Hi all
I have been a lurker for a while but have decided to step up and post in the hope I can take advantage of the collective wisdom! I would appreciate any thoughts and insight you may have to offer. I am hoping to stress test my plan so constructive criticism is welcomed. I also want to turn my attention to what FI means above and beyond the numbers but I think that deserves its own post!
I work in a high pressure industry and earn good remuneration but unfortunately, due to a combination of stupidity and escalated lifestyle, I only started considering saving when I hit 35 (and kick myself constantly for this fact!). I set out below my numbers and plan and would appreciate any comments. I also have numerous spreadsheets which I would be happy to upload. The numbers below represent my ‘end of 2015’ numbers. I track all numbers on a monthly and annual basis.
I am not married, 39 years old and live by myself in Singapore.
Assets
NAV of approx. US$2,067,672 (some of my assets are in sterling so I have adopted a 1.55 FX rate – which is fairly conservative based on current rates). This is made up of the following:
- Investment Property - US$1,915,800 (with a remaining mortgage of US$60,830 at a 3.49% floating rate)
- Old work pension - US$47,795 (I no longer contribute to this)
- A monthly contribution investment scheme (a structured product with a bucket of funds a financial advisor told me to buy) - US$164,907 (this is worth less than I have paid into it!). I contribute approx. US$3,100 pcm.
Income
My basic remuneration is US$500,000 per year plus discretionary bonus. This is subject to a 17% tax rate.
I may also get a profit share on some investment entities. My notional share is currently valued at approx. US$5m. This is completely discretionary and is not locked in at all but is promised. This would not be subject to tax.
I currently save approx. US$336,000 per year made up of my monthly contribution to the monthly contribution scheme of US$36,000 and US$300,000 goes to pay off my mortgages on the investment properties. My saving rate is approx. 81% of net salary.
Spending
My current monthly spending is approx. US$4,777. This includes Utilities of US$251 and Rent of US$2,864 (adopting an FX rate of 0.716 US$ to S$). The rest is for general living (groceries, socialising, cable TV, internet etc.). The majority of my travel is either paid for by work (or the loyalty points gathered through work travel) and work pays for medical insurance.
I don’t consider the above to deprive me of anything. Given my expenditure in my early life, I no longer yearn for shiny toys. I have what I need. Experiences and travel mean more to me.
Accumulation Plan
Pay off the remaining mortgages by Feb 2016.
Continue to contribute to the monthly contribution scheme at US$3,100 pcm.
Post Feb 2016, pay all free monthly cash (approx. US$25,000) into S&P 500 tracker fund with the lowest fees I can find. I would note that this does not include discretionary bonus which I consider to be a conservative assumption. I have never invested in the stock market so I am going to read and try and follow the ‘Bogle’ approach. This should help me understand asset allocation etc.
I am aiming for a NAV of approx. US$6m at 45 made up of:
Personal residences of US$1.5m (to be paid for from promised profit share – actual promised profit share is many multiples of this so I consider this to be reasonable and conservative estimate but it of course may not materialise).
Investment Property of US$2.2m (I assume 3% inflation growth rate on the investment properties which I consider conservative but is fairly irrelevant with respect to income generation).
Stocks of US$1.6m (portfolio built from monthly contributions). I assume a gross 5% return on stock (including inflation) – I think this is conservative but welcome comment. Given the time frame, my saving rate seems more important than generated return during accumulation.
Cash of US$300,000 (this will be made up of the accumulated rent that will start generating on the investment properties from Feb 2016 to 2020). This is free cushion / buffer / play money.
Monthly Contribution Scheme of US$400,000. I assume a gross 5% return (including inflation). This may be aggressive given it has not been achieved over the last 3 years so I may need to consider this. I do not take the monthly contribution scheme into my withdrawal considerations.
Old Work Pension of approx. US$50,000. I do not take this pension into my withdrawal considerations. Additional buffer.
Withdrawal Plan
An after tax withdrawal of US$100,000 per year in today’s money (I apply a 3% inflation rate). It should be noted that I am trying to take into consideration the possibility of having children etc. and additional travel so assume that my spending will be higher in FI. I will also have to pick up medical insurance (I have no medical issues and don’t smoke) etc. Also, I am thinking of living in southern Europe in the sun with a second holiday home somewhere I can ski.
My thinking is that the above should mean that my assets should keep me comfortable in perpetuity but I have no issue diminishing my assets over time. Further, I actually think I may be able to take more annual income based on a combination of rent and 3% SWR on Stock.
