Secret for graduate Singaporeans to retire early

Many of us work long hours and feel very tired. We wake up early in the morning and return home late at night and this has been going on for many years, 25 or even 30 years. If you want to get out of this rat race and retire early to spend more time with your family and friends or pursue new interests or devote more time for society at large as a volunteer or spend more time to do things which you never had time for, you can.

The key consideration is your finances. You must have enough savings or a passive income source to sustain your retirement. They key is to reduce your expenditures, increase your savings and generate passive income. You must replace your active work income with passive income. At the same time, you must reduce your expenditures so that your passive income and cash flow from your savings will cover your expenditures. It is best you do all of these together.

Generating passive income

To generate passive income, you need assets. A good asset to own is a basket of blue chips stocks that gives you good dividends. If the dividend yield is 5%, every $1 you invest will give you 5 cents per year. So, if you need a passive income of $50,000 per year in dividends, you need to have $1 mil to invest.

Increase savings

In order for you to buy assets that give you dividends, you need to save while you are working. Save as much as possible. You can save a lot by (1) not having a car; (2) not eating at restaurants often; (3) buying cheap groceries; (4) not buying branded goods; (5) not smoking; (6) not drinking alcohol; (7) not partying; (8) not womanising; (9) not gambling; (10) not spending on expensive holidays; (11) not having a maid; (12) not wasting electricity and water; (13) not buying a home you cannot afford; (14) not buying unnecessary gadgets, toys and goods, etc. The list can go on. There are many ways to reduce our expenditures and increase our savings. Also, to reduce on medical expenses, lead a healthy life by eating healthy food and exercise regularly.

Action plan

Let’s assume you bought your BTO flat at 25 years old and because it is priced so low, you can pay it off easily, within 30 years. Many can pay off their mortgage earlier than that using just their CPF savings. So, at 55 years old, many have no more mortgage loan on their BTO flat. So, no more mortgage worries and assured of a roof over their heads.

Assuming a typical, average graduate couple has a combined income of $10,000 per month and a take home pay of say $7,000. Assuming they don’t waste on owning a car and do not have a maid, they can save as much as $3,000 per month in cash or $36,000 per year on average over 30 years. After 30 years, they will have $1.08 mil in cash. They can then invest this cash in blue chips and get $50,000 per year in dividends, assuming a 5% dividend yield. Another way is for them to invest $36,000 every year in buying good blue chips which will appreciate over time and they reinvest the dividends. They should get at least $2 mil by the time they reach 55. The $2 mil will generate them $100,000 per year, more than enough for them to retire as their prudent, debt free lifestyle means they only spend $50,000 per year. As a bonus, when they reach 65, their CPF Life payout will kick in.

For the super high achiever graduate couple who can afford to upgrade to a condo or landed property, they can also retire at 55 by downgrading to a cheaper condo. For instance, they can sell their District 9 penthouse or landed for $4 mil. They can then use the $4 mil cash proceeds to buy a cheaper 3 bedroom condo in the Jurong Lake District for $1.5m, paying in cash. Assuming they have cash savings of $1m, plus the net proceeds of $2.5 mil, they will have $3.5 mil to invest in good blue chips which gives 5% dividend yield or $175,000 in dividends per year. This would be more than enough for them to retire as their expenditures by 55 should only be $100,000 per year, at most. As a bonus, when they reach 65, their CPF Life payout will kick in.

So, in summary, it is possible for every graduate couple (both the average and super performers) to retire early. They just need to be intelligent and disciplined.