Could We Retire Today?

That’s the ultimate question, isn’t it?  😛

For most of us who are intensely saving our incomes and then investing those savings, it’s all about achieving that holy grail: Financial Independence

When you reach that stage, there isn’t a need to trade time for money anymore. You are free to walk away from that mundane job and pursue your own interests (whether they are making money or not) at your own pace and time.

Since I am currently not working now, I was wondering if it’s possible for the Mrs to also stop working?

Or in other words, can we increase our passive income and reduce our expenses to achieve financial independence at this point in time?

To find out, I performed this mental exercise:

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Increasing passive income

With a net worth of $500,000, we could sell and liquidate everything to pay down all the debts and then put this half a million dollars in high-yielding stocks like REITs. Assuming a 6% yield, we will be able to receive $30,000 of annual income.

It’s a simple strategy but one that doesn’t seem like the best use of resources. $30,000 is a decent amount but we would then have to pay for rental forever which could easily set us back by $10,000 every year.

Considering that we could leverage on a cheap home loan with an interest rate below 2% right now, I really don’t think we should redeem it.

A better strategy would be to rent out the two other rooms to generate rental income of $1,500 every month. Even after accounting for expenses like agent fees and higher utilities, the annual net rental income should still amount to $15,000, more than enough to cover the monthly mortgage payments.

Settling all our other liabilities, we would be left with about $250,000, which is also coincidentally roughly the same amount as our most recent passive income update. But instead of receiving only about $9,000 of annual dividends or interests, we would need to take more risks and be more aggressive to generate higher income. A 6% yield (not impossible) would generate $15,000 of dividends if every dollar is invested.

So in total, it’s $30,000 of income which is the same as the simple strategy. However, there’s a tangible difference in the expense part. Instead of paying rental forever, using the better strategy only requires me paying the monthly mortgage for about another 28 years.

Decreasing Expenses

Since we have established that we could increase the passive income to $30,000, our expenses would need to be within this amount in order for us to retire now. With a monthly budget of $2,500, there’s some belt-tightening to be done.

Let’s start with the fixed expenses.

As the study loans would be repaid, that would be a $100 savings. We would probably have to reduce the parental allowances to $300 and since there’s no more income tax, that’s more than $150 saved. In the end, we should be able to reduce the fixed expenses every month from $1,885 to $1,450. 

That leaves us with $1,050 in variable expenses each month. Since about $250 is needed for transport and utilities, an amount of $800 has to be split between food, groceries and other categories. Both of us should be able to get by quite well on $15/day for food although that could mean a decent restaurant meal only once every two weeks.

With $300 left, that’s probably just enough buffer for clothes, gifts, wedding invites and entertainment. No travelling then.  😕

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So, theoretically, it’s possible for us to retire today at the age of 29. With a shelter, nutritious food and basic utilities like electricity and internet all paid for by passive income. That’s really quite amazing, isn’t it?  🙂

Nonetheless, the above is just an illustration and there’s some good reasons why we ain’t giving up on earning money yet. And a lot of that has got to do with the assumptions built in:

  • We will stay healthy
  • We will not have children
  • We are comfortable with sharing our flat with strangers
  • We can sleep well being totally invested and with little margin of safety
  • We will enjoy such a lifestyle

Obviously, even though financial independence is a priority, it isn’t worth it for us to sacrifice everything to pursue it. 

But that said, you could argue that it doesn’t really take much to improve the above scenario by miles. Maybe instead of renting rooms out, we could downsize it to a 3-room flat to free up more cash for investments? And maybe working part-time for 15 hours every week to bring in a couple more thousands every month?

So there’s a good chance that at this point in time, we aren’t really that dependent on our full-time jobs anymore.  😛 

Anyway, in case you’re thinking that the theoretical picture that I painted is nothing short of living in poverty, let me remind you that there’s a lot of people (including Singaporeans) in this world who dreams wishfully of such a scenario happening in their lives.

