My plan for early retirement rests entirely on wealth creation, not on frugal living. I understand the importance of savings and I do have an emergency fund of SGD100,000 tucked away in a fixed deposit. However, that is not what will enable me to retire early. For me, it all boils down to being able to create multiple income streams that can finance my monthly living cost.
None of my plans have anything to do with a pension package. Such packages are long gone from Singapore. We are a country based on meritocracy and we don’t practice social security. Basically, I am on my own and I don’t expect companies to provide a good package for us to retire early.
I have developed 3 plans which I have already put in place. The reason for having 3 plans is for diversification. In the event that one plan does not go according to what I forecast, there are other backups waiting to take its place. Of course, in the lucky event that all 3 plans are realised, then I will be a very happy man.
How to plan for early retirement – Option 1
Invest in a property that will, over a long term, appreciate and give me enough returns to retire early. This is the reason that we have decided to purchase a SGD1.7 million condo in District 9 in Singapore. This is prime district and prices will only appreciate. Don’t ever invest in non prime areas because this is when you are gambling. Always look for the best that money can buy because in the long run, your investment tend to be safer and gives you the best returns.
Our expectation is that prices might reach SGD2.5 million in a ten year framework. By that time, we would have repaid some part of the mortgage, thus leaving us with about 1 million in outstanding loans. The difference of SGD1.5 million will be our funding pool to carry us to old age.
Out of the 1.5 million, 1 million will be invested in a safe instrument such as fixed deposit that can hopefully yield a 4% annual return, which is about SGD40,000. Another SGD150,000 will be invested in buying websites that can gives us SGD100,000 per annum. The combined SGD140,000 income will finance our living expenses without touching the base capital.
The remaining SGD350,000 will be used to purchase a nice property in Malaysia where we intend to retire to. I really look forward to staying in a big bungalow after being cramped in apartment living in Singapore for so long. Many people don’t realise it but we don’t have to retire in places where we grow up in. The entire world is our home now and we are free to live where we want.
Observant readers will realise that this plan means that I can only retire at 44, and not 40 since it requires a ten year holding period. I do intend to retire at 40 but this means that I need to rely on option 2 to finance my living expense while waiting for another 4 years for this plan to realise!
How to plan for early retirement – Option 2
The second option is to develop and to purchase a portfolio of web properties that can generate a monthly income for us. This is something that is not the norm so allow me some time to explain how this works.
It started when I was frustrated with the current returns that I am getting from existing investment instruments. A dividend paying stock typically only yields 3-5% while an index fund might range between negative to 8% if you are lucky. Using these numbers, I need a lot of capital for my investment portfolio to give me a 4 digit monthly income. I don’t have that much capital given my mortgage commitment so I had to find another way.
That is when I stumbled upon the concept of making money from websites or blogs. At first I was rather skeptical. After all, how can making money be possible with so little capital? Nevertheless, I was curious and given the low investment, I decided to give it a go. The initial cost of setting the site was only the domain cost (around USD10) and hosting (which is around USD5 per month). I made nothing in the first month but I earned a whooping USD7 in the second. Although the amount was small, the fact that there was money flowing out from the blog I created was magical. It was the first time that I realise the web economy has indeed changed how one can make money in the world.
So, I push forth and added more content and also created more sites in different topics. I got to 3 digit income within the next year and 4 digit income by the third. The cost of maintaining the 4 digit income is pretty low so 80% of that revenue becomes my profit. I didn’t expect such fast results but they came and it make me look at the world very differently now.
Hence, my second plan to retire early is to increase the online income from my current sites to around USD5k per month and to buy sites from others for an additional USD5k per month. With the combined income of USD10k, it should be enough to cover our living expenses when we retired at 40.
Currently, I am doing around USD1.5k USD500 per month (updated august 2012) and I expect to hit the USD5k target by end of 2013. In terms of website purchase, I have already bought a couple of sites that have returned about USD1.1k per month. The amount invested to purchase these sites was around USD15k. In terms of investment yields, it is about 88% per year. That is insane returns! This is why I can shortcut my way to early retirement if all goes well.
Of course, there are risks involved which I will talk more about in later articles.
How to plan for early retirement – Option 3
Join a startup company that has a chance of growing big. I gave up a government job that is paying me well beyond SGD6k per month and 6 month bonuses to work in a startup that has lower salary but with stock options. Such a compensation arrangement only make it worthwhile if the company grows fast and your stock options become super valuable.
This is a high risk path to take for my career but is something that I find to be totally worth it. My logic is simple. I will stay with the startup for a maximum of 3 years. If things go well, I will be rich by then because the company is growing fast. However, if things turn sour, I will lose 3 years but I can still get a job after that.
For a chance to retire early, I am willing to bet on 3 years of my career. 3 years is a short time. 99% of the jobs out there will not allow you to retire, even after 10 years! I will be just dragging my life along and hope that I can strike lottery to retire. This, to me, is totally not taking charge of your life. It is the classic case of going with the flow and in the process, drowning out any chance of living a outstanding and happy life.
After 1,200 words, I hope you can better appreciate what is my plan to retire early. Everybody will have different plans of course but the important thing is to have a plan!