In this weekly series titled JUST ASK, we invite readers to send in questions on stock investing, and personal finance. We will ask an expert (or experts) to provide answers. Below is a question from a reader which is answered by Leong Sze Hian, President of the Society of Financial Service Professionals.
Dear Mr Leong Sze Hian, It has been very enriching and educational reading your views on NextInsight. Thank you very much for your contribution. I hope to be able to have your advice and suggestions as to how I could plan ahead as I near my retirement early next year at the age of 62.
I hope of course to be able to work for a few more years and even till 70 years if I am allowed to. I would like to retire with some $2.2 mil which would include $400,000 in our combined CPF Ordindary and Special Accounts.
My wife has recently retired at 60, and we have both achieved full CPF minimum sum. We have decided to draw down from our minimum sum only after we both hit 65.
We do not think it is worthwhile to go for CPF Life. Our only child is working and does not need any financial help from us for now at least. We own our place, a landed freehold house which we would eventually hand over to our child. It is fully paid up. We are both adequately covered in health insurance.
We would like specifically your advice on the following concerns:
* If we were to spend some $7000 monthly (we think we need that amount as we would like to be able to travel annually and to enjoy golf and theatre) after my retirement, would we be able to generate that amount from our planned retirement portfolio of:
a. $400k in CPF (less the min sum) to tap on the interests annually.
b. $300k in dividends paying stocks to tap on the dividends annually and to hedge against inflation.
c. $500k in Govt and Stat Boards bonds.
d. $1 mil in fixed deposit accounts.
On the issue of govt bonds, would divesting from my CPF ordinary account to goverment bonds be a better alternative? Would it be as liquid?
Thank you.
Looking at your current portfolio, the probability of achieving this rate of return is high, from a historical perspective.
You may like to consider investing your CPF beyond the Minimum Sum, as the amount that can be withdrawn after setting aside the Minimum Sum, if left in the CPF only earns the OA % of 2.5% instead of the average 10-year Government yield + 1% on the Retirement Account (which is estimated to be about 4%).
Your $1 million in S$ fixed deposits may also be giving a very low return of around 1%.
As for your question on investing your CPF funds in government bonds, the excess CPF pays 2.5%, so investing the fixed deposits first makes more sense as they only pay around 1% now.
It appears that almost all your assets are S$ based, so instead of some more Government bonds, you may like to consider global natural resources and real estate funds.
Leong Sze Hian as been a Wharton Fellow and alumnus of Harvard University, authored 4 books, quoted over 1,000 times in the media, and invited to speak more than 100 times in about 20 countries on 5 continents.
He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, the UNESCO Leadership Chair Council and founding Advisor to the Financial Planning Association of Brunei and Indonesia.
He has 3 Masters degrees in Financial Planning & Financial Services, 2 Bachelor degrees in Economics & Insurance, and 13 professional qualifications.
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