Posted by bsngpg > 2014-04-01 21:19 | Report Abuse

Hi KC Chong : thank you for the very comprehensive way in discussing retirement number. I understood your article but do not know how to calculate with your method. You did not disclose the calculation method, did you? Would you consider disclosing the method?

I have a very simple DREAM:
i) Debt free with own house and car.

ii) Average RM10K of passive income/month. This RM10K can be a combination of dividend from equity, rental from real estate etc.

iii) Standard of life: equivalent to your example with RM60K/year(RM5K/month) or slightly higher. Thus I will have excess cash each month at the early part of the plan to cover unforeseen happening and also inflation. I do not know how to calculate the present value of the 10K. However I believe the extra 5K/month(10K-5K=5K) should be sufficient to cover inflation.

iv) With (iii), this RM10K should able to last for many years. If there are few unforeseen extra expenses or reduced return(i.e. financial crisis), then the capital can be withdrew at the later part of the retirement when passive income is less than RM10K/month.

v) With that, I hope that I can retire comfortably.

vi) So now, I need to work very hard in pursuing the ultimate dream of RM10K/month.

What is your comment?

Thanks.

Posted by AyamTua > 2014-04-01 23:06 | Report Abuse

and dont forget family and friends relationships etc.
dont just die rich but also die happy! :-)

Posted by sunztzhe > 2014-04-01 23:23 | Report Abuse

Retirement number?
The unintended consequence of fixing a retirement number is the mind stops working and inflation will certainly eat up your so called "adequate retirement number". What matter most is one must acquire investment skills from a businessman perspective, learn from others new ideas and in the process acquire excellent investment skills to sustain the long haul and use the skills to the fullest to grow ones asset backing until one calls it a day or the god almighty calls it a day for all of us.

Having said that one must always live within ones means at any time till the god almighty calls it a day for all of us.

Posted by kcchongnz > 2014-04-02 05:17 | Report Abuse

A simple approach: How much do you need to save up for retirement?

Assumptions
Age now 50
Age to retire 60
Years to retirement 10
Age expected to die 80
Present value of retirement expenses per month RM7000 per month
Nominal return of investment during retirement, Rn 6%
Rate of inflation, i 4%
Future value of retirement fund 0

Future value of monthly expenses, FV = 7000*(1+4%)^10 = RM10,400.
Annual amount, PMT = 12*RM10,400 = RM125,000.
Real return of investment after retirement, Rr =(Rn-i)/(1+i) = 1.92%
Years in retirement, Y = 80-60 = 20
Amount required at retirement, S =ROUND(PV(Rr,Y,PMT,0),-3) = RM2,056,000.

Hence you need to save up to a total retirement fund of about RM2 million in 10 years time in order for you to retire with an inflation adjusted RM7000 a month at today’s Ringgit for another 20 years.

Posted by nokenzo > 2014-04-02 06:17 | Report Abuse

Hi KC Chong, to save RM2m in 10 years, you need to save RM16,667 per month for 120 months. wow, quite a task!!! This figure is for one person or a couple of husband and wife?

Posted by Hulk > 2014-04-02 07:19 | Report Abuse

For me, i plan to have RM2mil for my retirement....after that use these money to buy share with annual dividend >5%.

Posted by kcchongnz > 2014-04-02 07:21 | Report Abuse

How to save a total of RM2 million in 10 years?

Saving RM2 million in 10 years is a daunting task for most people. However, most people would have some savings at the age of 50. There may be substantial EPF too. Besides they are still working with the building up of EPF money. So what they need to do is to top up any short fall from the return of their present investment and expected EPF amount.

Assuming a couple has a total investment of RM300,000 earning a nominal return of 8% per year in the equity market. This amount will accumulate to RM648,000 in ten years time.

Assuming the husband only is working with a salary of RM10,000 per year, and the total EPF contribution of 23%, a monthly contribution of RM2300 is made to EPF, or RM27600 a year. Further assume the couple has RM500,000 in their EPF now. The EPF will be accumulated to RM1160,000 in ten years time when he retires, at a dividend rate of 5%.

FV= FV(5,10,-27600,-500000,0), -3) = 1,160,000
Total = 648,000 + 1,160,000 = 1,1810,000

So the total retirement fund the couple have, without saving anything, would be RM1,810,000. The shortfall is expected to be just RM190,000. This shortfall can be met with a monthly saving of about RM1000 for the next ten years.

