Tag: t_othRisk

PLIP{Markus; ReadyLifeIncome{Aaron #risky decision

Posted on by tiger40490

k_FLI2

— this project should not affect my daily life

  • Should I spend (far) more time on MOETF? I think the absolute amount invested will be much smaller in MOETF.
  • Also remember SRS 15k

If I can easily and quickly get to 200k then I may want to buy the 28k. At the moment

  • 🙁 am not fully comfortable about the negative aspects
  • 🙁 not so easy to hit 200k. I need to liquidate many assets, over a period of time … Right now my FSM positions require baby-sitting, and mostly underwater, creating anxiety, which would be reduced if I can wait till Feb.

== PLIP (PruLifetime Income Plus) #Markus

The PremFinancing is a double-edge sword. It enhances DYOC when SORA is low. When SORA exceeds 2.4%, DYOC would drop below 5% and I would have to accept the low DYOC over decades for SVBE.

Non-guaranteed 3.55% p.a. monthly payout from Pru after 36M prison term, till age 110.

For breakeven .. Surrender value starts at (guaranteed) 80k + 2k (non-guaranteed). It inches up after a few years. Far inferior to FLI2, but total premium (100k) is better.

%%Q: non-guaranteed return smells bad
A: Prudential has always declared 4.25%. After consecutive years of double-digit returns, Prudential once declared a bonus in the form of surrender value bump.
A: If they declare below 4.25% perhaps it would hurt their reputation. I think this is similar to OCBC’s aversion of mass layoff.

— My new perception of the deal is a long bond with a tapering clawback schedule over the initial 30 years. I have a 15-20Y ideal holding window. For the first N years, Sora would stay below 2.4%.
* I hope N > 8. In this happy scenario, I tie up only 28k of liquidity to hold this long bond until it hits BreakEven.
  • After that, I have a painless exit route available to me whenever I need the 28k.
  • But it’s not ideal to exit right after BreakEven, because my end-to-end total return would be 0%. Instead, I will try to hold 15-20 years in total
* N could be less than 8 years. In this scenario, let’s suppose Sora goes above 2.4% after 72 months (6 years).
  • By default, I would pay off $72k loan, and then tie up 100k of liquidity to hold this long bond until BreakEven.
  • .. After that, I have a painless exit route available to me whenever I need the 100k.
  • Overall, default solution is unsatisfactory. You would probably advise me on other solutions at that juncture. At this moment in 2021 I don’t know how I would feel.
  • I am likely to relocate/emigrate to the U.S. in a few years and therefore prefer simple solutions. I don’t like babysitting any asset in my portfolio.

— unlike rEstate, gold, SP500, time is not necessarily on your side if you buy this product… See time is on your side if…
Given the long prison term, I wish to hold forever, but I won’t be able to when (not if) SORA goes up within a few years or decades. During the current window before SORA moves against us, we can earn some leveraged return… picking up pennies in front a bulldozer. It’s a Stress situation even if you work out a solution to the IR hike. Kun.H pointed out that I may need to monitor Sora when it starts moving against me.

Also remember that non-guaranteed payout is Low-n-nonGuaranteed, esp. over the long horizon.

Third problem is long-term SGD inflation. See FLI2

— biggest concern is IR hike
I said I could pay off the 72k loan and just earn the 3.55% payout while waiting till the 30th anniversary for SVBE (BE on surrender value). 3.55% is not bad and won’t be a pain. That’s the default plan.

Edmund said a cusotmer could deploy the 72k in a riskfree investment and earn the now-higher interest to offset the increased financing cost on the 72k loan. If the interest income can exceed the interest cost, then this is better than paying off the loan.

— key variables to monitor

  • how soon I need the 28k .. the smaller 28k reduces this variable’s impact compared to previous products.
  • SORA .. likely to move against me within decades
  • insurer payout rate.. Could they keep it up forever?

— Prem financing Loan .. 72k collateralized loan. LoanIntRate = SORA+0.6% ~ all-in 0.75%pa, at the moment.
The 0.6%pa is a nonFloatingSpread written into the contract. Subsequent customers could get a different nonFloatingSpread.

Over the holding period (10-20Y), SORA could rise .. to 3%. I guess this is one of the biggest market risks.

