Retirement Series: Delayed Gratification

As part of the continuation of the Retirement Series discussion, saving money is the first step in retirement planning. However, many of us faces difficulties in saving up. It is human nature that we want something better to indulge in life (most of the time better items, nicer things will cost more). After all, we will always 'justify' by saying that it's time to reward ourselves after a hard day at work or you will never know how long you will live. The 2 facts are very true indeed but we will need to find a balance between spending and saving. 

In this article, we will discuss what is 'Delayed Gratification' and how having this mindset can help you in your retirement planning and savings journey.

What is Delayed Gratification

Delayed gratification is the act of resisting an impulse to take an immediately available reward in the hope of obtaining a more-valued reward in the future.

How to Integrate the Concept of Delayed Gratification in our daily life?

1. Differentiate between a need and a want clearly

It is imperative that we as human ask ourselves regularly on what is needed in our daily life. In many cases, 'want' can quickly turn into 'need' if we are not careful. This is called 'lifestyle upgrades'. For example, what we need in a day's life is a balance diet. However, some will says that I 'need' a good environment for my meals, good quality ingredients like organically grown food items. Worse still, having Nescafe or normal americano is no longer a choice as Starbucks, Coffee Beans, Illy coffee is the bare minimum requirement for some. This will definitely escalate costs and reduce your savings. Remember: It's not how much you earn but how much you save

2. When you have achieved a goal, set a later date to receive the rewards

When you have achieved a goal, say a sales target, a fantastic achievement in your life or even career, plan for the rewards slightly later or combine

3. Have a smaller budget for the rewards

Instead of spending on a Tumi bag or a branded watch when you get a promotion or dine at a fancy restaurant, it could be a short weekend getaway, a road trip or treating yourself for a nice but budget meals at a local restaurant. Setting a smaller budget will definitely help you to save up for retirement and rainy days.

4. Go for rewards which costs no money
Although most of the good things in life costs more money, there are also numerous things in life that we can enjoy without costing money. For example, going for a hike, a picnic, cycling with some good buddies all doesn't costs you much but it's equally enjoyable. Those outdoor activities and sweat will also help your body to release 'endorphins' hormones which will make you feel happy.

5. Get yourself occupied with either reading, exercising or any hobbies which would have cost very little but bring a lot of fulfilment and contentment. 
There is actually a myth saying that when you retire, you spend less money. It sounded very logical and true but the truth is when your mind is not occupied, you will want to do something. The need of your body and mind to do something will probably end up costing you money. So what this has got to do with Delayed Gratification? Being busy with work, activities simply means that your mind is occupied. When your mind is occupied, you wouldn't think of indulging yourself, enjoying yourself and that definitely helps in the case of Delayed Gratification. 

Conclusion

Delayed gratification is one of the hardest thing to do for most people, especially those who grew up with a silver or golden spoon. Initially, you will feel uncomfortable, uneasy and question yourself if the 'pain' worthwhile. However, over time, it'll develop into a habit and you will start to enjoy simple things in life. Do keep in mind that fresh air, clean water, greeneries which all our ancestors enjoyed don't cost them any money isn't it? My view is that if we can spend more time with mother nature and keep our body and mind occupied, our life will be contented and will not keep yearning for material things which brings short term joy only. I for one no longer enjoy much of material things so I keep my lifestyle simple and look for more meaning in the small little things in our day-to-day life.

Stocks: The Market Cycle Clock

In any investments, there is always ups and downs. In fact, due to the correlation of economies, various commodities, demands etc and most importantly is human psychology, the market cycle clock sort of repeats itself over time.

We have seen a bust of the stock markets throughout the world due to the "black swan" event of Coronavirus causing major health crisis. The response to the health crisis inadvertently caused a very major economy slowdown and hence being reflected in the stock market. We, the humans responded to the health crisis by restricting people movement (interim measures) and researched for vaccines (long term solution). You can see that during the period of March till May, there were major corrections on commodities prices, property prices and stock prices. And once the vaccine news came out, the market reacted like nothing has happened and begin rebounding aggressively (bear in mind that none of any country has started massive immunization against coronavirus). However, it's always said that stock markets is trading with a 6-month forward looking. 

