Create Residual Income For Your Retirement With USA Rental Properties
Many Asian investors choose to make residual income using retirement rental properties in the US as an attractive source of passive income in their golden years.
If you’re thinking of using rental properties to finance some or all of your retirement income, this solution may appeal to you.
For many of us living in Singapore, Malaysia, and Indonesia, housing markets home prices are an all-time high.
Many real estate investors save up for a 30% down payment in Asia so that they can take a 30-year Fixed Mortgage for their condos or apartments.
No one buys a property in Cash.
After your primary mortgage, picking up a second or third mortgage payment is a pipe dream for many private sectors.
Young couples hope to buy a home, but it is hard to buy properties in a “hot” real estate market.
If you have a double income, it may be easier to work towards your Financial Freedom Goals.
Some couples live on one income and use the other for rental property investments.
While this arrangement may have great plus points, new circumstances may change your plans:
- Having children
- Loss of job or dual income
- Health issues
Priorities and circumstances inevitably change for people over time.
Retirement withdrawal strategies differ for each person; as these make perfect sense to them.
BUT not every retiree has the same objectives.
Some individuals only retire in their 70s.
One morning they may wake up and realize that they don’t have THAT many years left to go.
With no worry about outliving their wealth – these retirees choose to enjoy life to the fullest.
They may choose a dynamic withdrawal strategy and splurge as they see fit to fulfill their desires and goals.
Others may retire at an average age or even earlier and expect to withdraw from their nest egg for the next 20 or 30 years.
These retirees are more concerned about outliving their money.
Many retirees may forgo certain lifestyle perks they have grown used to over the years.
The last group of initial adopters retires very early, in their 30s or even late 20s.
Some classified as early retirees may not have left their jobs voluntarily.
Others could comfortably retire but feel angst staying at home.
Many seniors take up non-traditional jobs with no benefits and unstable income to fill their time and get out of the house.
You may likewise find older workers increasingly joining the fast-food industry.
1 When to Retire?
While the government in many countries raises the retirement age for civil servants, you need to ask yourself these questions:
- When do I choose to retire?
- When do I prefer to be employed?
For many of us, retirement may loom at the back of our minds – even if we are in our thirties.
In the real world, retirement is a significant life decision and a transition that requires ample preparation and planning.
Our work defines, impacts, and supports our serious decisions in life.
- falling in love
- getting married
- bearing children
- growing a family
It is not so simple to think – that I wish to retire when I hit 55 or even 60 no matter how much we want to stop waking up at 6:00 am.
Not that basic as determining not to put in long hours at a task you’re not thrilled about – if it were, all of us would pull out at 30.
Retiring too early, without enough retirement funds invested, and you may require lowing your standard of living or even return to work.
To retire happily includes having a good plan; this means you need to figure out what kind of lifestyle you choose in retirement.
- solid grip of your budget
- investment plans
- a spending plan for your life’s savings
- how you’ll spend your days.
Money For Retirement
It takes cash to survive and income from investments to retire comfortably.
Have you worked hard to save up a nice little nest egg?
When you cease making an active income, you will rely on your Cash Reserves to get by.
It would be best to establish that your financial situation is secure before you choose to leave full-time employment.
Do you have an accurate estimate of your retirement income and expense?
Have you figured out how inflation, taxes, and healthcare affect your little nest egg?
If you’re still happily working – don’t let an arbitrary retirement age (set by your employers) determine when you need to retire.
Get a firm grip on your retirement budget.
As employees, many of us enjoy company benefits from our job.
These extra perks can consist of:
- profit sharing
- medical and dental
- disability and life insurance
- paid vacations
- free meals
- use of a company car
- stock options
- company holidays
- personal days
- sick leave
- other days off from work
- and even an annuity or pension plan
Once you quit your job, you will need to pay for all these things yourself and affect your lifestyle.
From spending your evenings at the Sports Club (paid by your employer), you may be demoted to running to the local park for your exercises.
Retiring won’t make things easier if you’re struggling to survive from paycheck to paycheck.
2 You need to know your Retirement Number.
How much money would you desire to retire comfortably?
A retired father may enjoy a leisurely drawn brunch with his morning paper, but the activity differs considerably from person to person.
So, for your retirement savings, how much cash is sufficient?
The answer may differ for everybody – you can apply a broad base rule based on your present salary and spending.
If you and your partner together bring in $100,000 per annum, thus the two of you should aim to save enough funds to survive on 75% to 85% of your pre-retirement salary.
That works out to be between $75,000 and $85,000 per year in retirement.
The second rule recommends that your expenditures, not your income, should guide your retirement planning.
Rather than deciding to base on your projected last drawn salary – this strategy will require you to find out how much money you want to live each year during retirement, then multiply by 25.
For example, suppose the two of you decide to supplement your Social Security income with an additional $60,000 from your savings every year.
In that case, you will desire a portfolio valuation of $1 million when you retire.
If you prefer to pull out $80,000 a year, you’ll need $2 million.
3 What is the Ideal Retirement Age?
All of us wish to retire early.
Many want to retire at 55, but they may be forced to continue longer in the workforce with the spiraling inflation cost.
Even with the revision of the public and private sector retirement age to 62, many nevertheless yearn to retire at an average age of 55.
The official retirement age in Singapore is 62, but the CPF LIFE payout only commences from age 65.
So, Singaporeans who want to retire sooner, say at age 55, will require to find alternative sources of income to supplement their livelihood expenditures.
For Indonesians, the general pension age of employees is 57 years old, which will steadily increase by one year every three years.
No matter the retirement age set by companies or the government for pensionable ages, many may give up their careers because of ill health or other factors.
