I must say I am one of the luckier ones. My parents had nil CPF balances (used it to pay for the HDB housing mortgage loan as our flat was bought at the property peak and hence loan amount was very high), so my loan was paid off in cash in full. (To be honest, it was tough on my parents.)
However, for young people like us, time is on our side! Whether you are 25 or 30 or 35 now, there is a good thirty years to retirement at 62, the official retirement age. Using the Rule of 72, generating a 6% annual return means your investment amount doubles in 12 years!
How did I start planning for retirement?
Initially, I started setting aside some money each month, around $400, and plonked them into mutual funds. The funds made money at first, and I continue putting money into these equity funds month after month (in a time of rising prices). However, the recent credit crunch has made me lose a substantial 10% of my investments as of now (it was down over 15% at one point). This is another good thing about starting early: you have the time and patience to ride out business cycles! So I have not sold any of my funds, as I believe it will appreciate in the medium term of 3-5 years. Nonetheless, it made me reassess my net worth and I have since placed a smaller percentage of my net worth in mutual funds (also known as unit trusts), choosing to invest directly in the stock market instead.
So how do I keep track of my retirement plans now?
The first important thing, I believe, is to set a retirement goal. I decided early on that I want to earn my first million dollars by the age of 35 - that would ten years from now, and this is my long-term goal. To monitor my progress towards this large goal, I have set many shorter term goals in between. The hallmark moment came when I first reached a net worth level of S$100,000. That was the first time my net worth crossed the sixth-digit mark, and is a significant milestone in my financial planning management, given that I earn less than half that amount in annual income (not to mention that interim capital losses delayed this special moment).
The following are my net worth targets based on conservative annual returns, i.e. 5% annual returns instead of 6%. Thus, the age that I will reach my S$1 million goal is around 38 years old.
Jun 2008: $120,000
(unfortunately, I am not near this level yet. This is because I made some personal choices, and decided to spend a rather substantial amount on current travels.)
December 2008: $135,000
(Hopefully, with discipline, I should be able to reach this level or near it towards the end of the year.)
To be honest, by then, S$1 million would not mean much, since inflation has been running high lately and probably most of us lower- to middle-income earners are already millionaires by then! However, that point is definitely memorable as it marks a significant step towards financial independence. Using S$1 million capital as base, one could easily double it to S$2 million in 12 years using a reasonable 6% return, and this means this same S$1 million turns to S$2 million when I turn 50 years (38 + 12), notwithstanding that I continue to save up and invest during these twelve years. This should result in financial independence earlier on in my life, so I could choose to work in areas I am interested in, including unpaid jobs.
The Dreams of Financial Independence
I believe my dreams are what motivate me to defer current consumption in favor of future consumption. I want to be financially free, to be able to travel the world and befriend friends from all over the world, learning and understanding customs and appreciating differences in culture. Most of all, I would like to spend my last years in rural areas, leading a simple lifestyle with a slower pace of life, and teaching children during my spare time.
Each of us have dreams, and we should dare to dream. Because only when we dream, then we are able to make dreams happen!
So continue to check back this blog regularly as I make updates on my financial position, and my journey towards financial independence. Importantly, I hope it motivates you to save harder or gives you a pat on the back if you have done well in terms of net worth growth! Join me as I struggle between difficult consumption and investment choices, as I am sure we all do. And let's all work hard towards achieving our dreams!~
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