Let's have a look at the Merrill Lynch's Investment Clock below and see where are we? I remember I was looking at the same thing 10 years ago where we just emerged from the Global Financial Crisis (the crisis which started with home mortgages in the US in 2018 quickly spread throughout the world and by March 2019, most markets hit rock bottom).

Merrill Lynch's investment Clock

From the chart below, you can see those Asset and Sector Rotation over the economic cycles. The key question is where are we right now? At certain cycle, it might stay for a longer time and we might missed the opportunities by not making the right move.

Asset and Sector Rotation over Economic Cycle

Theoretical Economic Cycle - Output Gap and Inflation

The Market Cycle is very real but from what we have discussed, it's mainly for discussion and educational sake. Do use it as a guide for your investment portfolios. And a winning portfolio is normally held over time and not a short duration. Market timing remains something nobody is really able to master. For those who tried, majority has failed miserably.

Retirement Series: Golden Rules to a Successful Retirement Planning

In my previous Retirement Series articles, we spoke about retiring with RM2mil cash and RM3mil net worth. While those are the magic numbers where it will help thousands of Malaysian to retire but it will remain delusional or a dream. To make things easier to understand and achievable, we are going to look at ways that you can plan your retirement successfully.

Golden Rules to a Successful Retirement Planning
1. Start Retirement Planning the day you start your first job
The biggest mistake and misconception that everyone have is "I just started working and I am not going to retire in 40 years' time". I started to think about retirement when I was younger, way before I work. Of course none of us will know what kind of life you would want to live 40 years later but what you can easily do is to set aside a sum of money for retirement and 'rainy days'. What makes you think the government via EPF forced everyone to contribute at least 23% (11%+12% or for those earning below RM5,000 - 24%) of their income for retirement purposes? It's a form of forced savings that will help many in their older days. 

2. Any sum contributed towards Retirement Fund is welcomed
When you started out working, none of us will withdraw a big paycheck. Some fortunate ones will earn double to triple those working basic jobs. However, as the saying goes: "it doesn't matter how much you earn, what matters is how much you saved", it really is how much you save up. Just imagine is, a young man who spend his way out of a salary of RM4,000 with zero savings is worse off than a person who earns RM2,500 wages and save RM200/month. 

3. Try not to utilize the sum that you have saved up for retirement until Retirement happens
A lot of people saved money and they put all in a basket. When something turns up, they look into their "kitty" and say "hey I have got the money, let's buy a new fridge for Christmas" or "well, we have saved enough to buy a new car". Yes, it thrills us to spend the hard "saved" earnings but again, you will have to be clear like "money in retirement fund should not be touched" not unless you lost your job and have no where else to look for money to keep you going.

4. Hold on to "lifestyle" upgrades and continue living a frugal lifestyle as long as possible
It is easy for us when we have an pay increment every year and we actually "upgrade" our lifestyle and spend all of the increment. This normally involves the "want" category like I "want" Starbucks coffee because it's nice, I "want" to dine at a fancy restaurant thrice a month as "I can afford it". Yes you can afford them and not indebted. However, by holding back your "want", you are indirectly increasing your savings. That will tie-in well with Item 5 below.

5. Invest Retirement Savings as early as possible
Time is on your side if you start early and you can also invest a smaller amount. Below is a scenario for you to consider. If you're looking to have RM1mil at retirement (assume 60 years old), this is what you have to save monthly (assuming 6% return p.a.).
a. at 25 years old - RM 728/month
b. at 35 years old - RM1,478/month
c. at 45 years old - RM 3,485/month
d. at 50 years old - RM 6,154/month
e. at 55 years old - RM14,391/month
You can see that from the simulation above, it pays to save early and let "compounding gains effect" to help you. Don't get discourage with the numbers above as it also involves savings in EPF as well. Refer also to another article posted in the Ant On the Street Retirement Series blog.

Investing your money means that you don't keep your money in Banks only. Fixed Deposit is not really considered as "investments". Investments would mean vehicles like Unit Trusts, Mutual Funds, ETFs, Stocks etc.