4 Retirement Planning
Retirement planning refers to the financial strategies of saving, growing your investment, and using the money saved to sustain yourself during retirement.
For a start, you can evaluate your present financial situation.
How much have you saved up in your provident funds?
Check your savings or any alternative investments you have acquired or intend to accumulate over the years.
Malaysia’s Employees Provident Fund (EPF)
According to an analysis, 47 percent of Malaysians aged 35 and above have not started saving for retirement.
The younger working adults aren’t placing enough money away for their future.
So, is your retirement fund sufficient?
Effective 1 January 2019, The Employees Provident Fund (EPF) revised the Basic Savings from RM228,000 to RM240,000 as the minimum target EPF; basic savings members should have reached age 55.
The Basic Savings refers to the amount considered sufficient to support members’ basic needs 20 years after retirement (assuming a life expectancy of 75 years old).
The new quantum is benchmarked against the minimum pension for public sector employees, at RM1,000 per month.
The Central Provident Fund (CPF)
The CPF is a comprehensive social security system that enables working Singapore Citizens and Permanent Residents to set aside funds for retirement.
For the CPF LIFE scheme, a compulsory annuity plan pays out a lifelong guaranteed monthly payout of slightly over S$1,500.
Ideally, most Singaporeans need to reach the retirement value of S$181,000 when they retire.
How much money do you need in your Retirement Plan?
If you want to bid the corporate world goodbye, say 10 or 15 years earlier than most Asians, you’ll need a substantial nest egg to withdraw from every single month in cash.
For you to retire early, say at 55 – you will need $2.2 million invested on the day you clock out for the last time.
If you reduce your spending to $65,000 per annum*, you will withdraw that amount for the next 33.8 years.
That will bring your age to 88.8 years old.
*Does not consider the inflation rate.
If you plan to live on lesser than $5400 per month or expect to reduce your expenditure as you age, you will need a smaller lump sum.
If you are 40 years old, you will have 15 years to build your nest egg.
Aside from the compulsory EPF (Malaysia) or CPF (Singapore) contributions, you can invest in an asset allocation of 70% stocks with 30% bonds to ensure the account’s growth and provide a steady income for decades.
You could invest in paper assets – stocks, currencies, bonds, money market accounts, and similar types of investments.
Many early retirees continue to earn an income after leaving their 9-to-5 employment by earning passive income through real estate investing or new hobbies you can monetize.
These seniors consider themselves financially independent rather than retired, which means they don’t need to earn that steady paycheck to afford their Lifestyle.
If you can maintain your expenses low, remain happy and healthy, you will be satisfied with assets with predictable returns.
5 How to Calculate Your Retirement Expenses?
Without taking on permanent work, the first thing that shrinks is your disposable income.
Disposable income, or disposable personal income (DPI), is the amount of money that an individual or household has left over – to spend, save, or invest after paying taxes and essentials such as rentals or debts, utilities, food, and credit card bills.
If you are still paying off a large mortgage, personal debts, and other essential costs, it reduces any leftover earnings.
So how do you calculate your essentials for your Retirement Expenses?
There are two rules of thumb to help you work out your everyday expenditures.
- Percentage of Current Salary
- Estimate Yearly Expenses During Retirement
Using the Percentage of Current Salary rule is straightforward.
You take your current income and work out the percent of your salary.
Are you prepared to get by with, say, 65% of your last salary?
The second rule-of-thumb calls for a bit more work.
To estimate the sum of cash you require annually for your living expenses after retirement requires you to consider your current living expenses, wage, and current budget.
To get started, you can break down your cost by categories to obtain a more accurate assessment.
Your expenses during retirement will not mirror your current expenditure exactly.
You can examine how these categories influence your retirement lifestyle.
Before you can work out your retirement cost, you need to ask yourself some challenging questions.
Would you still need to support your children after you retire?
Even after you paid for your children through university, you may be required to maintain supporting them after they graduate – if they can’t get a job.
Would they be expecting you to give them the down payment for a car or a condo?
Are you saving up to pay for onetime expenses like your child’s wedding?
Or need to support their offspring’s expenses?
For one-time expenses like your children’s wedding, if you expect to offer monetary gifts of $20,000, you will need to set aside the same amount per child.
When this arises, your retirement expenses average is steeper than a childless couple or someone single.
Are You and Your Spouse in Good Health?
You need to consider if you and your partner have family histories of underlying medical conditions.
If you have medical insurance, check, and see if it covers you for medical procedures to a certain extent.
No matter how much you plan for the unexpected, there may be some out-of-pocket expenses that include refurbishing your home to make it wheelchair-friendly.
Have You Cleared Your Debts Before Retirement?
Have a buffer to clear all your outstanding debts before you quit working.
Assess your debt balances.
Do you know the comparable interest rates for the following?
- Credit card debts
- Car loans
- Student loans
- Other Business Loans
Use the above assessment to estimate a buffer time to plan to free your debts–all these numbers add up and affect your annual retirement cost.
Do You Have a Home Mortgage After Retirement?
When you purchased your first home, you would probably have calculated to pay off your home mortgage before your last day at work.
BUT do you have that second or third mortgage or perhaps some other loans that you are helping to pay for your relatives or family members?
As you calculate your debt, the mortgage repayment is a significant item that affects your retirement numbers.
What Are Your Home Costs?
Even after you have paid off your mortgage and now own your home – there are still ongoing costs as a property owner.
