The Current Market Crash Pushed Our Retirement Goal Back By 3 Years, And It Might Get Worse

So the market dived another 8-10% or so yesterday. 

Every retail investors is probably mass selling and taking profit off their positions now.

There were reports that trading firms are overwhelmed and true enough, when I log into Vickers, I couldn’t even connect to my account. This truly is a once is a decade / life time event.

I wouldn’t lie, when the market crashed, it has been emotionally testing – its painful to refresh my app to see the market prices.

So earlier today, I went ahead to do a quick number crunching to see the impact of a further 20% drop of my equities towards my retirement / S$1M goal projection.

Here’s a look at the previous projection with the following assumptions:

  1. US Equity – Monthly Contribution with an overall portfolio growth rate of 8%
  2. SG Equity – Monthly Contribution with an overall portfolio growth rate of 5%
  3. Syfe – Monthly DCA with an overall portfolio growth rate of 5%
  4. Annual EPF and CPF contribution at current level.

According to the earlier projection, excluding our properties and mortgage, we should

  1. Hit a net worth (Equities, Cash, CPF) of S$1M at end 37 years old, or in December 2025
  2. Hit a liquid net worth (Equities, Cash) of S$1M at 42 years old, December 2029.

However, as the market plunged this week, we now have to add new numbers into our projection model. 
What we did was:

  1. Update our projected 2020 numbers by entering current portfolio number
  2. Add a further 20% drawdown to all our current equities position
  3. Stop our US, SG, and Syfe Investment contribution for this year

Based on the 3 new parameters, here’s the updated impact towards the 1M goal.

Based on the table, just by adding a further 20% drawdown on our equity position and stopping our investment this year, our S$1M net worth (ex property and mortgage) goal is pushed back from December 2025 37 years old to December 2026 38 Years old. 

If we exclude CPF (liquid net worth), the impact is even bigger: our S$1M goal is pushed back from December 2029 42 Years old to December 2032 45 years old, a good 3 years goal push back!

Which means now, if everything stay constant, I have to work for another 3 years just because the market crashed.

Of course, while this is bad news, we also acknowledge that the growth rate once the market recovers will hopefully be able to counteract the current decline in our portfolio and hence move our current target back on track. 

This exercise paints a good picture for us to see the impact of the current equity drawdown on our portfolio, and to really reassess our portfolio resilience. 

Currently our cash level is the highest it has been since the past 2 years as we manage to sell some stocks before the second wave of crash. Hence we will be accumulating our war chest and deploy them when situation show more signs of stabilisation. 

I feel like there will be a further 20-30% drawdown in the market because we have yet to see the domino effect of the global virus situation – ie the housing and credit crisis. 

So things will probably get worse, as we also have a significant exposure in properties.

You can also read about our horrible experience not being able to sell our stock via DBS Vickers: Earlier Today I Experienced Every Investor’s Worst Nightmare – Unable To Sell My Stock

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We Care Less About CPF Life’s Rate Of Return, More As A “Forced Savings” For The Compound Interest

Recently Mr Budget received a comment from a reader (thank you! We love reading them!) commenting on the CPF scheme.

Ronald shared his views that I should do a calculation on the CPF Life annuity scheme to see if it is a fair deal before committing so much into CPF, after all CPF contribution is a one way street – once you put in the money, you can only see it more than 25 years later.

That prompted Mr Budget to do some digging. 

Many in the financial space will be familiar with Kyith’s work from Investment Moats, and we are also big fans of his.

Kyith always use data to support his articles, and when we dug deeper into his archive of works, we found that he calculated the returns of CPF Life, which saved us the trouble of doing the calculation ourselves.

In case you are unfamiliar with the CPF Life scheme, at age 55, CPF will automatically create a new Retirement Account (RA) for you. The source of the RA account come from both your OA and SA account. For us, we foresee that we will be able to hit the full retirement sum, which is at S$181,000 now. 

Here’s the internal rate of return Kyith simulated based on the following parameter: Computed in December 2018, at age 55, a total of S$180,000 is transferred to the RA account.