 

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    24 thoughts on “Could We Retire Today?

    1. cheekykoon

      Good for you! You are realising it is possible for early retirement. If you have a look at early retirement extreme, it is really possible.

      I found out I can live within 2-300 a month. By living, I mean surviving. Singaporeans by and large could not accept early retirement if it means living simpler. Another way to look at this is to multiply the money by living overseas. Thailand as you have discussed. With our strong property and rental, living in thailand is easily achieved.

      Mr moneymoutache retires to become a full time dad. A father by occupation not by appointment. I always thought that is such a noble idea. He had 600k built into high yield stocks and retired with a 4% withdrawal rate.

      You can too if you have this desire to retire. You need a reason bro!

      1. My 15 HWW Post author

        Hi cheekykoon,

        Yeah, it feels good to know that it’s possible even now, albeit with a few sacrifices.

        Just curious, are you financially independent or retired now?

        1. cheekykoon

          I basically breakdown financial freedom into various tiers and I reached level 1 few years back. Now, to reach level 2 in 7 years which I have given myself this luxury of time, a 10k passive income. I believe I’m on track and be achievable. Then I might aim for level 3 – 200k passive income.

    2. pib

      But retire do ximi? Unless you know what you want to do after retirement and if the passive income you have can sustain what you want to do, then by all means retire! 😉

      Of course the option to retire is simply tempting.

      1. My 15 HWW Post author

        Hi pib,

        Yes, you are right. We are still trying to find out what we really want to do when we become financially independent.

        At the very least, like you mentioned, it’s good to have that option. If one has found a job he simply loves, by all means continue!

    3. Jes

      Hi 15HWW,

      If retired but cannot go out spend money, must stay at home eat instant noodles everyday in an extreme sense… definitely not a retirement wish for anyone. With your portfolio, I think you are more than able to have kids and get jubilee hamper =P

      1. My 15 HWW Post author

        Hi Jes,

        You are right, that’s why it’s theoretical instead of happening now. We do prefer to have a slightly higher standard of living. =)

        We are planning to have kids, but qualifying for the jubilee hamper seems a bit too soon. =p

      1. My 15 HWW Post author

        Hi Pips,

        First of all, it’s two people’s combined net worth.

        Several factors like working and saving even before we graduated, maintaining a student lifestyle all the way till now, slightly above average income and buying a modest HDB flat instead of an EC or condo helps explain our stash. =)

    4. Cory

      Maybe No kid. No restaurant. No car. Have we considered retiring early but not enough for below ?

      1. Oversea holiday ?
      2. Parental allowance ?
      3. Taxes and transports ?
      4. Medical costs at 50s-80s ?
      5. Renewal of home Appliances/Equipment ?

      1. My 15 HWW Post author

        Hi Cory,

        As mentioned, it’s theoretical and probably food for thought if somehow we suddenly decide not to work for money or our employers fired us. Obviously, we would prefer to maintain our current lifestyle.

        Anyway, with regards to:

        1. I think the typical vacation is probably over-rated and maybe exploring Singapore together at our own pace might be more fun?
        2. Already accounted for it in this post although it probably have to be reduced
        3. Since there’s no income tax, taxes should be low. $100 to $150 for transport was assumed.
        4. Both of us are covered under an integrated plan and we also assumed we would be healthy. It’s hard to plan for medical expenses as sometimes, even millions might not be enough?
        5. Yep, the $300 probably has to account for renewal of washing machines, fridge, aircon and the computer. A bit hard.

        That said, even by working part-time, should be able to help cover some of the costs for the above + some restaurants and even a kid? At least, that’s what I hope so. =)

    5. Susan

      I still see value in holding a job, gaining skills and earning a monthly income from now until maybe 40?
      Even when I am 40, I still have 30-40 years to go. There’s only this much you can travel, this much to spend on hobbies etc.
      Probably I am a workoholic hurhur

      But yea your article makes us feel that retirement is possible, just not that mental picture of having a holiday home in Amalfi Coast sipping piña coladas kind.

