Sunday, September 13, 2020

Thoughts about the 1M65 concept

 1M65 stands for One Million by Age 65. It is a unique strategy popularised by Mr Loo Cheng Chuan. You may refer here for a breakdown of his strategy and thoughts on retirement planning.

Recently, I had the time to watch a Webcast that Mr Loo hosted and it was eye-opening. Both the Mrs and I knew that CPF will eventually form the foundation of our retirement portfolio. Something that is virtually risk-free and backed by the Singapore Government, what's there not to like??? He went on to list a few misconceptions that may cause people to not want to have their money in CPF.

Nonetheless, the Mrs and I are definitely looking to execute the 1M65 strategy as part of our retirement plans which essentially means that by 65, each of us should reach a minimum of $500k in our account. I would say there are probably short term, medium term and long term goals for us.

Short term goals for each of us (< 5 years)
Attain a total of $130k in our Special and Medisave Account by age 34.
Mr Loo said that the combined sum used to have a ceiling of $130k back in his day. However, with a time horizon of more than 25 years, compound interest will have a significant effect in increasing this sum substantially. We will be looking to transfer a sum (either monthly or lump sum at the end of the year) from our Ordinary Account to our Special Account.

Medium term goals for each of us (between 5 to 10 years)
With the foundation of this strategy achieved, our next move will probably be two-pronged. Firstly, we will probably look into initiating a small position using our CPF monies into a S&P Index fund or a similar ETF. At this point, we are looking at a maximum of 10% of our CPF funds to mitigate for any drawdown or volatility risks. Second, we will try to reduce/pay off our mortgage principal yearly to reduce the accrued interest payable to CPF should we decide to sell off our place in the future. On that note, Mr Loo did mention that he does not encourage people to buy private properties whether it is for staying or investment. Rental yields in Singapore have been on the downtrend especially so after Covid-19 hit us. But we will see what the future holds. I think I will be contented just staying in my HDB for now. heh.

Long term goals for each of us (>10 years)
Adjust CPFIS and close position if necessary. Based on my calculations, we should be able to hit 1M65 in our combined accounts by age 45 barring any other black swan events or you know, if life decides that we need more hurdles. Really from 10 years onwards, we hope to be cruising and be contented that our earlier sacrifices have paid off.

Share with me your thoughts on the 1M65 strategy and CPF!

SG FI Dad, out.

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