Source

As Kyith rightfully pointed out, the IRR and amount disbursed changed according to the age you pass away. 

For Mr Budget, I foresee I will be able to live until 65 – 70 years old, hence the IRR for the basic plan will be between 3.97% to 4.33%, with me getting back between S$275,112 to S$313,526 from the S$180,000 CPF retirement scheme.

Of course, there are a lot of moving parts in calculating the IRR and amount received as the government will raise the basic retirement sum over time and they might also adjust the payout amount, but at this point we can only hope that Singapore has our best interest in mind, and that we can only plan based on current data.

So the question is, are we happy with the returns? I’d say we are quite happy with the results as it is quite rare for us to be able to find a guaranteed annuity giving this rate of return, especially since we expect our risk profile when we are older to be significantly lower than what we have today.

Of course, knowing the payout only paints part of the picture.

The reason why we actively contribute to the CPF account is also we see this as part of a forced savings so that we can really see compound interest in the works when we are older.

Here’s Mr Budget’s projected CPF with the following parameters: constant CPF contribution from employment as well as annual S$7,000 RSTU scheme, at an annual interest of 3.5% (instead of 4%).

YearAgeStart of Year CPFCPF ContributionCPF InterestEnd of Year CPF
201729$0.00$14,370.65$347.46$14,718.11
201830$14,718.11$25,624.74$1,029.86$41,372.71
201931$41,372.71$36,730.00$3,063.91$81,550.48
202032$81,550.48$33,640.00$4,031.67$119,222.15
202133$119,222.15$33,640.00$5,350.18$158,212.32
202234$158,212.32$33,640.00$6,714.83$198,567.15
202335$198,567.15$33,640.00$8,127.25$240,334.40
202436$240,334.40$33,640.00$9,589.10$283,563.51
202537$283,563.51$33,640.00$11,102.12$328,305.63
202638$328,305.63$33,640.00$12,668.10$374,613.73
202739$374,613.73$33,640.00$14,288.88$422,542.61
202840$422,542.61$33,640.00$15,966.39$472,149.00
202941$472,149.00$33,640.00$17,702.61$523,491.61
203042$523,491.61$33,640.00$19,499.61$576,631.22
203143$576,631.22$33,640.00$21,359.49$631,630.71
203244$631,630.71$33,640.00$23,284.47$688,555.19
203345$688,555.19$33,640.00$25,276.83$747,472.02
203446$747,472.02$33,640.00$27,338.92$808,450.94
203547$808,450.94$33,640.00$29,473.18$871,564.12
203648$871,564.12$33,640.00$31,682.14$936,886.27
203749$936,886.27$33,640.00$33,968.42$1,004,494.69
203850$1,004,494.69$33,640.00$36,334.71$1,074,469.40
203951$1,074,469.40$33,640.00$38,783.83$1,146,893.23
204052$1,146,893.23$33,640.00$41,318.66$1,221,851.89
204153$1,221,851.89$33,640.00$43,942.22$1,299,434.11
204254$1,299,434.11$33,640.00$46,657.59$1,379,731.70
204355$1,379,731.70$33,640.00$49,468.01$1,462,839.71
Mr Budget’s CPF Projection

If all things stay constant, Mr Budget should be able to hit S$1,000,000 in his CPF by age 49. That is really quite a lot, and from the table, you will see that every year, the interest received is getting higher and higher, and we earn the magical interest on interest.

To be honest, we have yet to enjoy the benefits of compound interest especially in our current bank account because we are always moving our cash around. Our cash in bank will also be depleted every time we have a new milestone in life.

Hence CPF in a way is really our “forced savings” portion of our portfolio, for us to really see the effects of compound interest. There is probably no other ways we can clearly see this manifested in our lives other than CPF because we tend to move our funds around, and that’s always the case for Mr Budget.

By age 55, after setting aside the basic retirement sum, Mr Budget can also withdraw the rest out for usage. 

We confirmed that we can withdraw the rest of our CPF based on the CPF withdrawal Q&A on the CPF website.