It’s easy to be blown away by the current low SORA (giving the 10% current yield), and forget that it will eventually move against me. This is a time bomb (a stress situation). When it happens, this product won’t offer any option of easy exit. The surrender value is growing very very slowly towards 100%, much slower than SORA.

Q: given that I have too much SGD, why do I want to pay for prem financing?
A: actually I have “too much” only in the short term. Consider 3 directions:
* Direction F: pass up PLIP. Leave 100k in  FSM earning 1.5% but liquid.
* Direction 1: no PFL.. the 3.55%, the 36M prison term and breakeven timeline are dismal and worse than Direction F
* Direction 28: 28k locked in + my 72k left in FSM earning 1% but highly liquid. Beside the income on 72k and the PFL interest cost, I earn the same $3552/Y as Direction 1.

Q: Why is Direction 28 better than Direction 1?
A: Main benefit is the liquidity of 72k over decades.

— four promotions
* 0.6% spread and $300 sign-on bonus for the PLIP
* $2k bonus paid out in May
* 1% IR for 12M

== manulife ReadyLifeIncome #Aaron
I don’t find any joy, brain stimulation in this product, even worse than mufu. Control tcost !

  • 🙂 long payout term — 110 years, longer than CPF-life
    • 🙁 but pay out rate is only partially guaranteed
    • 🙁 pay out rate much lower than CPF-life
  • 🙂 smaller commitment (than previous products) — 42k in total
  • 🙂 shorter wait (than previous products) — 60M
  • 🙂 some death/TPD payout — worth something
  • 🙁 surrender value is not so good within 20Y (break-even after 10Y). The longer the sweeter, like wine.

— what if my kids don’t care about this $100/M payout? I think this is unlikely when they become mature enough. For centuries, all consumers in all countries like freebies.
The longer I live, the more tangible and visible is this payout.

— how it compares to T:US

  • 🙁 illiquid
  • 🙁 lower yield
  • 🙁 5Y wait
  • 🙁 bigger commitment
  • 🙂 capital protected, though you may need to wait 10Y for break-even.
  • 🙂 a stabilizer in my portfolio, but why don’t I get $42k in T:US first?

— possible reason for regret

  • 🙁 there might be better ways to “leverage” the 42k, such as T:US (above), or more properties in Asia or U.S., or HY/PE
  • Remember the Mindchamps 40k “investment”. This 42k is surely more fruitful.

— my reply (slightly modified)
Hi Aaron,

Thanks for spending the time on  the RLI ( ready Life Income) product features etc. I have several reservations but I will focus on the show stoppers. You don’t need to reply.

My sister gave me some tough questions on RLI and in the end I told her my own observation that my blue-chip dividend stocks represent a favorable alternative in terms of 1) payout wait time, 2) liquidity, 3) minimum amount, and 4) payout rate in the form of dividends.

On the other hand, RLI offers principal protection, some death/TPD payout (which i don’t appreciate), and an interesting 110Y stream of payout. For the last few days after I spoke to my sis, I have put a lower value on the amounts-that-pay-out-during-the-decades-After-my-passing. I think my daughter would appreciate $1200 (projected) annual pocket money, but I don’t feel so sure how much that would mean to her life .. might mean a lot to her or not much.

In fact, the uncertainty over the payout rate is a bigger uncertainty due to the super long horizon. $1200 might increase to $1500 or drop to $800, sometime after I pass away. Singapore inflation may also deteriorate, say, 90 years from now, when the 7th generation of leadership comes to power, perhaps very different from the last 3 generations of PAP leaders. In 110 years, my daughter is long gone and her grandchildren may live in a very different world so would they appreciate a pocket money of $1000/Y  or $1400/Y or whatever?

It’s like giving someone a big present without knowing how much she needs it. ( In contrast, what if I leave them a kilogram of pure gold? )

RLI is not the first product presented to me that would pay out long after I pass on. Now I recall that I have considered or “bought” several life insurance (including annuity) products over the years

A) TokyoMarine tri-generation
B) Manulife Universal life
C) Axa critical illness 20Y

Each time I spent many hours, many sessions with multiple consultants on the product team. In the end I didn’t commit to any of these products due to
* long wait time for payouts
* sizable commitment, well above $1k
* long break-even hold time — the combination of slow growth (in “surrender value”) and low payout rate means that I lose my principal if I quit during break-even period. So I must hold it long enough.

