Wednesday, September 16, 2015

Notes from my last interview at Kiss 92 FM on retirement.

I think I was a lot more nervous in this round of the interviews because some of the questions veered away from what I was prepared for, apologies if there are more time fillers if you are a Toastmaster.

Nevertheless, it was a good session.

I want to clarify some points I made and highlight some questions I addressed when I was off-line with the deejays,

a) REITs are not everything.

The DJ's couched the questions from the position of a rent collector which was how the conversation veered towards a discussion on REITs. While REITs are a mainstay in my investment portfolio, I rely on four asset classes to build my passive income. ( Four clases are REITs, Business Trusts, High yielding equities, Peer to peer lending. )

I hope that this does not trigger a bull run on REITs as we have no idea how they would perform in a high interest rate environment.

b) What REITs to buy ?

Offline the DJs wanted to know which REIT to buy. I was trying to evade the question so as not be construed as advising someone financially. I answered that if a person buys all the REITs in a diversified REIT portfolio it is possible to achieve 7% yields right now so individual stock selection is not necessary in the current climate.

c) Question on CPF.

This question was entirely ad-hoc and I would not want to offend any authorities listening to the program but I stand by my advice that if you need to rely on your CPF, you are not ready for retirement. CPF life gives a great boost of about $700 - $1900 a month after you reach 65. I expect many Singaporeans would not be able to hold jobs between 55 and 65 so they will need personal savings to tide over that decade.

d) Books to read.

Well meaning friends ask me why I did not recommend my own books. The reason is that Growing Your Tree of Prosperity is almost sold out. Other than George Clason's Richest Man in Babylon, my book Sowing the Seeds of Prosperity is designed to get the local investor started.

Every serious investor needs to get to the point where he can understand The Intelligent Investor by Benjamin Graham.

e) With-holding cash from children to promote good money habits/

Maddy really threw me off-guard with a question on whether it is wise for parents to withhold money from kids and put it in an account for them to witness compounding growth in action. Maddy suggested 10%. I was doubtful because I was not sure whether kids would be deprived from this form of parenting and whether this strategy would backfire so I suggested that she be moderate with this program.

An answer to this question would be complicated and reduces to a question of how to instill conscientiousness and willpower in children. At least from the child development literature I know, there are no solid answers.

One thing I know : You want conscientious kids, make babies with a conscientious spouse.

( Three hours in family court every week also confirms this ugly truth )

It does not help that I was a spoilt only-child who can have almost every toy I wanted as a kid but grew up to be an adult who really needed nothing much other than to read, solve complex problems, play D&D and troll my law school classmates,

f) Opinion on SPH.

Maddy also triggered a very interesting discussion on SPH and asked me my opinion on high-yielding counters with declining businesses. My view is that a long term buy and hold investor of SPH is not so badly off as he would have collected substantial dividends and would now have some SPH Reits in his portfolio as well.

Dividends investing is quite anti-fragile. Time heals all investment mistakes.

g) Singapore Savers Bonds 

There was some small-talk on SSBs. I did not buy any but I am glad that the government has created a product which people are talking about in a positive way.

I am still pining for my inflation protected bonds.

Anyway my notes going into Kiss 92 is as follows :

When is a good age to retire?

This answer varies from individual to individual. A person who wishes to retire would need to accumulate enough assets such that it would be enough to last them the rest of their lives. This is a difficult problem because we do not know when we will die and have no idea what our spending patterns are like post-retirement.

Is 55 too late to start planning for a 'retirement life'?

Again it depends. It is easier to retire if you are single and have no dependents. A late planner may have sufficient income to start accumulating a portfolio which can be used to supplement the income from CPF life which kicks in at age 65. So it's entirely possible to start saving from 55 until 65, and then rely on investment income and income from CPF to retire from the workforce.What are some things we should consider when we plan to retire?

When should we start planning our retirement savings?

The best time to start planning is before graduation immediately after your last set of final exams. The savings accumulated in your 20s would subject to the most amount of compounding throughout your life. So learning about savings and investments are crucial before your first pay-check. Accumulating knowledge is also easier in your 20s. As for me, I studied finance at the professional level once I exhausted all the usual investment books so I went after the credentials which most private bankers have.

