Planning for retirement

Business Money
1

Hi, I am new on forumosa, let me introduce myself.

I’ve been living in Taiwan for 5 years now. I am a teacher and work for a high school in Central Taiwan. I make around 900000 a year. I am 35 years old and I need to start planning for retirement. I’ve never really thought about it before. I have no saving. All my money went into well… living and the house. I’ve just finished paying it. No debts :laughing: I have 3 kids.

The problem is I don’ t know what to do. I plan on saving about 15% of my income toward retirement. Is that enough? What should I do with it? Is there any kind of government supported retirement program or should I invest in some mutual fund or else? Should I turn to my bank (HSBC) or find a mutual fund on my own?

Any sound advice would very welcome.

Thanks

2

I would have thought that you need to go the other way. Work out when you want to retire, how much you reckon you’ll need, and get a percentage from that. Maybe assuming that compound interest will counteract inflation (a cautious way of doing it).

15% will be 135k a year, so 4million once you hit 65. Doesn’t sound like enough to me, unless you manage to get some very high returns.

Look up Guy in Taiwan’s posts. He’s disappeared from the site, but he knew his personal finances inside out. He’s probably already retired :slight_smile:

3

I’ll check him out thanks.

By the way, I am hoping my income will increase over time…

4

Me too. But I use the word pray :laughing:

5

You are in a much better position than many, many teachers in Taiwan. Firstly, you’ve paid off your house loan so no rent. Secondly, you are actually thinking about the future.

6

Thanks man, I’m trying.

I’ ve read that guyintaiwan recommend to save at least 20,000,000 before retirement… Hummm that’s gonna be tough. I need to factor the kids education and the trips back home.

300,000 a year @ 7% would yield around 15,000,000 in 20 years. 7% is a good rate and this is before tax and inflation. You’re right. I need to save a lot more.

7

As a benchmark you need about 12 times your annual salary available for retirement funding.
This would be about 10.8 million for you.

8

Thanks for the tip. I am reading forumosa.com/taiwan/viewtopi … 0&start=50. Lots of interesting stuff.

9

That would only be US $360,000. That may be all right if a person had a full pension, but otherwise that amount of money wouldn’t last long (especially taking inflation into account).

10

Sure, but it needs to be invested into an annuity or similar on retirement. It cannot simply sit in a bank earning nothing. It’s for retirement funding on retirement.

11

Honestly, I don’ t know yet the amount that I should save for retirement. 10, 15 or 20 millions NTD. Now I think it is not the most important thing. Obviously the larger, the better.

Which bring us to the heart of the problem. How to invest the amount I save every month? Annuity? It seems very rigid and the interests are low. Mutual fund(s)? Anything else?

I am not the kind of person who enjoys watching the stock market or like to move around money every other day. I would like something rather secure and easy to manage. But I don’ t know if I can trust the local bank for sound advice. Most of the time when I had to trust a professional (mechanic, builder, music shop to get my guitar repaired, and the list goes on and on) I was less than pleased with results. So I am kind of worry when it comes to something as important as money.

12

I am a fan of the “Bogleheads” here in the US, named after John Bogle of Vanguard. The investing style is simple - pick low-cost index funds that encompass the entire market and stay the course. Your options in Taiwan are a bit different but should not hold you back at all. I would recommend getting in touch with the local Bogleheads chapter in Taiwan. Kelvin’s contact info is in the discussion link below:

bogleheads.org/forum/viewtop … 9&t=105598

13

Thanks I look into it.

14

Sometimes talking about incomes and retirement is a touchy subject and people can get a little offended so I want to say right off the bat, I really don’t mean any offense and what I offer is just my own thoughts.

In order to retire in basic comfort you’re going to have to save about 1000 USD a month and earn 7% returns on your investments for the next 30 years straight. So you are facing 2 problems:

  1. On your salary, it’s not realistic for you to tuck away 30,000 NT a month for the next 30 years. With 3 kids as you mentioned and a monthly salary of 75,000 NT, you’d be doing well to save just 20,000 and even that would be a stretch. Also, you shouldn’t count on your salary increasing very much over time, since you are in an industry where that often isn’t the case. Yes you can expect small increases over time, but in Taiwan English teachers reach peak income pretty early and it stays relatively consistent from there on out unless you’re adding in private tutoring or a second job, so it’s safe to only count on a small bump in monthly salary. Unless of course you switch industries which is an unforeseen event.

You didn’t mention your spouses salary, does that imply she is a stay at home mom? If that is the case, she’s going to have to get back to work as soon as possible because the truth is your salary just isn’t nearly enough. It’s no offense to you or your industry, it’s just the math.

  1. You’re going to have a very difficult time earning 7% returns for the next 30 years straight. Financial advisors either connected to banks or on their own don’t see those kind of returns anymore despite what you may have seen or heard. The financial industries returns are decreasing with each passing year, and are very close to zero 0% returns these days when you deduct fees.