- Property Taxes
- Quit Rent/Assessments
- Condo Maintenance Fees
- Homeowners’ Insurance
- Roof, Gutters, and Rainwater Goods
- Air-Conditioning System
- Electrical System
- Alarm and Security
- Water Plumbing
- Landscaping and Lawn Care
Tip: If you’re residing in a condo, check that the Maintenance Fees are not on a sliding scale – the cost per s.f. might increase every few years. You can find this in the Sale and Purchase Agreement.
Who Will Care for Your Aged Parents?
Do you or your spouse have elderly parents, relatives, or even grandparents?
In their old age, they may need physical or financial help.
You may need to factor in the expenses to provide palliative care.
Are You Caring for Any Other Family Members?
If you are expected to care for other family members, siblings, cousins, or extended family members, you will need to budget for these costs too.
“You can’t manage your health if you can’t measure it. And the same goes for your finances.” – Tony Robbins
Here’s how to create a mock retirement budget.
You start with what you are currently paying, then look at how far you are willing to scale down with the lowest options available.
If you’re on a winning streak, of course, you can consider the other high-end options, and why not?
Retirement does not mean you need to live frugally and have no expenses for social recreation, entertainment, or fun!
However, give this exercise a try – you might even find ways to save more by living in another neighborhood or moving to a different part of your county.
Calculate Your Retirement Income
When you clearly understand your available sources of retirement income, you can further determine the savings required in keeping your present Lifestyle and standard of living after you stop working.
As you work out your retirement budget, you will require adding your Social Security benefits from CPF (Singapore) or EPF (Malaysia), pension payments, annuities, and royalties.
Singaporeans and Malaysians can check the amount of eligibility for retirement based on your contributions during your employment.
You can check with the relevant bodies on how to redeem the provident funds.
If your job offers a pension plan, request your employer for details about how much you’ll receive.
If you have rental homes, these could be your source of residual income.
What’s important is for you to plan wisely, save well, and investing before you anticipate leaving the workforce for good.
Each person has a unique situation, and you need to plan and work towards your golden years.
Planning for your retirement means becoming honest about lifestyle changes – are you ready to look at your Financial Freedom Number?
Are you creating a lifestyle that leaves you being broke – instead of being wealthy?
Many people earn five and six-figure annual salaries, but they may not be affluent.
Those in this income brackets spend a considerable chunk of their disposable income on luxury items to create a lifestyle they wish BEFORE they become genuinely rich.
They are continually breaking their budget because they do not have a consistent savings plan and, worse, can not invest in a core investment vehicle to grow their income!
Many people feel the Lifestyle creep when they increase their standard of living to match a rise in their discretionary income – the money you have after paying your taxes and living expenses.
‘Keeping up with the Joneses’ or even your social circle can be the downfall to accumulating true wealth.
So, how should one approach wealth building, then? Is there a better way?
Well, here’s a proposal for you to consider.
Before you make Wealth, review how regular your monthly income is, what your expenses are, and most importantly, you manage your income.
Savings with JARS Money Management System by T. Harv Eker
Author of “Secrets of the Millionaire Mind,” T. Harv Eker, said, “The number one reason most people don’t get what they want is that they don’t know what they want.”
Most individuals expect when they crave something, they can “Buy It Now” without paying in cash – and start accumulating credit card debts, month after month.
You can make five and six-figure annual salaries and yet be broke if you don’t learn to manage your finances.
Many people justify their purchases, rationalizing that they need those extra purchases and spend money on non-necessities items.
- Take Out a Loan for a New Car
- Go on an Expensive Vacation
- Eat at Restaurants, Go Clubbing
- Buy Coffee Daily
- Move to a More Expensive Apartment
- Treat Friends, Loan Money Out
- Ignore Your Bills and Bank Statements
- Pretend That You Have More Money Than You Do
- Spend Your Spare Time Unproductively
- Quit Your Job Without Another One Lined Up
By continuing to make poor financial decisions – spending money when you should be cutting back your spending.
Briefly, using T. Harv Eker’s system means splitting your income into six different accounts by percentages of your money.
Having a Retirement Planning Calculator allows you to work out how much you would need to enjoy your golden years comfortably.
Once you see how much you make and start allocating your expenses – you can strike a balance.
You have a ballpark figure for your necessary expenditures, long-term savings with an allocation for having fun with your money, and even money left over to give to charity!
Investing for your retirement doesn’t mean pouring every last penny into investing – that would be akin to gambling away your future!
Find that balance – it’s not that impossible if you plan with these tools in the article.
You can ballpark your residual income by investing in Retirement Rental Properties in the US.
To appreciate a comfortable retirement, most retirees require about 75% of their pre-retirement income.
You may assume that money from your provident funds, pensions, investments, or other savings will allow you to have the cash for your living expenses.
BUT do you have ample cash to satisfy your commitments and pay for your hobbies?
While commuting and dry-cleaning costs will diminish, travel and entertainment expenses will rise.
For seniors, it’s essential to think about taxes, healthcare, and even emergency outlays.
Without a source of active income, many of us no longer have access to employer-provided medical insurance and hospitalization coverage.
Over a certain age, insurance companies load medical policies compared to those who took up an insurance policy when younger.
2 High Level of Debt
Once you retire, any debts will put a burden on your savings.
Depending on your condition, paying off your mortgage, downsizing, eliminating car loans, and curtailing credit card payments helps in the long run.
To pay off debts before retiring means being employed for more years than you prefer.
Overall, not having monthly repayments to worry about means getting rid of interest payments in the long run.
Getting the best value of your money means having more in your retirement account than paying down debt.
If you have loans with an interest rate equal to or higher than what you earn in the market, you’re better off paying off your debt.
Cutting back on frivolous spending means having more to invest in an investment egg nest for your retirement.