NAV is not so relevant for me as I adopt a passive income calculation. In this context, the investment properties generate approx. US$60,000 per year after tax in today’s money. I assume a 4% rent increase year on year. I don’t assume any ‘empty’ periods. However, these properties are central London, have historically achieved rent increases of above 4% per year and have never had an empty period over the last 4 years (appreciating historical performance is no guarantee of future performance). This leaves me with having to generate approx. US$40,000 (in today’s money) from stock (I exclude monthly contribution scheme and old work pension and consider that an extra buffer). I apply a 3% SWR. I should also note I have tested the proposed withdrawals with gross stock returns (including inflation) at 3%, 4%, 5%, 6% and 7%. This is designed to be indicative only given I have simply applied these rates on a straight line basis (which won’t happen in reality) and not adopted Monte Carlo etc.
Assumption Impact
Aggressive Assumptions:
3% inflation on draw in withdrawal phase (this may provide for a gradual reduction in real spending power taking inflation into consideration, if above 3%). This may not be an issue given I would imagine spending may tail off naturally.
4% rent income inflation with no empty periods (I consider this the most aggressive assumption but London has achieved this).
Discretionary Profit Share (included because of its discretionary nature).
3% inflation on costs / expenses during accumulation phase.
Conservative assumptions:
Ignores the fact I may want to work post FI. This is a distinct possibility but I want to ignore it for the above calculations.
No salary increases during accumulation phase.
5% gross return on stock (including inflation) so 1%-2% real return.
Contributions to stock portfolio made at end of annual calculation period (in reality, contributions will be made monthly).
Haven’t included the monthly contribution scheme in my calculation of the stock portfolio. My assumed withdrawal rate is below 3% on just the stock portfolio. Would be lower if I included the scheme.
I haven’t included any slowdown of expenditure over time but would expect this to occur.
Less than 3% SWR on the stock element.
No sale of assets contemplated. I could always sell the Investment Properties at a later stage if cash becomes an issue.
Does not include my old work pension in the calculations
Happy to answer any questions.
Thanks for reading.
I have been a lurker for a while but have decided to step up and post in the hope I can take advantage of the collective wisdom! I would appreciate any thoughts and insight you may have to offer. I am hoping to stress test my plan so constructive criticism is welcomed. I also want to turn my attention to what FI means above and beyond the numbers but I think that deserves its own post!
I work in a high pressure industry and earn good remuneration but unfortunately, due to a combination of stupidity and escalated lifestyle, I only started considering saving when I hit 35 (and kick myself constantly for this fact!). I set out below my numbers and plan and would appreciate any comments. I also have numerous spreadsheets which I would be happy to upload. The numbers below represent my ‘end of 2015’ numbers. I track all numbers on a monthly and annual basis.
I am not married, 39 years old and live by myself in Singapore.
Assets
NAV of approx. US$2,067,672 (some of my assets are in sterling so I have adopted a 1.55 FX rate – which is fairly conservative based on current rates). This is made up of the following:
- Investment Property - US$1,915,800 (with a remaining mortgage of US$60,830 at a 3.49% floating rate)
- Old work pension - US$47,795 (I no longer contribute to this)
- A monthly contribution investment scheme (a structured product with a bucket of funds a financial advisor told me to buy) - US$164,907 (this is worth less than I have paid into it!). I contribute approx. US$3,100 pcm.
Income
My basic remuneration is US$500,000 per year plus discretionary bonus. This is subject to a 17% tax rate.
I may also get a profit share on some investment entities. My notional share is currently valued at approx. US$5m. This is completely discretionary and is not locked in at all but is promised. This would not be subject to tax.
I currently save approx. US$336,000 per year made up of my monthly contribution to the monthly contribution scheme of US$36,000 and US$300,000 goes to pay off my mortgages on the investment properties. My saving rate is approx. 81% of net salary.
Spending
My current monthly spending is approx. US$4,777. This includes Utilities of US$251 and Rent of US$2,864 (adopting an FX rate of 0.716 US$ to S$). The rest is for general living (groceries, socialising, cable TV, internet etc.). The majority of my travel is either paid for by work (or the loyalty points gathered through work travel) and work pays for medical insurance.
I don’t consider the above to deprive me of anything. Given my expenditure in my early life, I no longer yearn for shiny toys. I have what I need. Experiences and travel mean more to me.
Accumulation Plan
Pay off the remaining mortgages by Feb 2016.
Continue to contribute to the monthly contribution scheme at US$3,100 pcm.
