Funding during retirement

[BBCWatcher]

As for global diversification, is it necessary to maintain in off shore account? If let's say your balance overseas is about $500K upon retirement, wouldn't it be safer to bring those back to local accounts to minimize risk of brokerage default? If not $500K will be in custodian of US broker that doesn't have protection for non US residents?

No. You seem to be assuming that a U.S. domiciled broker custodian is less safe than a Singapore domiciled broker custodian, but (as it happens) it’s the opposite. But even if they were equal in safety, there’s still value in the diversification. I cannot entirely rule out national existential risks.

I don’t think you need to go overboard here, and you shouldn’t if you’re of modest means — just hunker down with CPF and CPF LIFE in that event. But for moderate and greater wealth, a little custodial diversification has merit. As it happens, certain offshore broker custodians are much less expensive (in part because of scale and efficiency), and that’s useful, too.

Also, apply some common sense. Practically every developed country offers reasonable custody, but I would not be inclined to hold much wealth in anything domiciled in Venezuela even if I planned to retire there. For example.

....I am asking, on topic for this thread, for the purpose of helping someone: if the portfolio is currently FAAMG, and the person is ready to retire, how best to transition to the low volatility funds while minimizing transaction fees -- this is selling a few millions worth of financial instruments just to buy the same $ amount of some other financial instruments -- and more importantly, what else to consider other than fees.

I don’t recall anyone else raising a heavy FAAMG portfolio scenario, but the bottom line is that at any/every age that’s speculating, not investing. There’s a gray area between the two concepts, but this scenario isn’t in the gray area.

Just picture a slightly different scenario: Instead of FAAMG, the portfolio is all BTC. To me, the case is clear cut. Sell the coins pronto and switch, transaction costs be damned.

Ditto the FAAMG scenario. If this portfolio fell in your lap, right away you’d pivot. You could probably make an argument for reallocating 30% of it initially (for example, and depending on the relative share of this pool of wealth v. total, and the person’s time horizon), then taking a few months to handle the rest, possibly excepting the small percentage you want to gamble (see below).

For the sake of discussion, assume that the absolute $ position remains cushy even if FAAMG or BTC drops 50% on Monday.

That’s great, and see above about how you’d go about calculating the initial adjustment percentage.

I’m also assuming you’re not Mark Zuckerberg, for example, and don’t have special insight (and special restrictions) involving your company’s stock.

I should also mention that some people enjoy gambling. In principle I don’t have a problem with that as long as it’s affordable in the circumstances. If an 80 year old billionaire with a reliable pension wants to go to the horse track once a week and bet $5 on 10 races ($50 per visit), for example, I see no problem.

 

[polyglob]

i would actually take the drawdown percentage as the maximum i can take out. if can use lesser then take out lesser, cuz 20/30yrs after retirement the flat withdrawal won’t be enough cuz things will always get more expensive

The so-called 4% safe withdrawal rate takes inflation into account. It is 4% based on current dollars. Say you withdraw $60k for this year. Next year you'll be withdrawing $60k plus inflation. Otherwise like you say $60k will have diminishing purchasing power year after year.

 

[BBCWatcher]

The so-called 4% safe withdrawal rate takes inflation into account.

But it doesn’t take retirement in Singapore, atypically early retirement ages, or Singaporean life expectancy (longer than U.S.) into account. There’s also some active debate whether the 4% figure was too aggressive even in its original context.

I don’t recommend using that particular number in this context, for/in Singapore, even with a traditional/classic retirement age. I would use a lower number, and I would also bear in mind that this classic U.S. age 65 so-called safe withdrawal rate operates in a U.S. Social Security context, a typically much more generous monthly retirement benefit (longevity insurance) than CPF LIFE provides, and in a country with many broadly lower cost of living opportunities. (Missouri recently ranked as the lowest cost of living retirement state on a statewide basis, in case you’re curious.) In other words, the lifestyle consequences of coming up short were/are typically less severe in the U.S. context, so the 5% statistical chance (or whatever it was) of coming up short wasn’t/isn’t as dire.

I prefer to model my retirement plan on a 3% withdrawal rate, and this is with 3 sovereign lifetime pensions in the pipeline and a typical/classic retirement age.

 

[woof]

I think theory is always easier than in practice.
At the stage where we are making a decision to stop work (to live life a little, while we still can) is a little scary.

And maybe it's not such a big deal - while looking at this, I'm thinking that there are people out there who has retired, and who is already doing it. Hoping to get more inputs and think things through before pulling the plug and stopping work.

