Monday, January 1, 2024

A Good Financial Plan Takes A Lifetime

A Happy 2024 to everyone!

In this post about our portfolio pivoting, I had briefly stated that we had identified an age where we would “step-down” from our day careers and move on with roles of lesser responsibilities and/or more personal time (a.k.a. freelance).


The first inkling of determining our step-down age was sometime around a year ago, where we started to get serious on our retirement (i.e., putting in more precise numbers). Just like the long journey after getting an epiphany on investing (see here for the story), it took us about a few months to come up with a crude framework, and we are still not done yet (it will never be). The reasons for being crude were that there were many assumptions and subsequent projections made in crafting the financial situation at the point of step-down, such as the tangibles (e.g., the prevailing full retirement sum for our cohorts, which is not published yet on the CPF website; the surrender values of our endowment plans, which we had requested for the latest copies of the benefits illustrations, etc.) and the intangibles (e.g., the actual age of our children which they could go fully independent). To top it off, we had to discount several other sources of cashflow/cash pools which were slightly difficult in getting a firm number (e.g., calculating the CPF-OA balances which were constantly varied by transactions of our investments).


In the end, we had settled on sources that could be easily projected. Those which were not included were things like the aforementioned CPF-OA balances and a couple of investment-linked products, etc., but we would treat them as positive outliers akin to that of a “known windfall”. The ones which we decided to include in the “overall sum” were:


  • The Bedokian Portfolio (main portfolio built with disposable income)
  • CPF-OA funds invested in a roboadvisor (which provided an online projection chart)
  • Endowment/savings funds maturing before our step-down ages (which would be injected into the Bedokian Portfolio)
  • CPF-SA amount (to remain inside CPF)


Planning for a below average scenario, the Bedokian Portfolio was projected with 4% annual returns including capital gains and dividends, the roboadvisor projection was based on median returns and the endowment/savings plan returns based on the latest benefits illustrations. Still, to provide a wider margin of safety, we shaved an additional 20% from the projected overall sum.


With the projections done, we used a 4% yield/withdrawal rate on both the projected overall sum and the one with the margin of safety applied. On top of this, we added in an assumed gross renumeration from our step-down job/gig.


The results were quite satisfactory.


However, as the following adages go:


“No plan of operations extends with any certainty beyond the first contact with the main hostile force.” – Helmuth von Moltke, Prussian general (1800-1891)


“Everyone has a plan till they get punched in the mouth.” – Mike Tyson, boxer (1966 - )


In layman speak, these meant that any plan would be thrown out the moment it came into being operationalized. Even with known-knowns and known-unknowns planned before a battle, there could be moments when the unknown-unknowns would come in and disrupt everything and make our plans go into complete disarray.


But that was just half the story. If we keep planning, executing, gathering feedback and then use them for our further planning, we could create a more positive loop as compared to sticking to a plan and be done with it. This may sound tedious, but the backbone was already set up, and all we need to do was to adjust the numbers accordingly. The original projected numbers can be used as a guide or soft target for achievement.


Financial planning for investing, retirement, expenses, etc., is a never-ending job, because they are many assumptions to be made, variables and needs to be considered, and figures to be projected, and one, some or all of these may change, sometimes drastically, and we must take in the new ones to factor in and generate another plan again for the time being. 


Hence the conclusion of it all is the title of this blog post.

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