I think in total I spent more than 10 hours analyzing and discussing each product, so I was serious. The time spent was so very high, precisely because of the high commitment level. In contrast, I would spend possibly less than 10 hours on some $99k property deal, even though the commitment level is higher. That’s because break-even is faster, and because payout (rent) rate is higher and starts within months.

CPF-life is the only annuity I have considered good enough. It has possibly zero wait (if I top up at age 65). Payout rate is around 7% compared to 3% for RLI. Break-even is probably faster if I add up the payout and bequest, though I won’t see the bequest in my grave. CPF-Life is a very competitive offer, so I’m willing to commit the maximum , around 300k.

So RLI (along with Tri-gen and Universal life) is no match for cpf-life in my humble opinion. The strongest competitor to cpf-life is Allianz Income Protector but still pales against cpf-life in my humble opinion.

DBS multiplier is great due to low commitment, extremely high liquidity, no waiting. That’s why I don’t mind 2% return.

In conclusion, I have mentioned 5 “better” products than RLI
1) blue-chip dividend stocks — to be increased
2) CPF-life — heavily analyzed… cumulative 50 hours spent over 3 years
3) rental properties — already bought a few
4) DBS multiplier — used for a year
5) gold — to be increased

I’m always open to consider new products including insurance. You can see I hold many medical insurance plans, with no surrender value. In contrast, I think life insurance products are always too safe, too slow growing, too much waiting required, too much commitment, too rigid, too illiquid for me.

trade time for$

Posted on by tiger40490

H.Yi and Ash.S both mentioned something about “trading time for money”. The proposed alternative is to make your money work harder to provide for livelihood [3], so you don’t need to do it yourself. So you could spend your time on something else. What’s that something else? For me, it is some form of office work, rather than endless vacation. Therefore, I willingly trade time for … something to engage me.

[3] If we could _control_ exclub comparison, then livelihood burn rate can be taken care of already, so we don’t need to trade time for money since last year.

— babysitting still required… in reality. Very few nonwork incomes are truly passive and buy-n-forget, like CPF.

In the proposed alternative, you still need to spend time managing your portfolio. Some people like to say “It requires only 30min a day” but I suspect that’s partly exaggeration partly cheating. The individual needs to commit herself, review past trades, apply mental energy, take it on as a serious business.

REIT and div-stocks require babysitting when DYOC declines.

Rental properties (like mine in SEAsia) require some work with the local agents.

If the passive income stops being passive, then you are still trading time for money. That includes rental property management and day trading.

ffree for half of your (working) life@@

Posted on by tiger40490

See also at what age I started feeling closer 2 cashflow freedom@@

Q: how many percent of my full-time or part-time working life will be ffree?
A: hopefully 70%, from age 43 to 75 (32 years) + 3 years during my bachelor years. So 35Y out of 50Y

Until recently, My answer was “below 10%”. It was hard to imagine financial freedom i.e. “不想做工就不做“ as Liangzhong put it.

Q: how many percent for my peers?
A: below 10%, perhaps the final years before retirement. I think many don’t even look forward to retirement, even if it is ffree. In contrast, I enjoy my ffree because I don’t need to spend so much. I enjoy high BR buffer ratio and being in-control.

— Q: why do most of my peers spend bulk of their working life toiling under livelihood pressure, and reach (some form of) ffree so late?

  • most of them have one (or more) big max-tenor mortgage
  • most of them (Chinese) also pay for their kids’ college
  • many of them also struggle to save up for a Crbr (couple retirement burn rate) higher than my SGD 3k Crbr
  • looking at Earn^Save^Invest: excel at 2 out of 3, I feel many struggle with Save.

Am I effectively an retiree-investor@@

Posted on by tiger40490
  • Yes in terms of my medical plan, housing situation
  • Yes in terms of my college fund for my kids
  • Yes in terms of my Fuller Wealth
  • Yes mostly in terms of my focus on steady current income rather than appreciation
  • No, because I have non-working young kids to support
  • No, because I have 50Y more to live
  • No, because my body is not sending aging signals.
  • No, because I have no CPF or social-security income
  • No, because I have salary for 30Y or longer

%%CRBR]SG: improving over past10Y #R.xia

Posted on by tiger40490

see also

Based on a mail to my friend XR, on retirement burn rate in SG.