6. Learn Financial Management and Investment early in your career life or even life!
Learning is lifelong as they say. Too bad we weren't taught financial management earlier in our formal education. We were taught finance, economics and other important subjects like science and math. Financial Management is one of the most important aspect in one's life. You see that a lot of people committed suicide, families torn apart or even those who went bankrupt due to illnesses or couldn't afford to have a proper roof over their heads at old age. It's very very sad to be in those situations but from studies done, majority of them is not due to poor luck in life but simply due to poor financial management. It involves a strong will, discipline and constant fight between "want" and "need".

7. Be bold and look for a better paying job.
Be bold and take the risk - a lot of us will prefer to stay in the existing comfort zone because we are familiar with the work. Grab that promotion, grab that pay increment even if it means heavier responsibilities and tougher work. Work hard for it as hard work is the only consistent answer to success. No doubt hard work does not always yield good outcome but it's the most 'consistent' way. And remember, when you get that promotion or pay increment, first thing is to save the extra money you get, not to go into a new car, new bigger house, new hobbies. 

With the above Golden Rules discussed, we hope that our readers will not only enjoy reading them but will benefit from it by practicing those rules in your daily life. Take charge of your financials today, a baby step forward is what you need. Remember, one step at a time, not a big leap.

Retirement Series:
#1: Can you retire with RM3mil Net Worth?
#2: How can you retire with RM2mil cash?
#3: What is your spending power with RM6,000/month
#4: Is it possible to build a Retirement Portfolio averaging 6% return per year without EPF?
#5: Golden Rules to a Successful Retirement Planning

Retirement Series: Is it possible to build a Retirement Portfolio averaging 6% return per year without EPF?

In my previous articles, we mentioned about how to strategize to retire with RM 2mil cash. In the article, I did mention that while we cap our expenditure at 4% of the fund size initially, the fund need to grow 5% -  7% on average in order to be sustainable (defined as: i. Fund will almost never run dry ii. at 4% utilization, it'll be able to catch up with inflation).

How did EPF performed (historically)?

From Calculations, we know that for the past 10 years, it averaged a 6.05% returns. If you take a longer view, for 20 years average (5.5%) and for 30 years average (6.2%). Hence, you can see that it fits right in the target of 5 to 7% returns which we are seeking.

Next, How Do We Set Up a Fund to Return us 5 - 7%?

There is no magic trick or short-cut to this but I am going to simulate using Unit Trust funds due to the following assumptions and reasons:
1. The person retiring wants to enjoy retirement and not bogged down by day-to-day market swings
2. The person is not working in Financial sector nor have advance investing knowledge and skillsets. By investing all his cash (outside EPF) directly into stocks and bonds, the person takes too much of risks due to potential poor management and lack of diversification.
3. The ease of diversification via Unit Trust into World's stock markets, bonds etc. 

Having investing in the stock markets and other financial instruments for the past 13 years, I will use examples of Affin Hwang Select Bond Fund, Quantum Funds, Principal Asia Pacific Dynamic Income & Growth Funds, Principal Small Cap Opportunities etc to simulate them. This is not because other funds are inferior but it's due to my preference and also familiarity with those products. I see good consistencies in the management of these funds as well although for Small Cap funds, typically the investor will need to do some switching/rebalancing due to the volatility of smaller capitalization stocks. 

In this study, I used FSMOne's Fund Simulator as a tool. As Principal does not let FSM carry certain flagship funds (i.e. Asia Pacific Dynamic Income and Dynamic Growth funds), I will leave it out and mention them separately.

Simulation #1 - For the 1st 10 Years (Following Ant's Retirement Model - 50% EPF, 25% Equities, 25% Bonds)

Below are just the portion of returns Excluding EPF.

As you can see from the chart above, staying invested and with zero rebalancing (no switching) gives you an average 10 year 8.76% returns! And with the RM1mil initially invested, it'll grow into RM2.3mil. The returns exceeds our target of 5 to 7%. However, do take note that the volatility is relatively high at 10%

Simulation #2 - For the Remaining Life (Following Ant's Retirement Model - 60% EPF, 10% Equities, 30% Bonds). This greatly reduce volatility and risks.

