Read? Retirement Income for Life???
Reaching Financial Feedom???
Do we consider ourselves reaching financial freedom when passive income from investment exceeds expenses?
That is the conventional wisdom of defining FF. But, it doesn't factor inflationary rate and it assumes the market is favourable to long-term investors over market cycles. The truth, the market is never favourable to any class of investors no matters how smart the investors are. Google for yourself the failure of Ivy League Endowment Fund especially the famous Yale Endowment Model. One research paper's conclusion shows that they reflect failure of endowment managers to properly diversify and plan for extreme events. Endowments must model and prepare for extreme events, evaluate whether the classification of their assets genuinely reflects true diversification, and perhaps most importantly, appropriate a much larger portion of their portfolios to cash and other liquid assets.
So far, Uncle8888 has reading more and more books in NLBs relating to Retirement planning and mental health especially on Dementia. It is damn bloody scary!!!
Till now Uncle8888 still consider this one as the better model for his retirement planning.
Combining Maslow's Hierarchy of Needs & Retirement Income for Life
The Money Levels for Retirement Life:
- Survival Money. How much do you spend simply to survive?
- Safety Money. You will want to protect your life. This could mean health care costs, health insurance, and/or proper portfolio planning so you don’t outlive your money.
- Freedom Money. Money needed to do the things that bring joy and fulfilment to your life. Could be travel, education, or fine wine.
- Gift Money. Money for people and causes that deserve your help. This is the replacement for “love”.
- Dream Money. This is the elusive “self-actualization” level where you find true happiness and meaning.
Strengthening this model further ....
Most of us are seriously worry of not having enough for safety money for prolong illness and end-of-life medical costs.
What is so good about this model?
When we are seriously sick, we should be spending much lesser on Freedom Money. This saving in Freedom Money could then flow downwards to support the increase spending in Safety Money.
Anyone doing your retirement planning, what do you think?
Posts
Hello! I think that is a great model, thanks for sharing! I never brought it to paper, but I have a similar logic:
ReplyDelete- List all your expenses (actual or planned) and rank them by level of discretion. The 'must haves' on the bottom, then the ones you could do without etc. It's a little bit like the seniority in a bank's balance sheet
- Then match the sources of fund against these: The working income has to cover the bottom parts (as it's the most stable) while the additional incomes from dividends, interests etc can cover the more discretionary expenses at the top. So as these incomes swing up or down, you could adjust the spending
Over time, your non-work income should cover more and more of the 'top' of the pyramid.. with the ultimate goal that it covers all of it, of course... ;-)
Jay
When we stop working for a living, it's indeed scary :-
ReplyDeleteWe found that we have expenses and no incomes. It takes some time for us to accept the new experience of our life. We also found that we spend more money than when we were still working. Why? It's simply we have all the time to ourselves. We need to spend the extra times away. This of course needs more money than when we were selling our time to employer. i suppose this is what you called "Freedom Money"
My wife says, "If after all these years of accumulation and accumulation, we still don't know how to spend, then when?"
"Survival Money"
We intend to withdraw our CPF RA at the age of 65 as we consider this as the bare minimum for putting food on our table.
"Safety money"
We are covered by NTUC medical insurance - yearly premium funded by CPF's MA. i think our MA is more than enough. In case backup is needed, we have WL though not much .
So as we get older and older and older (if God permits), i think we will need lesser and lesser "Freedom Money".
And if we are still very blessed in our old age then we may have "Gift Money" and even "Dream Money"
After all, "It is more blessed to give than to received."
Ah.. when we finally reach our ending stage of life on this Earth, frail, feeble, and maybe dementia too - nothing matters to us anymore except the kindness of our next of kins (minders).
So don't worry about your money and assets too much.
But i did.
Kinda curious about how you make sure your survival money/safety money is inflation-adjusted at the same time not market dependent? how much inflation has been factored in? if inflation goes higher, how would the survival money/safety money adjust itself? thanks.
ReplyDeleteDrawing down assets to create an inflation adjusted retirement income is quite common as part of retirement strategy.
DeleteRetirement article in 2012:
ReplyDeletehttp://www.advisorperspectives.com/newsletters12/How_Do_Spending_Needs_Evolve_During_Retirement.php