Avoid Being Asset-Rich But Cash-Poor Upon Retirement

This is a reflective post following my previous post on whether to liquidate my portfolio to pay down my mortgage loan.  As per my conclusion in the previous post, I decided not to go ahead with that move.  One of the main reason is because it will lead to over-concentration of my overall portfolio into one single asset class- property.  If a large part of my asset is parked in brick-and-mortar property, it may cause me to end up being asset rich (after I fully paid up my mortgage) and cash poor.  I think this may a scenario that is important for me to avoid if I want to remain flexible in my financial decisions moving forward, as having some degree of liquidity is crucial for all investors.  This is especially the case if one is retired without any form of active income.

To avoid becoming asset-rich but cash-poor in retirement years, one can take the following steps to ensure a balanced financial situation. 

1)     Diversify Your Investments

a)     Balance Between Liquid and Illiquid Assets: While real estate and other long-term investments (stocks, bonds, etc.) are valuable, make sure you also hold enough liquid assets like cash, fixed deposits, and short-term investments such as money-market funds.

b)     Regularly Review Asset Allocation: Adjust your portfolio over time to reflect your risk tolerance as you age.  Shift toward safer, income-generating assets like blue-chip dividend stocks (such as the Singapore banks) or bonds as retirement nears.

2)     Create a Retirement Income Plan

a)     CPF LIFE: Maximize contributions to Central Provident Fund's (CPF) LIFE (according to individual's needs and circumstances), which provides a lifelong monthly payout during retirement.  If one has no other sources of income, it may be prudent for one to try to attain Enhanced Retirement Sum (ERS) in their Retirement Account (RA) to maximize the guaranteed retirement payout that one can receive during retirement.  Personally, I would probably work towards Full Retirement Sum (FRS) to ensure a basic guaranteed payout for myself at 65 years old.

b)     Set Up Multiple Income Streams: Besides CPF Life schemes, consider dividend-paying stocks, rental income, annuities, or other passive income sources that provide steady cash flow.

3)     Control Real Estate Exposure

a)     Avoid Over-investing in Property: While property in Singapore (or other Asia countries) is a common way to build wealth, but too much focus on it can leave one cash-poor.  It may be prudent to ensure that one do not lock most of their net worth in real estate.

b)     Downsize or Monetize Your Home: Consider right-sizing or using schemes like the Housing Development Board's (HDB) Lease Buyback Scheme (for individuals/retirees living in HDB flats) to monetize part of your property for cash while still having a place to live.  For individuals living in private properties, downsize or geographical arbitrage may be the way to go.  For myself, I will move back to Johor to reside, while renting out my unit in Singapore to generate cash-flow through rental.  This may not be feasible for everyone, because I am a Malaysian (Singapore Permanent Residence), so I will not face any issues with visa or any long-term pass.

4)     Maintain an Emergency Fund

Liquidity Cushion: Ensure that an emergency fund of at least 6 to 12 months of living expenses is maintained in a high-interest savings account, so that any premature or forced sale of long-term assets in times of emergency need not be carried out.

5)     Consider a Spending Plan

Live Within Your Means: Create a budget that balances expenses with retirement income streams.  Avoid spending too much on luxury or depreciating items that will drain your cash reserves.  However, buying experiences may be one part where one should not shun away from, especially if these expenses create priceless memories for you and your loved ones.  Most importantly, ensure that these experiences will not cause any distress to one's financial circumstances.

6)     Regularly Review Retirement Needs

a)     Track Your Expenses: Monitor spending, especially in retirement, and ensure that the lifestyle aligns with projected cash flow.

b)     Plan for Health Costs: Factor in rising healthcare expenses, and consider Medisave or private health insurance coverage to avoid depleting cash reserves unexpectedly.  This is especially important as just last month, it was announced that MediShield Life premiums will increase starting from April 2025 by as much as 35% over the next 3 years till March 2028, to increase claim limits to better protect citizens and residents against large medical bills and expanded coverage to help patients afford new types of care and treatment.  In addition, this sum may be the most crucial in retirement years because as we age, we will never know when this bill will arrive.  What we can only do, is to try our best to stay active and healthy for as long as we can. 

7)     Consider Part-Time Work or Consulting

Post-Retirement Income: If possible, consider part-time work or even consulting (if one retires from a technical post, your experience may be of high value and a consulting role may be a good option, if available) to supplement your cash flow in retirement, keeping you financially flexible.  For myself, part-time work or a less tutoring classes per week will be something I plan to execute upon starting my Barista FIRE path moving forward.   

So that's all folks.  Hope that your retirement years remain as colourful and as active as before, but most importantly, remember to ensure that there is always sufficient liquidity on hand that you can always tap on if ever any emergencies arises.  I would like to end off this post with this video.  Taiwan has many financial programs and YouTubers that discusses the topic on retirement.  Hopefully this video can sum up what I have listed with more clarity!  Barista FIRE, here I come...!