Retirement, a bliss or a woe? kcchongnz
Author: kcchongnz | Publish date: Sun, 13 Sep 2015, 08:02 AM
[Dear Mr. Chong,
I am 64 retired last year. Yes, I work much longer so as not to eat into my savings. Frankly I am worried sick over what I have and how to manage my life. For me it is a new challenge not a life of retirement bliss.
My financial status
Epf - 800K
Shares - 550K (33%gain but over umpteen yrs, i.e. 3.3% per annum I think)
Unit trust /bonds -350K
FDs - 400K
Cash - 100K
Condo -500K (current price)
My house -1.5Mil (double storey)
Land -200k
Debts - No
(Last 3 items as old age buffer otherwise give as a legacy to children)
According to my excel spreadsheet, if I use 72k(4% inflation) a year I would have used up my FD(3.5%), my EPF(6% and my unit trust(7%) before I turn 89 and start to eat into my shares.
The 72K per year is reducing my lifestyle expenses and I want to supplement it with my shares investment.
This is the reason why I need to grow my shares at a much better rate than 8% and that is why I need to improve my investing skill.
I try not to use my money from the share as long as possible to give it time to grow say 8-9%.
I know money is not everything. Though I have read the book and agreed with the author on “How to live Rich and Die poor" I feel more comfortable if I can leave something behind as my legacy.
I have attended a course in TA but I don’t think I made any money. I cannot say it is wasted but..... You can say my TA skill is OK. Fundamental not good really.
My personal experience, those buy, sell on TA did not make money for me. I was fortunate to hold on to some stocks for some time and it went up namely Taliwork, KSL, Hap Seng. I sold them recently Why? I don’t know. Maybe the sma 10 cut down sma30...I have forgotten. I also have a long list of lemons.
I learn a lot from your blog as well as from articles but I find it difficult as if I have no one to ask. Reading the Annual report is not so easy for me. Trying to extricate numbers from the repor is tricky and most of the time I just give up. I have no one to consult and to seek affirmation of my trade. In short I need a mentor.
I understand there is no guarantee. I just want to understand the fundamental indicator better and have someone to consult and if you can assist me in this respect then please sign me in.]
Congratulation to your retirement. Welcome to the club. And welcome to my online investment course too. Through this course, you would be able to acquire the basic skills in finance and investing. You would be able to continue learning on your own with ease after that. Open up your mind and you can actually start your new career and enjoying as a financial and investment planner for yourself. You can actually make this a hobby for the rest of your life. It is this hobby in finance and investment which enables me to occupy my time and enables me to have a meaningful retirement life. I hope it can be yours too.
As your concern about the finance during retirement, you should be able to analyse yourself soon once you have learned about the time value of money. But as promised, I will provide you with my opinion as “if I were you” basis for the time being.
Retirement, a bliss of a woe?
Many new retirees do have the same problem as you, i.e. worry about how to manage your life at retirement, a new challenge. It actually depends on individual, what are you going to do to spend time? Do you have some buddies? Do you have any hobbies? Do you have enough money to last before you expire? How do your spouse and family members cope with it, etc.? I have deliberated some of the concerns in this thread below:
http://klse.i3investor.com/blogs/kcchongnz/49472.jsp
I have seen and heard of many couldn’t cope with the retirement life and it could not only affect you but your spouse and children. It boils down to flexibility and adaptability, your outlook in life, your personal interest etc. I “retired” much earlier than you and thankfully I could cope with it with bliss, and I hope you too. No, I am not that old, nor I am that rich. In our veteran group of more than 100 golfers, I am still one of the youngest. I am still not very used to when youngsters call me “uncle”.
Non-financially, retirement can be a bliss or a woe, depending on what is your choice. You should have the full control of your mind-set, and what would you choose; to be happy or stressed? It doesn’t matter how much money you have now. I know of retirees happily living with not much of indulgence in life.
Financially, as to your worry of what you have, I would not be if I were you. As you have said,
“According to my excel spreadsheet, if I use 72k (4% inflation) a year I would have used up my FD (3.5%), my EPF(6%) and my unit trust(7%) before I turn 89 and start to eat into my shares.”
Why would you get worried when it “eats into” your share of RM550k when you turn 89? How long more you would expect to live after 89 years old?
Personal balance sheet
In Table 1 in the Appendix, I have made up your personal balance sheet. That is one of the cleanest balance sheets with a total asset of RM4.4m, and zero debt. Your net worth is RM4.4m. The liquid assets, including EPF saving, amounts to a comfortable RM2.2m which can provide you with the constant stream of income to sustain the whole duration of retirement. Your asset allocation of your investment, excluding the house you are living in now in 60%:40% in fixed income: equity investment, is befitting to your age and personal risk profile very well.