There are funds out there run by people not connected to the financial industry who do see exellent returns year after year and I can give you a few names, but the problem is you don’t have any upfront capital so it won’t be worth their time to take you on as a client. I run my own very successful fund but again same problem, you don’t have any upfront capital and I do require a certain minimum to take on new clients.

Now you said you own your home, does that mean outright? If that’s the case, that means your net worth is 100% in Taiwanese real estate. Without even talking about the potential problems of the Taiwanese housing market ( of which there are some ) do you think it’s ever wise to have 100% of a persons net worth tied up in anything? With interest rates as low as they are, I wonder why you wouldn’t prefer to have a 30 year mortgage, and use a lump sum of money to get a head start on the investment side of your portfolio?

Certainly it would be safer and you’d see much higher terminal returns if you were to divide your holdings around 50% in your home and take equity out on the other 50% to put to work in the markets. That can be a TREMENDOUSLY scary concept for a lot of people, so I’ll just let that one simmer for a little while with you :astonished:

Overall, you’re not alone. Planning for retirement is a daunting task anywhere, but in Taiwan it is exponentially worse because we can’t count on government pensions or senior citizen benefits later on. My parents being Canadian will be receiving about 4000$ a month forever when they retire. It’s far easier to plan for retirement when you can count on nearly 50,000$ a year in pensions. I’m going to be completely alone to do this myself, as are the rest of us who plan on living in Taiwan for the foreseeable future.

Fortunately you’re very young and already thinking about this, which puts you way ahead of the curve :slight_smile:

15

I second ShaoPang’s comments above re: Vanguard. Admittedly, it could be viewed as “the slow lane” by some but it has worked for me and mine. Sounds like you have a few thing working in your favor already (1) you recognize the need to save, (2) you house is paid off - if that is a reflection of your overall approach to debt - GOOD! (3) time is still in your favor - it is amazing how much a seemingly small monthly savings can build to if given sufficient time. Whatever amount you can salt away now will pay dividends (literally and figuratively) in the future.

Defintely look into geting some professional advice but don’t feel you must follow it blindly (and be wary of those who have a vested interest in the product the are pushing - plenty of those around). Give some serious thought to your risk tolerance. That will be the key to whatever investment strategy you take. Some people are comfortable with and able to take fairly signiifcant risks with their investments. Others are either not comfortable or not able to take such risks. Your risk tolerance is YOUR RISK TOLERANCE. Don’t let anyone bully, intimidate or fast talk you into something that you do not FULLY understand. Think about how you would have (or did) react to the collaspe of 2008-2009. That is probably as good an indicator of risk tolerance as anything. Last, as with many things…balance, balance, balance.

Best of luck to you.

16

Thanks guys, I really appreciate your advice.

1- we fully own our house. I had a little bit of money from a previous life and we got a nice wedding gift. We paid the house in little less than 5 years.

  1. Our youngest is still a toddler, my wife is taking care of him. She will be on the job market next year.

  2. I understand from your comments that income is the key. Hum, I need to find ways to make more money… We live on about 30000 a month.

  3. I think of owning our home as a kind of insurance. I won’t move on that. Amazing feeling by the way.

17

A lof of people feel the same way you do and that’s totally fine. It’s called personal finances for a reason :slight_smile: I’m sure you and your wife have many reasons why you feel more comfortable owning that home outright. You should be aware though that people in your income bracket ( again no offense at all ) can’t afford to make more than one or two retirement planning mistakes. Owing your home outright at age 35 with rates as low as they are, and given the fact that Taiwan’s housing market is just about as bubbly as a housing market can ever get, that may end up being an investing mistake in the grand scheme of things. That doesn’t mean you won’t achieve your goals because you certainly still can, after all you’re young. But if keeping the house in it’s entirety is the plan then you’re going to have to make up for it with a few great investment decisions along the way.

I’d say rate of return over the long haul is really the most important part of retirement planning. To give you an example:

  • Person A saves 1000 USD a month for 30 years and earns a 7% return. They retire with 832,000 USD. Remember that’s pre inflation so it’s not nearly as much money 30 years from now as it sounds now.

  • Person B saves 1000 USD a month for 30 years and earns a 10% return. They retire with 1.25 million. Again inflation adjusted it won’t be anywhere close to a million.

Just for reference:

  • Person C starts with 100,000 USD and saves 1000 USD a month and earns a 7% return. They retire with 1.3 million

Having a 100k head start makes quite a difference in the grand scheme of things, which is why I said it may be worthwhile to get on the investment path with some of that house equity.

But neither here nor there, you and your wife have decided to keep the home and start investing from scratch. It’s your savings and then the rate of return over time that will determine whether you achieve your goals.

18

Thanks, I understand your point. It’s just that it is our home. I won’t let it go on some investment plan. There is an emotional investment in that kind of thing.

Still thanks to make me realize that we are not making enough.

19

Hello Mocfilm

I’m wondering how things have gone for you these last 11 years. What did you eventually decide to do? I’m hoping everything turned out well

20

If you’re British, start paying national insurance. I pay £12 pcm only. Then you’ll get retirement money when your an old codger