Category Archives for Retirement

Retirement lessons I learnt from long distance cycling last weekend

I can pretty much consider October as the charity month of 2015 for me, having participated in a few charity events this month and the main highlight is Ride for Rainbows, a fundraising cycling event that is organised by Club Rainbow.

Club Rainbow (Singapore) is a charitable organisation that relies solely on donations from compassionate corporations and kind-hearted individuals to support us in our mission. Set up in 1992, the organisation provides a range of comprehensive support services for the families of children who suffer from major chronic and potentially life-threatening illnesses. Children in Club Rainbow range from newborn babies and youths up to the age of 20 years. They require frequent visits to hospitals for treatment, complicated therapy and long-term medication. On the recommendation of their respective doctors, these children are referred to Club Rainbow for follow-up support.

Ride for Rainbows is a fundraising event organised by Club Rainbow (Singapore) and is into its fourth year. Riders register for the event and have to help raise a certain amount of donations in order to qualify for the cycling event. I registered in the Rolling 20 category and that means I will have to raise $1,000 as an individual rider and then challenge myself to cycle 100 km around the island.

Fortunately, I have generous friends in my social network and was able to raise 80% of the funds through donations. I simply topped up the rest myself to achieve the target. On the event day itself, the 100 km ride actually helped me learn some lessons from long distance cycling that I find very relevant to retirement planning.

Use the right tools to achieve your objectives

There’s an old saying, “Don’t bring a knife to a gun fight.” I did exactly that when I decided to use my 3-year old 7-speed foldable bicycle and attempt to complete cycling 100 km on the road. I mean, I use that bicycle to commute to work every day so what could go wrong? The answer is, EVERYTHING!

I had trouble keeping pace with the other cyclists who were on their road bikes and they definitely have a more consistent cycling cadence than me.

Retirement planning lesson

Likewise in retirement planning, you can’t invest in low risk bonds and expect your investments to enjoy a capital growth of 7-10%. You need to make the right investment choices, set the right asset allocation for your portfolio in order to achieve your objectives.

Make progressive milestones to reach your goals

I remember during my army days, we had progressive training to increase our running mileage before attempting a 32 km run. I wanted to do a similar progressive training before the Ride for Rainbows event but that didn’t happen due to the haze situation in Singapore. In fact, I had to even stop cycling to work because of the haze and started taking the train to work a month before the event.

So I attempted to cycle 100 km without any training and I was regretting it right from the start. The journey started okay, but towards the 30 km mark, my calves started to cramp. I never knew cramps could come back again after they have gone away. So I was powering through the ride with multiple episodes of cramp on my calves. On hindsight, I would have wanted to be achieve progressive cycling mileages of 10 km, 25 km, 40 km, 60 km and 80 km before the event.

Retirement planning lesson

Nobody wakes up one morning, decides to retire and then retires by nightfall. It takes years of planning for most individuals to achieve financial independence. You need to meet progressive milestones, for example, achieve a net worth of $100,000, then $250,000, and gradually hit your final goal of financial independence.

You meet strangers along the way who want to help you

During the long distance ride, I would have quick chats with other cyclists occasionally when they happen to ride alongside with me. I would receive tips like how my seat is too high and that causes my bicycle to sway side to side as I pedal, for example.

These are very useful tips as I adjusted my seat at the next rest point and enjoyed a better ride. I also received encouragements from other cyclists who saw that I was trying to accomplish the same goal as them on a foldable bicycle and they cheered on me to keep going. There were also other cyclists on foldable bicycles who were pedalling on the same pace as me so we kept edging one another not to slow down. That helped everyone to finish the ride together.

Retirement planning lesson

I had the good fortune to meet strangers who eventually became friends and helped me move closer to my goal of being financial independence. For example, I met this guy through an Internet forum and I learnt from him, how gold prices are affected, their trends and how to invest in gold. My gold investments eventually yielded me a 30% profit when I exited the market.

Work hard to overcome obstacles in order to reap the rewards

Every cyclists love a accelerating down the hill without pedaling. But that is your reward when you actually make the effort to ride up the hill in the first place! When we were riding through the Mandai stretch of the route, there were many hills to overcome. Having done my research on the cycling route, I knew that this was the most challenging part of the entire 100 km route.