Everyone's situation and belief is different - so I know there's no one-fit-all solution.

Appreciate all the inputs, especially BBCW, who I feel has always been generous in sharing his knowledge. I feel that I'm generally on the right path - planning to sell out some investments along the way. I forgot about the dividends, so that may help. I'll add that to the consideration.

My wife and I are both planning to be on ERS on CPF life, so I think we have a decent minimum cash flow when we both turn 65.
I did also enquire about adding a private annuity to this, but the returns are pathetic, compared to CPF Life.
In my BI for TM Retirement PaycheckLife (joint life), the guaranteed monthly amount was so low that I couldn't believe it. This policy does not take a single premium, so I asked for an illustration for payment over 5 years at age 55, for payouts to start at age 65. At $100k each year for 5 years (think $500k), the guaranteed monthly payout starting at 65 is $1,300.

Compare this to CPF life, where we put in $264k at 55, and we get about $2k monthly for life starting 65.
So we intend to top up RA to the new limit every Jan.

Hoping to hear more tips or suggestions from others. Thanks for all the inputs.

 

[maple96]

I think theory is always easier than in practice.
At the stage where we are making a decision to stop work (to live life a little, while we still can) is a little scary.

And maybe it's not such a big deal - while looking at this, I'm thinking that there are people out there who has retired, and who is already doing it. Hoping to get more inputs and think things through before pulling the plug and stopping work.

Everyone's situation and belief is different - so I know there's no one-fit-all solution.

Appreciate all the inputs, especially BBCW, who I feel has always been generous in sharing his knowledge. I feel that I'm generally on the right path - planning to sell out some investments along the way. I forgot about the dividends, so that may help. I'll add that to the consideration.

My wife and I are both planning to be on ERS on CPF life, so I think we have a decent minimum cash flow when we both turn 65.
I did also enquire about adding a private annuity to this, but the returns are pathetic, compared to CPF Life.
In my BI for TM Retirement PaycheckLife (joint life), the guaranteed monthly amount was so low that I couldn't believe it. This policy does not take a single premium, so I asked for an illustration for payment over 5 years at age 55, for payouts to start at age 65. At $100k each year for 5 years (think $500k), the guaranteed monthly payout starting at 65 is $1,300.

Compare this to CPF life, where we put in $264k at 55, and we get about $2k monthly for life starting 65.
So we intend to top up RA to the new limit every Jan.

Hoping to hear more tips or suggestions from others. Thanks for all the inputs.

I understand your concerns especially if u have a big chunk of retirement fund invested in equities. I do not have retirement funds in equities, so I have no worries but I did read about people sharing their concerns.

Especially if the market go into a downtrend or crash, u will lose value in your retirement funds if u continue your periodic withdrawals but cannot do much to grow it back. U will be stuck or struck!

People can talk rules or theories about investment and asset allocation, but do they really practice it themselves, does it really work come retirement? I do not believe anyone will teach u to make money if it works and without any hidden objectives.

Dun forget, your mental capacity can deterioriate or things can happen, then who is going to help u manage your equity portfolio to decide what to sell, when to sell, how much to sell, for monies for survival?

Ok some simple common-sense strategies:

So best not to have too much of your retirement funds in equities, unless u are living on the dividends only (u dun need to liquidate the capital to survive), then dun kill the golden goose that lay the golden eggs or u will run out of eggs to survive. Dividend payouts are totally passive, no worries of mental incapacity impact. Only worry is company “default”.

U shared u have a “big chunk” in SA (if I recall correctly). Someone shared his annual interest from OA and SA is big enough a “payout” for his retirement income, plus CPF Life payout. So I am building up my OA and SA to generate more annual interests. “totally passive”

I do not believe in pte annuity plans, as u already pointed out, it cannot beat CPF Life, so why bother, unless u have no choice. Another “totally passive” income.

Just some food for thought.

 

[tangent314]

Private annuities aren't great when compared to CPF Life, but they aren't as bad as you think. Unless the economy is consistently bad for the next few decades, you will be getting significantly more to the Guaranteed amount. In all likelihood, you will get something much much closer to the Non-Guaranteed amount.

There's a strategy that I'm considering going with (after maxing out CPF Life to ERS, of course). I choose a 'safe' age where my investments will run out, e.g. 100. Every year I withdraw 1/(N+1) of my investments where N is the number of years before reaching that age 100. So this amount withdrawn per year will increase/decrease depending on the performance of my portfolio (generally should trend upwards), but will be guaranteed to last me until that final age.

