Early Retirement in One Lesson

I like this video by Mr Money Mustache.

Reply to comment on securing my family's financial security

 

Comment: Sad to say, 25X only works for the US or Canadian retiree and the Trinity study has a few conditions that are dangerous to extrapolate to Singapore's context without adaptation. 33X is probably a better figure to aim for.

I agree that the Trinity study is dangerous to extrapolate without adaptions. Here are some of my adaptions: 

• my 25x does not includes CPF, and I am working towards FRS for both of us while working towards FIRE. I am already 39, CPF Life kicks in at 65.
• At the start of my retirement, if market does not do well, I will likely go back to work
• I included as my housing loan as my expense. My housing loan is about $250k, and will actually be fully paid off in 16+ years. 
• I have yet to decide upon the indexes or ETFs that I will be in. For now, my thinking is that I will be split equally in 2 indexes (world index - VT and Singapore STI - ES3). I will rebalanced them each to 50% of the portfolio yearly (i.e. sell off better performing index to buy the cheaper index). I am still thinking about STI ETF though. This article explains.

* I was typing the reply in the comment box and due to the length of the reply, decided I should put it in a post.

Securing my family's financial security

I was looking at https://www.my15hourworkweek.com/2021/04/13/the-six-steps-of-the-wealth-ladder/ (again), and thinking that I have probably secured my family's financial security. The family's net worth have reached a point (currently about 10x annual expenses) where I think we will be able to maintain our current lifestyle (till the kids start working, and by then CPF Life will soon kick in) even if I got retrenched and forced to take a lower paying job. 

This is a post that I constantly re-read to motivate/remind myself.

I am highlighting the most important paragraph to me here.

The trinity study assumes a retiree will:

• never earn any more money through part-time work or self-employment projects
• never collect a single dollar from social security or any other pension plan
• never adjust spending to account for economic reality like a huge recession
• never substitute goods to compensate for inflation or price fluctuation (vacation in a closer place one year during  an oil price spike, or switch to almond milk in the event of a dairy milk embargo).
• never collect any inheritance from the passing of parents or other family members
• and never do what most old people tend to do according to studies – spend less as they age

It tells me that 25x annual expenses is very safe to retire on. Let's hope I will really dare to retire then!

*I have reached FRS for my CPF and working towards FRS for J. Upon the age of 55 (16 and 19 years away), I fully intend to top up both CPF to ERS such that we can each have a draw down of $2k (in today's money) when we hit 55.

We will be able to get $4k~ (H and J) per month when J hits 65. $4k should be mostly sufficient then.

Net Worth Growth Rate

I started tracking the family's net worth in 2016. Just now, I was wondering about the growth rate over the years.

The growth rate will probably get slower as my income will be contributing lesser and lesser as the family's net worth increase.

Assuming a per year growth of 15%, I will reach FIRE in 9 years, which is the year 2030. Let's hope I don't need that long.

Contribution to SRS

I have been contributing to my SRS for some time, to reduce my taxable income. I do not top up my SA. This is as SRS is more flexible than CPF SA. In the event that I need to make an early withdrawal, I can, with a 5% penalty. The withdrawal amount is also subjected to income tax. I reasoned that if I were forced to make an early withdrawal, I am likely not working by then and thus have no taxable income.

I was suddenly thinking, if I have more than $400k* in SRS (the maximum tax free withdrawal from SRS is $400k), do I still top up my SRS if I am still working then and need to reduce my income tax? The answer is a "Yes" for me. This is because only half of the withdrawal amount after the retirement age (62 for me) is taxable! 

Even if one's SRS is $800k, the withdrawal per year is $80k. Half of that is taxable = $40k. According to income tax rates, the income tax is only $550.

This is a reminder post to myself.

*if I have 400k in SRS, I should be staring at FIRE in the face, based on the ratio of my SRS stocks to cash stocks currently :)

The goose that lays the golden eggs

According to the Trinity Study, I need 25X (where X is my annual expenses) to retire.

