Could I retire at 40?

[Billyone]

Could I retire at 40?

A long retirement is a daunting proposition. Even experts can't agree on the best retirement strategy. And there is a shortage of products designed for early retirement.

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Recently, a client asked whether she had enough money to retire. Nothing odd, expect she is only just past forty and contemplating a retirement of forty years.

Lengthy retirement is one of the most challenging areas for a financial adviser (and for the retiree). With half a lifetime to go there is a huge range of possible outcomes, dependent on unknowns such as longevity, market returns, and cost of living.

 

Good advisers will suggest a retirement strategy: a guide on how to invest, how much to spend, what to insure, and how to manage risk. Unfortunately, there is still controversy over the best strategy. This makes a long retirement a tricky proposition.

 

For example, Noble-prize winner William Sharpe has cast doubt on a favourite rule of thumb of financial planners: retirees each year should spend a fixed 4% of their initial wealth.

 

In another example, the thin life annuity market doesn't reflect the experts' fondness for annuities. A paper by researchers at Stanford University and US firm Financial Engines investigated how to spur the use of annuities, and thereby enhance retirees' financial prospects. Interestingly, the paper advocated annuities that require a gap between purchase and first payout - a feature of the CPF LIFE scheme.

 

How much income could I generate?

A quick reckoning can give a ballpark estimate of affordability. It's not a good idea to assume your lifestyle will suddenly become frugal. Leisure time can actually increase your spending.

 

An easy calculation uses the annuity formula, which assumes the principal is eventually all used up. For example, $1 million lasting for 40 years can generate around $3,400 per month from an investment return of 2.8%. The latter is a recent yield on a Singapore Government Securities (SGS) 10-year bond - a starting point for conservative calculations.

 

Another way is to assume the principal is not touched, and is left as a bequest or emergency fund. Then the $1 million generates $2,300 per month on a 2.8% yield.

 

These numbers are useful benchmarks but they don't factor in inflation. With an inflation rate of 2%, a $100 expense today inflates to $122 in 10 years, after 40 years it balloons to $220. So if you had $1m and could live on $3,400 per month you would need to earn more than 2.8% each year to keep pace in real terms.

 

How to avoid shortfalls?

An early retiree has to plan especially carefully against a shortfall - not run out of money. Financial planners can run scenarios to see how various inputs affect outcomes.

 

A key decision is the amount put into risky assets such as stocks. It's not purely a mathematical decision - there is an emotional tension between the fear of market crashes, and the fear of being left behind by inflation.

 

Two approaches help retirees with this. Lockbox strategies divide a retiree's initial wealth among separate pots, even as fine grained as one pot for each future year of spending. Assets in each pot are managed according to the different timeframes.

 

When a pot reaches its target year, the retiree cashes out and spends all of its proceeds. For the scheme to work well, the retiree should not mix assets, or redeem a pot in the wrong year.

 

A glide path is an age-based adjustment of a portfolio which decreases exposure to equities. Advisers often quote a "100-minus-age" rule for the percentage allocated to equities. For example, 45 year-olds should hold 55% of their assets in shares. Recent research has hinted that a better rule might be "120-minus-age".

 

Glide path strategies are sometimes embedded in funds. Examples in Singapore include UOBAM GrowthPath Portfolios, and the new Aim Series from NTUC Income. An early retiree could buy such funds, but may need to pick a product that assumes retirement is still far away. If not, the product may be too conservative.

 

Which products should an early retiree consider?

What products are specifically designed for early retirees? Arguably none - unless you count stocks and other risky assets. Although annuities are good for conventional retirement lengths, their conservative structure and insurance component don't offer as much for persons below 50. Early retirees may not find annuities attractive, at least until these retirees are a bit older.

 

Lucky retirees with large savings may need only modest growth rates, of 3-4% per year, to beat inflation while protecting capital. They should consider:

 

 

[Booboon]

Sillyporean so kaisi, at the very least of movement, all panic sell. Look at the recent euro crisis u know. I say good times bad times all should stay invested.

