Nowadays, seldom do anyone blog about early retirement any more. About a year ago, after I past my 40th birthday, I went through a thinking exercise about early retirement and thought about what should I do if I were to retire, how should I fund my retirement, what are the challenges in retirement, etc. You can read more about these issues in the following blog posts:

It is about a year later, and no, I have not retired. If you read my earlier posts, you would know that I am not a fan of the "not-working" type of early retirement. However, I am open to the idea of the "keep-yourself-busy" type of early retirement where you might still work for something that you like but not for the sake of making money. 

One year later, what additional insights have I gained about retirement? Currently, we have encountered major volatility in the financial markets in the past 6 months, whereby stock prices have fallen sharply, property prices have peaked, stock dividends are cut, REIT distributions are tapering off, interest rates are rising and regional currencies are falling. On top of that, there are worries about a possible recession and people being laid off. All these make for a difficult time for a retiree. This validates the point that I made in Concluding Post on Early Retirement, where our financial freedom might be conditional on financial markets remaining steady. While we do not need a bull market to be financially free, a bear market could put that financial freedom at risk.

Even so, the current stock market rout has taught me something about retirement planning that I had not foreseen earlier, which is that you need to plan ahead for retirement and de-risk in advance. Prior to the stock market rout in Aug, my portfolio was not under stress and I had around 53% in war chest, which appeared sufficient to provide a comfortable cushion to handle any stock market decline even if I were to retire early. That war chest has since declined to 35% due to a major investment and bargain hunting. It is still facing downward pressure as attractive bargains remain. In other words, cash that is meant to be deployed as war chest into the stock market in times of market declines is not free cash available for retirement. Cash meant for retirement must be separated from cash kept as war chest. That means that prior to actual retirement, the portfolio must be de-risked in advance. It is not possible to retire immediately even though cash appears to be sufficient when times are good.

The second thing I learnt is that when you either run out of war chest or are reluctant to dip further into your war chest, a monthly salary is still the most reliable means of funding your stock purchases. Even though stock dividends and REIT distributions might be sufficient to cover your expenses in retirement and add to your war chest, they do not arrive at the time when they are most needed. Most of the listed companies in Singapore have December as their financial year-end, which means that the majority of dividends are only paid in May. Outside of the dividend-paying months of May, Aug, Nov and Feb, you can only wait if you do not have other streams of regular income.

I still have some more years to go before I actually retire. Still, the thinking exercise in early retirement has been a very fruitful exercise and provides useful lessons in how we should plan and execute our retirement correctly.

See related blog posts:

• Retiring at 40
• The Great Retirement Challenge
• Concluding Post on Early Retirement