3 Planning for Future Major Expenses
It’s better to focus on paying off certain big-ticket items now rather than until you are about to retire or have retired.
The items include the following:
- Upgrading your bathroom $2,000
- Replacing your roof $7,000
- Repaving your driveway $4,000
- Buying a new car $10,000 down and $300 per month
- Acquiring a second rental home $150,000
The impact on your retirement portfolio can be a substantial lump sum of your yearly expenses when you are required to withdraw a considerable amount.
4 Central Provident Fund (CPF) & Employees Provident Fund (EPF)
It is good to estimate how much your savings in the provident funds will cash out.
Check with the respective websites the age at which you can collect your maximum monthly benefit.
Another tip – postpone your retirement until you reach the full retirement age.
By working for another four or five extra years, you will increase your income and savings.
You can add more savings to your benefit calculation.
Plus, you get to squirrel away more for a comfortable retirement lifestyle.
5 No Monthly Financial Plan
Once you stop working, it signals the end of the paycheck, but the bills continue coming every month.
Mapping out your weekly cash flow before you retire helps you organize your expenditure.
With a monthly expense plan, you have a firm grasp of your expenditures, daily, monthly, and annually.
Ideally, have two to three times of actual spending history annually as data you can base your expenditures on before making any decision.
You can sum up by category of expenses – from living frugally, middle of the road, or a fancy regiment lifestyle.
Knowing your numbers means recognizing how high an income you’ll require and the amount you withdraw from your retirement accounts.
Some expenses may go down.
Debts, when fully repaid, disappear.
Once you know the amount you need each month, you can assess whether your nest egg is large enough to allow you to retire.
Whether you need to keep working and saving and cut your expected retirement expenses.
6 No Long-Term Financial Plan
Long-term planning for your retirement should last for 30 years or more in the future.
While no one knows absolutely how long they will live – longevity and escalating cost of palliative care mean your portfolio will have to last longer than you once thought possible.
Based on actuarial statistics, a couple who retires at age 65 has a 50% probability that one of them will live up to age 92.
There is a 25% probability that the other partner will be alive at age 97.
So how much should you withdraw from your portfolio each year?
Over 25 years ago, Bill Bergen, a financial adviser in southern California, created the “4% rule” of thumb to ensure you don’t outlive your reserves.
Bengen called his rule “Safemax”—the maximum amount you could withdraw each year and still say “safe.”
The principle is that you should budget to spend only 4% of the balance of your retirement savings in the first year.
Then you adjust the amount each year in line with inflation.
Historically, the average safe withdrawal rate turned out to be about 7% and at points and at “worst-case scenario,” ended as high as 13%.
A new retiree would need to withdraw more with skyrocketing inflation that crushed the purchasing power and diminished Fixed Deposits and bonds’ returns.
When the stock market was “cheap,” retirees could invest in a conservative retirement portfolio for good future returns.
Today, with a plethora of unknowns and the Covid-19 pandemic, retirees needed to budget for many unknowns and unknown of unknowns.
7 Not Accounting for Inflation
Inflation affects increases your day-to-day expenses and reduces the value of your life savings.
With an inflation rate of 3%, your expenses will double in less than 25 years.
At 6%, it doubles in a decade.
Many retirees discount the effects of inflation.
As you live longer, you need to maintain your money carefully to keep up with or outpace inflation – to reduce the chance of you outliving your savings.
While some may look to stock, keep their nest egg in cash and cash equivalents, fixed deposits, and money market funds – these interest rates are minimal, that many are losing money by saving in banks.
8 Not Rebalancing Your Portfolio
Revenue generation and asset protection are important considerations before investing.
Preservation of capital is a conservative investment strategy where the primary goal is to preserve capital and prevent loss in a portfolio.
The best is to diversify your investment portfolio to reduce risk, earn a good profit, and preserve your capital.
The average investors usually find the stock market too volatile prefer a safer investment portfolio.
They focus on rental property investment and enjoy a good Return On Investment (ROI) with the predictability of returns.
9 Retirement Worries You
Being psychologically ready to retire takes a lot of courage, energy, and mental fortitude.
Several individuals become anxious rather than enthusiastic.
When confronted with the prospect of waking up with nothing to do can be challenging.
If you fall into this group, you could taper off by working part-time.
Or you can sign up as a volunteer for an organization or NGO you care about.
Retirement in a smaller town is a lot cheaper than city living.
Living a quieter life means living more comfortably with lower expenses.
One way you can increase your sources of income is by investing in cash flow rental properties.
10 You Still Love Your Job
No one tells you when you must retire, even when you reach your country’s definition of full retirement age.
At 90 years old, Warren Buffett has no plans to retire yet.
Beyond the financials, a job gives your day’s purpose, engages your mind, and creates a feeling of accomplishment.
One way to measure if you love your job is to check and see if you’re still enthusiastic about waking up and going to work in the morning.
If you are, keep on doing it.
Having a sense of purpose and achievement helps many seniors stay lively and cheerful as they mature.
What you need to build wealth is simply by applying a three “bucket” savings strategy.
How does it work?
To use the bucket strategy, you divide your retirement assets into three categories based on when you will draw down on them.
NOW” bucket for cash, unexpected expense can, emergency fund.
“LATER” pot for short-term goals, financial goal bucket
“LAST” can for retirement.
If you are wondering if you should buy that luxury dream car now – well, determine if you prefer to prioritize long-term retirement goals or short-term goals.
The first pot is for money that you expect to use soon — over the next year or two.
You should not invest this money.
Please keep it in your bank accounts.
