Sunday, 13 August 2017

A letter to my new "old" fan....

After my post on "which stage of your life are you at"... I received the following in the comments section. I thought it would benefit more if I share it as a blog post, especially from someone who has taken the time and effort to write to me. 

Hello Mr IPO, 

I recently became a fan of your blog. I am 55 and still working (civil servant). Planning to retire at 60/62 if I can keep my sanity till then:-) 

You mentioned that you have been traveling annually... well taking time off to recharge is how I keep my sanity till now ... 🤣

I hardly traded nor invested since I started working at the age of 20. My savings are all from my salaried income. I am frugal but I have been travelling yearly.  

I must say you had been a great saver! 👍🏻 It was pity that you didn't try investing or trading when you were younger so I am not recommending that you should start now as you are at a different stage of life.  My guess is that your risk tolerance and profile is low hence volatility in the markets is not something that you will "enjoy".  Given your frugal nature, you shouldn't need too much after you retire other than the travels which should increase.

I have two properties- HDB flat I am currently staying in (all fully paid up for) and a condo unit with sitting tenants since 2015. I have returned CPF all the money I withdrew for both properties with accrued interest and paying cash to service the mortgage loan for the condo unit. 

Returning CPF the money drawn for properties to earn 2.5% and paying current mortgage with cash is a good decision since you have no inclination to invest. If you can afford, continue to keep the cash in the RA account to earn a higher risk free return for as long as permitted by CPF. 

My combined CPF balances (OASARA) by the end of the year would be slightly more than $800k (not much I now). I just started contributing to SRS funds like 3 years ago (very late as well). I also have savings parked in 3 different banks amounting to more than $100K earning pittance. I will also be getting a total of $500K once my two endowment policies mature when I am 62/63.

Given you are debt free on your HDB, your basic needs are already covered. Hence, I would recommend selecting a CPF life plan that gives you a stable monthly cash flow needed to cover all your expenses as long as you live so that you can focus on living well. 

Once you retire, if the rental income exceeds the mortgage payment, you are in the pocket, so that would be an additional source of income. If not, you may need to consider how to make it cash flow positive by paying down the principal, extending the loan (which can be difficult) or consider selling it for a profit. 

I am writing you to get some wise counsel as to how/where/when I could do with my SRS funds, CPFOA and/or my bank savings. Dabble in trading/invest/or... Thank you. Kind regards- A newbie investor

I am not sure if you really want to dabble in stocks and shares after you retire 🤣. The reason why I am so focused on creating a stream of passive income is so that I don't have to be glued to the trading screens. These are stocks that I will invest for the long term and i ignore the price movements. If you are considering investments, I would suggest reading more about the subjects and putting small amounts to work subject to a certain limit. I would also consider corporate bonds but you would need to be highly selective and discerning. 

I have not explored this option but there are annuity plans which you can consider given your high savings.. I.e paying one lump sum of cash upfront and then getting a fixed amount for life. This could supplement CPF Life and you are assured a steady income for which you can live a good life and travel around. You may want to start exploring that option now but do remember to assess the counter-party risk and whether they are credible and reliable. 

Do stay away from Chinatown after you retire  as that is the fastest way to lose wealth... 😆

Enjoy planning your retirement. 
Mr. IPO 

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