Meeting with the Financial Planner – Some Conclusions

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.

Updates Feb 2014

Happy Chinese New Year to all.

This is the year of the horse, which happens to be my Chinese zodiac sign as well. You would think that you would have good luck in your own year, but that is not the case in Chinese geomancy. This is going to be a challenging year for me. Unfortunately I am still struggling mentally, and have just gone on medication to help with anxiety and insomnia.

Financially, it is going to be a tough year as well, with increased costs due to the therapy that I have to do, and looking at reduced income this year due to performance issues at work.

I have also gone ahead with the financial planner. The early retirement plan is tougher than I had expected. Basically, the planner does not feel that I will be able to achieve retirement at 45 in the way I wanted, or at least, not in a majorly risk-free way.

The reason for that is that most of my assets are locked in real estate and retirement funds. I have quite little in current liquidity by comparison. This is going to make investing a little more difficult in the coming couple of years. Basically I am woefully undiversified.

There are challenges in the insurance front as well. I just learnt that I have been mis-sold my hospitalization shield plan. So effectively, I am not covered on the medical front. For small claims, the insurance company might just not check, but I will be in trouble for larger claims. However, I have decided not to do anything just yet, as changes may be coming to medishield and maybe private insurance plans next year, so I’ll have some chance of coverage.

The silver lining is that I have substantial enough valid whole life insurance with critical illness coverage.

I have been trying to come to terms with all that, and modifying my various expectations for my retirement. Despite my preference for rental income forming a solid majority of my retirement income, I am rethinking my plan. With all the new limitations that has been put in place by the government on the rental of HDB flats, and the high cost of going with private property all the way, I may just have to find my passive income another way.

I also have to come to terms recently with some bad financial decisions that I made previously that have come home to roost. Whatever I may be able to save this year will probably go to pay for these decisions, and if my net worth does not decrease this year, I will be surprised.

I am definitely down now, but surprising do not feel beaten yet. Perhaps it is all the meds at work, 🙂 or the good rest I just had during the CNY holidays. Let’s hope that I don’t have more bad news after my next meeting with the financial planner.

“The Talk” with Dad

I’m happy!

I actually had the start of “The Talk” with my father today, and for some reason, he was pretty receptive to my plans today. After an initial protest, he started to listen to me more seriously, and seemed to realise that I have a plan. And he appears to be coming around to my way of thinking.

Oh boy, I’m so glad.

It started by him asking about my work, and I decided to come clean about my feelings and how I am seriously considering a job change. And that led to a discussion of my finances. And I finally got to tell him what I planned, and where I am at the moment. And the best thing is that he shared his thoughts on their retirement needs, and that was a great help to me.

Cue sweet music and flowers.

He told me that he figured that once they retire for good, we need about $2,000 to maintain our household of four, not including their personal spending money. If I were to stay home with them instead of living by myself, my everything-in lavish lifestyle living costs would be around $950 per month, so all our costs should be coverable entirely by me (Rental + Some Dividends). But that won’t be the case, since my sister will be contributing her share too, so it’s not going to be a too spartan existence. I would probably still be doing some kind of paid work too for a while.

As for their own personal spending monies, I gathered they would either be spending down from their savings, or there is some intention for some light work after official retirement.

I believe that my parents know I am not hurting for money, but I think they didn’t really expect that I would be so well situated at this point. Heck, it took me a while to get used to the fact myself. I think my father was kind of relieved to find that my early retirement mumble was not just hot air.

We only skimmed the surface of things, but now that both parents appear to be receptive to the idea of my early retirement, I can feed them more details as and when. From here out, it is only maths. I can do maths. That is such a load of my mind.

With this breakthrough, I am not so sure if I will move out of the family home eventually. Now that my parents appear to have accepted the idea that I might end up retired early alongside them, I could hurt their feelings if I insist on moving out by myself, and I want to try and avoid that. As it is, living at home doesn’t seem like such a penance now, but I’ll wait and see. Still have plenty of time to make decisions.

In other news, I am updating my resume, but am a bit wishy washy about sending it out. I have a few public service agencies in mind whose work interests me, but I am really hesitant about making changes. That’s an ISTJ for you – I hate changes, even if they end up being better for me.

