kcchongnz blog
Stretching your retirement money kcchongnz
According to a recent survey by financial firm Allianz, the greatest fear in retirement for Americans is the fear of running out of money in retirement, more than the fear of ill health and death. This is exaggerated by the fact that they don’t know how long they will live.
It turns out that this fear is unfounded for most current retirees as another recent research by BlackRock study has uncovered that nearly 20 years into retirement, most retirees still have 80% of their pre-retirement savings.
A recent survey by global insurance group AIA revealed that the average amount middle-class Malaysians desire to have in their savings for when they retire comes to about RM2.0 million in today’s money. Assuming their wish could be fulfilled which is not hard as those professionals who are retiring now would have gone through a prosperous period with lots of low-hanging fruits. With savings, investments and Employee Provident Fund (EPF) accumulated, the RM2.0m is an achievable target.
But just what kind of lifestyle is expected if you retire now with RM2.0m?
The 4 Percent Financial Rule in Retirement
There is this general guidance of the 4 percent rule in retirement planning initiated based on the US environment. It refers to the amount of money you might withdraw each year from the starting value of your total saving you have in a portfolio of stock, property investment, bonds and fixed deposit in banks in retirement, without getting into the risk of running out of money before you die. Put it in the inverse way, you must have 25 times your annual expenses during retirement.
For example, if you have $2,000,000 when you retire, the 4 percent rule would say that you could withdraw about 4 percent of that amount, or $80,000, the first year of retirement. You could then increase that amount with inflation and have a probability of almost 95 percent that your money would last for at least 30 years, assuming your portfolio allocation is 50:50 in stocks and fixed incomes.
A simple financial modelling of this rule as shown in Table 1 below shows that the real return required is 1.92%, for example, an expected portfolio return of 5.5% and an inflation rate of 4%, for a sum of money to last for 30 years. By having a portfolio of equal weightage of stocks and fixed income with expected return of 7% and 4% respectively, average 5.5%, would do the trick.
Table 1: Annual withdrawal after retirement
|
Total amount of saving at retirement, PV |
2000000 |
|
No. of years of withdrawal, n |
30 |
|
Portfolio return, r |
5.5% |
|
Inflation rate, i |
4.0% |
|
Real return of investment after retirement=(r-i)/(1+i) |
1.442% |
|
Future money left |
0 |
|
Beginning year 1 withdrawal, PMT |
$81,000 |
|
Year 2 |
85000 |
|
Year 3 |
88000 |
|
Year 4 |
92000 |
Note the stock return of 7% a year is not a given thingy. As you are retired, it is more important to invest safely for satisfactory return rather than sailing and margin, meaning swing the fence as propagated by some people to hope to become multimillionaire in your retirement. This you must have the knowledge and experience to follow a proper process of investing, not speculating and gambling, as doing so could even bankrupt you, leaving you a pauper for many years before you die. With some deep fundamental knowledge in investing, you could even get higher than the 7% annual return in a safe manner. As a retiree, you should have plenty of free time to acquire those knowledges, and there are many resources out there.
RM80000 a year, or about RM7200 a month is no luxury, but adequate for a reasonably good and no-frill life. Don’t be a miser and just spend RM80k a year, especially if you have a house fully paid off which could yield some income if you choose to later if you run out of money.
For those who are in the civil service who have little or no EPF, they could have done even better as in my batch of university engineering mates who worked in the government, many of them had reached the yuasa level, the highest salaried category of civil servants, and their pension amounts to more than RM10k a month, or RM120k a year, inflation adjusted. A couple of them are getting even closed to RM20k a month. Even a retired graduate secondary school teacher would have that amount of pension. What if both husband and wife were also pensioners? Many of these civil servants also have investments in stocks and properties too. For these retirees, enjoy your life to the fullest before you expire. Eat and do what you like. If you want to travel around the world, do it early, because you may not be able to travel later. It’s important that you spend your money while you’re well enough to do things you enjoy, or you’re going to have regrets. It’s our life experiences, not our possessions, that mean the most to us, that we remember.
The less fortunate
On the flip side, according to recent figures from the Employees Provident Fund (EPF), the approximately 70,000 active 54-year-old contributors have an average savings of just 167000 in 2013, below the recommended minimum savings level of RM196800. The situation is made more alarming by the revelation that 69 per cent of all EPF contributors of the same age have less than RM50000 in their accounts. Many of them have no other savings too.
