I have a lot to update. So there will probably be a few posts from here out, if I can get off my lazy ass to write.
I had a meeting with the financial planner again last week to go through the completed financial plan to meet my goal of retirement in ten years’ time.
The main conclusions of the meeting were:
- Retirement at 45 is possible, but it would be very, very tough.
- I will have very little margin for error if I really retire fully based on this plan at the end of ten years, hence the planner does not advice that. However, taking up a lower paying job is definitely possible after 45.
The main thrust of the plan is to retire the bulk of my 1-million-plus mortgage on my condo in ten years instead of the original forty years tenure. The plan calls for additional mortgage payments of close to half a million on top of my normal mortgage payments in the next ten years. At the end of those ten years, I will have some existing savings endowments mature, which will take care of the balance. Once the mortgage is fully paid off, I will have access to the full rental income for my living expenses and hence can retire if I want.
The case remains even if I change properties midway, provided that the value of the properties remain the same. It also means I can say goodbye to any plans of moving out of my parents’ house for the next ten years.
I will also have pretty much nothing else in other savings and investments at the end of ten years since I will be throwing every cent available at the mortgage during the ten years. This is the reason why the advisor advised me to continue working and investing for at least five to ten years after 45 to build up my non-real estate investment portfolio. However, I can achieve this with a much lower paying (and less stressful) job.
I won’t go into the numbers in detail but it essentially means that I have to find about $50K to invest every year on top of my various existing savings vehicle. Bonuses and share options will contribute most of that. I’ll have to find the rest of it somewhere, somehow.
I had some reservations that I’ll be extremely undiversified at the end of ten years, with everything in the property, but unfortunately my pie is not large enough to try and distribute otherwise if I insist on so ambitious a plan. It will be somewhat scary for a year or two until I build up my reserves after paying off the large mortgage.
There is some buffer built into the plan though, since the planner used very conservative mortgage interest rates and investment returns to do the calculations.
The $50K a year will be invested in a short term portfolio of a mix of equity and bond funds as well as money market deposits. The portfolio will be liquidated every three years to pay off the mortgage.
The issue with investing the money myself is that I failed the CKA (Customer Knowledge Assessment) so I cannot invest in most ETFs on the stock exchange. I think the whole demarcation is a little stupid (I can buy individual stocks but not most index funds?), but it is what it is. So I’ll have to do my investment through others, and pay for the privilege as well.
I also found out that a number of good financial products that are available to laymen in other countries have limited accessibility in Singapore. Some of them of only available to high net worth individuals (e.g. min $250K investment) or are only available through certain companies. In such cases, it does help to have the advice of fee-based financial planners who are not commission based.
We didn’t spend any time on cash flow and expenditure management, because he said he didn’t have any advice for me on that front. He couldn’t find anything to cut further. J I take that as a back-handed compliment. We also discussed tax planning and estate planning etc, and I had a lot of different thoughts on the property front. I will share some more in my upcoming posts.
My final bill for the whole process? Just over $5K ($250 per hour for 20hrs of work). I think my net worth and my ambitious goals made it borderline worth it to pay for the service, but I am not sure I will recommend it for anyone with less than a net worth of $750K, especially if there are no special circumstances to consider (estate planning, tax planning etc) and if the individual has a modicum of financial know-how.
I am pretty much fired up from the meeting and looking forward to the challenge. Even if I should fail to meet the ten year mortgage pay off challenge, I’ll definitely be no worse off than if I had never tried -reaching for the moon and landing among the stars and all that. I just hope I can keep this optimistic frame of mind going forward.