Work Less and Gone Fishing Planning Room (6)

Read? Work Less and Gone Fishing Planning Room (5)

Next month, I will have the option of unlocking my CPF money for more investment or retain them in CPF for 2.5% compounded returns.

I have been thinking very hard on few options for retirement planning. What is the best for me to meet my future investing goals and money plan to fund living, medical and health care expenses; and emergency fund for unexpected expenses.

I clearly understood that one of the biggest fears or risks in my retirement is facing a prolong bear market. If the passive income from stock dividends is not enough and I will have to sell stocks in a falling market to make up for it. I will risk depleting my investment portfolio by selling at market low and by locking in negative returns it may be bad outcome for portfolio recovery at the next bull market.


To minimise fear or risks in the next few bear markets in my retirement has become a critical success factor in this retirement planning exercise. Sometime a peace of mind is worth more than potentially more money in the bank.

I have finalized on this plan consisting of four sources or money pots.

1. Fixed Income Fund (CPF OA+ CPF Minimum Sum)

This fixed income fund is non inflation adjusted payout similar to CPF Life. It will fund 67% of my estimated yearly living, medical and health care expenses. I will retain enough money in my CPF OA and CPF Minimum Sum for subsequent draw-down starting from 56 till 80 years old for this purpose. The rest of the money in CPF OA will be transferred to the second fund to generate passive income to meet the remaining 33%.

I believe I should be able to trim some discretionary spending and still live comfortably at 67% income level during bad years.

2. Income Portfolio

I will build up an Income Portfolio diversifying into 8-12 stocks from different sectors. Each stock component must have at least 6% dividend yield to qualify.

Based on the yield estimation of planned capital injection into this income portfolio, the yearly passive income from stock dividends is still able to fund 33% at 3% inflation adjusted living costs for next 8 years.

The passive income stream from this portfolio is expected to be volatile to market conditions. So during good years I will have more discretionary money to spend; and during bad years I will have to tighten my belt to spend less.


3. Growth Portfolio

I still like to spend some time doing more short-term trading in the stock market to grow this portfolio to help to fight inflation and to grow wealth to meet unexpected life events.

4. Emergency Fund

I don't expect returns from this fund so it will be in bank FDs and cash.

Lastly

I have planned to start the draw-down starting from my next birthday at 56 in 2012 (CPF allows members to withdraw fund at their next birthday) and if I happen to be still working; I will transfer money not spend at 31 Dec 2012 to Growth Portfolio.