As the average Malaysian is expected to live until 75, retiring at 60 with RM167000 would mean surviving on just RM700 a month for the rest of their days or below the government’s poverty threshold figure of RM830 per month in peninsular Malaysia.
For the above category of retirees which money is tough, it is not the end of the world although one has to be more careful in budgeting and spending. Spend within your means. Prepare and cook food at home more often and plant vegetables in your garden and it is healthier, patronise coffee shop with better and cheaper hawker food when eating out, take public transport which has improved tremendously in recent years, and no worries of finding parking, go see doctor in public hospitals where service is still good and medicines are free, help your children to take care of your grandchildren and get paid for, work part time to supplement income, go hiking in parks which could be more enjoyable especially with your spouse, instead of playing golf everywhere and be stressed of losing bets. You can still play golf if it is your hobby by joining a no-frill golf club with low monthly subscription and walk playing golf instead of using golf cart and caddy, even with better exercise.
Malaysia is a cheap place to live. Being happy is a mindset and it does not necessarily come from materialism.
Happy retirement for those who have retired. Remember; eat what you like and do what you like, but within your means such that your money doesn’t run out way before you die. Life is short.
For those who wish to learn the fundamentals of investing through a comprehensive and structured manner, you may contact me at,
And for those who wish to know more about personal finance and investing, you may also contact me for an eBook. This is free.
KC
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Discussions
5 people like this. Showing 37 of 37 comments
Conman ma. Chow Yuen Fatt need to spend RM 7.2 K per mth in HK? SS Lee pls confirm.
2019-08-15 14:25
Posted by teoct > Aug 15, 2019 1:59 PM | Report Abuse
KC thanks for sharing. However, the proposed RM 80K/year or RM 7.2K/month seems a lot. Does this include having to pay housing loan?
At retirement, it is assumed that a retiree is debt free.
The 80k a year is not a proposal in this article. It is for those who has RM2m in his retirement fund, debt-free, the amount he could spend a year without having the worry of running out of money in his retirement.
If some one has RM4m in his retirement sum, he could spend 160k, and if someone has only RM1m, he should only spend RM40k a year in order to survive until he dies, with the assumption that he lives another 30 years after retirement.
That is the "4% rule".
2019-08-15 14:46
The enemy of your cash is inflation. The friend of your cash is compounding.
Whatever sum of money you have at retirement, you will still need to protect it against the loss of purchasing power from inflation.
Due to the very long years in retirement for many (the result of our longer lifespan), protecting against inflation is of utmost important.
Happy planning for a long and productive retirement.
2019-08-15 15:37
people who cari makan talking like kc ( to the public ) is just a big liar or ignorant about stock market......................u decide which is which..........I don't have to decide.................
( to the public ) is the key words here..............
to professionals, they know about stock market , they know what it can do and cannot do ........................
and also.........u must have a lot of faith if u think KC can help u to compound your retirement funds...............................
2019-08-15 16:04
irony isn't it?
the smartest brains in the world, the hedge funds hiring the smartest Harvard graduates think it is ok to put their money into negative interest rates instruments and put their money into 10 year instruments with lower returns than 1 year funds.
but kc thinks he can compound your retirement funds putting your money in Bursa...................well...I guess he thinks he is smarter than the smartest Harvard graduates..............
2019-08-15 16:11
Posted by qqq3 > Aug 15, 2019 12:40 PM | Report Abuse X
yield curve inversions, negative interest rates, Keynesian spending, stimulative packages, policy directives to weaken own currency..................
world in a mess or the result of the brightest minds going into finance as a career??
2019-08-15 16:19
kc.......the KLCI is at 5 years low................if u had invested in Bursa based on its 30 largest and most profitable companies, you have negative compounding for last 5 years.................
what compounding you talking about? the only compounding is the negative kind....................................
2019-08-15 20:28
there is a bell curve and people can be any where on the curve.................man can plan, God decides who is where on the curve..................
2019-08-15 21:32
Posted by qqq3 > Aug 15, 2019 8:28 PM | Report Abuse
kc.......the KLCI is at 5 years low................if u had invested in Bursa based on its 30 largest and most profitable companies, you have negative compounding for last 5 years.................
what compounding you talking about? the only compounding is the negative kind....................................
If you know nothing, it is best to shot up rather than telling everyone that you are that stupid. There are a few flaws in your statement above,
1) In the last 5 years, KLCI was lowest in August 2015, not now.
2) Do you know there is such a thing as dividend yield?
3) The 30 component stocks are chosen for their market cap, not the "most profitable companies" as spewed out by your mouth.
