Cory Diary : Realization of Key Financial Variables and Sensitivity to Retirement Wellness

Has been working on a new set of key parameters of determining how it is going to work out with my retirement planning adding in logic on cash flow into play. The goal is try to make it more realistic. However this means a lot more mathematics using Excel. To save some headache, not going to show the spreadsheet on how it is calculated but just the results and variables which will described here.

Inflation

The first thing to hit the wall is how much inflation figure to use when current inflation is sky high. A quick search into the internet seems to suggest 3% is a figure of reasonable value. Putting too high and you will find money never enough whereas putting too low might undermine your lifestyle in the midst of your retirement. That's how scary inflation can be when you try to incorporate inflation into your assets and probably explains why Fed is desperate to tame it even if this causes recession. In another perspective, once we hit 80s spending will be slower and this will help mitigate expense rate misjudgment.

Expense

From below table achieving $8220 will be nice. Currently Portfolio is at 5% yield due to some growth stock and Non-Reit lower yield counters. An All Reit portfolio probably can achieve 5.5% yield. A market correction may give the opportunity to push for 6% yield which at this point of time will need some major correction to arrive but provided there is cash reserve to invest.

Investment Returns

On the flipside of inflation is portfolio returns. Unless one has gigantic net worth, most people may have to depend on retirement program and investment returns to support a reasonable expected lifestyle.

Some would say their expense is low and this could be very well be the choice when option is limited. Another pitfall is if one is to consider investment equation, there is not much room to wait for market to rebound in a market correction which can last for many years. Dividend strategy could be the better key to enable planned retirement with greater certainty and there maybe decision to make on how much to allow for growth stocks on the point of retirement. So using dividend yield will be a good gauge for equity which can be around 5%. One could also use decade performance to move up the needle a little due to growth stock or capital gains. Say 8%. So a middle ground of 6.5%.

Other returns of different yield from equity such as SSB can do direct addition on capital returns. So are CPF returns.

Click to see sharper picture

How Lasting is the Portfolio

What is a divergence portfolio ? Meaning over time the portfolio is growing in retirement phase therefore above consumption needs. This is a goal.

When I first started, the plan is to have a divergence growth in the portfolio. That's not easy which I found later and will need sacrifices once I have to feed my home loan. It will be good to plan one's lifetime in decumulation phase. Is counter intuitive in eating into one portfolio that generates income but that is probably likely most people will have to for their retirement. Able to last till age 100 will be reasonable as chance are there are some sandbagging already.

Buffers

At this point of time, the buffer is Insurance policies, War Chest and Emergency Cash. Later retirement can be a good option too.

In-addition, Part Time Work for those who do not have choice. The retirement cashflow is greatly relieved for one who can find some part-time work for a few hours. Reason being likely it will scaled with inflation on top of CPF contribution into SA and OA, and will supplement overall return even if is a fraction of previous full-time employment work.

For those who has strong preference for Inheritance, either Property or Divergence Portfolio can do. If one can do both that means likely far ahead from the rest financially.

Returns consideration into the Cashflow

Assuming one retired and no other alternative of income.

1. Equity

2. CPF

3. SSB

4. Rental

5. Multipliers

Scenarios

Scenario 1 simulated a lifestyle that requires 1.5M of 7% annual return to support $8220 expenses at 3% inflation rate. Portfolio able to last 50 years.

Scenario 2 bump up the portfolio to 1.6 M reaching divergence goal. Just $100k makes s a difference.

Scenario 3 pulls down the portfolio annual returns to 6.5% while maintaining 1.6M Portfolio size.

Portfolio able to last 50 years. Just 0.5% return difference.

There are many other variables depending on age, rental income, home loan size, CPF size etc. Many scenario one can do.

Cory

2022-0626

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Cory Diary : Life Style Creep

Coming to end of 1H'22. Long time since last tracked my expenses. With the global economy in gloomy atmosphere and stock market in tatter, it maybe prudent to increase one's saving when the inflation is high and hopefully able to channel it to cash generative assets to negate the rising prices.

Computation Logic

Has been quite some time since last reviewed family expenses. For simplicity excluded support from my wife which probably balance out roughly with her daily expenses taken from family pot while she shares some of the transport fares. Basically the Math is to extract out the expenses taken out from my saving bank that is digitally recorded for download.

To make the review more meaningful, Income tax, home loan and saving type of insurance removed to focus what's matter. This is more applicable to myself. 

Hopefully will give a good perspective of more realistic expenses to focus on. The expenses work out to about S$113 k for rolling 12 months period or 9.4 k monthly expenses.

What Is Lifestyle Creep?

In Investopedia, Lifestyle creep occurs when an individual's standard of living improves as their discretionary income rises and former luxuries become new necessities. The rise in discretionary income can happen either through an increase in income or decrease in costs.

It isn't entirely a bad thing but a progress but it can become a Monster when one's income falls or disappears. And this is my primary concern if one plans to retire.

Review

Most of the withdrawals are easily tracked in this saving account. Purchases via credit card is also paid out from the same account. So the data capture is quite robust.

Due to tiredness, we have get accustomed to taking car with our toddlers. Used to take a long walk instead when we have our first child. This item is now a good chunk in transport costs.

Food wise we have seen a spike as we stay at home mostly with delivery foods and going for more dishes. There is one time medical cost which will not repeat. A special Apple gift. A Hotel family expenses. And some misc items from oversea internet purchases.

