Need to Invest during Retirement

Often, discussions on retirement planning centre on building up the nest egg till the point of retirement itself. Investing is a must.

We get all excited about wealth accumulation be it through regular investing (e.g. dollar cost averaging approach), making money from real estate investment through rental income and capital gains or striking a Toto/Big Sweep windfall. So at the end of accumulation, how do we spend the money? Some of us could live off the income (e.g. interest/dividends) from the capital and preserve the nest egg for future generations. But I believe most of us would likely draw down on the capital, supplemented by CPF/SRS withdrawals and annuity income (e.g. CPF Life and/or private schemes). A small group may benefit from pension incomes too.

So ultimately, is there a need to continue investing during retirement itself? Or can we say, full stop and just spend the money.

An example tells the story best. Imagine we are now retiring at age 65. We have 1 million bucks in the bank. And we are content with a retirement lifestyle of $5,000 per month on average (to holiday, go for fine dining, visit friends, bring the grandchildren for outings, take up learning courses, maybe have a go at the IR etc).

Age= 65 yrs old

Life Expectancy at age 65 today= abt 85 yrs old (20 years)

Cash/Near Cash Assets= $1,000,000

(exclude residential and investment properties)

Estimated Expenses= 5,000 per month/ 60,000 per year

Say historical inflation is at 3%p.a. and we draw down on these assets (assuming no other income from other sources), the following table shows the number of years the assets will last based on various rates of return:

Invest Return p.a.	1.00%	3.00%	5.00%	7.00%
No. of Yrs	14.30	16.67	20.33	27.35
Inflation	3.00%	3.00%	3.00%	3.00%
Inflation-adjusted return	-1.94%	0.00%	1.94%	3.88%

This example has simplified reality. Certainly, one may not spend $5,000 per month all the way to his last day. At least, not on fun. Towards the end, medical fees and rehabilitative living costs will form bulk of our expenses. The key point is that if we do not continue to invest during retirement, we are likely to run out of cash and outlive our savings (unless one imposes strict austerity measures on oneself). No doubt, CPF Life (i.e. the national annuity) will be the safety net. However, it is just that. From the example, one would need to generate at least 5%p.a. returns each year in order for his assets to last 20 yrs. This just matches the expected life expectancy of the retiree at age 65.

There is the other important consideration to preserve wealth during retirement. Hence, how to safely generate the investment return without sacrificing the nest egg? Is it to totally avoid equities in the retiree’s investment portfolio? Or to solely focus on accumulating properties where rentals tends to hedge inflation, and if in need of emergency liquidity, just sell the property (which btw, takes a few months before receiving cash proceeds)? There are plenty of different responses and none are incorrect. Each retiree is different in terms of physical and financial health. But do start thinking about investing during retirement. Don’t stop.