Saturday, February 6, 2010

Numbers for Ron's case

Ron's story is in previous post. Basically his is a all look good case. See below blue circles that he is going to have multi millions to collect even if he stops working now. And all he shorts is only less than $1 million ( red circle ) for his kid's education.

But if you run a proper cash flow analysis. His EPF money is not touchable until age 55. So his main source of income is from KLSE investment but all those money will run dry before his kid can graduate.

One of the things he can do is to sell his house 1. Doing so may allow his kid to finish with a degree. But that will only prolong the kick-out-of-retirement scenario for a couple of years only. He still cannot last until he gets his EPF yet. As a result, still have a cash flow problem.

It turns out that if he stops working now and if his kid really go oversea to study, he will have to sell his new bigger house 2 and move back to the older smaller house 1 when his kid go abroad. It will be his own judgement whether this is a good retirement arrangement or would it be a reduction life style he wishes not to occur.

Ron isn't my contact, I just read his case from kclau's blog. So assumptions used in this spreadsheet may or may not apply to him.

One of the potential pitfalls is that I assume he said he earns $6,500 and I assume his current expense is $3,000 a month. But seeing his case, it is most likely that his expenses needed is $6,500. If that is true, he will still be kicked out of retirement even if he sells his big new house when his kid only goes to a university that costs only $1.2 million

One interesting way to solve this could be to rent out the new big house instead of the small one. If the rent can cover the repayment amount, it will be perfect. But even if he can rent for $3,000 and assuming his repayment amount is $3,723 he will still be able to cover his kid's 4 years college cost without selling any of his houses.

When you are serious about your future, make sure you don't forget 2 aspects of the analysis;

1. draw a proper and definite Time line, not just some lump sum comparisons.
2. year to year Cash Flow analysis

I search "cool man" in google image and kclau's picture pops up ...


オテモヤン said...
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Anonymous said...
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Life Insurance BC said...

Thank you for all the great posts from last year! I look forward to reading your blog, because they are always full of information that I can put to use. Thank you again, and God bless you in 2010.

Michael Tsen said...

Thanks for the comment LIBC :)