Belt Tightening Operation

Despite there are items which are one-off it is not going to skew the total too much. In life there are likely many one-off of different events. Ignoring them is to our own financial perils which is why buffers are needed. After some discussion we decided to focus on list for the remaining 2H'22 expenses. 

First Category

The first category of items are on myself is to reduce my breakfast expenditure. Something which I can control easily without much sacrifice. Takeaway simplified and consume home-made kopi. This cut down expense some.  Next is night snack. Instead of bread plus others, it will be biscuits. Both cuts are much easier to handle.

Second Category

Second category related to children expenses. After consultation with wife, we decide to cut down on transport expenses to nanny's place. This may not be possible always such as raining days else we will take long walk with strollers more often. My knee feels tearing from the long walk so is not roller coaster walk. Long run I think is good for health. There is always temptation to take car so we shall see.

Next is nappy which is quite sizeable expense. The elder one is now three and toilet trained. There will be focus to reduce nappy use other than sleep. She has reached nursery age but we plan to have her spend a few hours after school to be taken care of by nanny. Expecting some ball park saving range. Sometimes out of tiredness, we will ask our nanny to help out on Sat. or holiday. This cannot go one. For two toddlers the cost could work out some saving.

Third Category

Our meals for our dinner is the next focus point. We often have food delivery service due to work and timing to fetch our children. The potential saving can be sizeable. Will target saving per meal for both of us.

In Summary

This works out to about below table. Looks like there is still some ways to go about in improving my financial situation. Will be vigilant in any non-essential costs to put some controls in place. However I have to admit, there is limit on what I can do when we have a family with kids other than raising income. To be realistic, at current measure we are not there yet of below 6 digits expense.

Cory

2022-06019

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Cory Diary : Time will Pass - Don't let the correction go to waste

If someone is to tell me when Covid just hit us in early 2020 on the disasters it will ensued after, I would find the going tough. To play back, Covid hits, 2nd Baby, Covid Mar'202 Crash, Covid lock downs, Salary Freeze, Covid Vaccinations, Covid Variants, Ukraine War, Fuel price sky rocketed, High Inflation, Rate Hikes, Property Curbs, ... ... ....

TIME WILL PASS

While is hard to predict the future, we have already progress so far as we take it one bad news at a time. For every damage done, it will Pass. Therefore is important that we Preserve and go through it.

What I do the past week is tallying up my available War chest. Have been buying in bits into dividend stocks so far. Trying to measure up how much each purchase drives the dividend coffer. The buying period is long because I want to see is there major dip or else put some amount Instead into SSB at higher interest rate later. 

Yesterday US side announced 8.6% Inflation number and luxury home sales dropped 18%. Obviously the Market reflected it. Currently I have Telsa and Msft in US position. Probably less than 10% of the Equity allocation. Even though it was managed down as I take advantage of the strong USD position to sell into SG Cash, the exposure is still quite high. Have a good night sleep last night so aren't going to DCA or increase US Positions.

SGX side, Potential Annual Dividends will hit $67k to-date. Received about $32k+ dividend YTD so far which is way more than previous years even before the month June ended. Seriously, I am not hoping for US market to crash but it works perfect if SG Market does for dividend counters so that I can stretch my dollar for the dividend significantly. 

BITS and PIECES

Meantime I will keep buying in bits and pieces as it looks like the market is on slow rewind.

Cory

2022-06011

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Cory Diary : Interest Rate v Reit Prices

Yield

Reit yield has been going down for past decade or more with lowering interest rates. What this mean is higher Stock Price. This seems a yield spiral which result in yield compression against SSB or Bonds. There needs for a reversal.

The bad way to do this is to have relative lower stock price with higher yield as we can see in past one and half year. Basically Covid impact weakening business fundamental. The ideal way to have much better earning in DPU. How can this happen ?

Currently I can think of 3 and item 1 condition is happening today. There could be more but for interest of time ...

1. Inflation - Yes. This result in higher rental prices provided strengthening economy.

2. Leverage - Higher Leverage will helps including Perpetual.

3. Property - Yes. Increasing Property Price means lower Gearing.

Rental

In short, Reits need to adjust their rental which takes time to happen therefore we could see weakening or flat market due to lagging factor however longer term this will provide better DPU thus stronger Reit prices theoretically.

The problem with this strategy based on past reference is that the lagging factor can last for years and who knows what will happen during this period. We could have recession, major war or another pandemic. touch wood ! Enough of negativity ! There can also be positive news too just that I lack the knowledge to think of immediately that has 100% confidence it can speed up.

What I could is to buy in slowly in small bites investing in strong fundamental businesses meantime.

Why Reits ?

See below - Specifically Singapore. Simply no withholding tax and local knowledge.

Source link

Cory

2022-0605

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Cory Diary : 20-year annualized returns by Asset class

Interesting finding this week is which are the best investment over a long term period of 20 years. And Reits came on top based on below chart.

Since this is US focus, SG Reit likely performs better after Forex based on historical exchange rate below.

US Dollar - Singapore Exchange Rate - Historical Chart

The other context to consider is that Homes may not be that bad for Singapore due to lower tax rate and Asian Market in general favors properties.

Even Gold and Oil have better returns. So why do we still need to invest in S&P 500 for long term ? You tell me ? Maybe we need 100 years track record however past performance is still never implied future returns will be.

Please DYODD. Cory is also trying to decipher ...

Cory

2022-0603

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Articles in this Blog is personal take and sharing purposes only. Reader should seek their own professional help when making financial decision and be responsible for their decision.