Retirement Planning. How to Plan and Create an Income during Retirement?
Retirement Planning is one of my pet peeves and even though I have not been posting for quite a while does not mean I am off the subject J. Over the last few months, I have been re-organising my finances and taking on new challenges of managing a new organisation that have taken up most of my time.
I know most of us do not think about retirement planning most of the time and that planning for retirement can sometimes be one of our last priorities when we are faced with loads of work and family issues; myself included. However we should engage some of our time for this activity and anyway planning for retirement should not be a worrisome activity and it can actually be fun thinking about what we want to do after years of working.
In this post, I want to address the issue of planning for your income during retirement. For many of us, our plan is to save sufficiently so that we can draw from the nest egg, with whatever we can also withdraw from our corporate pension plans or Social Security, to last us for 20 to 30 years. For others, their plan is to be able to create an additional income source that could either be passive such as rental income or investment returns, or from a home business or even online business such as Ebay or general internet marketing.
My thinking about planning for retirement income is bias towards an income from small businesses and property investment. Small business, especially businesses which provides basic necessities to the people staying in your neighbourhood, are more resilient against market movements but the returns may not be spectacular.
Cafes serving students in the local university or college, local unpretentious hair saloons serving the local community, grocers and even a magazine shop can provide a nice little income while keeping ourselves active. Taking the idea further, this would mean an investment into several of such businesses with or without a few active partners. Even in businesses, I believe in diversification and investing in a variety of businesses, providing essential services, will be a strong component in our retirement plan.
Go look at what the local shops are doing. Talk to the ladies running the hair shop and understand their operations, talk to the manager running the college café and you will see that creating a few little businesses is not a daunting tasks. The income you derive from such small businesses, after paying all your staff, may not buy you that Ferrari but it will be more than enough to pay for that holiday in France and a great bottle of pinot noir in Burgundy. Go try the Boeuf Bourguignon in Beaune and you will love your retirement. We want to enjoy our retirement so go plan for how you will create that retirement income.
How much do I need to retire? Is One Million Dollars Enough?
As you probably know from my previous post, my retirement target is 1.5 million dollars in 11 years time. How did I come up with this magic number for retirement? How much do I need to retire? Is 1.5 million dollars the amount that is needed to live a comfortable retirement? What about for yourself? Do you also need 1.5 million dollars in order to retire? Does it mean that if you are short of the 1.5 millions, you got to either rob a bank or slog till you drop?
First of all, 1.5 million dollars is a personal target. How much do I need to retire is dependable on my situation or context as well. My context is likely to be different from you. My country of residence is Singapore and while I may move to another place when I retire, I have to make sure that in the event I decide (or my wife decide) that we should still stay on in this highly expensive country to live in, we have more than sufficient to live comfortably.
Retirement Expenses
My expected retirement expenses will be reduced but unlike many whom have preached that all of us should see a significant cut in spending when we retire, I expect only a marginal reduction. Rather my expenditure patterns will change when I focus on different things in life and spend my money and time on different things. The key is that I will not be eating out less nor will I be shopping less for gadgets. Dun even bother telling my wife to stop buying those hand bags of hers, we are already running out of shelf space.
My key expenditure will be on Food, Transportation, Leisure and Medical/Insurance. For Food, I expect myself to continue to eat out often. This will incur about $2000 per month. Eating is one of my leisure activities as well ? and I seek out good places to eat as one of my favorite past times. For transport, cars in Singapore are horrendously expensive and I do not fancy large fuel guzzlers. I will likely buy a compact fuel savings Honda or Toyota and this will likely cost me $1500 per month; fuel included. As for medical or insurance, I have a hospital plan and term life insurance that cost me minimal currently but I expect the costs to go up to about $500 per month. And on top of these expenses, I intend to spend up to $2000 per month on leisure; travel, shopping, golf etc. These numbers seem general but I have made numerous calculations and predictions (using inflation data) and these numbers should be pretty close to what I will need. All in all, $6000 per month will be just nice. If you asked about my kids’ education or my housing mortgage, I have catered a savings and investment plan separately and will have sufficient funds for a local university education for my child and will also see my mortgage paid fully in 11 years time.
The numbers that I present above will differ for you as our priorities are different. But the key message that I would like you to take away is that we should not be planning retirement as a life in rags but rather we should be planning for a 20 to 40 year vacation. Otherwise we might as well continue to work. I am not saying that working during retirement will be taboo. I am likely to continue to keep myself active by starting businesses and taking part in more social work. Getting an income or profits will also allow me to splurge even more, although the target is to achieve $1.5 million dollars or a $6000 per month withdrawal rate at the age of 45.