Why are you “worried sick”? In fact I don’t see why the need for you to reduce your lifestyle spending to RM72000 a year.
Financial planning at retirement
Let us look at the cash flows which can be produced from your assets. You did not mention whether you are renting out your condominium and hence I ignore any rental income, if any, from this asset. The total income producing assets is RM2.2m as shown in Table 2 below with their weighting. The expected long-term return for each asset is also tabulated as shown.
It is assumed that you will leave your EPF money at where it is and you are just drawing the annual dividend for it. The long-term return of your share investment is assumed to be 8% a year to be conservative, a 2% below the historical of equity investment in Malaysia, taking in considerations that the future long-term return would be lower due to the slower pace of growth in the future. Unit trust return is a couple of percentage lower, in view of the annual management expenses. With the skill you will acquired after the completion of my online investment course, maybe you could gain the confidence and manage all your own equity investment yourself and obtain the higher expected return of 8%.
Table 2: Assets and expected return
With the present asset allocation of yours and the expected return of each asset, the weighted average return of your portfolio is at 5.8% as shown. I would think this is a very reasonable expected return at retirement, when one has to be a little conservative. It is time for wealth preservation and distribution rather than wealth accumulation now for you in my opinion.
It doesn’t mean that you should invest in a bigger way in the equity market when opportunities present you with a big margin of safety. This type of opportunity doesn’t come often, not now in my opinion. Patience is not only a virtue in investing, it is necessary. Live with the volatility gremlins.
When investing, I strongly suggest to you to start with fundamental analysis (FA). I have shown to you fundamental analysis has worked very well in academic research, as well as my own experience, that it works very well on a standalone basis. You may sharpen your technical analysis skill and augment it, but you did say it hasn’t worked for you. It is not that you are no good at it, but I think it is more of others, such as institutional investors, fund managers, remisiers etc. are better informed and they have more resources to bet against you.
Try to find out how you can invest overseas markets to diversify your investment. Some participants of my courses have provided us with the information to do it in a more effective way. But always bear in mind this golden rule of investing,
“If something sounds too good to be true, it probably is.”
And risk and return are intertwined. The higher the expected return, the higher the risk.”
The life expectancy of a Malaysian is about 75 years old. Many live longer than that. These couple of years, I have heard of a number of my friends die of heart attack and cancer and they are just 50+ years old. So indulge in some luxuries if one can, but be prudent in financial planning for retirement. An assumption here that you will expire at age 90 is quite prudent.
With the knowledge you have acquired and going to acquire, you should be able to achieve long-term results than the 8% return using the proven investing strategies taught, but it pays to be prudent too. The most undependable return assumption, in my opinion is the return of unit trust as it could go way below the return of your own share investments as I deliberated here:
http://klse.i3investor.com/blogs/kcchongnz/75376.jsp
http://klse.i3investor.com/blogs/kcchongnz/75466.jsp
I have arbitrary increased your monthly expenses from your RM6000 to RM8500 a month in today’s money. With the steep depreciation of Ringgit and high inflation, RM72000 a year is generally adequate with a very normal lifestyle. If I were you, after working so hard for decades and have saved some money, it is time to indulge a little in life, for example, have a better car, go for some overseas holidays, eat out for some good food etc. And also bear in mind when you get older, personal and health-care costs consume a significant percentage of your budget, especially in later years.
But how much more you can safely spend a year without outliving what you have now? Yes, retirees are facing a different risk, risk of living too long, a longevity risk.
Table 3 below are your data and assumptions.
Figure 1 below shows the drawdown of your retirement fund.
It is shown that your retirement with proper asset allocation and conservative return assumptions can last you and your spouse to the age of 90. Note that I have assumed that your properties do not yield any return and you are able to inherit the house, the condominium and the land worth a total of RM2m to your children as a legacy, or maybe to charity if your children are well to do and do not need them. You have given them the fish rods and you should enjoy the fish you have caught. Anyhow, in my opinion, it may not be good passing down your wealth. Given the ability to catch fish, they will find the fish caught by themselves are the best.
Oh yeah, get a lawyer or estate planner to do your estate planning properly. My experience shows me a Power of Attorney is necessary too in this planning.
