The most notable one is that i had changed my job to one with a higher commendable salary, and save up a small amount of money. L
Few assumptions:
i. Malaysia Inflation Rate to be 2.5% per year. (last 10 years average, 2.38% see calculation here.)
ii. Salary to be rise at 5% per year. With average income per month = RM 10,000 (include base pay, allowance and bonus).
iii. required living expense per month to live comfortably = RM 2,000 in current ringgit.
Additional insurance expense = RM 500.
iv. Malaysia income tax rate unchanged. No introduction of capital gain tax and dividend from public company remain tax - exempted.
v. EPF average return to be 5% per year. This is also the achievable return by my own portfolio. Current EPF saving = RM 60,000, current own saving = RM 200,000.
vi. Risk Free rate = 3.25%, this is also the discount rate used to calculate the PV.
vii. Life expectancy to be 90 years.
___________________________________________________________
Goals:
1. To buy a RM 1,000,000 house at the age 32. with 30% downpayment. The rest will take a 25 years loan.
2. To retire early at age 45.
3. A saving buffer of RM 500,000 at age of 45.
Thus my IPS will be
Return Objective : after tax 5% per year (nominal)
Risk Objective:
Ability to take risk - High ( as i am currently still young , with stable income to sustain living）
Willingness to take risk - High
Constraints:
Time Horizon - Long (two period, first one is 18 years, second one is after the 18 years till deceased)
Tax consideration - as Malaysia dont tax capital gain nor dividend income, there is less concern here.
Liquidity requirement - Not applicable for the moment. ( or one month expense to sustain living until next salary banked in)
Legal - Not applicable for the moment.
Unique requirement - to paydown RM 300,000 for house downpayment at age of 32.
-----------------------------------------------------
The first thing to know, is to calculate how much you need to sustain the living standard for 45 years after early retirement.
This can be done by summing the Present Value (PV) of all future expense at age of 45 (year 2033).
First , the nominal equivalent of RM 2,500 expense today at 2033 is RM 3,899, i will still need to pay house loan monthly installment of RM 3,890. The total PV of the future expenses at year 2033 will then be, RM 2,330,000. Plus the saving buffer desire, i will need to save up to RM 2,830,000 by year of 2033.
This is achievable if i can save at least 55% of my total income every month.
Thus current monthly saving target = RM 5,500.
Things will get complicated when I need to save for marriage, save for some desires in my life etc. This will be address later when i subsequently revised my IPS and setting saving goals.