4) Why you so stupid investing in the 30 largest companies in Bursa?
5) How could you get any extra-ordinary return from investing the 30 largest companies in Bursa when most unit trust funds are in?
6) So how much "negative return" is from investing in the 30 largest companies in Bursa? Can give a figure on how you compute?
One more time, seriously are you a retired accountant, or a snakeoil salesman?
2019-08-16 13:18
Posted by qqq3 > Aug 16, 2019 3:06 PM | Report Abuse
everyone will find their place in the bell curve....
ME; WHAT THE HELL YOU ARE TALKING ABOUT? MUMBO JUMBO? ANY VALUE AH?
people like u and that OTB promises sunshine and millionaire status to their customers............nobody ever commit suicide due to the writings and promotions of OTB and KC
ME: ME PROMOTE? PROMOTE WHAT? PROMISE WHAT?
I TEACH PEOPLE TO BE VERY CAREFUL OF THE SNAKEOIL SALESMAN HIDING BEHIND MULTIPLE NICKS OF DESA6769, SMARTASS, LONGRANGER, STOCKMANNY, QUACK QUACK QUACK ETC OUT TO DECEIVE NEWBIES AND THE PUBLIC TO SAILANG AND MARGIN IN JAKS AND SENDAI SO THAT HE COULD MAKE A KILLING ON THEIR IGNORANCE, SAVING MANY FROM THESE FRAUDULENT CHEAT, AND SAVED THEM FROM LOSING AND COMMITTING SUICIDE.THIS ALSO SAVED THE SNAKEOIL SALESMAN FROM GOING TO JAIL FOR THAT.
DON'T YOU THINK I HAVE DONE A GREAT SERVICE TO THE COMMUNITY, AND ALSO THE SNAKEOIL SALSMAN?
2019-08-16 16:27
qqq3 is so poor in his investment in KLSE.
100k capital became < 50k now.
I used my last figure already beat him flat.
I made the profit from one counter in 2019 is more than his whole life EPF saving.
qqq3 wants to challenge me, wait for next life.
In this life, qqq3 had lost to me twice.
2019-08-16 16:31
Posted by DingDongHai > Jul 31, 2019 10:47 PM | Report Abuse
Sorry otb...qqq3 is my little brother. He got some light mental illness, will always forgot what he said.. pls forgive him...
2019-08-16 16:33
Posted by paperplane > Aug 16, 2019 4:23 PM | Report Abuse
https://klse.i3investor.com/servlets/pfs/116402.jsp
Not bad. Still made a few percent even in this market.
It is excellent when compared to this portfolio below which lost 63% in a year!
https://klse.i3investor.com/servlets/pfs/99613.jsp
2019-08-16 16:34
lurk....
no idea about snake oil......but I know humans craves snake oil......even as comfort pillows and for placebo effect.........
2019-08-16 17:35
qqq,
U have nothing better to do ah ?? Always want to quarrel for what ??
Time to make monies & stop wasting time loh....!!
Join raider with this wonderful privatization opportunity of bland, and surewin make monies loh...!!
WHY VT WANTS TO PRIVATISE BLAND LEH ??
THE FAIRVALUE OF BLAND IS AT LEAST RM 0.70, IF VT CAN PRIVATISE AT RM 0.43, HE ALREADY MAKE RM 0.37 PER SHARE OR RM 1.85 BILLION MAH...!!
THIS IS HOW CORPORATE PLAYERS LIKE VT MAKE HIS MONIES MAH...!!
JUST IMAGINE RM 1.85B, HOW LONG U THING BJCORP CAN EARN TO REACH RM 1.85B LEH ??
SO IT IS HIGHLY ADVANTAGEOUS FOR VT TO PRIVATISE BLAND LOH..!!
HOLD TIGHT OR BUY MORE BLAND, IT IS A GOLDMINE LOH...!!
Posted by stockraider > Aug 16, 2019 4:59 PM | Report Abuse X
I know loh...!!
MMLR violated, what can bursa do leh ?? Just threaten delist loh...!!
If bursa actual delist, that will play to VT hands and bad for minority shareholder mah....!!
Thats why, we must not sell, and must not let bursa unilateral delist loh....!!
If we hold tight and bursa do not delist, VT will bang balls, bcos he already got 85% but could not privatise mah...!!
2019-08-16 17:44
Posted by qqq3 > Aug 16, 2019 5:24 PM | Report Abuse
otb..........Kc talking about snake oil sales men...very apt description of you.........
me? My $ 50,000 of a few year ago is now worth $ 300,000 but that is just me.....not for sale, not for you...........
