Last Updated on 15, September 2017
I created a new retirement planning tool for those who are 50 and above to help them plan for their retirement. This new tool is FREE. The tool is capable of generating automated preliminary assessment so that you will know immediately whether are you able to retire.
This article explains the limitations of existing retirement planning tools commonly used by the financial industry and a description of how to use the new retirement planning tool I created.
What’s wrong with existing tools?
Existing retirement planning tools used by financial advisers uses the drawndown approach. These tools assume that the retiree has a big amount of money on retirement and the retirement expenses are withdrawn from this sum of money over a certain period of time. Some of the assumptions for using this method are:
- The bulk of retiree’s money is invested with a certain rate of return.
- The period which the retirees are expected to be alive is fixed.
- The investments are liquidated and the capital is expected to decline until it approaches zero. The retiree is expected to die once the capital is fully exhausted.
The CPF’s Retirement Calculator is one such example using the drawndown approach.
This approach is more appropriate for retirees who are comfortable and savvy with investments.
The New Passive Income Analysis Tool
Majority of retirees are not comfortable or savvy to invest. So they have to rely on specialized retirement products such as CPF Life.
CPF Life is able to provide a perpetual income even if the capital has been fully withdrawn. Other examples of retirement products provided by private insurers are:
- NTUC Income’s Vivocash
- TM Infinite VIP
- AXA Retire Happy
- Aviva’s MyRetirement
And of course, the old fashion rental income is an example of passive income that theoretically is perpetual as long as there is a tenant and the leasehold has not expired.
Under the passive income approach, retirees would want to know:
- Whether do they have sufficient passive income to meet their retirement expenses?
- How would inflation affects the purchasing power of these passive income streams?
- If there are insufficient passive income streams, exactly how much passive income is needed before one can retire?
How to use the Passive Income Analysis Tool?
First, you will need to provide certain assumptions namely:
- Expected inflation
- Current age,
- Retirement age and
- Projected retirement expenses in today’s value.
- This tool is more suitable for those who are near to retirement. Hence, I have restricted the ‘current age’ to a minimum age of 50 years old. Retirement age must always be equal or greater than the current age.
See this example:
Next, you will need to provide at least one source of passive income. Since CPF Life is compulsory now, the first source of passive income is CPF Life.
In the example, below I provided an estimated of monthly income of $1900 at 65 years old (Starting Age) for CPF Life assuming CPF Enhanced Retirement Sum. The ‘Ending Age’ for CPF Life is 100 to indicate that the income stream is perpetual.
Since CPF Life’s monthly income is not expected to increase, the ‘Percentage Annual Growth’ is 0%.
If you do have another source of passive income, state ‘yes’ to the question.
For the second source of passive income example, I use rental income. This retiree is expected to rent out one HDB room at 55 and it is assumed that the rental is $700 per month. The retiree assumes the rental will increase 3% per annum.
You can input a total of 6 sources of passive income.
Once you submit the form, you will almost immediately receive a Passive Income Report through email which will provide you with an automated preliminary assessment. This is a two page report containing a few charts. If there is a shortfall, the exact amount of passive income you need to create to eliminate that shortfall is shown. Examples of the two charts are shown below:
What happens if the automated preliminary assessment is bad?
In the event the preliminary assessment is bad, I will follow-up by taking a look at the report and provide to you a preliminary recommendation via email. Obviously this will be done a few days later depending on my workload. This preliminary recommendation is free of charge.
Try the Passive Income Analysis Tool Now!
You can simply click on the link below to get the software tool:
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