Is A SGD 1 Million Dividend Portfolio Enough For Me To Retire?
One of the questions I see many financial bloggers and "fin-fluencers" talk about frequently on social media is "How much money is enough to retire"? Some people swear by the 4% rule, which is a good gauge for a start, or even 3% rule for more conservative investors. Others say you need SGD 2 million or even SGD 3 million before you can sleep peacefully at night.
As for me, I have never been fixated on a particular net worth. My goal has always been much simpler. Build a portfolio that generates enough reliable dividend income to fund my everyday life (anything that generates an annual dividend that is 1.2 to 1.5 times annual expenses is a great safety net according to my previous writeup.) If my portfolio eventually reaches SGD 1 million, then perhaps that becomes my finish line, not because SGD 1 million is a magical number, but because I believe it represents a portfolio that is resilient enough to weather life's inevitable financial storms.
As I look towards my planned retirement in 2030 where I would be in my mid-forties, I often ask myself if I stopped working tomorrow, would this portfolio still be able to look after me for the next forty or fifty years? That, to me, is a far more meaningful question than simply asking whether I have become a millionaire.
My Retirement Assumptions
For this thought experiment, I will use the following assumptions.
Equity portfolio: SGD 1,000,000
Sustainable dividend yield: 4.25%
Expected annual dividend income: SGD 42,500
Expected annual living expenses: SGD 36,000 (SGD 3,000 per month)
Initial annual surplus: SGD 6,500
Cash reserve: SGD 10,000 to 15,000
One fully paid home in Johor Bahru for own stay after selling my Singapore property and Malaysian investment property
CPF savings transferred into Malaysia's EPF (subject to the prevailing regulations), reserved solely for healthcare
One important point. I deliberately exclude my future EPF balance from my retirement income. Mentally, I treat that money as untouchable as a conservative measure. Its only purpose is healthcare. If I never need to touch it, fantastic. If one day I require expensive medical treatment, another layer of protection is already waiting. That means my dividend portfolio alone must be capable of funding my retirement lifestyle.
Starting Retirement With A Margin Of Safety
Assuming my portfolio generates around SGD 42,500 annually while my living expenses remain around SGD 36,000, I begin retirement with an annual surplus of SGD 6,500. This means my portfolio generates almost 18% more income than I actually require. I am not retiring right at the edge. There is already breathing room built into the plan, and it is close to the 1.2 times annual expenses I have planned initially.
One Advantage That Most Retirement Calculators Ignore
Most retirement models assume retirees spend whatever income the portfolio generates during the same year. I intend to manage things differently. I plan to spend the dividends collected during the previous calendar year.
For example:
Dividends received throughout 2030 become my spending budget for 2031.
Dividends received throughout 2031 become my spending budget for 2032.
This, to me, is very important. Suppose markets collapse in early 2031 and share prices plunge. Companies announce dividend cuts. My spending throughout 2031 is largely unaffected because I am still living on the dividends collected during 2030. Only when planning my 2032 budget do I adjust according to the dividends actually received in 2031. That one-year delay gives me something priceless.
Time.
Time to reduce discretionary spending. Time to postpone holidays. Time to allow businesses to recover. Time to avoid making emotional decisions during market panic.
A Small Cash Buffer Can Go A Long Way
Besides dividend income, I also intend to maintain around SGD 10,000 to 15,000 in liquid cash. This is not designed to fund years of retirement. Instead, it serves as a bridge whenever dividend income is temporarily reduced. Sometimes the greatest value of cash is psychological. Knowing I have cash available means I never need to panic or sell quality businesses simply because markets are having a bad year.
My Retirement Portfolio Is Designed To Heal Itself
One aspect of my retirement plan that gives me great confidence is that it is designed to recover from setbacks. Some years will inevitably be difficult. Other years will be much better.
If a recession temporarily reduces my dividend income, I may need to draw a few thousand dollars from my cash reserve. That is exactly what the cash buffer is there for. But when the economy recovers and dividends begin growing again, I do not intend to spend every extra dollar. Instead, I have two priorities.
First, if my cash reserve has fallen below its target of SGD 10,000 to 15,000, surplus dividends will first be used to rebuild that buffer. Only after the cash reserve has been fully restored will I begin reinvesting the remaining surplus back into my dividend portfolio. Every dollar reinvested today has the potential to generate more dividends tomorrow. Those additional dividends create even larger future surpluses.
In other words, good years repair the damage caused by bad years.
Rather than gradually consuming my portfolio throughout retirement, I hope to create a retirement system capable of rebuilding and strengthening itself over time.
What Happens If Markets Crash 35%?
Now comes the real test. Suppose I retire in 2030 and within months, global markets crash by 35%. My portfolio value falls from SGD 1,000,000 to SGD 650,000. Seeing SGD 350,000 disappear on paper would undoubtedly be painful. But I do not think my retirement plan would fail because of this hit. Portfolio value and dividend income are not the same thing.
Even during severe recessions, quality businesses usually continue paying dividends, although reductions are certainly possible. Let us assume dividend income falls by 25%. Annual dividends become SGD 31,900 while annual expenses remains at SGD 36,000. The annual shortfall reaches SGD 4,100. That shortfall could easily be covered by my planned SGD 10,000 to 15,000 cash reserve. Even if this difficult environment lasted three consecutive years, my cumulative shortfall would be approximately SGD 12,300, which is almost exactly what my cash reserve is intended to absorb.