Post Feb 2016, pay all free monthly cash (approx. US$25,000) into S&P 500 tracker fund with the lowest fees I can find. I would note that this does not include discretionary bonus which I consider to be a conservative assumption. I have never invested in the stock market so I am going to read and try and follow the ‘Bogle’ approach. This should help me understand asset allocation etc.
I am aiming for a NAV of approx. US$6m at 45 made up of:
Personal residences of US$1.5m (to be paid for from promised profit share – actual promised profit share is many multiples of this so I consider this to be reasonable and conservative estimate but it of course may not materialise).
Investment Property of US$2.2m (I assume 3% inflation growth rate on the investment properties which I consider conservative but is fairly irrelevant with respect to income generation).
Stocks of US$1.6m (portfolio built from monthly contributions). I assume a gross 5% return on stock (including inflation) – I think this is conservative but welcome comment. Given the time frame, my saving rate seems more important than generated return during accumulation.
Cash of US$300,000 (this will be made up of the accumulated rent that will start generating on the investment properties from Feb 2016 to 2020). This is free cushion / buffer / play money.
Monthly Contribution Scheme of US$400,000. I assume a gross 5% return (including inflation). This may be aggressive given it has not been achieved over the last 3 years so I may need to consider this. I do not take the monthly contribution scheme into my withdrawal considerations.
Old Work Pension of approx. US$50,000. I do not take this pension into my withdrawal considerations. Additional buffer.
Withdrawal Plan
An after tax withdrawal of US$100,000 per year in today’s money (I apply a 3% inflation rate). It should be noted that I am trying to take into consideration the possibility of having children etc. and additional travel so assume that my spending will be higher in FI. I will also have to pick up medical insurance (I have no medical issues and don’t smoke) etc. Also, I am thinking of living in southern Europe in the sun with a second holiday home somewhere I can ski.
My thinking is that the above should mean that my assets should keep me comfortable in perpetuity but I have no issue diminishing my assets over time. Further, I actually think I may be able to take more annual income based on a combination of rent and 3% SWR on Stock.
NAV is not so relevant for me as I adopt a passive income calculation. In this context, the investment properties generate approx. US$60,000 per year after tax in today’s money. I assume a 4% rent increase year on year. I don’t assume any ‘empty’ periods. However, these properties are central London, have historically achieved rent increases of above 4% per year and have never had an empty period over the last 4 years (appreciating historical performance is no guarantee of future performance). This leaves me with having to generate approx. US$40,000 (in today’s money) from stock (I exclude monthly contribution scheme and old work pension and consider that an extra buffer). I apply a 3% SWR. I should also note I have tested the proposed withdrawals with gross stock returns (including inflation) at 3%, 4%, 5%, 6% and 7%. This is designed to be indicative only given I have simply applied these rates on a straight line basis (which won’t happen in reality) and not adopted Monte Carlo etc.
Assumption Impact
Aggressive Assumptions:
3% inflation on draw in withdrawal phase (this may provide for a gradual reduction in real spending power taking inflation into consideration, if above 3%). This may not be an issue given I would imagine spending may tail off naturally.
4% rent income inflation with no empty periods (I consider this the most aggressive assumption but London has achieved this).
Discretionary Profit Share (included because of its discretionary nature).
3% inflation on costs / expenses during accumulation phase.
Conservative assumptions:
Ignores the fact I may want to work post FI. This is a distinct possibility but I want to ignore it for the above calculations.
No salary increases during accumulation phase.
5% gross return on stock (including inflation) so 1%-2% real return.
Contributions to stock portfolio made at end of annual calculation period (in reality, contributions will be made monthly).
Haven’t included the monthly contribution scheme in my calculation of the stock portfolio. My assumed withdrawal rate is below 3% on just the stock portfolio. Would be lower if I included the scheme.
I haven’t included any slowdown of expenditure over time but would expect this to occur.
Less than 3% SWR on the stock element.
No sale of assets contemplated. I could always sell the Investment Properties at a later stage if cash becomes an issue.
Does not include my old work pension in the calculations
Happy to answer any questions.
Thanks for reading.
. I was looking at US$100k post tax but I take your point on board. I suspect when it comes down to crunch time i will definitely be a victim of one more year syndrome and look to add some additional buffer. At that stage, each additional year should add about US$12,000 per annum post tax to my withdrawals, if all goes well. My girlfriend also works and earns six figures and I have deliberately excluded her numbers from the calculation just for extra buffer.
