Introduction
Hello, I'm JP from Singapore. After 22 years in the corporate world as a full-time working mom, I was laid off earlier this year. When I reviewed my finances, I realized I had reached financial independence. I had enough to live comfortably without excess, so I chose to retire early and live life on my own terms.
The Ikyu Living SG Channel
This channel, Ikyu Living SG, is where I'll be sharing my journey from fire (Financial Independence, Retire Early) to Ikyu, living a life of freedom, purpose, and mindful living. In earlier videos, I shared how I retired at 47 and how I grew my CPF (Central Provident Fund) to 1 million by the same age.
The Challenge: CPF Lock-Up
Before turning 55, I don't have access to my CPF funds. This means my CPF savings are locked up for another 8 years. To sustain my living expenses and fire lifestyle, I had to rely on my liquid portfolio, which is the focus of this video.
My Financial Net Worth
As of June this year, at the start of my chubby fire journey, my portfolio was worth more than $3 million. This includes all my liquid assets and illiquid assets like CPF, SRS (Supplementary Retirement Scheme), and the cash portion of my insurance policies. Alternatives, investment property, and my home equity are not included. Even my humble HDB (Housing & Development Board) flat is now valued at more than a million, but I have no plans to move out anytime soon.
Liquid Asset Breakdown
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Stocks: 83%
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Funds: 7%
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Cash: 10%
The Safe Withdrawal Rate Concept
A common question is how to know when you have enough to fire or retire early. The safe withdrawal rate (SWR) concept helps answer this. The famous 4% rule or 25x rule is part of this.
The 4% Rule
To apply the 25x rule, multiply your annual expenses by 25. This gives you your target retirement portfolio or magic number. For example, if you need $40,000 annually in spending, you need to have $1 million before you can retire.
In terms of the withdrawal strategy, you can withdraw 4% of your initial balance in year 1 and adjust this amount for inflation each subsequent year. For example, with a $1 million portfolio, you can withdraw $40,000 for the first year. If inflation is 3% next year, you can withdraw $41,200.
The Trinity Study
The 4% rule is based on the Trinity study, which analyzed historical US data of a US portfolio made up of 60% stocks and 40% bonds. This study found that if you keep to this 4% withdrawal rate, you have a high probability of sustaining a 30-year retirement portfolio without depleting assets, based on historical real market returns of 6 - 7% of this portfolio after inflation.
Success Rates
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For a 30-year retirement period with a US portfolio, the success rate is 95%.
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For a 40-year retirement period with a US portfolio, the success rate is 80%.
US Exceptionalism
A researcher named Wade FA extended the research to a portfolio made up of 60% global equities and 40% global bonds. His findings revealed US exceptionalism, where the US market historically delivers exceptional returns not representative of global markets.
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For a global portfolio using the 4% rule, the success rate is 60% over a 30-year retirement period.
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For a 40-year retirement period, the success rate drops to 53%.
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However, if you lower the withdrawal rate to 3%, the global portfolio has a close to 90% success rate over both 30-year and 40-year periods.
Conclusion on SWR
For early retirees like myself, 3% seems to be a sweet spot for a significantly higher confidence level globally. Remaining flexible in the withdrawal strategy and willing to adjust spending during market downturns also increases the success rate.
Key Considerations for My Portfolio
Cash Flow and Withdrawal Strategy
I'll be adopting the 3% withdrawal rate with flexibility to adjust my spending based on market conditions. I'll also supplement withdrawals with dividend and interest income.
Managing Sequence of Returns Risk
This is the danger of poor returns early in retirement that can permanently hurt the portfolio's sustainability. To mitigate this, I'll keep a cash bucket of about 2 years of expenses so I don't need to sell assets during downturns. I also plan to keep a war chest mainly in US dollars to take advantage of market opportunities.
Asset Allocation and Risk Balance
Since I'm shifting from pure accumulation to preservation while maintaining growth potential, I'll be reducing concentrated positions in favor of broader diversification.
The Total Return Approach
In funding my retirement, I'll use a total return approach. I treat the whole portfolio as a whole and combine capital gains, dividends, interest, etc., to fund my lifestyle.