 

[celtosaxon]

I think theory is always easier than in practice.
At the stage where we are making a decision to stop work (to live life a little, while we still can) is a little scary.

And maybe it's not such a big deal - while looking at this, I'm thinking that there are people out there who has retired, and who is already doing it. Hoping to get more inputs and think things through before pulling the plug and stopping work.

Everyone's situation and belief is different - so I know there's no one-fit-all solution.

I can tell you - you are already far ahead of the average person planning for retirement.

Maxing our your CPF in all aspects should always be the #1 priority, that is your safe money.

For your investment portfolio outside of that, if you mentioned a 4% withdrawal rate, then it needs to at least be invested 50% in the stock market, since that is what the 4% safe withdrawal rate is based on. I think you can manage that comfortably, given you’ll have ERSx2 and the other half of your investments outside CPF in safer instruments.

The most important thing is discipline, sticking to it no matter what, even during crisis. Rebalancing more into stocks after they drop 50% is hard for most people, but in the long term it is exactly what you should do.

 

[SKenny]

I think theory is always easier than in practice.
At the stage where we are making a decision to stop work (to live life a little, while we still can) is a little scary.
.......

I fully understand the feeling.

I retired about 10 years ago when I was in my mid 40's. Although I have planned for an early retirement for many years, it was quite an experience when I finally pulled the plug.

The fact that I was retired at a age "way outside of the norm" plus I was at the peak of my earning, made it a daunting decision. My youngest child was not even in primary one then. Most people thought that I was crazy to even think of such a decision. Many of them thought that I will return to the workforce within a few years. I never did.

I was able to make the decision mainly because I have planned for it for a very long time. I knew how much money I need to fund the retirement lifestyle I want, and I have achieved this target. In addition, I have also build a few "safely nets". My wife is fully behind my decision, which was very important to me.

Closer to the target date, there will be the "One More Year" syndrome (ONY), ie work for one more year in order to build a higher buffer. This can continue for many years. In the end, it is a trade-off between having more money, or having more time/freedom. Only you could know the correct balance. Good luck.

 

[JuniorLion]

I fully understand the feeling.

I retired about 10 years ago when I was in my mid 40's. Although I have planned for an early retirement for many years, it was quite an experience when I finally pulled the plug.

The fact that I was retired at a age "way outside of the norm" plus I was at the peak of my earning, made it a daunting decision. My youngest child was not even in primary one then. Most people thought that I was crazy to even think of such a decision. Many of them thought that I will return to the workforce within a few years. I never did.

I was able to make the decision mainly because I have planned for it for a very long time. I knew how much money I need to fund the retirement lifestyle I want, and I have achieved this target. In addition, I have also build a few "safely nets". My wife is fully behind my decision, which was very important to me.

Closer to the target date, there will be the "One More Year" syndrome (ONY), ie work for one more year in order to build a higher buffer. This can continue for many years. In the end, it is a trade-off between having more money, or having more time/freedom. Only you could know the correct balance. Good luck.

Well done, good sir. Your story is an inspiration to us all.

What have you been doing since you retired?

 

[woof]

maple96, good point about mental capacity deterioriating when one is older. I'll need to take that into consideration. My wife isn't too hands on with these too, so that's another consideration.

tangent314, thanks for sharing your thought of 1/(N+1) liquidation.

celtosaxon, thanks for the encouragement, and for the pointer of sticking to the 50% equity allocation. I'm a little worried about such a high ratio of equity, and I'm hoping for something closer to 30%. Perhaps I'll have to review if I can deal with a lower SWR - maybe 3% or 3.5%

SKenny, wow! Any hints or suggestion about how to continue to generate cashflow along the way over the last 10 years? Do you stay invested in the market and sell along the way to generate spending money?

Thanks to all for sharing.

 

[SBC]

I fully understand the feeling.

I retired about 10 years ago when I was in my mid 40's. Although I have planned for an early retirement for many years, it was quite an experience when I finally pulled the plug.

The fact that I was retired at a age "way outside of the norm" plus I was at the peak of my earning, made it a daunting decision. My youngest child was not even in primary one then. Most people thought that I was crazy to even think of such a decision. Many of them thought that I will return to the workforce within a few years. I never did.

I was able to make the decision mainly because I have planned for it for a very long time. I knew how much money I need to fund the retirement lifestyle I want, and I have achieved this target. In addition, I have also build a few "safely nets". My wife is fully behind my decision, which was very important to me.

Closer to the target date, there will be the "One More Year" syndrome (ONY), ie work for one more year in order to build a higher buffer. This can continue for many years. In the end, it is a trade-off between having more money, or having more time/freedom. Only you could know the correct balance. Good luck.

