Work very hard, invest and retire by 50? Possible?

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Someone I look up to who’s also a reader of commented on my recent article, Car vs property? Well, car ownership do mean something, luxury one please.” He said, “Working under employment cannot really make us able to afford luxury car (Audi/BMW/Merc) even at the senior management level. Sure the company can get you a luxury car but as soon as we resigned, we need to bid bye bye to the car. I think as a financially responsible person, one couldn’t pay a rm270,000 luxury car on a 15,000-20,000 salary from own pocket as there’re other priorities. However if one invested wisely and concentrate his firepower on the type of investment that he excelled, in my investment. One can easily afford luxury car and retire before reaching 50 yrs old. That’s is the magic. But caution; to be successful investment, one needs to be knowledgeable, skills, bravery and a bit of luck.”  Frankly, I agree with his view!  Especially the final few sentences.

Perhaps we look at the possibility of retiring by 50 years old? Assuming one graduates at the age of 24. That’s 26 years of working life till we reach 50. Please work hard and keep learning. If we are the top 20 percent of all workforce, then we would usually be promoted to manager before we are 30 year old. Since we started working at 24, for the first 6 years, we managed to save just RM800 per month on average. I am talking about top 20 percent performers yeah, not the usual staffs. We would have a total of RM57,600 when we reach 30 years old. Enough for downpayment as well as qualify for a 90 percent loan for a RM500,000 property.

Anyway, this is applicable as long as we did not buy a luxury car as explained above. From 30 years old onwards, our salary should already be easily RM6,000 or higher. By then, even after paying for the mortgage which is around RM2,250 per month, we should still be able to save the same RM900 per month so that 5 years later, we will have RM54,000 which is enough for our second RM500,000 property. That’s when we are 35. We assume that this second property does not give us positive return on investment for rental. So, every month we continue to have to pay an extra RM300 for it for the maintenance for example.

From 36 years old to 40 years old, despite our higher salary, we DID NOT spend more. Thus, this time, we could save RM1,000 per month. It will become RM72,000 and it will be enough for another RM500,000 property. We are now 40. Again, this 3rd property did not give us positive return on investment. Our second one is however okay already because rental has slowly caught up. So, it’s still just negative RM300 per month.

Assuming after buying that 3rd property, we no longer wish to buy anymore property and wishes to just save our money and watch the property value grow. Our first property, when we are 50 years old should have risen to RM1,000,000 based on a 4 percent increase every year. Conservative number I would say. Our second property bought when we were 35? That would have risen from RM500,000 to RM900,000 ONLY. Well, we stopped at 3rd property at 40 years old. that 3rd property would have risen to RM740,000 when we are 50 years old. I know, everyone wants to also calculate the interest lost, the extra that we pay every month etc but frankly, if we did not use it for property, would we be able to keep it somewhere safe anyway?

We assume our savings do not change from 40 years old onwards at RM1,000 per year. Using just the FD rate of 4 percent meant that when we are 50 years old, we would have RM150,000 from the compounded returns. In total, together with our properties, we should have around RM3 million.  We have not yet counted the amount we have in our EPF.  Of course, all these numbers are estimates yeah. Many would say that when the home is not rented out, then we have to pay for the full instalment ourselves. Noted.

In fact one would also have to be the top 20 percent performer so that one’s salary is high enough to do the above. Then again, if we could not even build enough ‘firepower’ why are we dreaming to retire by 50?  The value of money is definitely becoming smaller but right investments allow us to hedge against inflation which will ensure we have enough to retire. So yes, I think my friend’s comment on retiring at 50 is doable for the top performers as long as they did not buy that luxury car right in the beginning. Perhaps I should buy a commoner SUV in 2019? Haha. Then, when I could retire, I can exchange my SUV for an AUDI too. Happy believing.

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written on 23 April 2018

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