"How can I retire early?" is a common question I get asked.
The answer isn't a solution or strategy. Early retirement starts with a retirement plan. By a retirement plan, I don't mean a savings or investment plan, or even Central Provident Fund (CPF).
What I (really) mean is, you should know:
1) how much you need for retirement
2) how much you can spend, and
3) how long you can spend
Simply put, our retirement depends on our (expected) spendings. We can retire so long we have enough to fund our spending for our planned retirement duration.
Only when we have a clear target, we can set the sail to get there.
There are 2 stages to retirement: Accumulation and Distribution. Accumulation is a topic on its own.
As for distribution, there are 2 ways:
1. We can live off the income generated by our assets, or
2. We can draw down from our Assets
The advantage of the former is: Investment income tends to beat inflation. However, it may cost you more depending on your portfolio of assets.
Your passive income may come from
- property : yield may be around 2 - 3%
- bonds : yield may be around 2 - 4%
- equity : dividend may be around 3 - 6%
- cash : interest is around 0.5 - 1%
When our passive income > expenses, this is also a phase where we're financially independent.
The advantage of the latter is: Lesser retirement fund is needed. However, we may run the risk of outliving our assets and not living behind much for our next generation
In summary, the earlier we know how much we need and the type of retirement distribution we prefer, the earlier we can draft up a plan to accumulate towards it and therefore the earlier we can retire!
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Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting.
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