      1. My 15 HWW Post author

        Hi Susan,

        After 5 months of unemployment, I have to agree with you that I actually have no plans to retire in the traditional sense. I would prefer to remain productive even if I don’t command a salary.

        I guess what I am trying to say is that with some planning and savings, one need not be stuck in a dead-end job forever just to pay the bills?

    6. B

      Hi 15hww

      Plenty of things to do. Maybe play poker again?? 😀

      Theoretically it is possible but as you have mentioned, it is probably wiser to continue working, either part time or full time until you found love in things you wanted to do.

      1. My 15 HWW Post author

        Hi B,

        Maybe one day when we are all financially independent, we can have one session on a weekday afternoon? =p

        What you have suggested is true. Guess the savings has sort of allowed me to take a pay cut and try something else to see if that’s really what I want to do long-term wise.

    7. Mickey J

      Another area of consideration to lower your expenses is the possibility of relocating to another country where the cost of living is much cheaper. That could greatly reduce your living expenses while increasing your rental income because you could then rent out the entire flat to a tenant. 🙂

      1. My 15 HWW Post author

        Hi Mickey J,

        That’s a good suggestion. Will explore the possibilities of it in greater detail when the time comes. =)

    8. LP

      Hi 15Hww,

      Good! Can doesn’t mean you should. I can take a lot of free tissues from macdonalds, doesn’t mean I should.

      But knowing that you can is a good base for settling for something better. You got your priorities right. Never deprive yourself of the experience of your life just for financial freedom. It might not be worth it. Sometimes the journey is more important 😉

      1. My 15 HWW Post author

        Hi LP,

        Think your comments sum up my thoughts and emotions best. =)

        Knowing “I can” at a low base does make me feel somewhat relieved but I am definitely striving for more.

        And anyway, I never take more than my fair share of tissues from Mac or Starbucks. =p

    9. Tony

      Sorry to hear that you are unemployed for 5 months already. I thought you are a civil servant. What happened?
      Are you able to do things productively during these 5 months?

      1. My 15 HWW Post author

        Hi Tony,

        There’s nothing to be sorry for. The past few months have generally been a blast!

        As for doing things productively, I would say the overall experience is “not bad”. Things could be better but they could also have been a lot worse.

    10. Rolf Suey

      Hi 15HWW,

      Another well-devoted post, as always. 🙂

      It is excellent to understand the numbers how to retire early? But more important is to understand the true reasons of retirement!

      More than 10 years ago, I was tricked to attend an MLM seminar by a friend. After the seminar, we fantasized about the wonders of retirement and relaxing at the Beach at age 35 with loads of “Easy Money” as portrayed by the MLM top earners!

      MLM is not for me, I am still working despite pass the age of 35!

      Few years ago, one of my ex-bosses sold the business to MNC and his net worth today is est S$30-50 mil with no debts and children all successful working or in business. Definitely eligible retiree! He is still working as an employee for the MNC he sold the business to after 7 years today. This is despite no more power in the company and downgraded from exec director to a small segment sales director.

      It is either he had not find the reasons of retirement or he do not see the need of retirement, being able to multi task passion and work!

      Frankly I do not like the word “retirement”, it sounds like giving up and doing nothing. To me, even if you are not working BUT still doing a fix course of things you like, you are NOT considered retired!

      You merely gained freedom to 100% focused on things you love to do! 🙂

      Sorry for being long winded again.
      Rolf

      1. My 15 HWW Post author

        Hi Rolf,

        Keep the comments coming in!

        To be honest, I also dabbled in MLM before but luckily, I got out pretty quickly during army.

        Like you, I actually have quite a dim view of “traditional retirement”. A life of endless travelling isn’t exactly my cup of tea. I guess financial independence just gives one the safety net to try “more risky” ventures.