Q: Inflation hits everywhere including public transport and food, so how come my prospect of Singapore CRBR has improve over the last 10Y?

— expected wellness costs remain unchanged. Insurance cost would increase with age but no surprise.
— food:
I now eat more raw fruits and vegetables.

  • Most fruits are inexpensive and I avoid those rare fancy fruits.
  • The vegetables I eat raw are always cheaper than any cooked food.

There are many low-cost food options that I didn’t notice 10Y ago. For example,

  • frozen food is both healthy and cheaper than fresh.
  • Smoothies are now part of my daily meals and I prepare it at home, at very low cost.

My meals are smaller than 10Y ago.

When I go beyond fruits/raw-veg/smoothies and eat hot food, I eat mostly home cooked, compared to commercial food 10Y ago. I bring leftover of home cooking to office, so I seldom need to buy commercial food.

I have also cut down on fresh bakeries by 70-90%. Most of the bakeries I eat are bought my other people, so I may not know the cost.

If my average meal 10Y ago costs $3, it is now 70% like $2. Therefore, a fancy restaurant meal is now 30 times my average meal cost.

—  transport:
fare inflation is very easy to observe. It has not gone up as fast as I worried 10Y ago.

There are also senior citizen fares that I didn’t notice.

I guess the elephant in the room is car ownership. 10 years ago I often toyed with the possibility of owning a car when I have a bigger family. Most of my Singapore peers, younger or older, seem to drive nowadays. Unlike them, I don’t want a car in Singapore. Am now more comfortable using public transportation and bicycle, because I’m slowly mellowing up, growing more patient with my commutes.

U.S.stock trading: define acceptable ROTI

Posted on by tiger40490

limit order (rather than fractional) are key to tCost mgmt.

I frequently felt self-hate because the time cost is too high for the small trades. Then I found the concept of recreational stock-picking as the self-defense.

Q: what dollar amount of invested (each week) would relieve the self-hate? $1k/week is too big.
A: $100/week

I think this question is slightly similar to the yoga roti issue in Bayonne. Basically, I felt very good about my yoga lessons, but I also felt self-hate about the 3H total tcost including a leisurely shopping down-time after the yoga, almost as a reward.

— cf: property investment. I tend to spend a few days and commit 5-figure sums (around $100k). Then I execute the deal and put it aside. Therefore, ROTI is very high, but not recreational.

 

Live life2the fullest, but@low burn rate

Posted on by tiger40490

A favorite among marketing slogans is “Live life to the fullest”, as you have it once. I guess the ERE author can say he is living his life to the fullest. I don’t need to benchmark with him.

Similar to him or unlike him, I do feel I’m living my life to the fullest. There’s nothing missing in my current carefree life. My current life is satisfying and complete.

The Buddhist would say there’s still a lot of unsatisfied desires and pains lurking beneath the surface. Admittedly, these pains will surface, but hopefully become mild and forgotten. The current carefree /bliss/ is obviously impermanent, and possibly short-lived, but in this blogpost I care more about the contributing factors:

  • foundation: marriage, health, citizenship,
  • green Cornerstone: rewarding, low-stress job
  • red Cornerstone: boycott to FOMO/FOLB
  • red Cornerstone: Brbr, ffree
  • # The red cornerstones are based on cash flow.

[20]松一口气65^end@college #U.S. #w1r2

Posted on by tiger40490

Q: At what age would you feel relieved in terms of livelihood pressure? I think most of us have yet to give this question a critical analysis.

— common Answer …. age 65
For the middle-class Singaporeans with FRS, age 65 means about $1300/M/person. Assuming reasonable inflation and healthcare taken care of, this monthly payout can match retiree’s burn rate, IFF burn rate is well controlled.

In contrast, US burn rate would likely exceed SGD 1300/M/person, partly due to Melvin3++ (car ownership + rEstate tax + med bx… )

If you have no kids in school by then, you may wish to start receiving this payout earlier (like 62) so you retire at an earlier age. You would need non-CPF solutions such as SRS, which can start paying out at 62.

— common Answer …. when my kids complete formal education and start working
This typical Chinese parent’s answer (LZ.Yu?) assumes the college cost is a major burden on the parents. Most middle-class Chinese parents I know seem to voluntarily take up the job to bankroll the children’s education.