Bucket number one: The unplanned-for expense bucket, commonly referred to as emergency support.
Bucket number two. is your financial goal bucket (or perhaps that dream bucket).
Bucket number three: Your retirement bucket.
Not all retirement withdrawal strategies are also created equal.
That makes perfect sense, too, because not every retiree’s goal is the same as everyone else’s.
Some in their 70s; suddenly realize that they don’t have that many years left to go.
So they’re not too worried about outliving their wealth and want to enjoy life to the fullest with the time they have left.
Dynamic withdrawal strategies, such as the 1/N method, are a viable option to fit their needs and goals for those people.
Other retirees retiring at an average age may expect to withdraw from their nest egg for the next 20 or 30 years.
These people may have a bit more concern with outliving their money.
Those who don’t have an egg nest may be relegated to being bare-bones early retirees.
Others who have invested and accumulated their wealth may willingly live below their means.
These seniors want a simple life and may adopt a moderate to conservative withdrawal strategy.
Still, others are retiring incredibly early or wish to leave a lot of money to their heirs or a charity or cause when they pass on.
A conservative approach may cover a strategy called the three buckets of retirement withdrawals for these individuals.
6 FIRE Movement
Many of you would have heard of the FIRE movement (Financial Independence, Retire Early) – a lifestyle movement set to gain financial independence and early retirement.
By early, millennials dream of retiring in the 30s or even early 40s.
For Baby Boomers across the world, this is unheard of and an impossible dream.
Millennials want to achieve this by living a frugal life AND maximize their income with side hustles.
Some live so frugally, so they can use up to 75% of their income for investment.
Among generations, the boomers are most easily identifiable.
The old money identifies with notable philanthropist Warren Buffett.
Many boomers follow the likes of Buffet and thinking nothing of leaving their billions to charity to avoid turning their kids into rich loafers.
One of the most powerful experiences shared by millennials (who have made their mark) is growing up with technology.
Mobile Apps have made it simple and convenient for you to invest in ETFs and other assets, including real estate.
It is just as quick to buy and sell stocks and other assets from your phone, so it can also rack up thousands of shopping online, going on vacations, and gambling online.
With the global effects of the pandemic and lockdown, many in the workforce are not making enough or saving enough to retire earlier than their parents.
The appeal of the FIRE Movement has many people clamoring for its Lifestyle of opting out of the rat race, BUT in reality, are you saving enough to retire comfortably?
Generation X and the Baby Boomers have always expressed savings and being frugal.
Back in the day, when interest rates were double-digit, almost everyone kept all their money in the Bank.
There was no genuine need to look for investments.
Baby Boomers like certainty, and there was no actual need for anything perceived as “high-risk” investments.
In the 70s up to the 80s, the first generation of real estate investors are Singaporeans, Malaysians and Indonesians invested in properties.
If you could afford it, you got a bungalow (a detached house).
The middle class, who are less affluent than business people and professionals, bought semi-detached or a terrace house.
The working class stayed in housing projects.
Most Baby Boomers (now seniors) kept a second or third property as their investment retirement plan.
Most Asians aim to be landlords and collect rentals as their passive income.
Some even invested in multiple properties as a better hedge for their children’s education fund.
Looking back, it was easy to hedge against inflation this way as money saved in the Bank grew by compounding interests.
Fast forward to 2021, are the Millennials better prepared for retirement than Gen Xers?
Even with the mortgage interest rate hovering at 4.99% for Malaysia, the property prices made investing out of the rest for many.
A 30% down payment for a new condo in Kuala Lumpur has the price tag of RM 1,200,000 ~ RM 3,100,000 (USD756,651). The down payment works out to $360,000 for a larger unit.
In Singapore, Robin Residences, a ready-to-occupation condo – 2BR starts from SGD1,790,000 (USD1,349,416); With Freehold tenure, the 710 sq. ft condo costs a whopping $2,521 per sq. ft.
In Jakarta Barat, a tiny 538 sq. ft. apartment costs up to IDR Rp2,200,000,000 (USD 151,588)
In theory, you can save if the saving rates are high enough.
With the prevailing interest rates, how far can your capital grow even with compound interest?
7 Funding Your Retirement with Fixed Deposit
If you haven’t had the time to sort out your retirement in your 30s and 40s by the time you reach 60, you may be in for more significant worries.
Financially savvy people would have invested their retirement funds in stocks, bonds, and shares.
If you’re an employee, you can rely on your CPF or EPF savings.
But seriously, what do you do when it is time to take out your egg nest from your provident funds?
If it is enough to buy another property in your city – can you honestly afford to take another mortgage now that you have retired and don’t have payslips to show the bank?
You can’t even get a new car on hire purchase if you can’t show your source of income.
Buy everything with cash?
You can avoid investment stress by opting for a traditional tried and tested solution – the Fixed Deposit.
Easiest option: Why do you think our parents and grandparents believed in nothing but fixed deposits? It’s because FD is so easy to understand.
All you need to do is put your money in the bank, and you will get a fixed annual interest on the sum.
Keeping your money there is safe, and your elders would have encouraged you to do the same when growing up.
Except there is a marked difference.
Back in the 1980s, FD Rates the highest recorded interest rate was 9.75%
Source: Malaysia Deposit Interest Rate
Fixed Deposit Rates
But if you decide to stash your retirement fund – in Fixed Deposit now, you will see the dwindling numbers?
FD interest rates for senior citizens for long-term deposits (say tenure of five to 10 years) are used to offer better returns.
Yes, of course, Senior Citizen Accounts give a higher rate of interest compared to non-senior-citizen accounts.