How much do I need to retire? How to have $6000 per month during retirement?
Reading the above paragraph, you will probably understand how I arrive at a target of $1.5 million dollars. The goal is to create an investment fund size of $1.5 million dollars when I hit 45 years old so that I can see a withdrawal of $6000 per month or $72000 per year. This is a 4.8% withdrawal rate, which I perceived to be sustainable without drawing down my principal amount of $1.5 million dollars.
The retirement plan will be to continue to be aggressively invested while putting aside 5 years of expenses aside. This will allow me to keep
$1,140,000 in a moderate to aggressive investment portfolio (mainly equities)
$360,000 for 5 years expenses
I will further breakdown my $360,000 into 2 pool. $72,000 for the first year’s needs and keeping the remaining $288,000 in foreign currency deposits. Currently Aussie and New Zealand currencies are attracting the highest return of 8% with relative stability without even taking into account the appreciation. By taking this retirement strategy, I will foresee a need for my main investment of $1,140,000 to return 6.3% annualized over 5 years in order for my retirement to continue without eroding my principal. I expect this to be not only achievable but to also surpass this target. Otherwise I will fire my financial planner 
Ok. I hope I have articulated why I think I need $1.5 million dollars to retire and hopefully this let you also start to think about how much you will need for retirement. Start thinking about it early so that you can plan ahead. If I had started 5 years ago, I would probably be able to retire by 40 years old, but 45 years old is still not too shabby. I am going to write another secret cheque to myself to keep my inspiration alive ?
How To Make A Million Dollars For Retirement? My List
How to make a million dollars for retirement? I ask myself that question quite often. Like I said in my previous post, my current job pays me well enough to save and invest to reach my goal of 1.5 million dollars. But I would like to hit my target at an earlier date than the 11 years that I have projected. Strained my brain cells and this is a non-exhaustive list that I have come up with:
Save and Invest
This is definitely my current plan. I intend to accumulate 35% of my paycheck and weigh my investment towards equity funds for the next 11 years. With a projected annualized 5% returns on my annual investments as well as on my current investment pool, I am expecting approximately $1.6million dollars. Any returns above 5% will be added bonus J
Trade Forex
I have had a lot of experience trading derivatives and foreign currency exchange. It is a highly leveraged and risky venture but has the potential to offer astronomical returns. Can I make a million dollars from trading forex? I believe that it is entirely possible but a sizable proportion of my time must be devoted to monitoring the currency markets. Can I afford the time? I am unsure.
Trade Stocks
Trading Stocks is an attractive option as well. I have limited success with trading stocks and am trying to derive a strategy of stocks trading that will not require my daily attention. A weekly or monthly trading frequency will be highly suitable for my lifestyle and schedule. Is it possible for me to earn a million dollars from trading stocks? I think I am unlikely to trade with sufficient size such that the returns will be large enough to earn a million dollars. My current thinking is to devote only $50,000 to a non-leveraged stock trading account and to invest/trade in dividend yielding stocks.
Trade Options
I have an account with interactive brokers which I have left dormant for about a year now. A year ago, I was trading options actively but realized that I had to devote my entire waking hours to this effort in order to achieve any tangible rewards. Basically I burn out trying to trade options actively. This is still an option for me to accumulate my fortune or one million dollars but I would like to find a more laid-back strategy before committing my funds again.
Make Money Online
My graduate degree was on computer engineering and I was always attracted to the idea of making a living online. I have tried affiliate marketing using paid-per-click on google and yahoo and have only broken even. Recently I am trying to utilize google adsense for this blog as well as some hubpages and other sites and is starting to see some results. My assessment is that this is a very possible wealth accumulation strategy for my million dollars venture. Not only that, it would be possible for me to even create a passive income stream that can allow me to retire comfortably. I will be working hard on this strategy.
Gamble & Lottery
Definitely I will be buying my weekly lottery tickets and hoping for the best. But I am not about to put my hopes of retirement on a lottery tickets. Well maybe I can daydream about it each time I buy a ticket but this can never be part of my plan to retire. Any winnings will be a bonus to buy a nice dinner for the family or maybe a vacation to Switzerland..LOL.
Start a Business
Starting a business is also one of my dreams. I have explored a couple of possibilities and have come to the conclusion that it is very possible to setup small scale businesses which requires little maintenance by partnering with skilled and trustworthy people. For example, I have met with a hair dresser who is able to run a small-scale hair saloon but does have neither the capital nor the desire to start her business. She is an honest person whom I feel can be trusted to manage the business and a few employees. This would then create a passive income stream once the business picks up. Incentivizing her with profit sharing will allow me to start the hair saloon with her skills as a competent hair dresser as well as a shop manager. This is an idea still in the conceptualization stage and I would love any comments.