Good sharing!

How many kids now? How much assets had you built when retired?

 

[Okenba]

For me, by the time I am ready to retire, I hope I would have educated my kids sufficiently to take over my portfolio if I'm mentally incapable. Also trying to get the wife to be more interested. =D

But I do think this idea of mental deterioration makes a good case for exploring annuities.

Otherwise, I would pull out about 10 years worth of funds and invest in lower risk vehicles with an emphasis on short term liquidity.

The remaining funds should only be necessary after 10 years and so should still be able to stay in the market.

 

[SKenny]

Good sharing!

How many kids now? How much assets had you built when retired?

I have 3 children. The younger was 4 years old when I retired.

As for my saving/assets, lets just say I have enough to continue to fund my standard of living from pre retirement till my death, twice over.

 

[highsulphur]

I have 3 children. The younger was 4 years old when I retired.

As for my saving/assets, lets just say I have enough to continue to fund my standard of living from pre retirement till my death, twice over.

How much did you set aside for your children education?

I'm not so much worried about my wife and my expenses but more the kids until they are financially independent. That's the main reason holding me back from considering quitting my job

 

[SKenny]

SKenny, wow! Any hints or suggestion about how to continue to generate cashflow along the way over the last 10 years? Do you stay invested in the market and sell along the way to generate spending money?

Thanks to all for sharing.

I am the wrong person to give advice on managing investment/cashflow to fund spending money.

I don't look at my assets/investment in this manner. My main objective in investment is to protect the downside. By doing so, I am sure that the upside will take cares of itself. I look at making few and bigger investment, say property or PM, and less so on equity or bond markets for now. Both look toppish at the same time which doesn't occur often. I don't like this situation.

I am happy to live off my saving/assets. I am drawing way less than 2% per year for my expenditure. I do not mind not making any investment for a few years and just let my cash/near-cash sits (while earning interests) while waiting for opportunities.

 

[SKenny]

How much did you set aside for your children education?

I'm not so much worried about my wife and my expenses but more the kids until they are financially independent. That's the main reason holding me back from considering quitting my job

The children education was one of our major concern. I put aside enough to pay for all 3 education till university (mid point between local and oversea university cost).

I think being Singaporean, we tend to overthink as far as funding our children education is concerned. They should be able to at least pay for part of the university cost through loans or holiday jobs. But then again, we rather that they don't.

 

[BBCWatcher]

As for my saving/assets, lets just say I have enough to continue to fund my standard of living from pre retirement till my death, twice over.

A couple questions:

1. Do you actually mean our standard of living, i.e. your entire household?

2. Is your statement still accurate with a 2%/year average inflation assumption?

I do not mind not making any investment for a few years and just let my cash/near-cash sits (while earning interests) while waiting for opportunities.

It is possible Singapore will experience what Japan is experiencing: 3+ decades (and counting) of essentially 0% interest. Would you be OK in that event?

 

[SKenny]

A couple questions:

1. Do you actually mean our standard of living, i.e. your entire household?

2. Is your statement still accurate with a 2%/year average inflation assumption?


It is possible Singapore will experience what Japan is experiencing: 3+ decades (and counting) of essentially 0% interest. Would you be OK in that event?

1. I meant the standard of living for the family remains unchanged before and after retirement.

2. Yes. I actually used a 2% inflation assumption


3. Yes. Why not? In the Japanese experience, they had very low interest rate but they also have deflation during most of that period. Effectively a zero % nominal interest rate in their saving account translate to real gain.

 

[BBCWatcher]

3. Yes. Why not? In the Japanese experience, they had very low interest rate but they also have deflation during most of that period. Effectively a zero % nominal interest rate in their saving account translate to real gain.

Why not is that you implied you’re reliant on a strategy of investing in something in the future, when you perceive there’s a market bottom. What if that never happens? If you’re OK in that event, great.

 

[SKenny]

Why not is that you implied you’re reliant on a strategy of investing in something in the future, when you perceive there’s a market bottom. What if that never happens? If you’re OK in that event, great.

You started with Japan had zero interest rate as if it is a problem if this repeat in Singapore, to which I explained why it would not be an issue with me. You then jumped to a scenario that the market will never drop/bottom?? LOL You know that we are in record high markets now right? As long as you think that this super-bull market will never drop/bottom. That is great too.

FYI, I am in no hurry to invest in the equity market, and I do not need to ever invest in equity again. My main focus is protection of the downside.