The better option is to divide your retirement fund for a smoother ride ahead.
- Senior citizen savings account
- fixed deposits
- investment in rental properties.
Keep some of your funds liquid in your savings accounts for emergencies and hospitalization.
However, why keep your funds idle when you can get a 10 percent higher interest on your funds through investing in Rental Properties in the US?
If you think you can live out your retirement based on your Fixed Deposit Rates, you might want to look at the current bank interest rates – what does the future hold?
Fixed Deposit Interest Rates in 2021
Let’s take a look at the Bank’s offer in terms of security deposits.
We take a ballpark figure of USD50,000 (SGD 66,770) @ five years term for comparison:
If you have USD50,000 in Fixed Deposit – the interest will get you a few Starbucks Brewed Coffee if you live frugally.
Website Source: Singapore (*DBS/POSB), Malaysia (*Maybank), Indonesia (*BNI)
8 Why Is Retirement A Myth?
While Millennials expect to and want to retire early–many people still have to work until they couldn’t anymore.
There is no ideal retirement age per se.
Having a fantasy about retiring early is not the same as being realistic.
It is primarily a triumph of hope over experience with the Bank’s Fixed Deposit Rate at an all-time low.
The Retirement Myth is moving further away with each new generation.
If you look at the properties available in your country, would an RM1.6M condo in Malaysia increase in value twenty years down the road?
The median net worth of 25 to 35-year-olds is worse off today than at any other time.
For the Millennials, their retirement challenge is very different from those in their 40s and 50s.
As the younger set are more invested in technology, sharemarket, cryptocurrencies, they may invest more in “riskier” options.
While some Millennials make it and become millionaires at a very young age, not all will share the same fortunes.
The majority of Millennials may experience a reduction in living standards when they retire.
While the FIRE Movement is ideal, few have the means and discipline to save so much to retire early realistically.
The rest of us need to expect that we’ll be retiring at a later age, not earlier.
Myths of Retirement – Are These Real?
Is Retirement really a Stress-Free Holiday, Every Day?
One of the most common myths of is expenses will shrink after retirement.
Living frugally is difficult due to inflation.
Myth 1: Your expenses will shrink dramatically post-retirement.
For retirees, the first thing they want to do is to travel more often.
Since they now have the luxury of spare time, remember that the more leisure activities you have, the more these will consume your hard-won cash.
Eating out at restaurants, coffee mornings, weekend trips, and treats will see your expenses go up.
Fact: Your expenditures will not plummet after you retire. You will see your monthly expenses go up if you don’t control your spending.
Myth 2: Your Health Insurance will cover post-retirement medical expenses
Most people own an insurance policy, two or even three.
Few know what they bought in their youth.
Or they might be confused about their policy and coverage.
Given the cost of healthcare costs and the fact that medical expenses spike after 60 – the maximum coverage offered by most senior citizens’ medical insurance policies may not be inadequate.
Most people are not sure about how they should go about estimating post-retirement medical expenses.
Even purchasing a quality medical insurance policy will probably not suffice post-retirement.
Given the inflationary trend in healthcare costs and the fact that medical expenses spike after 60, the maximum coverage offered by most senior citizen’s medical insurance policies may prove inadequate.
Myth 3: Your Property holdings will suffice.
Many retirees believe that their “Golden Goose” real estate holdings will suffice post-retirement from a rental income, thus creating an income stream through a reverse mortgage or a sale.
If you have labored for years paying the mortgage for the home you live in, this is not a residue income.
As we enter our golden years, many things become apparent with wisdom gained.
You may think that you can mortgage your real estate assets to generate cash.
You may find that the real estate markets unconducive–you have a property to sell that no one wants to buy or rent.
It is possible that you bought the property at the wrong location, or maybe you held it for such a long time that the area is no longer viable.
Irrespective of your properties’ location, wouldn’t you want to own retirement properties that generate cash for your passive income?
Or bequeath your property to your next of kin.
While this belief may indeed hold some truth for those who own multiple properties, it’s a dangerous thought for the majority who own a property or two throughout their lifetimes – for various reasons.
Having entered your golden years, it may incline you towards liquidating or reverse-mortgaging your real estate assets to generate cash, preferring to bequeath them to your next of kin instead.
Even if you choose to sell or let out your property, you may find that the markets unconducive – and your liquidity could run dry while you embark upon the tedious task of finding a stable tenant or buyer.
Myth 4: You think you can extend your retirement age until you decide to quit
Most companies in the private sector may have a contractual retirement age.
Unless you are a business owner or entrepreneur, you may find yourself out of a job after a lifetime of toil.
You will compete with a younger workforce or find new technology changeling.
Besides, your energy levels and health may take a hit as well.
It is not too wise to depend too much on your ability to work after your retirement daily.
Myth 5: There’s a magic retirement number
In reality, there is no “one size fits all” retirement number that fits everyone.
Your retirement number depends on a combination of several factors–your other income streams such as rent, how well settled your kids are, your travel plans, and your family health history, to name just a few.
You can have arbitrary numbers and rules of thumb; however, all these depend on your
- retirement lifestyle
- dependants (if any)
- life expectancy
To arrive at a robust savings target, you need a good investment vehicle and deployment strategy.
Assuming you have enough money to live comfortably for the rest of your life -what are the Pros and Cons of early retirement?
9 What Are the Pros and Cons of An Early Retirement?
Many of us toy with the idea of leaving our jobs early and doing something that we enjoy for the rest of our lives.
Living your passion doesn’t have to mean making a living with your hobby. It is about creating a new life that makes you excited to get up in the morning.