Retirement Annual Cash Flows
The above represents a simple retirement planning as there is limited information. However, retirement planning is fraught with important assumptions about many significant, unpredictable events, which can substantially impact cash flow calculations and results. There are simply too many scenarios and variables, both internal such as lifestyle choices, risk appetite and changes when get older; as well as external factors such as inflation, health care costs, variation of interest rate and market return, longevity, unexpected life events etc. That is why I like to do the retirement planning in an annual cash flows basis such that these variables can be adjusted easily at different stages as shown in the link below:
http://klse.i3investor.com/blogs/kcchongnz/49384.jsp
Conclusion
If I were you, I have no worry at all about my financial status at retirement, absolutely none. Don’t get itchy fight and go to borrow money to invest in the stock market with the aim of many millions more. Then you should be perfectly alright. What for? To bring it to your next world? You have said it right, money is not everything. What I would be more concern is what you are going to do with so much time available now. The link below may give you some ideas if you still don’t know what to do. I should add to the post of spending time to do some social and charity works.
http://klse.i3investor.com/blogs/kcchongnz/49472.jsp
“I want to live deep and suck out all the marrow of life!” Henry D. Thoreau
I have about a score of retirees in my courses. Retirees generally have more time to devote to learn about personal finance and investment, which in my opinion, are very useful as well as interesting for our retirement life. Not all retirees are so lucky to have enough saving as the above case and have no worry about retirement. Some still need to think about how to make their retirement saving to work harder and earn a little higher return, without undue higher risk, in order to last before they expire.
For those young people, it is best to start to build up long-term wealth from young to gain from the magic of compounding, the eighth wonder of the world.
http://klse.i3investor.com/blogs/kcchongnz/77460.jsp
For those retirees, as well as those young person who wish to build up long-term wealth and handle your personal finance better, who are keen to learn the art of value investing, wealth accumulation and preservation, please contact me at
ckc14training@gmail.com
K C Chong (CFP)
Appendix
Table 1: Net Worth
I am 64 retired last year. Yes, I work much longer so as not to eat into my savings. Frankly I am worried sick over what I have and how to manage my life. For me it is a new challenge not a life of retirement bliss.
My financial status
Epf - 800K
Shares - 550K (33%gain but over umpteen yrs, i.e. 3.3% per annum I think)
Unit trust /bonds -350K
FDs - 400K
Cash - 100K
Condo -500K (current price)
My house -1.5Mil (double storey)
Land -200k
Debts - No
(Last 3 items as old age buffer otherwise give as a legacy to children)
According to my excel spreadsheet, if I use 72k(4% inflation) a year I would have used up my FD(3.5%), my EPF(6% and my unit trust(7%) before I turn 89 and start to eat into my shares.
The 72K per year is reducing my lifestyle expenses and I want to supplement it with my shares investment.
This is the reason why I need to grow my shares at a much better rate than 8% and that is why I need to improve my investing skill.
I try not to use my money from the share as long as possible to give it time to grow say 8-9%.
I know money is not everything. Though I have read the book and agreed with the author on “How to live Rich and Die poor" I feel more comfortable if I can leave something behind as my legacy.
I have attended a course in TA but I don’t think I made any money. I cannot say it is wasted but..... You can say my TA skill is OK. Fundamental not good really.
My personal experience, those buy, sell on TA did not make money for me. I was fortunate to hold on to some stocks for some time and it went up namely Taliwork, KSL, Hap Seng. I sold them recently Why? I don’t know. Maybe the sma 10 cut down sma30...I have forgotten. I also have a long list of lemons.
I learn a lot from your blog as well as from articles but I find it difficult as if I have no one to ask. Reading the Annual report is not so easy for me. Trying to extricate numbers from the repor is tricky and most of the time I just give up. I have no one to consult and to seek affirmation of my trade. In short I need a mentor.
I understand there is no guarantee. I just want to understand the fundamental indicator better and have someone to consult and if you can assist me in this respect then please sign me in.]
Congratulation to your retirement. Welcome to the club. And welcome to my online investment course too. Through this course, you would be able to acquire the basic skills in finance and investing. You would be able to continue learning on your own with ease after that. Open up your mind and you can actually start your new career and enjoying as a financial and investment planner for yourself. You can actually make this a hobby for the rest of your life. It is this hobby in finance and investment which enables me to occupy my time and enables me to have a meaningful retirement life. I hope it can be yours too.
As your concern about the finance during retirement, you should be able to analyse yourself soon once you have learned about the time value of money. But as promised, I will provide you with my opinion as “if I were you” basis for the time being.
Retirement, a bliss of a woe?