So, yeah, things are looking up. I haven’t got all the answers yet, and it’s still going to be a few years of waiting, but suddenly the dim glimmer at the end of the tunnel seem a lot brighter.

Getting Expert Help

I have made an appointment to see a fee-based financial planner, and if nothing goes wrong, I will probably fork out a couple of thousand for him to do a comprehensive financial plan for me. I am also evaluating whether I will be handling over part of my assets for him to manage, specifically the equities portfolio, at a not-cheap fee, of course.

I actually had this idea a number of years back but didn’t execute because of the cost of engaging said planner, and more importantly…hubris.

Everyone around me, in both real life and virtual, was and still is advocating managing one’s own money. And here I was, university educated, with an engineering degree, no less. I’m not stupid; I can do maths. No reason that if everybody else could manage their own portfolios and various planning, why I couldn’t do the same.

It felt like if I succumbed to hiring out to a financial planner that I would be admitting that I am just too plain stupid to handle it all. That was really hard to swallow, so I didn’t.

And so I did the best I could. And I’ve got the basics covered, and my net worth is going in the correct direction at least. I’ve got a goal, and I think that I should be able to hit the target at the right time.

But with time passing, and the need for more fine tuning increases, I’m starting to feel a bit lost, and unsure and overwhelmed. And the more I educate myself, the more I’m realising past mistakes made, and the more I’m wondering if I really know what I’m doing (probably not) and I’m now constantly second guessing my next decision.

Gosh I’m tired of it all. I still like to read about personal finance management…but I’m starting to miss my romance novels. I realise that my interest and abilities only go so far, and I’m throwing in the towel. And my net worth has increased to a point where it is not ridiculous to spend that kind of money. It’s time to bring in the experts, even though I feel like a such a fraud…

No, I am not going to sit on the beach with cocktail while somebody else is doing things with my money. I will still be fully involved, but now, there is will be hand-holding and another brain to help put the pieces together. And if that makes me stupid, then I’m resigned. As long as I get to retire at 45.

And I’m writing this because I think there might be people out there who are also thinking they need to do it all by themselves. And if you are happy with that and can do it, kudos. But if you can’t and need help, it’s okay too. So we’re stupid, but at least let’s not be stupid and poor. Get some good help.

Retirement Budget and Plans

Previously I made mention of how I intend to approach my (semi-) retirement at 45. Here are my projected retirement expenses again, close up:

PL3

I didn’t manufacture these numbers out of thin air. Most of them are based on what I have already been spending, with some adjustments based on a non-working lifestyle.

Regarding my parents’ retirement, I personally calculated that with their current HDB flat paid off, they should be able to live very well on $2,500 a month as long as they don’t do the Santa Claus act (my dad can give quite indiscriminately). For now, I anticipate that my sister and I will each contribute $1,000 a month with the remaining coming from my parents’ own savings. Heck, they can even rent my current room out for some extra cash once I move out of the house (and once they come to terms with it).

Based on the numbers, I should be able live quite well on a rental income from a well situated paid off HDB four room flat (about $2,500 a month), if I didn’t have to consider the support of my parents. The situation becomes pretty marginal once parental support is involved.

However, part of my retirement plan is also to make sure I have small dividend returning portfolio, giving me something like $10-12K a year (300K at 4% dividend yield). I may also annuities eventually, but only if the interest rate environment is more favourable. If this is also considered, then I have more than enough to cover all our costs with enough left over for small vacations here and there if we want. I am also likely to continue working part-time for a while, just to make sure I don’t drop out of society totally. All that income will be gravy.

It seems pretty cut & dried, but there are a few challenges ahead of me though:

1)      Locking in the condo capital appreciation at the right time. Buying a HDB in cash hinges on this move and I have two years to go before I can sell without the penalty of paying the seller’s stamp duty.

My father wants me to keep the condo instead of exchanging it for a paid off HDB. The HDB will give me a better rental yield and cash flow, but the condo has better chances of further capital appreciation. So this is where my father and I locked horns – I want the cash flow to stop working; my father sees it as throwing the chance to earn big money away.