When you retire early, say in your 40s, you have so much more time to have a second career (if you want to). Some professionals are just happy starting new projects.
Others enjoy the time to serve the communities they live in or travel.
There are 101 things you can do after you retire from your job.
Before you take the plunge, let’s start with some assumptions here before diving into the Pros and Cons of early retirement.
The assumptions include but are not limited to the following.
You have sufficient money, and your finances are in order.
Do you have a game plan of how you will fill time and how to live your days?
You are “good to go,” i.e., there are no downsides.
Early retirement is not about “hanging it up” or being “filthy rich.”
Instead, it is being able to do whatever you please, including working at something completely different.
Pros of An Early Retirement
Top of the list of early retirement benefits could be something simple, like waking up at 10 am instead of 5 am.
Retirement gives you the option of doing whatever you could not do while working.
If you decide to retire at 45, you are relatively young to work a few more years if things do not go your way financially.
Besides, if you get bored, you can start working again.
The best part is you can have lots of time to do all the fun things like any retiree without rushing or running out of time.
Without a clock in, you can spend your time doing whatever you want, whenever you want, and however long you want.
Having long lunches is a major plus point. So is eating whenever you feel hungry and not only during allocated company lunchtime.
You can pick and choose the paid work you want to do (if you wish to).
For many people, the psychological benefits of everything work-related being optional and a chance to exercise your choices and preferences are the cornerstones of a happier life.
In summary, the List of Pros:
• Ample time for family, friends, and relatives.
• Discover your life’s purpose.
• Time to pursue other hobbies.
• More leisure times
• No more commuting or business travel
• Spend less on business clothes
• More time for reading, walking, biking, etc.
• Your ability to travel when you want.
• Pursue endeavors without worrying about working.
• Do anything you want.
Cons of An Early Retirement
Work is not without purpose either–the benefits of structure, social interaction, and routine have great help in keeping your mind active, alert, and sharp.
So, stopping work altogether may not always the best thing.
It may be hard to re-enter technology and professional industries if you drop out of the workforce or retire early.
The Cons of An Early Retirement is substantial.
Remember, whatever benefit you might get from your job is no longer applicable if you retire early.
Many people cannot save enough money to live a comfortable retirement unless they have a post-retirement fixed income.
Those who retire with a pension plan, retiring at an older age, say 65, meaning they have accumulated more for their golden years.
All of us need a source of income to sustain a particular lifestyle.
Some may find dropping out of the rat race too early counterintuitive–your professional growth will slow down and dwindle.
You may lose your contacts and network without some form of “employment.”
Exiting from memberships at the country club and choosing to live on basics will affect your spouse and family.
Without a source of income to sustain yourself, do most of the stuff yourself to save money.
For those who use their investments as their retirement fund, the projected returns can sometimes be unreliable.
Some people prefer a form of “semi-retirement” to test the water.
Things like working part-time or having reduced work hours or workdays are the first step you can take.
Unless you are pretty well off and have a nest egg build up over time, there will always be uncertainty and worry whether the money will run out.
The more years you spend in retirement – the more opportunity for rare events like the Covid-19 pandemic to happen that might affect you.
However, many people are scared to find out that when they no possibility of working again.
If you need money and old spent 35 years working at very high-paying jobs, lived frugally, and invested your income consistently–you stand a better chance at living a comfortable retirement life.
In summary, the List of Cons:
• No set routine.
• Spend the time drinking coffee.
• Catch up on reading.
• Learn to say no to people who use your time for free.
• Learn to be a handyperson to save money.
• Live on basics.
• Planning three meals a day.
• Learning to prepare and cook food.
• Socially isolating.
• Employed people may not identify with your experience.
• Not contributing to society.
• Without enough savings or investments – retirement options are limited.
• Health insurance costs go up once your company insurance stops.
You may not have an option to return to the job market.
You can think about early retirement if you have skills beyond your profession and a stable, passive income.
Retirement is a scary situation if we do not prepare one with a good plan. It is essential is to have a good secured passive income.
Too many people assume their health will hold up, and they can go on working indefinitely.
If you can, retire early while you can enjoy it.
10 How Can You Optimize Your Residual Income Using Retirement Rental Properties in the US?
Before we look at investing in retirement rental properties in the US, let’s discuss residual income.
Many of us have had this thought before.
Create several (multi) streams of passive income and live off the revenue generated.
Have many businesses running like a farmer with crop fields and a bountiful harvest if all goes well.
Sounds too good to be true.
In the case of the farmer, the multiple corps require working in the fields.
The residual income streams that work all the time, in this case, happens when you are sleeping.
Even for a regular Joe, you can create residual income.
There are countless ways to earn a residual income for life.
It requires that you do work and put in an investment upfront before you reap the benefits.
What is residual income?
Residual income is income that one continues to receive after completing the income-producing work and, in this case, an investment property in the US.
As an investment, real estate has always been high up on the investment list of many who follow in the footsteps of Rich Dad Poor Dad’s author, Robert Kiyosaki.
Kiyosaki, a former Marine Corps, and a Vietnam Veteran bought his first real estate property in 1973 when he was stationed in Hawaii.
Almost 50 years later, he owns residential and commercial hotel properties, more than 7,000 properties that bring in Cash Flow.
What is a Cash Flow Property?
A Cash Flow Property is rental real estate that generates a higher level of cash returns than comparable property and usually has a lower level of appreciation.
Now you are thinking since real estate is one of the longest-standing, proven investments – How do you begin your real estate investing empire?
Here are some ways you can build Smart Residual Income Using Retirement Rental Properties in the US.