They will lead a happy retirement for the rest of their life.

Posted by bsngpg > 2014-04-02 07:32 | Report Abuse

KC Chong : Thank you for your another example. At 60 yr old, I have RM2,056,000, I can receive passive income RM7K(current purchasing power)/month.

My Q is : if at age 70 yr old, I start to deplete the capital till 0 at 80 yr old, the required initial number should be less than RM2,056,000, am I right? Then what is the number ?

Thank you.

Posted by bracoli > 2014-04-02 07:51 | Report Abuse

this is a million dollar question to struggling working middle class.
At age of 30, after working for 7 years i can find myself stuck by paying debts, earnings by >RM8k per mth still not able to live comfortably. By deducting of house loan, daily expenses (petrol, toll, etc), still not having much savings left, probably around 2-2.5k per mth. i am single. Until we find effective plans for having money works for money, a real passive income for us, middle class.

Posted by kcchongnz > 2014-04-02 07:53 | Report Abuse

bsngpg,
The later you start to draw down your retirement fund, the lease the amount you are required to save up to. You are definitely right here. With the same assumptions, you only need an amount of RM1,656,000 at the age of 70.

FV= ROUND(PV(1.92,10,-183600,0),-3)

Your amount of draw-down is still at RM7000 a month in today's money, or RM15300 a month 20 years later.

One factor you may need to consider is when you are at 70 years old, preservation of capital is more important than return of capital. You may want to put all your money in fixed income earnings a nominal return of 4%, or a real return of zero. Then you may need a sum of RM1,836,000 then.

Posted by bsngpg > 2014-04-02 07:59 | Report Abuse

Thank you very much. Retire early is not something unachieved-able.

Posted by bracoli > 2014-04-02 08:05 | Report Abuse

Mr.bsngpg, could you share for youngster like me, at the age of 28-35 what kind of investment would you have invested, for a sum of rm20k annually? I have to ask Rich dad here, as my dad is a Poor one.

Posted by Hulk > 2014-04-02 08:08 | Report Abuse

To have 2mil in 10years, first you need to have 150k cash and go invest by annual return of 30%, after 10years you will have 2mil. It sound like bull-shit, but this is what I am doing it right now. By the way this is only the master plan so called "Vision", if not reach target or 80% done you still have 1.6mil at that time.

Posted by sunztzhe > 2014-04-02 09:15 | Report Abuse

Retirement number is specific to individuals. It varies according to ones social and economic background.Each individual has his/her own financial status,own needs and wants and the retirement number varies according to every individual. Having said that there is a still a basic common number that applies to every individual in every society.

What determines the basic living expenses for the average Joe?
In this scenario, one need to forecast on basic living expenses that one need to live on a reasonable basis per year and the living expenses covers food and non food living expenses

Next one need to forecast inflation rates in the future years and these rates must be factored into the yearly basic living expenses.

What will be the discounted rates over the years? The discounted rate will be the FD rate as one is computing NOW how much MONEY one needs NOW IN THE BANK to cover ones living in the future years.

The question that begets every person is once you have done the sums , what will be your action plan? Maybe for some they need to downscale and ask for external assistance such as BRIM/etc or work until they can't work anymore....Others who are not daunted may decide on action plans to equip themselves with sound financial investment skills that brings in future cash flows that meets their forecasted future living expenses.

Posted by K K > 2014-04-02 09:31 | Report Abuse

Good and thanks for sharing..

Posted by kokyui > 2014-04-02 13:27 | Report Abuse

Appreciate for the sharing, thanks

Posted by kcchongnz > 2014-04-02 15:33 | Report Abuse

Posted by bracoli > Apr 2, 2014 07:51 AM | Report Abuse

this is a million dollar question to struggling working middle class.
At age of 30, after working for 7 years i can find myself stuck by paying debts, earnings by >RM8k per mth still not able to live comfortably. By deducting of house loan, daily expenses (petrol, toll, etc), still not having much savings left, probably around 2-2.5k per mth. i am single. Until we find effective plans for having money works for money, a real passive income for us, middle class.