Why Not a 100% Dividend Portfolio
Based on my $3 million net worth, if I invest in a portfolio of REITs or dividend - yielding stocks giving 5%, I could have a passive income of $150,000 a year ($12,500 a month) without drawing down my capital. However, I don't like this approach because:
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The overall portfolio would lack growth.
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Dividends could be cut in bad years.
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There's a risk of investing in riskier assets to get a higher yield.
My Withdrawal Amount
Based on a 3% withdrawal rate and a $3 million portfolio, I can safely withdraw $90,000 a year ($7,500 a month). This is higher than the CPF ERS (CPF Life Early Retirement Sum) payout of $3,300 at age 65. Cash flows will be funded from a mixture of dividends, interest, bond coupons, capital gains realization, and option trading income. My actual expenses this year are less than $80,000, and I foresee them dropping to $70,000 next year when I no longer need to pay income tax.
Managing the Cash Bucket
My cash bucket serves two main purposes:
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To meet my liquidity needs.
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To act as my war chest for market opportunities.
I'll have an active cash management strategy. I'll have a Singapore dollar fund to cover one to two years of my expenditure, and Singapore dividends and interest income will supplement my cash flow. This will prevent forced selling during market downturns. I also plan to have a US opportunity fund to take advantage of market opportunities and support my option trading for additional income.
Implementing the Total Return Strategy
Normal Year
I'll spend $90,000. If I have $30,000 coming in from dividends and interest, I'll need to generate another $60,000 from option trading, capital gains, etc., to replenish the liquidity needs portion and refill my bucket.
Bull Market
I'll still spend $90,000 and have $30,000 from dividends and interest. But I may do more selling and take profits, say $110,000. Total inflow is $140,000. $90,000 will go back to refill the liquidity needs, and an additional $50,000 will beef up my war chest.
Bear Market
I'll still spend $90,000 a year, but dividends and interest could be cut to $25,000. I could generate another $15,000 from option trading. Total inflows are only $40,000. The liquidity needs portion will decrease by $50,000 and won't be fully replenished. The war chest will be more actively deployed to take advantage of the bear market or partly replenish the liquidity needs.
Portfolio Actions Since Starting My Fire Journey
Since starting my fire journey in April, for the past 3 months:
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I increased the portion in Singapore investments, allocating more to dividend - paying stocks and REITs for greater dividend income.
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I started investing in a small portion in bond funds to enjoy bond coupons for my lifestyle.
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I diversified my equity holdings, reducing concentrated stock positions to lower individual company risk. Overall, I still maintain a major allocation to growth stocks for long-term wealth building.
Stock Portfolio Performance in the First Half of the Year
I retired just before the April Liberation Day tariffs and the subsequent increase in market volatility. Without active income, this was the first time I truly missed having a paycheck to buy into the dips. I had a small retrenchment package that I cautiously deployed back into the market. I also used this chance to rebalance, diversify, and improve the quality of my holdings while ensuring my liquidity needs were not at risk.
Major Events in the Second Quarter
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Trump announced Liberation Day tariffs, causing global stocks to fall.
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He declared it a great time to buy, and the next morning, I had the biggest daily portfolio change of almost $125,000.
Portfolio Returns
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In the second quarter, despite no active income, I managed to generate a portfolio return of 4.5%.
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In the first half, the portfolio generated a total return of 7.9%, compared to the S&P 500 index return of 4.6% and the STI (Straits Times Index) return of 4.9% (not factoring in dividends).
Stock Portfolio Holdings
As of June, my stock portfolio accounts for 83% of my liquid portfolio. I have 30 counters.
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By region: 37% in Singapore stocks and 63% in US stocks.
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By sector:
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Technology sector: 38%
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Financial sector (mainly Singapore banks): 19%
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Other sectors as shown in the chart.
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Conclusion
This is my fire plan on how I'm managing my liquid portfolio to fund my chubby fire lifestyle and keep it sustainable. My approach balances income generation and growth allocation. I always have a safety buffer of one to two years of cash reserves.
If you're already retired or on your own fire journey, I'd love to hear from you. Share your approach to managing your portfolio for income and sustainability in the comments below.
In future videos, I'll be sharing my money habits, savings rate, lifestyle choices, investment strategies that allowed me to build up these assets and achieve chubby fire at 47. Hit like and subscribe so you'll know when I next release a video. Thanks for watching!