Congratulations! You are 1 more step closer to retirement! The moment that you search for “retirement planning” on Google tells me that you are conscious and aware that you have to plan for your future for yourself, and your loved ones. Yes, this is not just about you only, but also the ones you love and care about too.
Let me share with you my dilemma. I do not plan to retire. I want to serve my best and reminding years to teach and build a community of savvy investors in Asia.
Why will I write this retirement planning post? Is it because my SEO friend said that it’s important to educate these readers that retirement planning should be done correctly and that a lot of people are searching online! B)
A lot of people have the idea that when one retires at a certain age, they will do what they like, or even stay at home to watch T.V the whole day. Nothing wrong with it, just that I want to give back to society instead of watching T.V when I retire.
What is Retirement Planning
Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program and managing assets. Future cash flows are estimated to determine if the retirement income goal will be achieved. Source from http://investopedia.com.
History of Retirement
In the 18th century, the average life expectancy of people was about 26 to 40 years of age. So only a small percentage of them will reach more than 40 years of age, and will need physical impairments. Some Europe governments back then wanted to help these people in monetary means till the end of their live.
Have you heard of the word “Pension” before? It was used back in the Roman empire to provide pension to those who served in military. Then the American government used it for their solider since their civil war.
The word “Planning” came into play in insurance companies, when most countries/companies are forgoing retirement/pension for their solider or company staffs. As it was not sustainable to continue because human life expectancy have improve to 72, and medical fields have help decrease death rate and improve in prevention.
Fun Fact: Did you know that Singapore ranks no 3 for the highest life expectancy according to WHO? Read more here.
What is the Retirement Age in Singapore?
In accordance with the Retirement and Re-employment Act (RRA), the minimum retirement age is 62 years. Your company cannot ask you to retire before that age.
You have this protection if you:
- Are a Singapore citizen or Singapore permanent resident.
- Joined your employer before you turned 55.
- Employees who turn 62 can continue to be employed in the organisation if they meet the eligibility criteria of re-employment.
Define Your Retirement
What are the best retirement plans? The best retirement plans are ones that you plan (write) and prepare (daily activities) for the retirement day in the future.
I have seen so many people tell me about retirement but yet only a few wrote it down and do it.
Here’s the thing, if you do not plan, you plan to fail. If you plan, you have the chance of reaching your retirement goals.
So let’s go!
Imagine in the future, you are no longer wanting to work for your boss/company, because you have a huge sum of cash that can support you for the rest of your life;
- What would you do on that day?
- How would you like to have on that day onwards?
- What would you do?
- How much do you expect to have as cashflow on a monthly basis?
- What would you like to own?
- How much would you be comfortable to have for daily retirement payout?
- How many oversea travel would you want in a year?
Please list them down on paper, and put it up where you can view it daily.
Let’s move on after you are done…
Traditional Way Of Retirement Planning (in the eyes of Financial Advisor)
Here’s what usually happens…
Your financial advisor friend ask you out wanting to do business with you, the 2 of you meet in a fast food restaurant, so he ask you to consider his insurance company retirement plans. He ask you your preferred age to retire, how much you are earning now, how old are you currently, any spouse or children currently, any savings, how much would you like to have for monthly payout in the future, etc…
Example: You are 28, no spouse but intend to marry at 32 and have 2 kids, monthly salary is $4,000, have $5,000 savings currently, like to retire at 60 with monthly payout of $2,500.
Then your friend will pull out the retirement calculator to do the math for you. Your friend will inform you that you will need $1 million by age 55 to have $2,500 per month till you are 80 years of age.
Does it sound familiar to you?
The end game seem to saving for retirement is all about cash flow.
Cash flow has always been a major factor in governing a country, managing a business/organisation and even for individuals. Cashflow gives a security sense for most of the people.
I decide to term this “Retirement Cashflow System”!
What is Retirement Cashflow System?
It is to create a system for collecting a stable cashflow during retirement.
Let’s move on to…
How to Plan for Your Retirement Cashflow System?
There are 3 things you MUST do in order to move forward to your retirement planning, and these 3 items are the fundamental.
And they are …
Protect, Save & Invest
It means to have a safety net, not just for yourself, it’s for your family and loved ones. Imagine that you realised that you are going to be in an accident and will leave you bedridden for the rest of your life, and you can’t run away from this event, what would you do?
You will want to have a protection for yourself and your family. And yes I am talking about the dreaded insurance.
This is a morbid topic, yet it is as real as it gets. Because we cannot be certain that we will continue to live normally tomorrow.