CPF example of withdrawal computation

Of course, this is the idealistic projection because there are many unforeseen things that could happen:

  1. Government might change certain rules with regards to CPF withdrawals or interest rates.
  2. Mr Budget might lose his job or have a pay cut
  3. Mr Budget may need money for his child expenses, hence the annual contribution will be reduced by S$7,000
  4. Mr Budget passes on before 65 years old.

If Mr Budget really passes on before 65 years old, then the S$180,000 would not be worth it. By then, money wouldnt matter anymore to me haha.

So to Mr Budget, the main reason for the annual CPF top up is basically leveraging the CPF to get an annual 4% interest rate so that we can see a compound growth over the next decade and we can enjoy the fruits in the future. The annuity portion of CPF life is really just a small reason why we actively contribute to CPF. 

And hopefully the government don’t introduce big changes to the CPF scheme over the next 30 years! 

Also one last note, this post is not to show off the CPF amount, because the truth is, the same compound interest applies to everyone, and if most people chart their CPF projection, they will most probably get similar graphs.

It’s to share our thinking behind why we contribute regularly and to visualize (in numbers) compound interest in the works. This is also not any investment advise as Mr and Mrs Budget is just 2 regular working PMET trying to make sense of our financials and to plan for the future. 🙂

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The Ideal Minimum Salary Range For 30 – 35 Years Old Singaporean Is Between S$3,500 To S$4,500

Syfe, a roboadvisor in Singapore, recently released a study that looks at whether Singaporeans are ready for retirement. 

Dubbed the Syfe Retirement Readiness Index, the study showed a few findings after polling about 1000+ Singaporeans across all age groups.

Here’s what they found:

  1. 60% of Singaporeans feel that they are not adequately prepared for retirement
  2. 69% of Singaporeans don’t think they can retire comfortably
  3. 50% save less than 20% of their income
  4. 40% of Singaporeans are significantly behind on retirement planning
  5. Women are slightly more retirement ready than men
  6. Nearly 30% of homeowners saved less than 10% of their salary

What caught our attention is actually the low savings rate for the 35 – 44 age bracket – also most likely to be new homeowners and young parents.

Seeing that this will be Mr and Mrs Budget’s profile in the next few years, this worried us a bit too. 

According to the study, for the 35 – 44 years old, only 52% save more than 20% of their salary, and nearly 30% of homeowners saved less than 10% of their salary.

With this in mind, we tried to do a forecast on our future expenses and see how much do we need to spend, and then we can work backwards from there to see how much we need to earn, in order to have excess money to save up for our retirement.

For the forecast, we will be calculating based on a young couple, with one kid as well as a maid to help with household chores, living in a private condo.

Budget Forecast when we reach 35 years old

Currently, Mrs Budget and I spend about S$700 for groceries and meals, and we order in quite a fair bit.

With a child and a maid, we forecast the groceries and meal to be around S$1000 a month. For the home utilities, we calculated in the home utilities, mobile bills as well as the internet bill.

We estimate the cost of a maid to be about S$800. Other assumptions: mortgage payment will be S$3000 a month, and we are contributing a monthly stipend to our parents.

Hence the rough estimated household cost is at S$7,400 a month.

And wow that’s a lot. 

We tried to see if our estimation is too far off, hence we compared this projection with another young family’s expense. We found that the figure is not too far off.

Here’s the real monthly expenses as shared by Dave and Kate:

Source

From the above spending, you will see that the monthly average is S$7916.63 a month. Of course, they have two kids in the family so the expenses is slightly high.

So it will seem like the average household expenditure is around S$7000 – S$8000.

If we split that by two working adults, you will need to earn at least S$4,375 per person so that your take home pay is at least S$3500!

S$4375 per person can be quite high for some, and it is no wonder that young parents who are homeowners will struggle to save more than 10 or 20% of their salary every month. When the money comes in, all of it will have to be spent on household items, your child, your parents, and the hefty mortgage. 

