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Early retirement in JB

An interesting read on WSJ.

------------------------------
January 31, 2014 5:59 PM
Retiring on Your Own Terms
By JASON ZWEIG

Credit: Christophe Vorlet
By creating a new savings plan this past week called the myRA, President Barack Obama refocused attention on the retirement crisis.

While the myRA is a small step in the right direction, particularly for lower-income Americans, tens of millions of people remain trillions of dollars short of the savings they will need to fund their retirement.
The solution is simple, but it isn’t easy. Americans need to save more—not just a little more, but vastly more, according to a new study by two leading investment analysts.

To be assured of having enough money to fund a comfortable retirement, you should save a total of 22 times the annual income you want to earn when you retire. That is higher than many previous estimates, but it offers near-certainty of hitting your target.

For instance, if you want $100,000 in annual income (not counting Social Security), then your magic number is $2.2 million in total retirement savings. You can hit that magic number if you are prudent and willing to save money like mad.

Think of yourself as the sponsor of a traditional “defined benefit” corporate pension plan that sets enough money aside to guarantee a steady monthly income to retired workers for the rest of their lives. Then recognize that the only beneficiary of that pension plan is you.

That is the framework proposed in a recent article in the Financial Analysts Journal by Stephen Sexauer, chief investment officer for U.S. multiasset management at Allianz Global Investors in New York, and Laurence Siegel, who heads the CFA Institute Research Foundation, a financial think tank in Charlottesville, Va. They call it “the personal pension plan.”

How would you manage such a plan to ensure that it never came up short?
You would consistently fund it with ample savings, invest patiently in low-risk assets and structure the payouts to provide steady income during a long retirement.

Some pension plans themselves have come up short, but only because they promised too much in benefits or set aside too little in assets, say Messrs. Sexauer and Siegel.
Individual investors, Mr. Siegel says, don’t face the same pressures to fudge the numbers.

Many people working today are likely to live to the age of 100 or 105, says Mr. Sexauer. So if you work for 40 years, from your mid-20s to around the age of 65, you ought to plan on accumulating enough savings to last for up to 40 years of retirement.

How do the researchers arrive at their magic number of 22? Let’s say you earn $150,000 a year and believe you can live well in retirement on two-thirds of that, or $100,000. (Estimates of the percentage of your working income that you will need to live in retirement vary widely from 50% to 100% or more, but many people find they can live on less than they thought—even after accounting for health-care costs.)

The magic number answers this question: For each dollar of annual income you want in retirement, how many dollars of assets will you need to save before you retire?
Ideally, you want to be certain — not just pretty sure—that your money won’t peter out before you do.

The closest thing to a riskless asset is Treasury inflation-protected securities, U.S. government bonds that promise to preserve your purchasing power. Conservatively assuming a rate of return of zero, a $2 million portfolio of TIPS will enable you to withdraw $100,000 a year for 20 years.

With the remaining $200,000 you have saved, Messrs. Sexauer and Siegel recommend buying a deferred life annuity up front. That type of insurance generates a constant payout before inflation that will cover your income needs if you live past age 85.

The two researchers base their estimate of the cost of this kind of annuity on price quotes from several insurance companies (Allianz, Mr. Sexauer’s employer, isn’t among them).

That is how saving $2.2 million before retirement will generate $100,000 in annual income with near-certainty.
Many people count on earning high investment returns to reach their retirement goals. If you invest in riskier assets, you might get a higher return, enabling you to save less.

But you also might get a lower return; that is what makes “risky” assets risky. In that case you would have to save even more to make up the gap.

Only by saving safely enough to end up with 22 times your annual retirement income can you guarantee that payout.

Both Mr. Sexauer and Mr. Siegel keep much of their retirement savings in TIPS to protect against the risk of coming up short. (A comparable method, from investment manager BlackRock, uses slightly different assumptions and comes up with somewhat lower multiples of income that you must save.)
“What you’re doing here,” Mr. Siegel says, “is saving and investing the same amount that a defined-benefit pension plan sponsor would to fully fund your pension.” If you do that, “you’ll end up with the same answer”—a retirement you don’t have to worry about.
— Write to Jason Zweig at [email protected], and follow him on Twitter:@jasonzweigwsj
 
Thank you FT for sharing that WSJ article.

I wonder what is the M'sian or S'pore equivalent of Treasury inflation-protected securities, the U.S. government bonds that promise to preserve your purchasing power. Perhaps Malaysian FD given that the MY inflation rate is slightly above 3% and provided the FD rate closely tracks the inflation rate.

I did some rough calculations. Assuming you retire ar 45 and budget S$3.5k/mth from age 45 to 85 and S$2k/ mth from 85 to 95 (on assumption one spends less on many things at that age except only on medical), you would need to save S$1.5m. This takes into account your CPF payout of S$1240/mth from 65 to 85 if you have saved up the full minimum sum.

if you live beyond 95, then that will be a worry unless u have an life annuity. But whilst this may be avqilable from CPF in time to come, i beleive this would only be avaialable to CPFmembers who are citizens or SPRs at age 55. So if an SPR retires in 45, and lives in JB, he may not get to keep his PR and not qualify for CPF annuity. Not sure if there are private insurers offering such life annuities and if so, what the cost is.
 