Let me share with you how I purchased these insurance/protection that’s always in favour of me and my family.
I would purchase a term insurance with a guaranteed payout of $1 million from now till the age 100.
What! 100 years of age?! Why would you want to buy such a term insurance that protects till 100 years old?
Because I want to have a guaranteed payout for my family when I pass on. Let me share with you the reasoning and math to this ideal.
I bought the term insurance back when I was 41 years of age, it costs me a yearly premium of about $8,000, with the guaranteed sum assure of $1 million.
I would only need to pay $8,000 yearly for the next 59 years and my total amount spent if blessed to live more than 100 years, would be $472,000.
Even if I pass away on my 99th year, I would have spend $464,000, and my family would still receive $1 million. Making a profit of $536,000 for my family.
Next, I would purchase hospitalisation insurance. Do you realised that the hospitalisation bills are getting higher and higher every year?
Have this area protected as well. I have purchased a $300 yearly hospitalisation insurance, that protects me up to $50,000.
Remember that term insurance and hospitalisation insurance once setup, would automatically deduct from your bank account via GIRO.
There are 2 main reasons why you MUST SAVE!
One is to save for rainy day, which you must have heard before. The other reason to save is to have the luxury of choices so that you can choose from in the later part of your life.
You see, in most of the later part of our lives, we would have grown in status in society or even have unforeseen circumstances that’s not in your plan.
Like opportunities to invest in a new technology or a new business, your kid wants to get a PHD, you want to migrate to a country that’s retirement friendly.
By the way, according to time.com, 10)Thailand, 9)Portugal, 8)Colombia, 7)Malta, 6)Spain, 5)Costa Rica, 4)Malaysia, 3)Mexico, 2)Panama & 1)Ecuador are the top 10 best places to retire. The nearest countries to Singapore are Malaysia and Thailand, which you should consider.
Like in the game of CashFlow 101, when you first start the game, you only have 1 month salary for all characters, only when you reach/pass the “Pay Check” section, will you be given salary according to your character. You will at some point of the game landed into some opportunities, but it depends on when you have enough cash to purchase the opportunity.
Always save so that you have the luxury of choices.
Before you start investing your money, let me check if you have the knowledge to invest?
If you are a beginner in the investing game, I would strongly suggest start educating yourself in these areas. You can start by reading books on investing or attend a seminar, like mine. B)
I will show you later on this post how to invest in the long term and short term.
If you can only do 1 of the 3 items above, always go for protection first. You will always want to have a safety net for yourself and your family.
If you do not have protection/insurance, even with savings and investments, you or your family would be struck in a debt, as your savings and investment may not be enough to protect you.
For those of you who are able, do all 3 of them at the same time. This is all about personal money management.
Let’s move on to…
Understanding Risk and Reward
If you take a look at the risk and reward interactive graphic below, it shows you how much reward you will gain. Do note that your reward can be lower or higher, the graphic is simply showing example of which area you are comfortable investing in with the time you have.
From the interactive graphics below, you can ask yourself which area you are able and comfortable to invest in, taking into account of your risk appetite too.
Long Term Investing Strategies
Here are some of the recommended long term investment strategies I would use. Do take note that all of these strategies are all about having a steady cash flow at the time of your retirement.
1) Property Rental
Imagine at 25 years of age, you buy a 99 year property at $1,000,000, you invest $200,000 (20%) as first deposit, then the rest of $800,000 use bank to loan for 30 years, with 2.2% annual interest loan. You rent the $1 million property out, and the breakeven amount is $2,271.11 monthly rental (you should rent out at least $2,700 due to yearly incurred expenses).
BUT the rental rate is against the owners! You may be asking. Even if you can’t fetch $2,700 or above rental, it is ok to make a loss of no more than $500 per month. Because you are in the long term gain of having the $2,500 monthly for your retirement planning.
So let’s move on….
When it’s on the 30th year, you would have pay off all the property loan and the property would have increase in value (land is limited in Singapore, and value will increase gradually). By then, you would be 55 and earning a passive income of $2,500 or more from your property rental.
You can choose to continue to collect property rental or sell the property at a profit when you are 55.
2) Invest STI ETF
STI ETF is investing into the top 30 strongest companies in Singapore. This is one of the best way to invest in the long term, the strategy used here is dollar-cost averaging.
What is Dollar-Cost Averaging (DCA)?
It is an investment strategy that buys a certain investment in a regular schedule and fix amount of money, regardless of the price of the investment. DCA is usually used in stocks investing. The investor will buy more stock when stock price is low, and buy less stock when the price is high.