Below again is the portion of returns Excluding EPF.

By having a more conservative approach, you can see that by investing in the right products (i.e. Affin Hwang's Select Bond Fund), you still can get a whopping 7.21% average returns over a 10 year cycle. This is better than EPF's return (however, one cannot directly compare with EPF as it's 'capital protected' and mixed asset/multi-asset fund). 

We can see from the above scenarios that by setting a target of 5 - 7% for returns, it's not impossible and history has proven that it's very possible and even with the lower risk portfolio, it did went above 7%. 

Now, for the younger and bolder, if you're not into stock market investing, are you able to hit >8% compounded returns yearly? Let's see the below.

Investing in Principal Asia Pacific Dynamic Growth Fund since April 2016 will gives you a return of 70% (4.5 years period)!

Investing in Principal Asia Pacific Dynamic Income since April 2011 will give you a whopping 196% returns! It will turn RM1 into RM2.96.

And for Simulator #3, by having a more aggressive portfolio, you will average a return of 9.96% over a period of 10 years. 

Again, let me set the record straight, I am not promoting any companies nor funds here but they are used solely for comparison purposes and to proof that it's possible to achieve your goals with these instruments. Hence, start investing today, no matter how old or young you are.  

We do have some friends and affiliates who are professionals in this field and if you do want to invest via them, it is possible to drop us a note. However, Ant On the Street shall not be liable for any actions of our friends and affiliates.

Disclaimer: I am not representing FSMOne, Principal Asset Management, Affin Hwang Asset Management or any funds mentioned above. The facts and figures may not be 100% accurate and solely for discussion and educational purposes only.

Retirement Series:
#1: Can you retire with RM3mil Net Worth?
#2: How can you retire with RM2mil cash?
#3: What is your spending power with RM6,000/month
#4: Is it possible to build a Retirement Portfolio averaging 6% return per year without EPF?

Retirement Series: What is your spending power with RM6,000/month?

Retirement Series #3. Please take note that this article is looking at post retirement expenditure where assumption is no children's education and loans as expenditure. This monthly expenditure is also for 2 persons (i.e. Husband and Wife).

In my previous articles, we explored if you are able to retire with RM2mil and also retire with RM3mil net worth (early retirement). If you follow through those articles, you will realize that the figure mentioned in the Ant's Retirement Model is RM6,000 allowed spending per month.

In this article, we are going to explore how would a RM6,000 per month retiree lifestyle be. The assumption is it'll be used by 2 persons (considering that husband and wife retires) with no financial support from children.

The Ant's Tree and Leaves Model for Expenditure

With reference to the diagram above, to spend RM6,000/month is relatively luxurious. It will definitely not allowed you a high life or frequent holidays but it does provide you a quality of life of a typical middle class in Malaysia. When I say middle-class quality of life in Malaysia, I do mean that it's in Kuala Lumpur, Penang or even Johor where living expenditure is actually higher. 

Let's dive further into how we structure the trunk and the leaves. The 'tree trunk' is the amount of money you're going to spend where the 'leaves' indicate that the money which will 'withers and drop' as you spend them. 

Category of Expenditure
1. Utilities Charges (Electricity, Water, Sewerage) RM350
This is self explanatory - RM350/month for all 3 utilities is not excessive and the users will have to use the a/c sparingly. Bills can be higher when weather is hot but will save up on colder months. 

2. Maintenance Fees and Property Upkeeping RM400
Condo living or landed gated and guarded will cost RM100 - RM300/month for maintenance or security fees. For landed house, there will be a cost to cut grasses, exterior cleaning/maintenance etc. There will be a need to do minor repairs regularly considering that the property the couple living in is aging.

3. Car related (Petrol, Toll, Insurance, Maintenance) RM600
Fuel, toll, car insurance and maintenance fees are not cheap. Again RM600/month is relatively low and consideration is made that the person drives a sub-RM100k car. Many people I know maintain a bigger car (i.e. Toyota Vios/Altis) for long distance travelling and a smaller one (i.e. Perodua Axia) for local groceries shopping. However, the couple can choose to have only 1 car. When needed, they can rely on e-hailing services. It's actually cheaper to utilize e-hailing services if usage of the car is less than 3 times a week and distance travelled is short. 