I don't see you having the problem of getting a real amount of RM7000 a month at today's money when you retire as you are already earning RM8000 a month now at this age of 30. An available saving of 2-2.5k a month is a good number. Continue earning, your income will increase yearly. Continue saving, and invest wisely. A good retirement is not a problem for you, provided, of course you have a plan and stick to it.

Posted by kcchongnz > 2014-04-02 16:56 | Report Abuse

Posted by Hulk > Apr 2, 2014 08:08 AM | Report Abuse

To have 2mil in 10years, first you need to have 150k cash and go invest by annual return of 30%, after 10years you will have 2mil. It sound like bull-shit, but this is what I am doing it right now. By the way this is only the master plan so called "Vision", if not reach target or 80% done you still have 1.6mil at that time.

Yes, you got the figure right. 150k will become 2m after 10 years with a return of 30%.

However, I think you may not get the mind set right. I am certain that nobody can get a CAGR of 30% investing in the share market from now for the next 10 years. The pendulum is now close to the top of its swing. If you say from 5 years ago you aim to make 30% for 10 years, you may have a chance, but not from now.

One has to be realistic about return from investment. Aiming too high and taking too much risk may be hazardous to your retirement planning.

Posted by cykoay > 2014-04-02 19:14 | Report Abuse

At age 37, i still struggling with having convincingly 10-20% return CAGR. I am lower middle income employees. Now i start to follow your stock portfolio

Posted by Wantanmee > 2014-04-03 11:57 | Report Abuse

KC....great write up. Bravo !

Posted by Iching88 > 2014-04-03 13:36 | Report Abuse

thks...time to calculate...scary though

Posted by kcchongnz > 2014-04-03 14:12 | Report Abuse

The best investment.

So many people talking about buying this stock or that stock. Actually to me the best investment is yourself, and your career. Without excess income, how to talk about investing? Without the knowledge, how to ensure investment bears good return? With a gun but without any bullet, how to shoot?

Yes, focus on career, earn and safe, and invest in the right way. Like what Buffet said, "I never doubt I will be rich"

Saying is one thing, the right action is another.

Posted by bracoli > 2014-04-03 14:15 | Report Abuse

bullseye, kcchongnz, without bullet how to invest!

Posted by benson911 > 2014-04-03 23:50 | Report Abuse

Thanks for sharing kcchong, mind to share your top 3 share holding? Thanks.

Posted by kcchongnz > 2014-04-04 07:42 | Report Abuse

The “number” you get from the simplistic computation, the RM2m required for retirement is a very rough one. The real annual cash requirement is not a constant sum. It changes yearly according to your needs and wants. for example, just after your retirement, you may want to tour the world with your spouse every other year initially, and less later. You may still have mortgage to pay and one child still have three more years in University. You may want to buy a new car every 5 years etc. When you grow older, you may incur higher health care costs. Your may prefer to put your investment in safer instrument earnings lower but more stable return when you get older. In essence, the annual cash flow during retirement is not constant but can change significantly each year. So how do you know a fixed amount is adequate for you to get by your full retirement?

This can be done better using the annual cash flow analysis on a spreadsheet. The example given in the post for “Ah Meng” shows how, while still in employment can save and invest to build up their nest egg for retirement first with a base scenario, and then how retirement fund is being drawn down during retirement. Sensitivity analysis can then be carried out with different scenarios such as change in return of investment, different years of working before retirement, unforeseen circumstances such as death or disability of a spouse etc. Furthermore, this initial retirement plan can be monitored closely and altered easily as circumstances change.

Posted by zamsaham > 2014-04-06 23:37 | Report Abuse

No need to be so calculative : once you stop breathing, all what you accumulate can't be enjoyed and can't bring it forward into grave.

Posted by bing > 2014-04-06 23:40 | Report Abuse

Retirement? Scare to think about it!

Posted by zamsaham > 2014-04-06 23:41 | Report Abuse

why scare?
Nothing to be scared of, everything which has a start will have an end.

Posted by bing > 2014-04-06 23:45 | Report Abuse

During that time, the important things maybe is not $$$$$$. But, others like parents, wife and childs!

Posted by kcchongnz > 2014-04-07 13:53 | Report Abuse

Benjamin Franklin — 'If you fail to plan, you are planning to fail!'