However, I am also interested in one of the points raised in an updated study.

If you choose a reasonable withdrawal rate, you are very likely to end up with much more money than when you started! For instance, a 3.5% withdrawal rate over 30 years with 100% stocks would leave you about six times more money than when you started!

Although I do not live my life for my kids, I do hope that 20-30 years later, my portfolio will be big enough such that my kids are financially secured to a certain extend, such that they can choose how to live their lives. 

If it happens, I will also remind my kids not to kill the goose (the portfolio) such that their kids have a chance to be financially secured too. Maybe I should put everything into a trust then!

-H

Mini Goals

I am not passionate about investing/finance, they are just the means to the end (FIRE). As such, I find myself loosing motivation regularly. 

I think it is important to set mini goals in addition to one's final FIRE figure. Setting mini goals and building on them helps one to remain focused, and not how far away one still have to go. For example, my mini goals may be the next 50k or 100k.

Another important way to keep me focused is listening to FIRE/retirement/investing/finance/self-improvement audio books. I listen to such audio books when my hands are otherwise occupied, e.g. walking/driving or washing dishes. I typically borrow audio books from NLB using Overdrive or Libby. I am not too particular about the book title, or if I wasn't paying attention to some chapters. 

Reducing Expenses

About 7 years ago, I was reading about taking mid career breaks (when one is still mobile and energetic) and remembered feeling that it makes sense. Apparently, I feel J needed a mid career break and convinced her to take a year off work (no pay leave) to explore her interests. She took up Amigurumi (knitting) and this was also the year that she became pregnant with our eldest. 

Both of us do not have expensive hobbies and thus I was roughly sure that my single income can 'carry' the family. I did not track expenses (too lazy, and we don't have expensive hobbies). But it was then that I started tracking our net worth regularly. I believed that when something is being tracked (i.e. net worth), it will grow as we will make decisions to influence it (whether subconsciously or not). 

I figured that at the end of 1 year (with me as sole breadwinner), if our net worth still increase, it means my single income can really 'carry' the family. After 1 year, our net worth did increase. 

Later on (5+ years ago), J left her job to stay home with our eldest kid. The previous experience demonstrated to me that we will be OK.

Nevertheless, I remembered cutting down on the below expenses. 

• She was paying around $8.5k annually for insurance. I was paying around $1.5k annually for mine. I cancelled all our life policies and converted us to term policies.
• I asked her to go lesser for her facials and massages.

5 years later, we are now a family of 5 (3 kids!) and inching closer to our FIRE (mine actually, since J is considered retired I guess) figure. Despite being a single income family, I am still tracking our net worth regularly and aiming to FIRE. With luck, I hope that I can reach FIRE by 2030.

-H

Portfolio Breakdown as of June 2021

This is our family portfolio breakdown inclusive of CPF.

This is the same breakdown without CPF. As our SRS are mainly in stocks (can have SSB + cash), you can see that we are deeply invested in stocks (80%).

-H

The Six Steps of the Wealth Ladder

https://www.my15hourworkweek.com/2021/04/13/the-six-steps-of-the-wealth-ladder/

I like this post, and can resonate with it as my own numbers are roughly the same.

-H

Car

A few years ago, I was talking to an ex-colleague about cars. She had just changed car, and I think she bought a Mercedes. I think the price was in the region of 150k. She said that a Jap car is about 120k then, and for a bit more (which the family can well afford), she can get a Mercedes!

I did not say much more then, but I was thinking that with that mindset, she is probably prepared to work till retirement age.

A car to me is just a transport tool, from A to B. 

A difference of $30k, if invested over 20 yrs, is about $116k (assuming 7% growth)! 30k can also mean 201k if the growth is 10% annually for 20 years.

All these will add up to retirement!

Then again, if driving a Mercedes bring value to you (e.g. brings a smile to your face everyday) , go for it! It just doesn't bring value to me.

-H