FIRE seems farther away from me now

If you have not read the Invest section of last Sunday Straits Time, you have missed out on a few good articles related to financial planning. One of them is on “Financial Planning for the Sandwich Generation”.

I find the “advice” provided very useful, insightful and practical. These “advice” are in essence, the critiques from the judges on the financial plans submitted for the FPAS Financial Planner Awards. If you have no idea what or how to start planning for your financials (and retirement), you will find this a GREAT read.

In thinking of our financial state and our FIRE aspiration, we have to think beyond just normal expenses. In fact, they advised that if we want to be conservative, instead of using a forecast expenses based on current experience, we should use the whole of our active income as our future expenses for retirement planning. Why? This is because there may be “black swan” events that will break your bank … I think everyone will agree that life is unpredictable.

man wearing mask sitting down and holding newspaper with fire
Photo by Ashutosh Sonwani on Pexels.com

Children’s future education, parents’ and own’s future medical demands, care for special needs children, siblings will also drain our retirement savings significantly and not all of them can be predicted. Worst if they are not being catered for in our plans.

By being prudent and creating a buffer/safety margin, we allow ourselves to respond to those unplanned events by adjusting down our envisaged living standard. If we start with too tight a retirement plan, once such a major event struck, we will be knocked off our feet and may not be able to stand again.

Using the case in the paper, it was estimated that a retirement sum of $ 3,000,000 at age 65 is required for the couple who are in their mid 40s. And they have to start investing $ 68,500 a year for the next 20 years and assuming a 7% return rate a year.

$3,000,000 !!!! … That’s a bombshell for me … and based on what was written in the paper, the couple are not asking for the sky for their retirement and their living style seems pretty modest … eg living in a 5 room HDB flat.

How to get so much money??? I was only hoping to accumulate $1,500,000 and I am banging on a 5% yield y-on-y to bring me there. If I were to adjust my target upwards to $3,000,000, it will mean that either I have to reduce my current expenses drastically to save more for investment or I need to take on more risk to get a higher yield than 5% or 7% => both are not appealing to me 😦

Looks like my FIRE aspiration is still a long way to go (much longer than I originally expect after I read this article) … sigh … I better go back to my office work now and ensure I keep my job for as long as I can.

Though feeling a bit demoralising after reflecting on what I had read, I still think it is worth a read as it helps to put us squarely back to reality.

FIRE? … sigh …but don’t give up. Halfway there is still better than not to move a single step forward

Regards

Warriortan

 

 

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13 thoughts on “FIRE seems farther away from me now

  1. It does look intimidating, but it would be worse if you stopped doing everything now. Take baby steps, its more encouraging to see milestones being achieved one by one.

    How they come up with 3 million ah? 3 million of ssb interest income = 60k per year leh… That’s 5k per month. Pretty decent, but the upper limit to SSB is 0.2 million, and honestly a lot of blue chips pay 3% or more in dividend.

    Somewhere in my brain smells people pushing for ILPs…

    Hmmm still thinking 3 million?

    Liked by 1 person

      1. Hmmm I will go back and read again but my approach so far has been tracking the dividend income in terms of months of salary. For me I think 6 months would be enough to convince me to take a job for fun rather than for pay.

        Don’t let the $$ affect your motivation. Instead use this as a point to think about the overall strategy and what tweaks may be required.

        On a side note, there’s quite a few factors – current income usually includes a portion for paying mortages, income tax, and cpf contributions, which should theoretically be stripped out unless the mortage lasts till your life expectancy. Just my thoughts.

        Liked by 1 person

    1. I read the article… my two cents, the assumptions seem overly inflated, and more like to sell more insurance.

      A few questionable areas, though I might not be “so expert”
      a) death coverage for 2.4 million (which is 150% their current net worth), tpd for 3.4 million and ci for 1.3 million? The annual premiums for husband is 12k just for this cover, so how to save ah? What is the 2.4 million death coverage to cover for – so the wife and kids need not work for infinity?
      Annual premiums of 12k means the husband already spend more than 1 month salary on insurance costs… so that would eat into his savings now if he goes with this.

      I am not expert on coverage but the logic doesnt make sense to me. If that 12k was put into some better yielding investments, sure it wont cover the full fledged risk if husband got cancer or disabled within a year of signing, but if these extreme adverse events do not happen, he would have some assets that provide income in case these events do happen.

      Personnally, i would not go with that kind of insurance coverage, but something like 80% i invest to cover on my own, and 20% using insurance policies. Insurance cost as % of take home income is too high.

      b) inflation assumption of 3% a year… does seem high. That means our cpf OA and ssbs are basically already losing money just by staying where they are.
      I would say dont worry, if 3%, then probably whole of Singapore die with you since cpf oa is depreciating every year.

      c) for son’s university costs in ten years also need to buy endowment policy with return of 2%? Why endowment policy? Not ssb, not cpf oa (2.5%).

      If everything also need to buy insurance… wah doesnt seem very cost efficient.

      My two cents. Take the numbers with quite a bit of salt.

      Liked by 1 person

    1. I meant signing the policy, but nvm, maybe you were referring to something else.

      I checked out singstat, seedly and some googling. Please really take the figures in that Straits Times Article lightly.

      According to singstat, there was one item with 3% inflation – education. Healthcare costs came in at 2%, and everything else seemed below 1%. I think they really pushing insurance product hard sales and try to use 3% to scare people.

      2nd, there was an article here (https://dollarsandsense.sg/why-you-should-invest-in-ssb-over-endowmentplans/ ) illustrating endowment policies do not necessarily outperform SSBs when it comes to education costs (fyi agent commissions n other charges prob eat up 90+% of the first yr premiums) for a so called not meaningful death benefit. This Straits Times article and financial planners contradict themselves by recommending an endowment product with 2% return, when they need to assume inflation of 3% in this case. I think is really fail.

      And lastly, i tried to google for insurance best in class cost benchmarking. I did see one on seedly by Christopher from moneyowl. See here: https://blog.seedly.sg/working-adults-what-are-the-key-insurance-policies-you-should-get-in-singapore/

      I tend to agree with those, and I think the insurance coverage estimates they are pulling off is very BS. 12k of insurance premiums per yr is really insane, and likely built from whole life plans too. Very bad.

      I would take my chances investing on my own… I think I did get there faster than by following these so called planners.

      Liked by 1 person

      1. TS, thank you for “working” this on a public holiday and sharing your insights. I am publishing all your comments so that any readers will get different perspectives of the issues. I think it all boils down to assumption and risk appetite. If we were to advise someone, it is understandably that we will be more conservative and kiasu. Well, I also think there is some element of Sinkie’s “barber theory” too :-). Have a great remainder of the week.

        Like

    2. Agreed. The financial planners all tell you more than is actually required becos they can sell you more stuff.
      How many people in Singapore can accumulate $3million to retire.

      Many do not and still get by well enough. As we get older our needs lessen, eat less, less energy to spend on entertainment etc. live happy live healthy can survive one

      Liked by 1 person

  2. 3M is not unrealistic for a couple. It means 1.5 per person, which is in line with your own objectives anyway.

    if you can accumulate 3M alone, then of course that is best. 3M (single person) is probably the minimal sum required for FATFIRE.

    But if you are just looking to leanFIRE or do baristaFIRE, then you can get there even faster.

    Onward to FI, fellow FI warrior!

    Liked by 1 person

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