Early Retirement vs Semi-Retirement

Early Retirement
A study conducted by Melbourne University shows that after working for intense long hours will cause brain damage. For workers age 40 years old and above, the ideal number of working days should be just 3 days per week. This will keep the brain active yet will not over exert oneself due to undue stresses.

Seriously, who does not want to work just 3 days a week? I always believe in there is a price to everything. If you work for 3 days a week, I will think this is considered a form of part time work or sharing of work. Part time work can be considered as a subset of semi-retirement. Be it semi-retirement or early retirement, you need to be financially and psychologically prepared. Before you think about early retirement, you need to envisage what sort of lifestyle you want to live when you are retired. With this in mind, then you can work backwards to decide what is to be done to get you there.

Step 1 - Set your retirement goals. When will you like to retire? At what age, will you like to retire? How long will you be retired for? During your retirement, what sort of monthly income or draw down from savings will be required?

Step 2 - You need to work out your personal balance sheet to understand your personal assets and personal liabilities. You can also make use of CPF retirement calculator or some of the online retirement calculator tools to make some simplify forecast and estimation. You can also determine the differences to make up for in order to achieve your retirement goal.

Step 3 - If there is no gap to fill, congratulations, you are well prepared for retirement. If not, proceed to Step 4.

Step 4 - You may want to increase your time frame for wealth accumulation, delaying your retirement age.

Step 5 - You may want to reduce your post retirement monthly income or draw down amount per month.

Step 6 - Reduce your present monthly expenses to increase your monthly savings.

Step 7 - Increase the rate of return of your investment. Remember higher return comes with higher risk.

Most of the people feels that to retire is to stop all forms of work, they will depend on their passive income to maintain their lifestyle to enjoy the finer things in life. If your definition of early retirement is to lead a more prudent lifestyle, reducing your expenses which is more practical and sustainable.

Semi-Retirement
Most of us in their mid-life will strive to have work life balance to have more quality time with the family. I am sure you too will like to have early retirement. The age group between 40 - 50 years old will be commanding the highest income level during their working lifetime. However, this is the age group where their family expenses will be  highest as well due to children education, ageing parents and home mortgages.

If you will like to maintain a certain level of lifestyle and your savings cannot last for the entire duration, you can consider another form of retirement. You can find a part time job to keep yourself active while maintaining your lifestyle.

Many Singaporeans are over dependent on their CPF as the main source of retirement fund. However, you can only draw down after an age of 65 years old. If you wish to retire before 65 years old, then you need to have other source of income.

For early retirement and semi-retirement, the expense will be at a similar level compared to your working days. Early retirement is to enjoy the same level of lifestyle, usually people will not reduce their expenses. In the worse case scenario, it will be even higher than before.

In order to retire earlier, you need to do the following:

1) Be very thrifty
2) Invest alot

When it comes to investment, do not have a gambling mentality in order to make money in the shortest time, thinking this will allow you to retire earlier. What if you are wrong? This will set you back in terms of your retirement fund and retirement age.

If you are 40 years old this year and will like to retire at 55 years old, you have 15 years to save and invest to lead the retirement life you desire. If you have already accumulated sufficient CPF, you can consider contributing to your CPF voluntarily to earn a higher interest and reduce your taxes.

3 Tips towards Semi-Retirement
1) Ensure that you have sufficient savings to cater for retired lifestyle. A part time job will have lesser income than your full time job. You can depend on your part time job to save up on your retirement fund.

2) Part time employee may not have health and medical benefit, you need to ensure that you have sufficient health and medical insurances. A drastic medical event may wipe out your retirement fund if you are adequately covered by insurance.

3) Part time income may not be stable and as high as full time employment. Therefore you need to change your spending habits. For example, cook your own meals or eat mixed vegetables rice instead of going to posh restaurants.

Wealth Coaching 31st December 2017

I saw my friend post in a closed group for eCommerce and I privately messaged him. I asked how has he been and what sort of questions he has for eCommerce. I spent some time trying to answer him on the specifics of drop shipping business in terms of the challenges I experienced previously with my friends.

He shared that now he has two children and he wants to discover different sources of income to supplement his main stream of income. He has started online MLM and Shopify eCommerce store. In addition, instead of watching Korean dramas, he is spending time in front of his laptop thinking how to improve his sales. I applaud him for his attitude. I encourage him not to give up and continue to develop other sources of income. 

We chat using Facebook messenger to discuss about wealth and business.

I felt that I need to help more people to improve their lives, change their mindset, improve their financial literacy, create more businesses and crave their own destiny. This will make my life meaningful as well.  

Financial Freedom and Financial Independence

Other than Thumbtack Investor,I also read investmentmoats and in one of the recent post is on Coasting Financial Independence (FI). From one of the post, it mentioned about the 10 stages of wealth. As we are frugal in our context, we have already achieved stage 7 to stage 8 of wealth through investing, savings and other source of passive incomes. 