When should we start saving for retirement?

The easiest approach is to start from your first pay-check. At 7% gains, you will need to save $820  a month if you give yourself 30 years to become a millionaire. If you have twenty years left, you will need $1920. If you only have 10 years you will need $5780. So it gets progressively harder as you get older to save for retirement.

How much is enough to retire in Singapore?

Two factors determine how much is enough for retirement. The first is how well you can manage your investments post retirement. The second is how much you will need to spend post-retirement. For a single man who is a good investor who can find investments which can yield 8% a year and spends $2,000 a month, he can be financially independent with a portfolio size $300,000. However, it would be prudent to build a margin of safety around that figure of $100,000 and find a part-time job which gives personal satisfaction if you are in such a person's shoes.

How should we retire?

Cautiously. Getting a retirement income to supplement your expenses is not enough. I was bored for the first 6 months after I left the work force and before I got accepted into Law School. A retiree needs to be mentally engaged. The other consideration is that friends in the same age bracket are likely to be still at work and struggling with mortgages.

Socially, it's quite hard for society to accept a 39 year old male who has left the workforce. Many SIngaporeans do not think that it is possible and many thought I relied on my wife for her income before they found out that she's actually a housewife.

Based on surveys, retirees typically spend less on food and transport but more on medical expenses.

When can we retire?

Based on surveys, Singaporean prefer to retire at 55.

I prefer the listener to consider financial independence as a better goal than retirement. Financial independence occurs when your investment income : rentals, dividends, patent and royalty payments exceed your regular expenses. Then you carry on working until you get a comfortable safety margin beyond your regular expenses. Then you should consider retirement.

Do we only start saving for retirement when we have a stable income?

If you wait for a stable income, it would be too late. If you income is unstable, you would need to spend below the lowest estimate of your monthly salary and put your savings in your investment portfolio. If you are unable to save, you would struggle because life throws many curve-balls at you - someone can fall sick and you might have unplanned expenses. 


  1. REITs is not everything and if a person would like to know more about REITs they can read Bobby Jayaratham's book on investing in REITs. It provides a very balance view on the subject. You can find it in your local popular bookstore.

    Agree on the CPF part as well.

    One thing I agree partly with Maddy is that buy devoting a part of the savings into a ETF that follows the singapore market, and reviewing it annually, it gave them the idea how wealth will grow or fall. it is a good lesson on compounnding.

  2. Yes, buying an ETF and then getting the kid to watch the compounding effect is a great idea.

    I just don't have enough knowledge of whether it can backfire and market he kid feel deprived. Put too many controls over the kid and one day he might go crazy when he finally gets a regular income. I had a very permissive childhood and a ridiculous pocket stream because I had no siblings, it may be the reason why I don't really have a lot of material desires today.

    I also think the market is ripe for an equal-weighted Singapore REIT and Business Trust ETF.

  3. Regarding point C on CPF, I would think CPF is an integral part of retirement planning, even if one decides to retire at 55.

    We should grow our SA as much as possible by, for example, transferring unused funds from OA to SA.

    Upon reaching 55, with property pledge against the full retirement sum, we could potentially withdraw $80,500. This translates to $670.83 per month between 55 to 65. Not too bad.

    And if there are still excess funds in SA after transferring monies to RA, it acts like a 4% FD for life. That's a good deal.

  4. You are into crowdfunding liao? How to get started in that?

  5. Hi Christopher,

    Thank you for the enriching article on wealth building.
    I agree with you that if you depend on CPF solely for retirement, then you are not ready for retirement. CPF should be used as a backup for our retirement portfolio.
    Nonetheless, I prefer ETF, property rental and gold bullion as long term passive investments.

    SG Wealth Builder

  6. Ok, the financial bloggers have spoken.

    Apparently there is no consensus on CPF use which is good for readers.

    Will work on a post to elaborate my stand on CPF over the next few days.

  7. An explanation of the scoring system used in the PSLE, including the grading scale, how scores are calculated, and what they signify in terms of academic achievement.
    Read more: PSLE Online Tuition