I don’t plan to take it up as full responsibility. I want my kids to start saving up, take a student loan, and repay it after graduation.

— My answer …… when my NNIA can match my U.S. burn rate (USD 7k excluding housing?), which is much higher than SG burn rate (SGD 6k?)
Now (2020) I’m very comfortable on my cash flow high ground, thanks to my brbr + Fuller wealth + …

Paradoxically, I foresee worsening livelihood pressure relocating to the U.S. but still want to go.

safe withdrawal rate: 4%rule #U.S.only

Posted on by tiger40490

update: ffree^carefree^ezlife #horizon explains that ffree analysis is dominated by big shocks and hazzards

—

https://en.wikipedia.org/wiki/Trinity_study , https://www.investopedia.com/terms/f/four-percent-rule.asp describe an influential 1998 paper by three professors of finance at Trinity University, using U.S. data on stock, bond and inflation. However, the 4% rule was actually proposed by a 1994 paper by Bill Bengen.

It illustrates the long-term strength and volatility of the U.S. stock+bond market. It is relevant to me as well as the majority of U.S. retirees.

In Oct 2020 Bill Bengen updated 4% to a higher, more aggressive max_withdrawal_rate.

This blogpost is mostly based on https://www.getrichslowly.org/four-percent-rule/.

— safe …. from running out of money within 30Y. It is assumed that the portfolio needs to last thirty years. The withdrawal schedule is deemed to have failed if the portfolio is exhausted in less than thirty years and to have succeeded if there are unspent assets at the end of the period.

Capital preservation was not a primary goal, but the “terminal value” of portfolios was considered for those investors who may wish to leave bequests.

— CPF-life and the U.S. stock/bond market
I guess the 4% rule was created based on US market. In contrast, CPF-life invests globally and pays out in SGD.
— alternative nonwork income: The original researchers are very confident about their safe withdrawal rate, but I’m not. I need more cushion, more buffer, like my rental income, CPF-life
— inflation: It is assumed that the portion withdrawn in subsequent years (after 1st year) will increase with the consumer price index (CPI) to keep pace with the cost of living
I have reason to believe SGD inflation is better controlled.
— black swan disasters? Researches used historical black swan events to back-test the withdrawal schedule and vindicated the 4% rule.
I tend to worry about unprecedented, imagined disasters.
— key clarification on 4%: Note that the 4% is calculated against the balance of the account only in the first year: withdrawal amounts in subsequent years are calculated by adding inflation to the previous year’s amount, and not 4% of account balance in later years.
— stable burn rate: https://www.getrichslowly.org/four-percent-rule/ points out that for many retirees, burn rate is nowhere near “level” i.e. consistent and stable.

In my case, I expect my crbr (couple retirement burn rate) to be stable. I have better control of my burn rate than those American young retirees.

I track my monthly burn rate consistently. It gives me confidence and insight. One variable is my wife’s personal burn rate, invisible to me, but I have some observations of this rate.

y SG rated most expensive city

Posted on by tiger40490

I don’t want to spend too much time on questions that only bother other people, like this question:

Q: why is Singapore rated as one of the world’s most expensive cities?

In this case,  I decide to spend a few minutes, because my family members may ask this question, or they may face this question from their friends.

— First, these rankings are often politically motivated, perhaps to weaken the competition like a smear campaign.

— Next, to understand the ranking, we need to zoom into the basket of goods used to compared expensive cities. The score is a weighted sum over this basket.

According to various sources, the biggest reason for SG’s bad score is cost of car ownership (not taxi not public transport). Weightage of this item in the basket can be adjusted/manipulated.

— Note the basket is often constructed for a foreigner, perhaps a foreign executive, not an average local resident.

Local residents enjoy subsidies in education, healthcare, utilities, public transport,,, How about the elephant in the room — Housing?

Public Housing for SG citizens is subsidized in the demand-controlled HDB housing market. If (without demand control) a rich foreigner were allowed to buy HDB in bulk, then price could double or triple to the level of private properties.

Therefore, Citizens face a lower home price than foreigners. How about renters — do foreign renters endure higher cost? I would say arguably yes. My foreigner colleagues (Indians, Chinese, Koreans, not to mention Caucasians) mostly rent in condos. As a local, I’m more likely to rent in HDB.