If we factor in mild inflation of 3%, assuming we are 65 years old now and will pass away at 85 years old, the $2k/month now will have only $1.1k/month spending power at the age of 85 years old. If you can accept this, then you need about $480k cash upon retirement at 65 years' old. But you cannot afford any major medical treatment and car. Any single major medical treatment can easily wipe off $100k+ off your savings, a car can clean out $250k+ (over 10 years ownership).

These figures point to Singapore being a very expensive place for retirement for many people. Given the low birth-rate, many do not have children to support them at old age, or their children are struggling to support themselves. At the same time, tax rate will keep on increasing to support the aging population. The badly caught ones should be the lower income group in their 50s now. Those 40s and below will still have time to react to inflation.

http://www.singstat.gov.sg/publicat...n_and_population_structure/population2013.pdf
 
If we factor in mild inflation of 3%, assuming we are 65 years old now and will pass away at 85 years old, the $2k/month now will have only $1.1k/month spending power at the age of 85 years old. If you can accept this, then you need about $480k cash upon retirement at 65 years' old. But you cannot afford any major medical treatment and car. Any single major medical treatment can easily wipe off $100k+ off your savings, a car can clean out $250k+ (over 10 years ownership).

These figures point to Singapore being a very expensive place for retirement for many people. Given the low birth-rate, many do not have children to support them at old age, or their children are struggling to support themselves. At the same time, tax rate will keep on increasing to support the aging population. The badly caught ones should be the lower income group in their 50s now. Those 40s and below will still have time to react to inflation.

http://www.singstat.gov.sg/publicat...n_and_population_structure/population2013.pdf

I have heard of Singaporeans renting out their HDB and renting in JB when they lost their jobs....they probably can survive like that and even retire like that provided rental remains stable and cost of living in jb remains low....
 
hi Jetstream,

Is your 1.5m inclusive of the CPF minimum sum ?

Thank you FT for sharing that WSJ article.

I wonder what is the M'sian or S'pore equivalent of Treasury inflation-protected securities, the U.S. government bonds that promise to preserve your purchasing power. Perhaps Malaysian FD given that the MY inflation rate is slightly above 3% and provided the FD rate closely tracks the inflation rate.

I did some rough calculations. Assuming you retire ar 45 and budget S$3.5k/mth from age 45 to 85 and S$2k/ mth from 85 to 95 (on assumption one spends less on many things at that age except only on medical), you would need to save S$1.5m. This takes into account your CPF payout of S$1240/mth from 65 to 85 if you have saved up the full minimum sum.

if you live beyond 95, then that will be a worry unless u have an life annuity. But whilst this may be avqilable from CPF in time to come, i beleive this would only be avaialable to CPFmembers who are citizens or SPRs at age 55. So if an SPR retires in 45, and lives in JB, he may not get to keep his PR and not qualify for CPF annuity. Not sure if there are private insurers offering such life annuities and if so, what the cost is.
 
We had recently put our Sg terrace up for sale to test the market but also seriously toying with the idea of early retirement in JB. Just had a viewing by a couple in their late 50s to 60s just now and they seem to like my place and are considering now. Now thinking if I should have asked for higher than 2 million which was my valuation 6 months ago and what to do if they really want to buy as I am still awaiting my state consent!
 
We had recently put our Sg terrace up for sale to test the market but also seriously toying with the idea of early retirement in JB. Just had a viewing by a couple in their late 50s to 60s just now and they seem to like my place and are considering now. Now thinking if I should have asked for higher than 2 million which was my valuation 6 months ago and what to do if they really want to buy as I am still awaiting my state consent!

Thinking of home schooling my 2 kids till RTS is up ie till sec. 4 for my older boy. Since we will be so free and can save S$1000 a month. My kids love the idea!
 
I KPO and share a bit ok...

to sell or not to sell your terrace really depends on your philosophy. Some want to leave nothing to the kids. Others want to leave everything. Most fall somewhere in between. Of cos, your income stream will also affect your decision.

I am very old fashion. So I want to leave a legacy behind for my children (if possible, also for my children's children). Therefore I will keep my landed home. I can sell my office or business or my condo, but my landed home will by my children's "final buffer" of sorts. And the reasons for my decision are as follows:

The SG govt has said it very clearly that they want to grow our population. More ppl = more demand. Landed homes supply will never increase unless we suddenly grow land. Therefore, ceteris paribus, prices of landed homes can only go up.

our per capita income is also increasing. as much as we are critical of our govt, they have done a good job our increasing real income. again, ceteris paribus, our income will continue to grow. therefore, higher income = higher purchasing power = higher prices.

next, SG is the Monaco of Asia. The rich ppl like to party here. HKees, Indians, Indons, etc, the tycoons from these places like to park their money here. That is a lot of HOT MONEY. Money will chase after assets. The only thing stopping them is the lack of citizenship which they may take up in due time. if not themselves, maybe their children will.

lastly, take a look at the prices of LANDED HOMES in HK. they are ASTRONOMICAL! and they only have a 70 year lease. Of cos, the situation in HK is special because of the strong motherland, but if China ever screws up big time, and their citizens want to move their money to SG, those ASTRONOMICAL PRICES will come here too. I am not saying that it will. I am saying that it might.