4. Insurance RM400
Insurance (especially Medical insurance) is a must for old age. This is a hedge against any illnesses which will drain you not only physically with hospital visits but financially as well, leaving the person sick and poor. With RM400/month, you will be able to get 2 medical cards with yearly limit up to RM1mil and unlimited lifetime coverage (at 60 years old, but it will increase as you age).

5. Internet, TV, Telcos RM300
Internet, IPTV and mobile service subscription are a must these days and governments across the world is considering making them a 'utility'. A fibre with 30mbps and IPTV package will cost you RM150+ and you will also need a plan for 2 mobile phones. It will add up to be around RM300/month, easily. If you're a tech savvy person then you might want to increase your allocation (i.e. for 500mbps or 1Gbps plan)

6. Groceries RM800
Groceries are one of the single biggest items normally in a household. It contains not only food item, but others like toiletries and other consumables. While RM800 sounds a lot but trust me if you do count them, you will be amazed that a weekend shopping cart full of items can cost up to RM300 without any organic vegetables or high end wine.

7. Medical and Pharmaceutical RM300
As we age, there will be more need for medical and pharmaceutical products. This includes your high-blood pressure, cholesterol, diabetic pills as well as vitamins and supplements like glucosamine. The cost is mandatory for some unlucky ones while nil for totally healthy persons. However, RM300/month for 2 persons should cover for vitamins (B-complex, C, Zinc and Calcium) and supplement (i.e. Glucosamine) which are essential to prevent or minimize any further illnesses at later part of life.

8. Food and Beverages RM1,200
Since the consideration is that the couple is retiring in Klang Valley or any major towns in Malaysia, it's expected of them to dine out more frequently. Dining at a restaurant for breakfasts and lunches will cost quite some money. This also consider the person's need to socialize (think of the uncles at your local coffee shop) - they drink a cup of coffee, eat a plate of noodles or Pau. The breakfast will easily set you back RM8-10/day.

9. Social Events RM500
Who wants to be lonely? No one! And at this age, you're expected to be invited to your friends' children's wedding or unfortunate events like friends and relatives' funeral. It costs money too. Some join regular yoga session as well. Other pick up hobbies like guitar, piano or even some regular visits to Genting (it might not be regular for those in employment but I know lots of retiree allocate some 'small token' to go up the 'hill' to 'kill time').

10. Spares or Misc. RM850
The spares or miscellaneous can be accumulated and be used for car upgrades (say every 10 years), travels or any family emergencies. Having some spares from budget allocation is good as there are always events in life which are unforeseen.  

So what do you think about the above Expenditure structure? As Expenditure is a very much a personal choice, we can never follow exactly what we set for ourselves in reality. Sometimes, it's worth spending on things that makes our day although it cost a little more than usual (call that emotional returns). Being happy is a very big component of a successful retirement. You want to be happy, free from financial burdens and of course work-related burdens (that's the main reason why we choose retirement). Hence, to have a practical budget, one can never set a very stringent one (the spares need to be there to 'cushion' all these 'want vs needs' battle).

We have seen many who tried to retire with a limited and stringent budget but sadly end up giving up on these budgeting and control. It'll ruin your entire retirement plan and many will end up relying on children for survival. The implication is of course you will need to downgrade your living standards/lifestyle very very significantly. So we hope that by setting a clear and reasonable target/budget, you will have a fruitful and fulfilled retirement. Hope that this article is able to provide you with some guidance as all of us will retire and all of us will have to manage our 'finite' retirement fund, no matter how much is in it.

Retirement Series:
#1: Can you retire with RM3mil Net Worth?
#2: How can you retire with RM2mil cash?
#3: What is your spending power with RM6,000/month
#4: Is it possible to build a Retirement Portfolio averaging 6% return per year without EPF?

We also share our updates at i3Investor via our AntOnTheStreet Blog

Retirement Series: How can you retire with RM2mil cash in Malaysia?