Many new retirees do have the same problem as you, i.e. worry about how to manage your life at retirement, a new challenge. It actually depends on individual, what are you going to do to spend time? Do you have some buddies? Do you have any hobbies? Do you have enough money to last before you expire? How do your spouse and family members cope with it, etc.? I have deliberated some of the concerns in this thread below:
http://klse.i3investor.com/blogs/kcchongnz/49472.jsp
I have seen and heard of many couldn’t cope with the retirement life and it could not only affect you but your spouse and children. It boils down to flexibility and adaptability, your outlook in life, your personal interest etc. I “retired” much earlier than you and thankfully I could cope with it with bliss, and I hope you too. No, I am not that old, nor I am that rich. In our veteran group of more than 100 golfers, I am still one of the youngest. I am still not very used to when youngsters call me “uncle”.
Non-financially, retirement can be a bliss or a woe, depending on what is your choice. You should have the full control of your mind-set, and what would you choose; to be happy or stressed? It doesn’t matter how much money you have now. I know of retirees happily living with not much of indulgence in life.
Financially, as to your worry of what you have, I would not be if I were you. As you have said,
“According to my excel spreadsheet, if I use 72k (4% inflation) a year I would have used up my FD (3.5%), my EPF(6%) and my unit trust(7%) before I turn 89 and start to eat into my shares.”
Why would you get worried when it “eats into” your share of RM550k when you turn 89? How long more you would expect to live after 89 years old?
Personal balance sheet
In Table 1 in the Appendix, I have made up your personal balance sheet. That is one of the cleanest balance sheets with a total asset of RM4.4m, and zero debt. Your net worth is RM4.4m. The liquid assets, including EPF saving, amounts to a comfortable RM2.2m which can provide you with the constant stream of income to sustain the whole duration of retirement. Your asset allocation of your investment, excluding the house you are living in now in 60%:40% in fixed income: equity investment, is befitting to your age and personal risk profile very well.
Why are you “worried sick”? In fact I don’t see why the need for you to reduce your lifestyle spending to RM72000 a year.
Financial planning at retirement
Let us look at the cash flows which can be produced from your assets. You did not mention whether you are renting out your condominium and hence I ignore any rental income, if any, from this asset. The total income producing assets is RM2.2m as shown in Table 2 below with their weighting. The expected long-term return for each asset is also tabulated as shown.
It is assumed that you will leave your EPF money at where it is and you are just drawing the annual dividend for it. The long-term return of your share investment is assumed to be 8% a year to be conservative, a 2% below the historical of equity investment in Malaysia, taking in considerations that the future long-term return would be lower due to the slower pace of growth in the future. Unit trust return is a couple of percentage lower, in view of the annual management expenses. With the skill you will acquired after the completion of my online investment course, maybe you could gain the confidence and manage all your own equity investment yourself and obtain the higher expected return of 8%.
Table 2: Assets and expected return
| Portfolio return |
Amount
|
Weight
|
Return, R
|
Weighted R
|
| EPF |
800000
|
36.4%
|
5.5%
|
2.0%
|
| Cash |
100000
|
4.5%
|
2.0%
|
0.1%
|
| Fixed Deposit |
400000
|
18.2%
|
4.0%
|
0.7%
|
| Unit trust |
350000
|
15.9%
|
6.0%
|
1.0%
|
| Shares |
550000
|
25.0%
|
8.0%
|
2.0%
|
| Total |
2200000
|
100.0%
|
5.8%
|
With the present asset allocation of yours and the expected return of each asset, the weighted average return of your portfolio is at 5.8% as shown. I would think this is a very reasonable expected return at retirement, when one has to be a little conservative. It is time for wealth preservation and distribution rather than wealth accumulation now for you in my opinion.
It doesn’t mean that you should invest in a bigger way in the equity market when opportunities present you with a big margin of safety. This type of opportunity doesn’t come often, not now in my opinion. Patience is not only a virtue in investing, it is necessary. Live with the volatility gremlins.
When investing, I strongly suggest to you to start with fundamental analysis (FA). I have shown to you fundamental analysis has worked very well in academic research, as well as my own experience, that it works very well on a standalone basis. You may sharpen your technical analysis skill and augment it, but you did say it hasn’t worked for you. It is not that you are no good at it, but I think it is more of others, such as institutional investors, fund managers, remisiers etc. are better informed and they have more resources to bet against you.
Try to find out how you can invest overseas markets to diversify your investment. Some participants of my courses have provided us with the information to do it in a more effective way. But always bear in mind this golden rule of investing,
“If something sounds too good to be true, it probably is.”
