Taking into account the limitations of the 4% withdrawal method mentioned above, this is how we would like to allocate our wealth by retirement.
One of the luxuries of living in Singapore is that when it comes to investments, we have S-REITs which provide decent dividend yields and the dividend income is not taxable in Singapore.
Therefore, by retirement, we would like to construct a S-REITs portfolio where the dividends distributed would be sufficient to cover the living expenses. We have to do some calculations to determine how big the REITs portfolio has to be in order to support our living expenses during retirement. If you want to learn more, check out this video where we explain in detail.
Then, it is also important that we keep some cash for emergency uses (e.g. medical-related events). Or say if there is a sudden market downturn just like during COVID times where the REITs lower their dividend payout which we might then need to tap on this pool of cash to cover our spending.
For the remaining portion of money that we don’t need for the next 5 to 10 years of consumption, we would then allocate them into the U.S stocks portfolio. This is the pool of funds which we do not intend to withdraw in the near term so that the capital to continue to compound. Or in the event if there is a short term pullback in the U.S markets, we do not want to realise the paper losses because it would slow down the compounding effect as shared above.