I powered through the hill climbs because I knew that it would be a worse torture to attempt to climb the hill at a slower speed. The reward at the end of the climb is a 40 km/h sprint down the hills without pedaling and enjoying the cool breeze brushing against my face.

Retirement planning lesson

The journey of financial independence is never easy. Especially when there is a huge gap between the size of your existing investment portfolio and the ideal size of a investment portfolio that you can retire with. It is a tough hill to climb but one just has to keep soldiering on. The end of that journey will definitely be a sweet one!

Free Singapore Retirement Planning Simulation Spreadsheet

Can I retire today? That’s the million dollar question that I ask myself from time to time.

While I have a spreadsheet that tracks my expenses and provides me statistics about my lifestyle on both monthly and annual basis, I didn’t have a forward-looking tool that provides insights into how changes to my lifestyle today can make an impact to my life in 10-20 years time later.

I know that I am changed from an extravagant lifestyle to one that is a lot more frugal with low monthly expenses and high savings rate. But will this new lifestyle allow me to retire by the age of 50 (as the title of this blog says) and most importantly, retire with a retirement portfolio that outlasts my lifespan?

With that in mind, I created the Singapore Retirement Planning Simulation Spreadsheet to provide insights into retirement planning for Singaporeans.

What is this free Singapore Retirement Planning Simulation Spreadsheet?

As its title suggests, the spreadsheet provides a simulation of how my life would be if I maintain my current lifestyle for the next few decades. To make it more realistic, I’ve added elements such as life expectancy, inflation estimates and investment portfolio growth forecasts.

What’s a Singapore Retirement Planning Simulation Spreadsheet without factoring Singapore’s retirement policies such as CPF retirement age, CPF Life payouts, Supplement Retirement Scheme (SRS) withdrawal age and 10-year SRS withdrawals.

How does this spreadsheet benefit me?

It doesn’t matter if you are an avid reader of my blog or perhaps you chanced upon this article through search results from search engines. Chances are, you are reading this article because you care about your retirement and want to build a plan for it.

By inputting information about your current lifestyle and your ideal retirement age, you will be able to see if you are able to achieve your retirement goals. If the answer is no, you can also make adjustments to the spreadsheet to find out what you need to change or improve in order to meet your retirement goals.

How to get started to use this spreadsheet?

Click here to view The Singapore Retirement Planning Simulation Spreadsheet. The spreadsheet is in read-only mode and you will need to save a copy of the spreadsheet in your own Google account to use it.

To save a copy of the spreadsheet, you will need a Google account. Once you are signed in, make a copy of this document by clicking on File and Make a copy.

Input your information

In the My Information worksheet, update the cells that are highlighted in yellow with information about your current lifestyle.

singapore-retirement-planning-simulation-my-information

Input your life expectancy age

In the Results worksheet, enter your estimated life expectancy age in the cell that is highlighted in yellow to indicate how long you expect yourself to live. The cells that are highlighted in light orange indicate your lifespan based on your life expectancy age. Your goal is to ensure that your Retirement Portfolio outlasts your lifespan.

singapore-retirement-planning-simulation-life-expectancy-age

Include additional retirement income (if any)

If you expect to receive additional income apart from your retirement portfolio, enter the amount you expect to receive on a monthly average for the year in the cells highlighted in yellow. An example would be rental income from your real estate investments.

singapore-retirement-planning-simulation-additional-retirement-income

Reviewing your retirement simulation results

Here’s where it gets interesting. Will you be able to retire based on your existing lifestyle?

In my simulation, I used an example of John Smith, a 30 year old Singaporean who earns $5,000 and spends $3,000 each month. Saving the remaining $1,000 means he is saving 25% of his net income each month. That’s not too bad right?