Even if the dividend income falls by 35% to SGD 27,625 and the annual shortfall reaches SGD 8,375, I would still have at least two years to make up the shortfall because remember that the lower dividends received this year will only be used for expenses in the following year, and this short fall can be covered by the cash reserves. The impact of deficit will only come two years later.
Meanwhile, I still have other options. I can reduce overseas travel, delay discretionary purchases, resume tutoring two to three students each week, or simply wait for businesses to recover. The important point is I would be adjusting my lifestyle, and there is time for me to do that. I would not be liquidating my future.
Inflation Is Probably The Bigger Threat
Ironically, I believe inflation is a much greater long-term threat than market crashes.
Assuming inflation averages between 2.5% and 3.5% annually, today's SGD 36,000 lifestyle gradually becomes much more expensive.
Years Into Retirement Expenses @ 2.5% Expenses @ 3.0% Expenses @ 3.5%
Today SGD 36,000 SGD 36,000 SGD 36,000
10 Years SGD 46,000 SGD 48,000 SGD 50,000
20 Years SGD 59,000 SGD 65,000 SGD 72,000
30 Years SGD 75,000 SGD 87,000 SGD 101,000
This is precisely why I am not simply chasing high dividend yields. I want to own businesses capable of growing their dividends over decades. If dividend growth broadly matches inflation, purchasing power remains largely intact.
Stress Testing Three Possible Futures
Best Case
Assumptions:
Dividend growth: 4.5% annually
Inflation: 2.5% annually
Markets experience only normal corrections
After ten years:
Annual dividends: Approximately SGD 65,900
Annual expenses: Approximately SGD 46,100
Annual surplus: Around SGD 19,800
In this scenario, every year becomes easier than the previous one. Surplus dividends can be reinvested, creating even larger future dividends. The portfolio becomes increasingly resilient.
Base Case
Assumptions:
Dividend growth: 3% annually
Inflation: 3% annually
One or two bear markets
Temporary dividend reduction of around 10%
After ten years:
Annual dividends: Approximately SGD 57,100
Annual expenses: Approximately SGD 48,400
Annual surplus: Around SGD 8,700
Even during a recession where dividends temporarily fall by 10%:
Annual dividends become: Around SGD 51,400
Annual surplus: Approximately SGD 3,000
The cash reserve may occasionally be used, but would likely be replenished once normal dividend growth resumes. Overall, retirement remains comfortable.
Worst Case
Assumptions:
Market falls 35% immediately after retirement
Dividend income falls 25%
Inflation averages 3.5%
Recovery takes several years
Initially:
Portfolio value: SGD 650,000
Annual dividends: SGD 31,900
Annual expenses: SGD 36,000
Annual deficit: SGD 4,100
If conditions remain unchanged for three years:
Total cumulative deficit: Approximately SGD 12,300
This would almost entirely consume my cash reserve. At that point I still have multiple options as discussed above, namely reduce discretionary spending, postpone overseas holidays, supplement income by teaching tuition, all while waiting for dividends to recover. Importantly, even in this severe scenario, dividends would still fund almost 89% of my annual living expenses. The portfolio would still be doing the heavy lifting. Even if all else fails, I would still have my EPF as the final buffer to fall back on.
My Layers Of Protection
Looking back, I realise my retirement plan no longer depends on one assumption. Instead, it consists of multiple independent layers of defence.
Dividend income exceeds living expenses.
Spending is based on the previous year's dividends.
A SGD 10,000 to 15,000 cash reserve cushions temporary dividend cuts.
Good years replenish the cash reserve before surplus dividends are reinvested.
Reinvested surplus increases future dividend income.
Healthcare funding is separated through EPF.
I own my retirement home outright.
My portfolio is diversified across banks, industrial companies, telecommunications and several types of REITs.
At mid-forties, I still possess employable tutoring skills should extraordinary circumstances require supplementary income.
No single layer is perfect, however, together, they create a retirement plan that is resilient.
So, is SGD 1 Million enough? Nobody can predict the future. Markets will crash. Dividends will occasionally be cut. Inflation will quietly erode purchasing power. Unexpected events will always happen. The objective of retirement planning is therefore not to eliminate uncertainty. It is to build enough resilience that uncertainty becomes manageable. After putting my own assumptions through these stress tests, I have become increasingly comfortable with the conclusion.
A SGD 1 million dividend portfolio generating approximately SGD 42,500 annually, together with annual living expenses of around SGD 36,000, a fully paid home, a dedicated healthcare reserve, a cash buffer, a diversified portfolio, and a disciplined plan to rebuild and reinvest surplus dividends, gives me a high degree of confidence that I can retire around 2030.
My retirement years will certainly not be luxurious. There be definitely be years when markets test my conviction. But I am not seeking luxury, I am seeking freedom. Freedom from depending on a monthly salary. Freedom to spend more time with my mum. Freedom to travel at my own pace. Freedom to enjoy a simple life without worrying whether the next bear market will force me back into full-time work.
Perhaps that is what financial independence has always meant. Not building a portfolio that avoids every storm, but building one strong enough to sail through most of them, and strong enough to repair itself when the skies eventually clear. Barista FIRE, here I come...!
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