, need your advice.

I am a 52 years old single person, still working but hoping to quit from my stressful job and pursue own interest.  

Have come across your postings just recently - how i wish i had done that much early.  

My investment decisions over the past 10-15 years were really bad and lost $200k+ in stock and commodity markets.

Current financial situation:

- 5 room hdb flat (fully paid) with 2 rooms rented out. Got maid to take care of the flat, tenants and me

- mini condo (570 sqft - $660k) above MRT station and mall TOP later this year, w outstanding loan $400k @1.5%+ p.a. (another bad decision?  haiz)

- Cash at bank $580k, Investment $280k, CPF OA $150k, CPF SA $190k

Insurance:

1 whole life and 2 critical illness policies sum assured of $50k each running since 1980's (total annual premium $3.6k for all the 3 policies)

1 term life $250k until age 65

1 Enhanced Incomeshield (advantage)

1 Aviva MyCare (Supplement ElderShield) Premium $1.2k/yr with payout of $2k/month for live if anything happens

1 Home insurance $80k

Very unsure what i should do at this crossroad in life to at least get some stable/passive income to sustain myself for the next 30 years maybe?

- sell or rent out the mini condo? not sure what price it could fetch if sell?  If don't sell, should i try to pay up the full loan asap? 

- what type of investments i should go into, thinking of ETFs and REITS, but which ones and when to enter?

Would really appreciate if you could throw some ideas..

Many thanks. 

AK says...

I will make a few general remarks here and you see if they are helpful to you:

1. You must find out how much money you need on a monthly basis in retirement and whether your current passive income level is sufficient. 

If it is sufficient, you can basically quit your stressful job and retire now to pursue other interests.

2. If passive income level is insufficient, are there ways to reduce expenses and liabilities? 

Are there ways to improve passive income level?





3. Shoebox condominium. 

I don't know if it is a good decision or a bad one. 

If this is able to generate positive cash flow for you, keep. 

Otherwise, you might want to consider selling it.

4. Insurance.

- Since you have had the Whole Life policy for donkey years, you might want to keep it till age 65 before surrendering. Treat it like a bond. 

However, you could consider terminating it if you do not have dependents. This will improve cash flow.

- Keep the CI policies. You need these.

- Keep the Term Life unless you have no dependents.

5. Investments. 

I won't tell you which ETFs and REITs to invest in. 

Do a bit more reading and decide for yourself.






- At your age, you might want to simply max out your benefits as a CPF member. 

You are only 3 years from 55 when you will be allowed a lump sum withdrawal from your CPF account. 

Contribute to the Annual Limit allowed.

- You might also want to start a SRS account especially if you are a high income earner. 

The tax savings is very attractive and is money in the pocket. 

The SRS account money will become accessible without penalties at age 62.







The discussion continues in part 2: here.

Related posts:
1. Why plan early for retirement?
2. Buying a property: Value for money.
3. Consider terminating whole life insurance.
4. SRS: A brief analysis.
5. Retirement: Buying AAA rated bond.

Want to know if you pay too much for insurance?

I said a few times before that we need insurance in life and, for most of us, we also need to invest for a more secure financial future.

However, insurance and investment should be kept separate to make the best use of our limited financial resources.

Buy insurance for the sake of insurance. Don't mix insurance and investment or we could end up paying too much for insurance.

Always ask:
Are you overpaying for insurance?

Many people are paying a significant amount from their hard-earned money for their insurance but are still severely underinsured. 

It is not unthinkable that we may need up to $1million coverage of life insurance or more. This is to provide for our dependents’ living expenses, children’s education and repayment of outstanding loans if an unexpected death occurs.

Find out about your life insurance coverage needs using this simple calculator: Click Here

While this coverage seems like it would need an enormous amount money to pay for, it does not have to cost a bomb.

For a 35 year old male, looking for $1million Death and Total Permanent Disability Coverage until 70 years old, the coverage costs $1,749 a year (less than $150 a month) to be paid for 35 years with term insurance.  

If we go with whole life insurance instead of a term insurance, it becomes very expensive. We will find that we are not able to sufficiently insure ourselves if we use whole life insurance. For the same 35 year-old male, $500,000 whole life coverage could cost S$8,250 a year to be paid over 49 years!

Paying more for insurance is not the same as having enough insurance coverage!

 

Compare what you are currently paying for your insurance policy against what is currently offered by the different insurers here. 

Are you overpaying for the amount of insurance coverage you have? Do you have sufficient insurance coverage for your loved ones?


Purchasing a term insurance is the only way to provide sufficient coverage affordably.

Recently, there has been a huge debate on DIYInsurance’s Facebook page with insurance agents attacking the stand for Term Life Insurance. 

In response, DIYInsurance, has written an e-book, The Case of Term vs Whole Life Insurance: A Comprehensive Consumer Guide to explain the stand of advocating for term insurance for consumers.

The must-read informative ebook details the purpose of insurance and how we can plan for our life insurance needs. It also highlights the commissions paid to insurance agents and why commissions from whole life insurance could lead to insurance agents promoting whole life instead of term insurance.

For a limited time only, download the free e-book here

Remember, no one cares more about our money than we do.

More about DIYInsurance:

DIYInsurance (Do It Your way Insurance) is Singapore's First Life Insurance Comparison Web Portal.

Launched in June 2014 by MAS-licensed financial advisory firm Providend Ltd , DIYInsurance empowers consumers to make informed decisions about their insurance purchases based on their own agenda. On the portal, users can easily compare insurance products across insurers. 

DIYInsurance is led by key people with around 2 decades of experience and has benefited more than 110,000 users with the most honest, independent and competent advice. All staff are salaried-based and not commissions-based. To provide greater cost savings, clients are rebated 30% of the salesperson’s commissions.