I’d imagine if a person is earning less than S$4,000 when he or she is older than 40 years old to feel as if he is living pay check to pay check. In my previous article, I have calculated that one have to earn at least S$2,600 a month before 30 years old.

Coupled with this new calculation, it seems like the ideal minimum salary range between 30 – 35 years old will have to be at least S$3,500 – S$4,500

Ideal Minimum Salary By Age

This way, he will be ready for all the mortgage and household expenses when he is 35 years old. This is also assuming the other partner has equal share in terms of household expenditure.

Also Read: At 30 Years Old, Your Monthly Salary Should Have Been S$2,600 For You To Feel Financially Secure.

Which is why prudent spending during your younger age is extremely important, and once you have this habit, you will bring it along with you even as you grow older. 

It is also equally important to make sure that you increase your income every year, so that you can catch up with new expenses as we grow older. 

For Mrs Budget and I, we will be using S$8,000 of monthly household expenses as a baseline to do a cash flow forecast for the next few years, and to see if our income can support that household expenses requirement.

Otherwise, we will have to make certain lifestyle adjustment to bring down the monthly household expenses. And it certainly looks that way now.

For our readers, do share with us your household expenditure so that we know if our figures are too far off. 🙂

Disclaimer: Figures above are not adjusted to inflation, and are only used as a general estimation. Real life expenditure varies from individual to individual.

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4 Important Financial Questions To Ask And Discuss With Your Partner

With the end of the year coming, Mr Budget tend to reflect towards what has happened over the year and see if there are any aspects in life which we can improve on. 

Of course, it is still a bit early for that as we have 2 more months before the end of the year.

But we thought it is important to sit down and discuss some of the more important things for Mrs Budget and myself, seeing that we were recently legally married and our wedding will be happening early next year.

1. How Do We Manage Our Money

Mid way into our relationship before we became Mr and Mrs Budget, I remember that one night when the Mrs and myself sat in the car and spoke the first time about our finances. 

Personal finance is a taboo topic among all asian families and is a hard topic to broach. In view of our relationship getting more serious with talks of marriage and proposal, Mr Budget took a leap of faith and “showhand-ed” his finances to Mrs Budget.

Basically, Mr Budget brought his laptop and opened up his spreadsheet which tracks all his assets and liabilities, along with monthly expenses, and showed it to Mrs Budget. 

Because Mr Budget didn’t grow up in a family with good financial habits, it is important for him to make sure that his other half do not have bad financial habits. Mr Budget also needs to ensure that the relationship is built on full financial transparency so that we can truly make the best joint decisions.

To his joy, Mrs Budget also slowly opened up her personal finances to Mr Budget and now has her own finance spreadsheet too. Mrs Budget was intrigued at the detail (though not as detailed as other financial bloggers out there) of Mr Budget’s tracking and became an active money manager convert. 

Mr Budget also always counts himself a very lucky man because Mrs Budget is a capable woman with no liabilities and has no bad financial habits or vices (such as splurging on clothings or luxury items). 

We adopt a separate / individual net worth tracking method, where we will personally manage our own money and make any investment decisions since we are both adults, although Mr Budget will mostly be the one giving advises.

Every month, we will contribute a token S$1000 each into our joint account for household expenditure, as well as savings for our future kids fund. 

This method works well for both the Mrs and myself and we are happy to keep it that way.

Also Read: How We Manage Our Joint Account As A Newly Wed

2. How Much Are We Spending For Our Wedding

Another big topic that we discuss about was our expectation towards our wedding. 

We learn from other couples from our immediate social circle that after their wedding, they won’t usually think about what they did not do, but they would always discuss what they could have done without

And both Mrs Budget and myself subscribe to that too – we know that during the wedding, most of the guest will be Mrs Budget’s family, and our close friends. We agree that we won’t be spending on unnecessary items on the wedding, and that the savings from the wedding can be used for other more meaningful experiences.

Because of that too, we’ve decided to go with a lunch wedding, which is cheaper, and do away with wedding photography, flashy expensive wedding gown packages, expensive diamond ring or expensive bridesmaids and brothers outfit. 