I wont be selling my landed. In fact, once I am able to sell my condo (still subjected to the Seller's stamp duty), my wife and I will try to buy another one. Reason: over the long-run, ceterus paribus, the value can only go up.

We had recently put our Sg terrace up for sale to test the market but also seriously toying with the idea of early retirement in JB. Just had a viewing by a couple in their late 50s to 60s just now and they seem to like my place and are considering now. Now thinking if I should have asked for higher than 2 million which was my valuation 6 months ago and what to do if they really want to buy as I am still awaiting my state consent!
 
Enjoyed reading ur post.

Thanks.

I KPO and share a bit ok...

to sell or not to sell your terrace really depends on your philosophy. Some want to leave nothing to the kids. Others want to leave everything. Most fall somewhere in between. Of cos, your income stream will also affect your decision

...............


I wont be selling my landed. In fact, once I am able to sell my condo (still subjected to the Seller's stamp duty), my wife and I will try to buy another one. Reason: over the long-run, ceterus paribus, the value can only go up.
 
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Yes, it is a good suggestion...I can do that when my MM is out of thr 4vyears SSD period....in the meantime sell my terrace and keep S$1 million in fixed deposit and get passive income from my MM rental...then I don't have to work fulltime for thr next 6 years and can retire now! Only prob is my husband wants to keep the terrace..sigh..

Sorry what is MM?
 
A 1 bedder condo unit less than 500sqft. Also known as mickey mouse unit..

I just cannot understand since there are abundance of land in Malaysia/Johor, why are developers building Mickey Mouse unit for dwellers ? Won't it be sensible to build bigger unit so that you can market it as a unique lifestyle ?

I can understand the logic of building Mickey Mouse Unit over here in Singapore, but to build it over at Johor where land are of abundance is a little out of sync with me. Maybe they are trying to be like Singapore, but Singapore is a City Nation. But Johore can be self sustained if it want to.
 
There are many things that Malaysians do that baffles the mind. Shall I remind you abt the recent incident involving coconuts at the airport?

I just cannot understand since there are abundance of land in Malaysia/Johor, why are developers building Mickey Mouse unit for dwellers ? Won't it be sensible to build bigger unit so that you can market it as a unique lifestyle ?

I can understand the logic of building Mickey Mouse Unit over here in Singapore, but to build it over at Johor where land are of abundance is a little out of sync with me. Maybe they are trying to be like Singapore, but Singapore is a City Nation. But Johore can be self sustained if it want to.
 
As Singapore gets more congested, land are acquired for road widening and MRT lines etc, land acquisation act allowed the govt to acquire your land for greater good, thus depending on location of landed, it might be taken away from you if your property is in teh way of development for the greater good. Eventually do you think landed might just be taken away to build higher density dwellings as Sinagpore runs out of land?
 
Everything is possible in SG. but the good thing is that at least now they pay market rate and prices are still negotiable.

As Singapore gets more congested, land are acquired for road widening and MRT lines etc, land acquisation act allowed the govt to acquire your land for greater good, thus depending on location of landed, it might be taken away from you if your property is in teh way of development for the greater good. Eventually do you think landed might just be taken away to build higher density dwellings as Sinagpore runs out of land?
 
Fun to get a few meaning from MM. Including Minister Mentor.

Landed may not be worth a lot more than apartments in a place flush with land. A good example is Australia. Another one is KL and Penang.
Property still voice down to Location. Hence it is safer to choose the right spot. So what you own 100 acres of land somewhere on earth; it might be worth less than a terrace in Johor.

Just buy an apartment or a landed house you like and hopefully stay in.

A 1 bedder condo unit less than 500sqft. Also known as mickey mouse unit..

MM = Mei Mei aka as SYT

Everything is possible in SG. but the good thing is that at least now they pay market rate and prices are still negotiable.
 
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Fun to get a few meaning from MM. Including Minister Mentor.

Landed may not be worth a lot more than apartments in a place flush with land. A good example is Australia. Another one is KL and Penang.
Property still voice down to Location. Hence it is safer to choose the right spot. So what you own 100 acres of land somewhere on earth; it might be worth less than a terrace in Johor.

Just buy an apartment or a landed house you like and hopefully stay in.

Given nearly the same location, landed is far superior to condo in Malaysia. This is the local culture and has been verified in numerous forum surveys and market reports I have seen over the last 2-3 years.
 
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