[Yeobh]

If you opt for simple living and don't want to own car and condo, you can easily retire early but what are you going to do with all the free time in hand. So you still need to keep yourself occupied daily with part time job or doing small business or engage in activities that do not take up too much cash.

[Mike1234]

Talk is easy...

 

But doing it is quite tough....

 

I guess unless that person is really really rich enough to retire...

 

Or that person not going to retire in SG, maybe in Malaysia????

 

[Skunk]

Animals caged up and put to labour for most of their lives, when released into the wild, will experience disorientation and confusion. Higher-order species will experience depression and inability to adjust socially, while lower-order animals have been observed to have difficulty avoiding predation.

 

After a lifetime of work and labour, most people eagerly look forward to "retirement". I don't. I've seen with my own eyes what total retirement does to people. All kinds of diseases start to appear, entire head of hair turn white within a year, look more haggard than ever before. Partial-retirement, as in step-down to do an easier job, ok, but not total retirement.

 

Hence there's no need to be over-stressed while young, to save up for retirement, and often it's a vicious cycle. Live like a gentle burning candle, consistent and strong, not like fireworks, explode during youth and fizzle out quickly when old, to an unhappy death.

[Blackwind]

retirement may not be complete retirement

 

when you retire you can do things you always wanted to do and even earn some pocket money out of it

e.g. can be a carefree taxi driver taking things easy, or perhaps coach a youth soccer team for a small sum, give tution etc

 

retirement can be fun if you know what you want to do....... so plan ahead don't work all your life like robots(unless that is what you really love doing).... alot of sporeans nowadays work until they think that work is what life is all about and are afraid they will get disoriented........... open your eyes.... find out what you really wanna do.... live your life!

 

anyway as for me when i retire i will be more involved in work like this bcos this is what i love doing

http://www.acres.org.sg/

[themagi]

Sure can retire at 40 depending on assets accumulated and the lifestyle from 40 onwards, and be prepared to re-enter the workforce again at 41 if things don't work out as planned! :)

[Darthrevan]

Animals caged up and put to labour for most of their lives, when released into the wild, will experience disorientation and confusion. Higher-order species will experience depression and inability to adjust socially, while lower-order animals have been observed to have difficulty avoiding predation.

 

After a lifetime of work and labour, most people eagerly look forward to "retirement". I don't. I've seen with my own eyes what total retirement does to people. All kinds of diseases start to appear, entire head of hair turn white within a year, look more haggard than ever before. Partial-retirement, as in step-down to do an easier job, ok, but not total retirement.

 

Hence there's no need to be over-stressed while young, to save up for retirement, and often it's a vicious cycle. Live like a gentle burning candle, consistent and strong, not like fireworks, explode during youth and fizzle out quickly when old, to an unhappy death.

 

I agree with what u said. My dad only stop working for 3 years and his hair turns white rapidly, his mental capacity deteriorated and simple things need a long time to think, as he was a person with little social activities..most of the times stay at home watch TV, videos and does nothing much. overal very fast degenerating.

 

seeing his example and some of my other relatives, i rather keep working, not aggressively but consistently. not working for money, but for passion.

[Skunk]

i rather keep working, not aggressively but consistently. not working for money, but for passion.

 

I agree with the front part....work consistently, no need aggressively, since there's no pressing need to save up for "retirement"...this also lessens the pressure to get-rich-quick and take shortcuts or make irresponsible decisions...also lessens the stress alot....everyone is happier.

 

But i disagree about working for passion. When i used to work for passion, my emotions got in the way of efficiency, and caused alot of heartaches. Now i reserve my passion for leisure, and only work for money.

[Ithunk]

LOL....but yeah being fit and healthy goes a long way...and best of all i have my home gym

[Skunk]

Good for u, but i think u have waited too long to enjoy life lah.

