As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

Welcome to Ministry of Wealth!

This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

It is here where I share with you how I did it! FREE Education in stock market wisdom.

Think Investing as Tug of War - Read more? Click and scroll down



Important Notice and Attention: If you are looking for such ideas; here is the wrong blog to visit.

Value Investing
Dividend/Income Investing
Technical Analysis and Charting
Stock Tips

Friday, 20 December 2013

It’s safe to invest entire life savings in stocks. But it can be safer!!! (2)


Read? It’s safe to invest entire life savings in stocks. But it can be safer!!!


For pre-retirees, what do you think it's safe?

Trust this one?

Read? It’s safe to invest entire life savings in stocks

or better to do this?


Read? Is Your Nest Egg Holding Up?



The Balance Sheet

A more sophisticated way to measure the success of a retirement portfolio is the one used by large pension plans. You compare what's called the actuarial present value of your assets and liabilities. The twist: Instead of looking at current assets and liabilities, you look at the value of all your expenses in retirement as a lump sum as compared with the value of all your assets as a lump sum.



Take a married couple where the husband, 69, and the wife, 68, have an after-tax portfolio of $1 million, an annual Social Security benefit of $25,000 with a 2.5% cost-of-living adjustment, and a pension of $10,000 a year with a 75% survivorship benefit and no inflation adjustment. That income stream's present value would be $588,686. Add that to the value of their portfolio ($1 million), and you get $1,588,686 in total assets, in today's dollars.
 
On the liability side, if the couple wants to spend $60,000 a year in retirement, after taxes, with a 2.5% cost-of-living adjustment, they would need $1,402,156 in today's dollars to fund their living expenses.
 

In essence, investors with a surplus are in good shape, while those with a deficit don't have enough to pay their expenses in retirement. The latter likely would have to adjust their savings, investments or projected expenses.

Few advisers—just 15% in Russell's survey—use this method, but Mr. Greenshields suggests that it works the best. A balance sheet uses today's market information and today's interest rates as a starting point, he says.

"Our take on this approach relies on using current interest-rate curves, specifically Treasury yield curves to reflect a 'risk-free' rate. Those are about the most robust predictions of the future you can get."
 
 
 

Uncle8888's Retirement Balance Sheet

(Liabilities @ 3% inflation rate. Assets exclude value of residential home and Self-insured Fund of CPF RA, SA, MA. MediShield and Emergency Fund)



 
 
How much is enough?

Uncle8888's Formula

Expected Monthly Expense =

(Highest ever monthly expense + 4 x Average monthly expense + Lowest ever monthly expense) / 6 = $X,XXX

Annual Expected Expense = 12 x $X,XXX = $YY,YYY

Enough = 25 x $YY, YYY = $Z,000,000



Read more? Retirement Income for Life??? (9)


 

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