Wife wants to sell HDB flat to buy condo (Part 2).

Thanks ak.

Sorry, didn't make myself clear.

She's intending to sell current HDB to buy condo for own staying.

So rental probably not a big concern.

I'm just trying to consider when is a good time to do such "upgrading".

Sell HDB now will not lose but won't earn much.

But selling HDB during recession would save more if condo prices fall more so perhaps make sense to wait for recession.

Do you (just your own thoughts) think govt may lift ABSD if recession hits? 

Hi R,

The health of the rental market will determine the market prices of real estate to a large extent. So, if the condo rental market continues to soften, condo prices will continue to come under pressure. For own stay or rental, this is something to bear in mind.

Our home is a consumption item. It would not be wise to overstretch our finances to stay in a more expensive home and I know a few people who overstretched.

If we are able to afford a condo quite safely (i.e. it does not impact our balance sheet badly and it is not reducing cash flow to a trickle), then, good.

If I had to sink further into debt and if my monthly cash flow is reduced drastically because of this purchase, I would worry.

Of course, always think about the opportunity cost. For example, if I had to dispose of income producing assets in order purchase this condominium, I would think twice.

Staying in a condominium does not give any financial security.

Personally, I do not think that the ABSD will be lifted soon. When interest rates start rising in a sustained manner, maybe. Just a guess.

However, you might want to ignore all that I have said as keeping your wife happy might be worth the price to you.

This is where I should stop talking to myself.

Best wishes,
AK

Related post:
Wife wants to sell HDB flat to buy condo.

Wife wants to sell HDB flat to buy a condo.

Hi ak,

My wife had been hankering me about buying a condo coz her sisters all have multiple condos. All renting to service loans. I just feel we are late to the properties game and don't want to get caught in a bloodbath.

In order not to pay ABSD, she thinks we should sell our current flat. But the market is so bad now I don't know whether we could sell at all.

Her argument is if we wait for market to worsen,  though we may get the condo cheaper but our flat price would also drop. So there is no best time.

What would you do if you are in similar position?

Thanks.
R

Hi R,

1. Fact. Rental market is getting softer and softer. Even if prices of condos come down a bit more you could be setting yourself up for disappointment as vacancy rate continues to go up and rental market stays soft.

2. If I could, I would have bought a BTO HDB flat. If I had a HDB flat, I wouldn't sell it, especially not because I want to avoid paying ABSD on a second property if I am going to buy one.

3. When a crash happens, condo prices will drop more than HDB flat prices in absolute dollar terms. 

OK, now comes the difficult part.

If I were in your shoes, my stress level is probably through the roof because I am not the type to throw pragmatism out the window to please my other half.

Good luck. :)

Best wishes,
AK

See Part 2: here.

Related posts:
1. Disastrous property investments.
2. If we are not rich....

Wonder why some will never be rich? (He blew $700K in 1.5 years after receiving inheritance.)

If someone makes a lot of money (legally and ethically), it is probably also good for the economy and the people around him. 

Multiplier effect. 

That's something I remember from Economics. 

People like that are usually looked upon as rich.






Some might not be very good at making a lot of money or might not have the inclination to make a lot of money. 

Does this mean that they cannot be rich? 

Regular readers know my answer to this question.






No matter how much money we make, if we spend more than we make, we are in for some trouble. 

However, this might not be the case for some lucky people.





A reader shared this story:

From the comments section: here.

"His whole life is about showing off his consumer goods, BMW, branded watches, holidays, etc.... all his money came from my parents who indulge in him...

"When my sister-in-law died, he inherited the insurance money .... and blows $700K within 1.5 years.

"He called himself not good in managing finance but in reality is addicted to spending money and refuse to accept responsibility..."






How do you feel?

What do you think?

In another blog post, I said: 

"Of course, sometimes, people need to suffer a fall before they are aware of their financial mortality."

Some people are lucky enough not to have to suffer a fall. 

So, they live within an illusion of financial immortality.


The operative word here is not "immortality". 

The operative word here is "illusion".





Wonder why some will never be rich?

Having the right philosophy in life will guide us on the right path when it comes to money matters.

Remember the 3 attributes of a wealthy peasant: HERE.






Related posts:
1. From rich to broke.
2. If we are not rich, don't act rich.

Should we aim for financial freedom and have no social life? (How much material wealth is enough?)

UPDATED:
Reader:
"Hi AK,  I have been a reader of your blog since 2014 and I start to do invest. 

"Sometime I am worry that my investment would fail and become failure in life. 

"Since then I try to avoid having girl-friend because I scare that one days I mind be a liability to wife and girl-friend.

"should I continue to invest for financial freedom and be frugal and give up on society life."

AK:
"This is very personal. No one can advise you on this. Do what you feel is right for you."

Please don't ask me questions like this. I also blur.











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

AK said...

This is something I have thought about before.

I am not sure but I don't think I will feel sad or jealous if I were to attend gatherings where friends show off how well they are doing materially. 

They made their choices in life and I made mine.





I don't avoid social gatherings per se but I am very selective these days.

I have grown to enjoy my own company a lot more as I grow older. 

I like a quieter and simpler life.

Having fewer relationships in life promotes quiet and simplicity. 

However, no man is an island and I only maintain relationships which matter more to me.










When it comes to money, although we are all made differently, all of us need money in this modern world of ours.

However, it is good to remember that we only need so much money in life. 

This simple fact is lost on many as they pursue more material wealth than really necessary.





How much is enough?

How much is more than necessary?

The answers would differ from person to person, of course.

Whatever the answers might be, materially, we want to be comfortable while, financially, we need to be secure. 

Achieving this will give us peace of mind and I am sure we will feel happier then.

If we have achieved this, it is enough.




...

Related post:
A story about a lady in my life.