3) CPF Investment
As you realised that every Singaporeans who are working or worked would have some amount in their CPF account. You would be able to have cash flow given to you when you reach 55. I know that it’s a lousy idea to depend on CPF Investment, but it’s a compulsory setting aside of monthly salary money for all Singaporeans.
I have written a guide, you can read the CPF Investment Guide here.
30 years is a long time! Is it possible for early retirement? Can my retirement age be earlier than 55?
Retirement planning is all about having a stable and comfortable cash flow to use when you reach a certain age and continue to use without having to worry. What you need is to find out the financial instruments or strategies that suits you and your current situation, and invest in it. You can choose to retire now or earlier when you have enough cash at hand.
Wisdom Tip: Do know which level you are comfortable investing in and think of who are dependent on you, before investing.
Here are some Strategies for Early Retirement
1) Selling Options.
A lot of people knows Warren Buffett, he’s the well known investor for using value investing. BUT did you know that Warren Buffett is selling options while waiting for the best time to buy the company shares he wants before using value investing?
Here’s what Warren Buffett did…
When Warren Buffett found a company that he thinks can invest in using value investing, he will wait for the time to purchase it at a low price. But the issue is that the wait can be a very long time, like 3 to 5 years.
Instead of waiting for the price of the company to drop, he sold naked put options to earn cash while waiting.
Example (the value below is for illustration only)
Warren Buffett has been eyeing on Company A, because it fits his value investing criteria, but it is price at $50 per share. He will only enter at $30. While waiting, he will begin to sell naked put options at $30 per share, where he will earn $2.50 premium per share. He will continue to do so when the Company A price is at $30.
2) Start a Business part time or full time.
But what business!
It can be any business that has proven strategy with good consistent ROI that’s suitable for you.
I have heard of someone whose business is simply making ice cream cone, even the ones in fast food restaurants.
Have you seen those automated laundry service stalls at the ground level of HDBs? These are great cashflow generating business. Why would someone wants to use the automated laundry service at the ground level of HDB flats?
Because laundry and drying machines;
- takes up a lot of space at home
- requires lots of electricity (especially for the drying machine)
- spoilt within 3 years.
- are expensive.
- does not make economic sense to repair.
Of course, you need to do your due diligence when you buy or setup a new company.
3) Make Money Online Sites
Have you heard of bloggers who make thousands of dollars every month? Using only their website or blog. I have friends who just earned money this way.
There are 3 ways you can make money online,
- Sell your own products or services.
- Promote someone’s products or services.
- Get pay for driving traffic to another website.
All 3 ways require to have the skill of driving online traffic to the website. I am no expert in this field, but I do have some knowledge of how this online marketing is about. There are various ways to drive online traffic, but the best way is using SEO, where the website is rank on search engines for commercial search terms that millions of people are searching for.
Is there any example? YES!!!
Wirecutter.com started in 2011 by Brian Lam, and within 5 years or so, was sold to New York Times fo USD$30 million in Oct 2016. It started off as a review site for electronics gadgets. It earned commission by referring their website traffic when someone purchase something on the affiliate site, like Amazon.
Wirecutter.com was driving USD$150 million in e-commerce transactions a year, where Wirecutter.com will be paid off from 2-4% of the product sale. Even if it’s using 2% commission for each products, Wirecutter.com would earn USD$3 million annually, where each month is generating about USD$250,000 of cash flow.
That’s cool, right!
4) Earn Dividend from Stocks
Most people buy stocks because they want to hold and to earn dividend.
There is a “Dividend Capture Strategy” where one finds out when the listed company is giving out dividend on a particular date, buys the stock a month or so before the payout, and sells it in within a day or 2.
Once the dividend is payout, you simply sell the shares. Your strategy is simply to earn dividend.
You will need to do a lot of homework on this, as there’s a chance that the stock price might drop after the payout. Because they are also using Dividend Capture Strategy.
How to find out the dividend payout date for Singapore listed companies? Visit https://www.dividends.sg/ to check the latest dividends payout.
Remember that retirement is something that you need to take charge in, do not let someone do it for you, especially an insurance agent. Always invest in what you are familiar in. Use insurance to protect, not to invest. Take personal financial planning into your own hands.
The strategies we are looking at is to make additional $500 or more a month depending on what you have and where you are.
There will be lots of obstacles along the way, but I would suggest finding someone to be your mentor in guiding you to develop “Retirement Cashflow System” that gives you monthly cash flow.
Do comment below if you have questions, and even share this to your social media friends, or mention it on your blog/ website if you find it useful.