Naturally, I have had to explain to my father about my early retirement plans and how this one move is critical to the whole project. And then, I had to sit and listen to a lecture about wasting my youth and potential, and how things will not always go as I plan, what will I do in retirement, yadda yadda yadda…

I could unilaterally decide, of course, the condo being mine and mine alone. But that is probably not the best course for family harmony. I would prefer to try and get my father’s buy-in in the next two years before making the authoritative decision. But man, it is frustrating to talk to him about this.

2)      Getting my dividend portfolio up to snuff. I am now averaging only a dividend yield of 2.5% due to some non-performers.

3)      Making sure I keep up the income and savings rate for the next ten years. The rental HDB will depend on the condo sale, but my forever home, the private studio apartment will need a cash injection of about $800K. That means saving $80K a year including CPF. I think I can swing that…barely…

So, there it is, my retirement plan in all its glory. Even if I cannot retire fully at 45, I see no reason why I should not be able to downshift to work that I enjoy by that time. Like shelving books in a library, or becoming an admin clerk, or becoming a PI’s assistant…

Choices…the best part of financial independence…mmmmmm…..

Thank You For Reading, And Some Updates

Thanks to all the recent readers who commented on the blog. I am extremely happy to see most are Singaporeans, or who are familiar with Singapore at least. I was starting to feel a little lonely for compatriots on the blogosphere. I am sorry for not responding to all your comments directly, because I have not exactly been checking non-critical email accounts, or been on the internet for a while.

As I mentioned in my last post, I had been having a little…funk for the last few months. This resulted in my taking a three-month unpaid sabbatical from work to try and get back on even keel. I honestly feel extremely lucky that my company valued me enough to keep my position open during this period, though I am sure this is going to hit me when bonuses and share options are announced next year, since I haven’t exactly been performing this year.

Three months of lost salary aside, I don’t think I will be taking a major hit to my net worth this year, because my mother decide to gift me SGD 18K last month. I kind of protested, but she told me it would all be left to my sister and me anyway, and she would rather let us have it now because she was worried she would become susceptible to cheats in her old age and consequent vulnerability (she did include banks in that class…haha).

Also, my personal expenses are low enough during this period that it seems that the cash flow from the rental condo would cover most of it. The only stuff I couldn’t exactly cover were the income taxes and my whole life insurance premiums, which are coming from savings.

I personally feel a great sense of relief that I could afford to take the three months off for mental health’s sake without being majorly impacted financially, even without my mother’s gift. If there was ever a time when being frugal paid off, this was it. It also gives me a greater confidence that I will be able to live the simple, low cost life in my retirement.

I don’t exactly have the numbers for my overall financial picture yet since I kind of let go of data entry during the last few months. I will post them once I get caught up. I am also at a sort of a cross road with regards to my work and career now, so there are several hard decisions that I might really need to make. I am really not sure if I can last the next ten years in the engineering field before I will be able to retire. Yet downshifting at this point to a lower paid job is going to have direct consequences on my early retirement plans as well, though I may probably be able to last a little longer at a less stressful job.

I am also struggling to reconcile my parents to my early retirement plans which I will probably discuss in a next post, since this one is getting a bit long. So, thanks again to all who are reading and/or commenting. While I didn’t mind putting my thoughts out to a vacuum, it is good to know someone is listening.

In Defense of The ER/ERE Crowd

I came across this particular post earlier this month. I have to say, I got pretty annoyed reading it, so let me mount a defense on behalf of the early retirement crowd (Not that they need me to, though).

“They compromise on everything, continuously, to fund a lifestyle of compromising on everything, continuously.”

See, the assumption that the early retirees are sacrificing and compromising living in pursuit of early financial independence and retirement is tiresome. Good to know that the blog author values healthy eating and is in a position to do it. But how does that translate to the ER crowd not eating healthy because they don’t pay a premium on it? Good to know that the blog author can afford to go to museums, eat regional specialties, visit historic sites, or see local shows, but how does that translate to the ER crowd not living a life worth living because they don’t do, or might not care to do the same things?

This argument presumes that early retirees don’t know what makes them happy, or that we don’t know what makes our life feels rich and worth living, or that we are living in an unhealthy way just because we are not paying for what mainstream society deems we should. That is so condescending. Why doesn’t anyone realise that most of those who participate actively in the pursuit of early retirement do so by their own choice, willingly? And that if we choose to do so, it would presumably be because the lifestyle makes us happier than our current one does.