Retirement Series #2
As part of the continuation of the retirement discussion topic, we will explore how this interesting concept will allow us to retire with just RM2mil of Cash and almost never run out of them.

The rules, objective and assumptions are as below:
1. The objective is to never run out of money for the entire lifespan of a person & spouse. 
2. Assumptions:
a. The person will need not to fund the kids' education and only need for personal and spouse's expenditure.
b. The person has RM2mil in hard cash. The cash can be invested in stocks, bonds, unit trusts, properties or even back into EPF (EPF allows self-employed to keep their money there for those <60 years old). 
c. The person has fully paid for car and property he or she is living in. 

So, what can be done?
Have you heard of the 4% rule? The 4% rule is a relatively popular retirement spending methodology. It simple terms, you may spend not more than 4% of your total investments (in this case it's RM2mil). 4% of RM2mil will give you RM80,000/year, which is RM6,666/month. It looks pretty decent for now but imagine the value of RM6,666/month in 20 years' time (it's probably like RM2,000 where it's barely enough for one single person's day-to-day basic expenditure). Think about graduates' pay which never really increases and you'll be in the same conundrum. Again, in simpler terms, this is not adjusted for inflation.

How do we tweak the model to make it work?
I worked on a blended model called "The Ant Retirement Model" The theory is simple, generate more than what you can spend so that you can try not to let the Retirement fund deplete.

First of all, the goals are to try to grow the fund in tandem with inflation and secondly to ensure that fund will not go into zero amount at the end of the life of the retirees. 

And how do we do that? 
1. Withdrawal is a very important control - for the 1st 10 years, the person is to restrict himself/herself by withdrawing <4% of the fund's value. And after that try to control withdrawal with the maximum of 6%. 
2. On the returns side, set a blended portfolio which will allow an average yearly returns of between 5-7%. This has taken into consideration that Asian economies or the world economies will slow down as more countries mature.

The above diagram shows the strategy applied to generate the desired/required returns in order to fund one's retirement plan. Since the person is younger at early stage of the retirement, there will be up to 25% of the component which will be in equities to generate potentially higher returns for future use. When the person gets older, only 10% of the portfolio is being put into equities while the rest will be in Bonds, Cash funds or EPF. The reason why EPF is selected is it's a 'mixed asset fund' and it does provide the returns of 5-7% of our target above. Again, this is a hypothetical allocations which needs to be adjusted over time.

The Outcome?

The below table shows that by applying the above model, one is able to retire comfortably with RM2mil cash (EPF + Cash in Bank). Also, one is able to grow the size of the fund so that it will never really runs out (hopefully no big ticket expenditure). 

There were some assumptions made for the above table:

a. Year 1 to Year 10 - start with RM6,000/month, escalate 3% every year due to inflation

b. Year 11 to Year 20 - calibrated to withdraw RM8000/month, escalate 3% every year due to inflation

c. Year 21 till end of life - calibrated to withdraw RM10,000/month, escalate 3% every year due to inflation

d. For Year 21 and above, capital preservation is no longer the most important aspect. Considering that may need to spend on healthcare related costs (i.e. nursing home, hospitalization costs) as insurance might not be a viable option anymore. 

Hence, it's shown from the simulation that with RM2mil, one can retire comfortably with RM6,000. This is an adjusted model where he or she is allowed to increase his or her expenditure adjusting to inflation. Well, it may not entirely inflation adjusted but at the very least after 20 years, he or she will get to withdraw RM10,000/month instead of RM6,000/month. 

Retirement Series:
#1: Can you retire with RM3mil Net Worth?
#2: How can you retire with RM2mil cash?
#3: What is your spending power with RM6,000/month
#4: Is it possible to build a Retirement Portfolio averaging 6% return per year without EPF?

We also share our updates at i3Investor via our AntOnTheStreet Blog

Retirement Series: Can you retire with RM3mil Net Worth?

Retirement Series #1
Can you retire (financially)? It is a big question that most of us ask ourselves. Retiring physically and retiring with a strong financial backing are two separate things to consider. Most of us are forced into retirement either by age, illness or retrenchments but very few of us are retiring because we are financially capable of. 