And risk and return are intertwined. The higher the expected return, the higher the risk.”
The life expectancy of a Malaysian is about 75 years old. Many live longer than that. These couple of years, I have heard of a number of my friends die of heart attack and cancer and they are just 50+ years old. So indulge in some luxuries if one can, but be prudent in financial planning for retirement. An assumption here that you will expire at age 90 is quite prudent.
With the knowledge you have acquired and going to acquire, you should be able to achieve long-term results than the 8% return using the proven investing strategies taught, but it pays to be prudent too. The most undependable return assumption, in my opinion is the return of unit trust as it could go way below the return of your own share investments as I deliberated here:
http://klse.i3investor.com/blogs/kcchongnz/75376.jsp
http://klse.i3investor.com/blogs/kcchongnz/75466.jsp
I have arbitrary increased your monthly expenses from your RM6000 to RM8500 a month in today’s money. With the steep depreciation of Ringgit and high inflation, RM72000 a year is generally adequate with a very normal lifestyle. If I were you, after working so hard for decades and have saved some money, it is time to indulge a little in life, for example, have a better car, go for some overseas holidays, eat out for some good food etc. And also bear in mind when you get older, personal and health-care costs consume a significant percentage of your budget, especially in later years.
But how much more you can safely spend a year without outliving what you have now? Yes, retirees are facing a different risk, risk of living too long, a longevity risk.
Table 3 below are your data and assumptions.
| Table 3: Data and Assumptions | |
| Age now |
65
|
| Age die |
90
|
| No. of years |
25
|
| Rate of inflation |
4.0%
|
| Return on investment |
5.8%
|
| Real return |
1.7%
|
| Monthly expenses |
8500
|
| Annual expenses |
102000
|
| Current EPF amount |
800000
|
| Cash and investments |
1400000
|
| Total income producing assets |
2200000
|
Figure 1 below shows the drawdown of your retirement fund.
It is shown that your retirement with proper asset allocation and conservative return assumptions can last you and your spouse to the age of 90. Note that I have assumed that your properties do not yield any return and you are able to inherit the house, the condominium and the land worth a total of RM2m to your children as a legacy, or maybe to charity if your children are well to do and do not need them. You have given them the fish rods and you should enjoy the fish you have caught. Anyhow, in my opinion, it may not be good passing down your wealth. Given the ability to catch fish, they will find the fish caught by themselves are the best.
Oh yeah, get a lawyer or estate planner to do your estate planning properly. My experience shows me a Power of Attorney is necessary too in this planning.
Retirement Annual Cash Flows
The above represents a simple retirement planning as there is limited information. However, retirement planning is fraught with important assumptions about many significant, unpredictable events, which can substantially impact cash flow calculations and results. There are simply too many scenarios and variables, both internal such as lifestyle choices, risk appetite and changes when get older; as well as external factors such as inflation, health care costs, variation of interest rate and market return, longevity, unexpected life events etc. That is why I like to do the retirement planning in an annual cash flows basis such that these variables can be adjusted easily at different stages as shown in the link below:
http://klse.i3investor.com/blogs/kcchongnz/49384.jsp
Conclusion
If I were you, I have no worry at all about my financial status at retirement, absolutely none. Don’t get itchy fight and go to borrow money to invest in the stock market with the aim of many millions more. Then you should be perfectly alright. What for? To bring it to your next world? You have said it right, money is not everything. What I would be more concern is what you are going to do with so much time available now. The link below may give you some ideas if you still don’t know what to do. I should add to the post of spending time to do some social and charity works.
http://klse.i3investor.com/blogs/kcchongnz/49472.jsp
“I want to live deep and suck out all the marrow of life!” Henry D. Thoreau
I have about a score of retirees in my courses. Retirees generally have more time to devote to learn about personal finance and investment, which in my opinion, are very useful as well as interesting for our retirement life. Not all retirees are so lucky to have enough saving as the above case and have no worry about retirement. Some still need to think about how to make their retirement saving to work harder and earn a little higher return, without undue higher risk, in order to last before they expire.
For those young people, it is best to start to build up long-term wealth from young to gain from the magic of compounding, the eighth wonder of the world.
http://klse.i3investor.com/blogs/kcchongnz/77460.jsp
For those retirees, as well as those young person who wish to build up long-term wealth and handle your personal finance better, who are keen to learn the art of value investing, wealth accumulation and preservation, please contact me at
ckc14training@gmail.com
K C Chong (CFP)
Appendix
Table 1: Net Worth
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