John is a hardworking employee in Megacorp (fictitious company name, duh!) and receives an average of increment of 3% each year. At the age of 30, John already has $20,000 in his investment portfolio and expects a growth of 5% on his investments each year. That’s above the inflation rate that he predicts to hover around 3%. John thinks that he will be able to meet the Full Retirement Sum needed in his CPF by the age of 55 so he sets the CPF Life Payout Forecast to $1,220. He intends to retire at the age of 65 once he starts receiving payouts from CPF Life and expects to live till 82.

How do you think John fared in this simulation?

Well it looks like John can retire at the age of 65 and have enough money in his retirement portfolio to last him till the age of 88 if he does not change his current lifestyle. That’s 6 years more than his estimated life expectancy age. The bad news is that if he lives beyond 89, he may have to either change his lifestyle, rely on his family for financial support, or go back into the workforce (which will be really difficult).

singapore-retirement-planning-simulation-result

Making the little changes in your life to ensure you are on track for your retirement

I had a lot of fun creating this spreadsheet and learning along the way how the different variables in life can impact my retirement strategy. I’m certainly going to make more changes to my life to improve my retirement strategy so that I can retire by the age of 50 or earlier.

I hope you can make use of this Singapore Retirement Planning Simulation Spreadsheet to help you fulfil your financial dreams. It’s free and I’d love to hear your feedbacks on how I can improve on this spreadsheet.

If you want to retire, double your savings rate!

Everyone’s situation is different. The data from World Bank shows that Singapore has a gross savings rate of 47%, one of the highest in the world. Gross savings are calculated as gross national income less total consumption, plus net transfers.

you-need-to-triple-your-saving-rate-to-retire

Considering that the average working Singaporeans before the age of 50 contributes 37% of their monthly salary to their CPF account, it means only 10% of their disposable account is allocated to savings. That’s just not good enough if you are planning to retire earlier than the retirement age set by our government.

How to calculate your Personal Savings Rate

Here are the standard steps to calculate your personal savings rate:

Step 1: Add up your net savings (or losses) by adding both your non-retirement savings and your retirement savings for the year (all personal retirement contributions + all employer retirement contributions). I would not factor in capital gains or losses unless it is something that you can replicate every year. This number could end up being negative as well, if you had net debt for the time period, instead of savings.
Step 2: Calculate your total total income by adding your total take home income (after tax income) to your employer retirement savings.
Step 3: Find your Personal Savings Rate by dividing your total savings/debt (in Step 1) with your total income (Step 2).

Personally, I don’t include my retirement contributions to CPF when calculating my Personal Savings Rate because:

  1. The retirement contributions in my CPF accounts can only be unlocked at the age of 65. I want to retire before that so I need to build a retirement nest on top of the money in my CPF accounts.
  2. A significant portion of my retirement contributions is used to pay for my mortgage so I work on the assumption that they cancel out each other when I calculate both my savings and expenses.

Making small sacrifices will reap huge rewards

If you save 5% of your income, you can take 1 year off every time you work 19 years. On the flip side, if you save 90% of your income, you can take 9 years off every time you work 1 year! Here’s a chart from Go Curry Cracker that shows how many working years you would need, based on your savings rate.

working-years-by-savings-rate

Your money needs to work for you

After saving a large sum of your monthly salary, it’s time to make your money work for you. In order to retire early, you need to improve your financial status. If you currently have a credit card debt to clear, keep hacking at it by paying it off every month till it’s gone. If you are clear of high interest debts, build your investment portfolio by increasing your holdings every month.

Your money is no good sitting in the bank, earning a pathetic interest rate. The first rule of cash flow in cloud-based personal budgeting software, You Need A Budget is to give every dollar a job. Each dollar in your savings need a clear purpose and rolex. For example, 20% of your savings could go into an emergency fund in a bank account and the remaining 80% would be injected into your investment capital.

Increasing my Personal Savings Rate in 2015

Last year, I achieved a monthly Personal Savings Rate of 72.59% although most of that going into my real estate investment in Cambodia. With a small salary bump this year and a reduction in personal income tax, I increased my Personal Savings Rate to 81% because all the salary increase and tax savings is going into savings instead of adding new debts like buying a new car. As you work hard to grow your income, there’s no reason for your expenses to increase in proportionally to negate your income growth.

What is your personal savings rate?