Posted by qqq3 > Jul 10, 2019 4:28 PM | Report Abuse
my trading adventure? From $ 50k to $ 350 k, last few years.....good enough for me.....and best of all, I am actually very bearish last couple of weeks................
So lost 50k in a month? How many months before everything gone?
You know what the truth is? All what you said are just siok sendiri, "reporting big number". Kept on lying until just impossible to remember so many lies and then everything contradicting itself. I doubt the miserable 50k is still there. Most likely using the monopoly money now.
That is a snakeoil salesman.
2019-08-16 17:53
cycling.....very good activity.
Holland is a cycling country. That is because they are the most civilized people in the world.
Bought a bicycle a month ago....have been cycling 30 minutes - 2 hours a day and my intention is to keep cycling 30 minutes - 2 hours every day.......................
just back from my cycling..........
2019-08-16 21:00
I am not doing it for sports.....I doing it for leisure and enjoyment......I don't ride fast and don't stress myself......
plenty of safe options where I live...............
2019-08-16 21:40
Hahahaha
qqq3, “I am not doing it for sports.....I doing it for leisure and enjoyment….” and stretching my retirement money because I cannot afford to play golf like KCChong did.
2019-08-16 22:39
Posted by i3lurker > Aug 17, 2019 10:10 PM | Report Abuse
I tried golf too.
found out that i dun have the hatred to hit something with a stick
found it a very silly game
Golf is not an easy game to pick up. It requires some talent in sport too. There are simply too many departments involved that getting good at it is difficult. But once you get it, it is a very interesting game.
Golf is particular good for retirees who are no longer fit and can get easily injured doing other vigorous sports. Besides, it provides an avenue for socializing at retirement, besides having some good exercise, and whiling away the abundant time available while remaining active in mind and body, otherwise would be boring without having much thing to do.
Retirees should try to pick up this wonderful game.
2019-08-18 06:04
The golf crave in Malaysia has abated especially among the millennial.
The millennial found better things to do with their time..............
the baby boomers was the generation into stock market and golf..........the millennial are notable in their absence from golf and stock market...........
man plans but God decides..........the financial adviser sales literature tells you about compounding and retirements........its an artificial world generated by salesmen, journalists , soft cover books and investment advisers..........
The real world out there is about uncertainties, not extrapolations, ...........and if you look at all the crazy stuffs going on in the world of finance especially with all the crazy Trump stuffs going on, ..with every central bank racing to the bottom with QE, with negative interest rates, with devaluations, with uncertainties, with recession looming...... ignore what financial planners tell you........
The way to lead your life is not with financial planners but to lead a meaningful life full of meaning..........
Forget about compounding...and if investing is defined as buying the shares of a company that keeps growing and growing ...and if you have enough of it..........then u become like Philips and no need to worry about money.....if not....well, Man plans, God decides....................
Rest assured there are distinct differences between living in developing countries like China and Malaysia and living in developed countries like USA.
Life in developing countries is actually more democratic, more freedom and people from all walks of life can participate in the economy. Even with little money, you can still have a night out, eat in hawkers, still can participate in the economy. If you don't mind, there are public hospitals to go to if you are sicks...........
If you are in America, no money, u are dead.
So , don't worry so much....man plans, God decides....just go out and lead a meaningful life.......................
Stock market? If you like stock market like I do.....It is also hobby and past time and entertainment for me.
2019-08-18 12:20
KC ...good write up thanks. Are targetting shares prices to increase 300% in 6 years time and 500% in 10 years time realstic target? thanks in advance
2019-08-29 15:43
ed by okdoke > Aug 29, 2019 3:43 PM | Report Abuse
KC ...good write up thanks. Are targetting shares prices to increase 300% in 6 years time and 500% in 10 years time realstic target? thanks in advance
============
salesmen will tell you its realistic.
sell flower says flowers smells nice.
2019-08-29 16:01
Posted by okdoke > Aug 29, 2019 3:43 PM | Report Abuse
KC ...good write up thanks. Are targetting shares prices to increase 300% in 6 years time and 500% in 10 years time realstic target? thanks in advance
The link below is my opinion. Please read.
https://klse.i3investor.com/blogs/kcchongnz/87726.jsp
2019-08-29 18:22
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
teoct
KC thanks for sharing. However, the proposed RM 80K/year or RM 7.2K/month seems a lot. Does this include having to pay housing loan?
2019-08-15 13:59