The argument also seems to presume that there is only one way of living – the YOLO way. Yet, not everyone views ballet concerns, travel and coffee the same way. Me – I could live perfectly fine without all those without feeling like I’m sacrificing living. I don’t understand the “Because I can’t live this way, so it must mean that you are miserable or lying” argument. Why does the YOLO group get to define living for all the rest of us?

“For me, the point of frugal living is to give us financial security and to enable us to do more of the things we love.”

And that is also the same attitude that the ER/ERE crowd has. The YOLO group and the ER crowd are actually on the same side. We are all about conscious living, about spending life energy on what matters to us most and discarding the stuff that doesn’t. It just so happens that what is important to each of us is different, so we hold on to and discard different things. Why the conflict then?

“To say, “Oh, I’ll never really want to do anything that costs hardly anything” is an awfully big gamble to take.  And the saddest part is, if you realize you’re wrong too late, you won’t be able to make a change.  The skills you once had that gave you a decent-paying job are so out of date as to be worthless, you’ve been out of the job market for several decades, and now all you’re qualified for is a low-paying job that offers none of the flexibility, interest, and satisfaction that you could have found on your previous career path.”

This argument assumes that one needs a work-place and a job to continue the building and mastery of skills, which seems like a faulty premise to me. It also assumes that one needs a formal job to earn a living; rather interesting given that the rest of blogosphere is touting entrepreneurship and self-employment like it is the solution to all woes. I personally find the over-emphasis on entrepreneurship in the PF blogosphere troubling, but even I can allow that one can earn a good living via other means other than a salaried position if one is creative enough, and the ERE crowd is nothing if not creative.

“At the end of my life, I don’t want my primary material accomplishments to be the work that I avoided but the things that I did and made  – my work, my family, my friends, and my recreation.  I’ve written books and seen them in bookstores, traveled to other countries, hiked mountains, raised kids, learned SCUBA and languages, tried out acting and canoeing, danced competitively, designed gardens, grown food, built bookcases, renovated bathrooms and kitchens, gotten married, started successful companies, taught myself graphic design, learned web development.”

What is the author implying here other than the humblebrag? That ER/ERE-ers just loll in their pile of gold after achieving ER/ERE and congratulate themselves on avoiding work? That is the grossest assumption I’ve ever read. The author seems to have fixated herself on the financial aspects of ER/ERE and assume that just because she did so, that must be all ER/ERE is about. Most ER/ERE’ers end up pursuing this lifestyle so that their WORK is not their primary material accomplishment in their lives, but the things that they did and made in the remaining 40-50 years that is their ER/ERE lives. The only difference is that the author is doing those activities as she makes her living, and the ER/ERE’ers decide to complete making their living before pursuing those activities. Who is she to say she is right and they are wrong?

I am normally very open to alternative arguments, but I find the whole blog-post full of empty assumptions. My take-away from the whole blog post is that the early retirement crowd value different things from the author, so she is calling them out. But who made her the internet police of LIVING LIFE?

I’ll also say this. The ER/ERE’ers are actually a pretty much a live and let live group. They don’t really care if you live your life according to other philosophies as long as you let them live theirs their way, or if you don’t go to them with “I want to retire but I cannot because…” or “I can’t live this way so you must be miserable/lying” complaints. And even in that particular case, most of the responses I’ve seen from the ER/ERE group seem mainly to fall in the “You can do it this way.” Not – “You have to”, or “You should”.

They are also a pretty closed group, in the sense that I have never found any ER/ERE-er to push the ER/ERE lifestyle outside of their respective blogs and forums. They openly offer their opinions and solutions if you seek them out on their homegrounds, but they don’t go proselytizing elsewhere.  The few times I have seen ER/ERE’ers actually comment on other blogs about their chosen lifestyle is when they come under attack from others. If the ER lifestyle seems to be pushed in the faces of people these days, blame it on mainstream media picking it up as the “lifestyle of the moment” due to the current economic situation that world is in. The ER/ERE crowd is certainly not responsible for that.

So I guess I’m not really understanding where all this bashing of the ER/ERE crowd is coming from.