The context of the discussion is Are You Able to Retire with a RM3mil net worth? Again it's a big question but let's make some assumption below. Let's call this person 'Ant'

Background: Ant has a condominium with a market value of RM500k, fully paid for loans and 2 cars (market value of RM100k in total). He is 40 years old has a family with 2 growing kids age 5 and 10 years old, live a simple, decent middle-class lifestyle. Wife is working as a normal salaried worker with RM5000/month salary and plan to retire in 10 years' time. Average expenditure is RM10k/month. Assume to spend on kids until 23 years old for tertiary education and RM200k/child for tuition fees. Ant has 1 extra property which is worth RM500k, rental RM800 after deducting outgoings, loans paid off. RM800k in EPF (combined).

Quick Analysis
1. From the above, we know that Ant has RM500k + RM100k = RM600k which he is living in and using which he cannot monetize for investments. 

2. Ant need to set aside RM100k for emergency funds in FD

3. Ant has an investible asset of RM3mil - RM100k (emergency fund) - RM500k (investment property) - RM600k (net worth utilized for own usage) - RM800k (EPF funds) = RM1mil

4. Relies on EPF for 4-6% annual returns and from item 3 - returns from RM1mil investments (assumption in portfolios). Rental returns is expected to be RM800/month.

Detail Analysis

A detailed simulation done on how fast the funds will draw down with the scenario above.

The simulation is based on the below assumptions:
*expenditure grows at 3% p.a. (inflation). In reality food inflation is a lot higher than general inflation.

*wife's income grows 4% a year
*only withdraws necessary expenditure from EPF
*Cash Returns from RM1mil Portfolio assume to be 5% p.a.
*wife only works for another 10 years
*sell off RM500k investment property to fund 2 children's education in 15th years. Assume property value appreciation is sufficient to fund escalated education fees
*at 61 years old, kids grown up and financially independent. Take away RM4000/month from expenditure
*Mr Ant would like to maintain his Middle Class lifestyle (i.e. having B or C-segment cars, attending social events, active in recreational activities that will cost some money)

So, what does the above Analysis says for Mr Ant and family:

#1. His money will run out at 70 years old, leaving him with only his property and remains of his assets. To survive, he has an option to sell his house and rent it. But with the same lifestyle, it'll only last 5-8 years, sadly.
#2. Having RM1mil in investible (cash) and RM800k in EPF will typically runs out in about 30 years' time (scenario for a middle class lifestyle living in cities like Penang and KL)
#3. For Mr Ant, he will either need to take up income generating jobs for another 5 - 10 years or ask his wife to work until 55 or 60 years old. This will help stretch his retirement funds. 
#4. Considering getting the kids to obtain scholarships for tertiary education to save up some money and stretch retirement.
#5. Invest in Stocks or move higher proportion of investments into higher yielding vehicles (i.e. stocks, equity funds). This definitely means higher risks, but he should be able to take it since considering his retirement is his choice, not due to medical circumstances.
#6. Insurance must be bought to prevent any financial shocks in the event of any medical emergencies and big ticket expenditures.

Alternative #3: Scenario - Wife works till 60 years old

So, you can see by having Ant's wife working until 60 years old, the same scenario changes and now the family retirement funds can extend until 80 years old. Again, this is assuming that Mr Ant and wife is adamant that his savings will not run low and keep spending at the same level. We also acknowledge that at some point, it will likely come down if Mr Ant is healthy both mentally and physically (hope that no nursing home or home nurse requirement during old age which would cost a bomb!).

Next, I will talk about how can you stretch your RM and retire with a RM2mil nest egg. It's an interesting concept but will require some degree of financial knowledge to ensure it works.

Retirement Series:
#1: Can you retire with RM3mil Net Worth?
#2: How can you retire with RM2mil cash?
#3: What is your spending power with RM6,000/month
#4: Is it possible to build a Retirement Portfolio averaging 6% return per year without EPF?

We also share our updates at i3Investor via our AntOnTheStreet Blog