Our wedding venue

At the end of the day, we truly believe that our immediate family and close friends will be truly happy for us, and that we don’t have to prove anything to anyone. 🙂 In Chinese, we know that we 心底扎实就好了。

After our wedding in January, we will probably be sharing how much we have spent so do keep a look out for that.

3. Are We Ready For Kids

This is probably the conversation that the Mrs and myself have not spoken about yet. 

Financially, Mr Budget has not done up the “kids expenditure and cost projection” spreadsheet, and because of that, there are no basis for us to base our decisions upon.

I know we will never be 100% ready financially, because there are so many variables that we need to account for – child care, child education, child expenses, and everything child related.

But it is nonetheless an important topic to discuss with your other half, and of course, make plans together for it.

For us, we are clear that we want to spend at least 1 year between the both of us after wedding, before we try to have our kids. This is also reflected in our life goals

Read Also: Our Financial Goals

4. How Can We Ensure We Can Grow Old Comfortably

Finally, one of the things I always touch upon is this – how can we ensure that we can grow old comfortably.

I think it is very important to work as a team, and that we find each other’s blind spot in our respective personal finance and see how we can optimise for each other.

Some of the stuffs that we consistently do is:

  • Keep a lookout for dividend paying equities and reits
  • Annual CPF Special Accounts Top Up
  • Active cross checking of monthly expenses
Image Credit: CPF

Which is why Mr Budget is glad that Mrs Budget is actively tracking her personal finance matters.

What this means is that, every month, the Mrs and myself sit in front of our spreadsheet together, and we reconcile the figures together – very similar as a parent checking their kid’s report card.

Every year, we will also have our projected figures, and we will compare our actual figures against the projected number and see how we are faring. 
With these numbers, only then can we have meaningful discussions about what we can do as we age and grow old together. 

Are there any other conversations that we should be having? 🙂

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Will We Quit And Travel The World After We Hit Our Financial Goals?

Both Mrs Budget and myself counts ourselves as relatively lucky. As compared to most of our peers, we have the option to plan for our early retirement, and have the means to work towards that.

We count ourselves lucky too as we are aligned in terms of how we view money, and our aspiration towards building a comfortable future together.

For myself, being financially independent means that I will have the option to do meaningful work, work that I enjoy. For the Mrs, that means having an option to leave her current comfortable but mundane job and probably spend time with our family and live a carefree life.

I always ask Mrs, that we should spend more time talking about the kind of lifestyle we want. As much as we are actively managing our finances and have a clear goal, I have to admit that we don’t have a clear idea of what we want to do after we reach our financial goals.

Are we going to call it quits and just travel around the world? 

Will that make us happy? 

Probably. 

But for how long? 

I envision that we will probably take a year long break to do the round the world trip with our miles accumulated, and that I will probably be bored and slightly lost after that.

There are a few (couple) bloggers in Singapore who have retired early, and here are what they have been up to:

  1. Sipping Coconuts – couple retired by age 34, travelling around the world now
  2. Thomas and wife / 15 Hours Work Week – couple, semi retired for 6 months and is now bored
  3. Der Shing and wife – retired before 40 for selling off company, angel investing now as their meaningful full time job

There are various articles around the world which revealed that many who had the opportunity to retire early (less than 40 years old), after quitting their jobs, had been facing with a loss of identity and saw their social circle shrunk, mostly because their peers are all still working. 

Because of that, while we plan for our financial independence, I don’t think Mrs and myself will be able to retire 100%. Doing meaningful work and working alongside smart people is still something that I enjoy a lot, and will be something I will be pursuing should we manage to hit our financial goals. 

For now, we have enough miles to do a round the world trip, which we plan to do so hopefully in the next 2 years before we try to have our first baby. 🙂 

However, after we hit our financial goals, which is to have a joint net worth of over S$2,000,000 by 2027, we will most likely explore some form of meaningful work so that we won’t be lost sheeps. By 2027, the Mrs will be 36 years old and I will be 39 years old!

And we have 8 years to figure out what we want to do when the day comes.