 

I'm already in semi-retirement, and I'm only 30 LOL

[Jp66]

Good for u, but i think u have waited too long to enjoy life lah.

 

I'm already in semi-retirement, and I'm only 30 LOL

Yes, the key word is "semi-retirement". I wish I could do it now, probably have to wait till 50.

[Skunk]

That's easy.

 

1) Run your own business, so u have greater (if not total?) control over your time. So u can work less, live more.

 

2) Don't crave the things u cannot afford. I do not want a condo/landed house. I love my HDB flat. I love my slow clumsy stationwagon. I love my no brand clothes. So wat. heh heh. The moment u spend less, u need to earn less and thus u need to work less.

 

3) Keep yourself in good health, eat well and sleep well. A rotten health will decimate a million bucks in no time.

 

4) Do things that don't need much money. Watch TV at home, go for a stroll in the park, go fishing, look at ants crawl on the ground.

 

5) Learn to detach yourself from money and the false security it offers. Most people accumulate money not because they need so much, but because they feel unsafe if they don't have money.

 

Enjoy your "retirement" :)

[Jp66]

That's easy.

 

1) Run your own business, so u have greater (if not total?) control over your time. So u can work less, live more.

 

2) Don't crave the things u cannot afford. I do not want a condo/landed house. I love my HDB flat. I love my slow clumsy stationwagon. I love my no brand clothes. So wat. heh heh. The moment u spend less, u need to earn less and thus u need to work less.

 

3) Keep yourself in good health, eat well and sleep well. A rotten health will decimate a million bucks in no time.

 

4) Do things that don't need much money. Watch TV at home, go for a stroll in the park, go fishing, look at ants crawl on the ground.

 

5) Learn to detach yourself from money and the false security it offers. Most people accumulate money not because they need so much, but because they feel unsafe if they don't have money.

 

Enjoy your "retirement" :)

Okay, let's me talk to my wife

[Skunk]

It helps that my wife is making more money than i do....she works full-time....I work only a few hours a day, looks after the kids, goes fishing and disturb people on forums LOL

 

And both of us don't spend much. Heh.

[Darthrevan]

That's easy.

 

1) Run your own business, so u have greater (if not total?) control over your time. So u can work less, live more.

 

2) Don't crave the things u cannot afford. I do not want a condo/landed house. I love my HDB flat. I love my slow clumsy stationwagon. I love my no brand clothes. So wat. heh heh. The moment u spend less, u need to earn less and thus u need to work less.

 

3) Keep yourself in good health, eat well and sleep well. A rotten health will decimate a million bucks in no time.

 

4) Do things that don't need much money. Watch TV at home, go for a stroll in the park, go fishing, look at ants crawl on the ground.

 

5) Learn to detach yourself from money and the false security it offers. Most people accumulate money not because they need so much, but because they feel unsafe if they don't have money.

 

Enjoy your "retirement" :)

 

Skunk, I feel point (5) is not easy to achieve..however I admire that you can do so. Thank you for the enlightenment!

[Booboon]

Good for u, but i think u have waited too long to enjoy life lah.

 

I'm already in semi-retirement, and I'm only 30 LOL

no wonder u have so much time go kayak fishing

[Freestylers09]

Spend less,dont afford things cannot afford..

 

why cannot?

 

i used to tot cannot also..till i enlightened that if i dont buy something i cannot afford in 10 years, i better siamz...

 

pple always say 1 million not enough..but in first place,how many of us can save n earn a million??even 60+ still have to work to get a monthly pay?

 

when say nid to pay medical when old etc...i tot there's something call insurance? i bought few policies to cover,very kia su..haha

 

for eg if 1 month save 5-6k a month at least wif wife,at 40 i think i can have close to 700k,my insurance covered finished..all no nid paid

 

why cannot?

 

i tot average MCF bros is minimum household 10k+ one?

 

The figures i quoted is for eg only....lol