Purchase A Rental Property
You probably heard of your grandmother or elders telling you to invest in rental units in Singapore and Malaysia.
Singaporeans and Malaysians plan to fund their retirement with rental income.
If you have bought your property early and have these fully paid, the monthly rental can provide a Rental Cash Flow.
The only drawback that people face when they want to buy investment property is the lack of money.
While it may take a lot of money to buy a rental property in Asia, real estate investment is slightly different in the US.
In comparison, entering the property market in America is more affordable than buying a condominium in Singapore.
For the cost of a down payment for a condo in these cities, Singapore, Kuala Lumpur, and Penang, you will be able to purchase fully paid-off single-family homes in the US.
How Many Rental Properties Do You Require to Retire?
The Rental Properties you need are based on your Financial Freedom Number.
Would you foresee all your residual income to be from one source or various sources?
Or are there new sources of earning as well?
The number of investment rental homes depends on the Positive Cash Flow you can generate compared to the number of homes you own.
Positive Cash Flow is key to a reasonable rate of return on an investment property.
Depending upon your present and forecast future revenues, you need to consider the following;
For illustration purposes, say, if the houses in your real estate market cost $100,000.
And if you aim to own them free and clear, you’ll need ten rental properties to generate the Positive Cash Flow for your monthly expenses.
$100,000 x 10 units = $1,000,000
But if you plan to have 50% leverage with the properties costing $100,000, you can own 20 rentals with the same capital outlay.
However, you will need to pay the mortgage for all your twenty properties.
$50,000 x 20 units = $1,000,000
If you can purchase these properties at a price with a substantial discount to the market rate – you will need less capital to get the same Positive Cash Flow.
Would you be interested to know how this can work out for you?
How do you start investing in real estate in the US?
You will want an investment that keeps pace with inflation.
With the possibility of a positive Monthly Cash Flow, investing in real estate in the US is like having another “Golden Goose.”
We have the simulation figures to show how you can effectively increase or double your $10,000 to $20,000 with four property Flips.
Each property Flip takes nine months to 15 months.
If you don’t have the time, interest, discipline, and expertise, it’s more prudent to work with a professional firm Noble Sky International for co-investment in auction properties.
You will be able to leverage NSI’s expert’s research analysis or opinion on investing in US properties.
Is there a downside to investing in Rental Properties in the US?
If everyone can make Cash Flow with no effort or time invested, we would all be doing the same.
The truth is, Noble Sky International does this full-time, 24/7, with our teams in Singapore and the United States.
It took Rauf Said, NSI’s chief strategist, six years of hands-on on-field first-hand experience to figure out the best strategies and property markets where you can make money.
Going in on your own, you also must have a large amount of money to invest in in most cases.
With Noble Sky, all these handles by our US Team and are done for you.
As Project Managers, you will be assured that your rental properties are a mostly passive investment with little work needed from you.
- Property Manager
- Property Management
- Property Repairs
- Shortlisting of Tenants
- Background Checks
- Collection of Rental on Time
- Property Maintenance
- Eviction of Tenants
Unless you are buying higher-priced rental properties, you would need at least $30,000 as an emergency fund – for that repairs to the property or tenant eviction costs.
As it takes time to manage your properties on your own, getting the services of a Project Manager is a boon.
Whether you have one single-family rental property or a few properties, it takes time to find good tenants and manage the property.
When you see this as a business, it is only a matter of time that you will want to scale up and grow your portfolio of excellent rental properties that cash flow after you learn the business.
How to Get Started to Earn Residual Income Using Retirement Rental Properties in the US?
If you like the idea of buying Cash Flow Single Family Homes without a mortgage, you can do this with US real estate.
Remember, Robert Kiyosaki owns 7000 rental properties.
He said, “everyone can do the same thing I do, cause the (US) Tax Laws are for everyone.”
There is no limit to the number of properties you can own as these are assets and not inventory.
If you’re looking to get started in real estate, join Noble Sky International’s online webinar, which we conduct every week.
We offer education on how a foreigner (non-US citizen) can legally set up a business to acquire investment properties in the US at a fraction of the cost in Asia.
Since 2014, Noble Sky has helped over 300 investors to acquire properties below market value and make real estate investing affordable and achievable.
It works like this; Noble Sky offers potential investors an investment strategy under SkyConcierge that works for you to join others in our community of investors to jointly fund a property.
You can commit as little as $10,000 towards the property to enjoy income from rentals.
When the property is fully funded, you become a shareholder owner and receive your share of the property’s earnings and future capital appreciation.
In the United States, you will invest with a limited liability company (LLC).
An LLC is a business structure whereby the owners are not personally liable for the company’s debts or liabilities.
Apart from the Rental Cash Flow, you will also be able to enjoy the Tax Benefit.
The Bottom Line
Building a passive income required an upfront monetary investment.
To make a significant amount of money, you need to either put a large amount of money into an interest-producing investment property or sacrifice your time and work hard to build a business.
Even in today’s environment, it is still possible to build up several streams of income.
However, be prepared to sacrifice the initial blood, sweat, and tears.
While retirement is a significant life transition that requires ample preparation, the sooner you start planning, the more you will face the future and the unknowns.
Sit down and go through your retirement question, rebalance your portfolio, and, if needed, create a plan to pay down debt and reevaluate your expenses.
Depending on your health, portfolio composition, and risk tolerance, you’ll need to develop a plan for investment for the percentage of your assets you’ll spend each year – this means getting help from Noble Sky International.
As for the emotional aspects of retirement, everyone working or holding down a job must face the same decision.
Ultimately, the decision is up to you.
Cover Photo by Karolina Grabowska from Pexels