Stage 7 is Financial Security which is defined as Wealth Asset's Annual Cash Flow covers Basic Survival Expenses. During the weekdays, we spend very little on lunch and usually eat dinner at home. We do not sleep using air condition. They are only used on occasions. We stop driving 3 years ago, taking 99% of the time via public transport. There are a lot ways we try to reduce our expenditure. Hence, our Basic Survival Expenses are low.  

Stage 8 is Financial Independence which is defined as Wealth Asset's Annual Cash Flow covers Current Annual Expenses. In 2017, with special dividends, cash flow is close to SGD 100k. This is one-off event and with SGD 100k, we will definitely be in Stage 8 with huge margin of safety. 

Coasting FI is in a good financial position that you have less impetus to aggressively push your human capital to maximize the amount you can earn. In our context, I will like to move out from the industry and pursue other interest.

I love Saturday afternoon when I can spend time reading books. I am reading this book <<现金流为王》by Starman. Just side track, I love to visit bookstores in Taiwan and Hong Kong. They have a lot of local authors who write on investment and business. In the book, it mentions one important factor which speaks to me, if we view financial freedom as our sole purpose in life and remain in a job which we don't enjoy, it will be unhealthy for our personal well being. The journey towards financial freedom is more important than the end goal itself.

Starman explained that he achieved financial freedom at a very young age. He decided to call it a day and retired. He will take his time to have breakfast, bring his daughter to school, read newspaper, swim and gym in the afternoon, bring the daughter back from school and have dinner with family. Within 2 weeks, he felt this was too boring as all his friends are working during day time. He went back to pursue new business ventures.

I learn that I should not just focus on achieving Financial Freedom as it is just a financial  concept. Financial Freedom/Financial Independence allows you to have freedom to choose. I believe what you can accomplish during your limited time here is more important than Financial Freedom. How many lives can you improve?  How can you create more value for others? What are the big problems you can solve to make this world a better place?

Happiness is to be contented with what you have. I do not wish to commute long distances to work, I do not wish to fly so often for work, I want to come home everyday to have dinner with my family.

I sold all my watches (rolex and tag) and happy with my casio. I do not have a car or a condo. I am debt free and free to choose. 

Alpha Lab Investment Mastermind Group and Revelation

What do you do after work and during your free time determines how successful you will become in life. A few friends who are interested in investing came together on a Saturday afternoon to discuss individual investment approach, circle of competence and various stocks we are interested in. It has been very insightful and always refreshing to meet like-minded friends.

Going forward, we are going to share our individual research so that we can gain access to more good stocks. This can help us expand our warchest of ideas. Then when the opportunity presents itself, we can utilise our warchest of money to respective stocks.

After the event, I had dinner with my friend to catch up on his latest business endeavors. I shared with him our family project which is for my wife to retire in 4 years time. He pointed out that this should not be the goal post but I should look into the definition of financial freedom. 

Financial Freedom is when your passive income exceeds your expenses. 

I explained that my active income from Options Trading has reached about USD 2,500 and I hope to replace my work income so that I can stop working for someone. He reminded me of the original definition of Financial Freedom, I should work on getting the Options Trading income to exceed my total expenses instead.

I came home and reworked my household Cashflow Statement.

Total Monthly Cash Outflow S$6,207

Rental Income S$400
Dividend Income S$3,333 (Assume I deploy S$1m and just 4% yield)
Option Income S$3,712
Total Monthly Alternative Income Inflow S$7,445.83 

Damnit! We are already FINANCIALLY FREE! What a revelation!

Then I should be asking myself what I should be pursuing next - my passion. Recently, I am reading Ray Dalio - Principles and his definition of Work is to do something that you enjoy and be paid for it. Also, who you choose to work with and spend time together at work will determine your happiness.  

*Disclaimer - Option Income needs to be stable at this level. Losses will disturb this equilibrium. At the end, it is still active income. You can consider this as money you put in your Opportunistic Fund.

After thinking through, I will not just throw in my resignation letter on Monday, I will wait at least a few more months to make sure my Options Income can be stable and need to test a crisis model on JC Options Fund.

20/10/2017
Last night, I met up with my trusted financial planner friend. He felt that my definition of Financial Freedom has some room for errors. He thinks that as a family man, my expense is still fluctuating and there is a strong likelihood that it will increase in the near future. This depends on whether I will send my children to enrichment classes and tuition.  His advise is Financial Freedom is not the end goal but the journey matters more. 

His advise is continue to work hard, we are too young to retire, do what you believe in and increase your income level to cater for unexpected situations. 

He showed me his trade of 200 contracts of MOS SP 22. That is USD 440,000! He has many multi-baggers. Wow, the session humbled me. Stay humble, stay foolish, stay hungry!