The above ideas are what I can think of from my own experience. If anyone has ideas for earning a million dollars, please share with me through the comments. I will keep you in my mind when I have earned my first million dollars :P.
What Should I Do To Make A Million Dollars?
I had started this blog and my Law Of Abundance Check page to share my thoughts and the knowledge that I have learnt about making money. Making a million dollars for me is about earning my financial freedom, as it is for most of us. I dread waking up early every morning and dragging myself to work but it puts food on the table and I have always consoled myself that my day job pays me well to retire in 11 more years. So hold tight and endure for another decade 
Everyone of us has choices and I can either make the choice to leave my current job (very narrow industry and I won’t be able to get the same pay elsewhere) and risk not achieving my retirement goal of $1.5 million dollars OR I could hold on tight and continue my savings and investment plan, which my current job offers, and hit financial freedom at 45 years old. Tough choice for me. If I was still a swinging bachelor, I would not have thought twice. Not that I am complaining, I love my son and would sacrifice the world for him.
What would I do to make a million dollars? Would I risk my family lifestyle? Would I risk my financial freedom at 45? Those are tough questions for me but it is clear that there are things that I would not do to make a million dollars. I would not
- sacrifice my family’s wellbeing
- sacrifice my time with my son
- rob or hurt another human being
- lie or cheat or take part in any scams
But what are the things I would do to make this one million dollars? I ponder about what I would be willingly to sacrifice and I would
- sacrifice my after-office time
- have less sleep in order to work on any million dollars making venture
- have less social activities to work on my million dollars business
- invest up to $5000 for a business venture
Would doing all the above hasten my journey to my retirement goal of $1.5 million dollars? I would hope so. There are many ventures that I have already tried and while some have succeeded, there were many that had failed. I have taken a timeout recently to think about setting my goals but my thinking has not really crystallized yet. To help me on my journey, I am going to adopt the simpleology method to get myself faster to my million dollars goal. Perhaps I should document my simpleology journey here as well.
How to make a million dollars? Leverage your social capital to make your first million.
In my last post, i shared some information that i have collected from my interviews of 50 over millionaires. I shared on the ways that these average joes, who were like you and me, were able to make a million dollars. Many of them made their first million dollars through investment in real estate and the stock market. They were also many of them who were able to make a million dollars by starting a business.
In this post, i would like to share on what is one of the key common factor that have led to each of their success in making their first one million dollars. In my selection of potential millionaires for interview, i have chosen only millionaires who started with minimal tangible resources and made their one million dollars from scratch.
When you look at this data, you will probably think that the information is as expected. But take a moment to consider the starting profiles of these millionaires, they did not attend Ivy League colleges nor did they have rich uncles who own large silicon valley companies or long-distance god mothers who left them an inheritance. These are guys and girls who started from file and rank and broke free from the daily grind.
Why did they all say that knowing someone with the correct connections or knowledge was one of their key success factors? This was what i was interested to find out. As i delve deeper, each of them revealed that they were able to start a business with help from friends that they knew or invested in the right stock or real estate with advice from trusted professionals.
Before each one of these millionaires started their venture, they mapped out their connections to friends and professionals that they know. Not all of them may have mapped out their web of friends and professionals deliberately, but each have taken time to consider their network. I would suggest doing an exercise to mind-map your million dollar network, which is your social capital to make your one million dollars. I use a free software called freemind. You can download it here. It is a free and easy to use software for mind mapping. Below is an example. The names are changed for privacy considerations.
After mapping your million dollar network, you will be able to pinpoint where are your greatest leverages in your social network. You will be able to instantly identify where to get help when you need it. You will also understand where you could strengthen or build up so as to increase the effectiveness of your network. Raju Sykam created a local courier service in his city for businesses that needs to send documents and parcels within the city. He was able to use his million dollar network build up from his days working as a door to door salesman for office supplies. Now Raju is a millionaire boss who has more than 100 couriers working for him daily.
How to make a million dollars is not a difficult question to ask nor a difficult venture to start. To many of us, it is the tapping into our social network that will be the most difficult step of all. Some of us will feel that we are acknowledging that we are in need of help or that we are not successful yet and needs favors to get there. While some will feel that leveraging into our social capital is equivalent to making use of your friends. I say this to those of you who feel this way, the breaking of this barrier will be the most critical step towards making your first one million dollars and the sooner you step out of your comfort zone to reach out into your million dollar network, the sooner you will become a millionaire.
Note: Sorry about the pictures..you may want to click and view them in a new window for better resolution
