Random Thoughts on Retirement ( David Y. Chung / 鍾彥 龍 )

1. Random Thoughts on Retirement (David Y. Chung /鍾彥龍) Introduction: • Life is a one-way journey - a journey that no one is anxious to reach the “final destination”. • The goal is to enjoy the “journey” along the way and have as many unique and memorable experiences aspossible before reaching the “final destination”. • Retirement is part of normal life cycle – it is a new chapter with more freedom to do whatever you always wanted to do in life. • The Golden 10-15 years (60-75) is the last windowin life with good health for travel or other activities that require physical strength. • Satisfying Retirement Life Needs Good Planning in Advance • The good news - every retiree I know is happier after retired and no one misses his/her old job at work (no regret).

2. Common Questions About Retirement: • When to retire ? • Doing what in retirement ? • How much total “retirement funds” is needed ? • Where to invest the retirement funds ? • The biggest unknownin retirement planning (timing and financial preparation) : --- when each of us will reach our “final destination” ? • Life expectancy in U.S. : 76 for men, 81 for women (L.E. in Taiwan : 78 for men, 83 for women) => Life is fragile, sowish for the best, but don’t take “wishful thinking” for granted.

3. When to Retire ? • Why 60-62 may be a desirable retirement age ? • A few more “golden years” with good health for travel & etc. • Lump-sum pension payout max out at 60-62 • Due to life expectancy factor • At same NPV by design, the total annuity pension payout(pay monthly)also max out at 60-62, statistically. • Retiring at 70 & getting higher monthly payment doesn’t guarantee higher total life-time retirement benefit than retiring at 60, all depends on how long we will live (the biggest unknown). • Impact of losing monthly paycheck after retire is less than expected. • With good financial planning and prudent investments, it is possible to have steady income in retirement comparable to pre-retirement. • Another big unknown – how long our good health can hold ? => Timeis the most precious commodity, especially after 55. => Wish for the best, but be conservative in retirement planning

4. A Few “Legitimate” Reasons to Retire Late • Just “love” what you do on your job everyday • Examples of the “lucky few” • Warren Buffet • Professors • Medical doctors • Private business owners • Need few more service yearsto qualify for pension • Need more savings to retire comfortably. • Make up saving shortfall by working a few more years • Just don’t know what to do everyday in retirement • This is NOT a good reason to give up part of precious Golden 10-15 years.

5. Doing What in Retirement ? • Whatever you always wanted to do in life, one idea is to gain more unique and memorable experiences. • The key is to keep mentally and physically active • Consulting (part-time advisory job, a good transition step to full retirement) • Religious work • Volunteer work(help others & expand social contacts) • Art, Music, Majiang, Golf, Gardening, Social clubs et. al. • Grand kids • Managing investments (good mental challenge, potentially profitable) • Travel -Too many places to see, not enough time in life. - Try to be a “traveler” instead of a “tourist”. - Good mental and physical activities • Others

6. Financial Preparation for Retirement (From the view point of typical employees, not private business owners or rich landlords) • Accumulate as much “capital” as you can during work years, and invest wisely. • Start early, the earlier the better (compounding effect) . • Invest wisely, extra 2% return from in investment can make BIG difference over 20+ years. • “Market timing” does NOT work in the long-term. • After retire - instead of a 9-5 job, continue to make money with the retirement funds (capital) via prudent investments--like a “capitalist”. • Minimize “total cost” of investment (fees, commissions, spread & etc.) • 2% fees on $1MM investment is $20,000 each and every year. • Cash Flow (spendable income) maybemore important than asset growth in retirement – especially during the Golden 10-15 years.

7. How Much “Retirement Funds” Is Needed for Retirement ? (Retirement funds = 401K + lump-sum/pension + other liquid assets) • It is a “life-style” related question. • Generally the more the better(money provides “freedom” and options). • A good guideline is sufficientcapital(401K+ pension + other savings) to generate 80+% of pre-retirement incomebased on realistic investment return assumptions. • Assuming 7% LT average return, $70,000/yr income needs $1MM capital base. • Common “big-ticket” expenses in retirement • Travel & other hobbies in 1st-half of retirement (optional & controllable) • Medical expenses in 2nd- half of retirement (less predictable) • Don’t forget market cycles, inflation and unexpectedexpenses in life, so be conservative in capital target and investment return assumptions. When to Take Social Security Benefit ? • A personal decision. • Take SS benefit ASAP and invest the SS checks to push the breakeven point from 78 to 82+ could be a preferred option.

8. Where to Invest The Retirement Funds ? • Equity(stocks and mutual funds) or Real Estate ? • Most retiree’s 401K & lump-sum are rolled over to IRA at retirement, which makes it difficult to invest in real estate. • Equity investments can be risky, but doesn’t have to be risky. • Depending on quality of the equity, time horizon and individual “risk tolerance” • Stock is fractional ownership of a business, not a gambling chip. • Invest in the stock/business, not playing the market. • The more you understand the business, the less panic you will be in down market. • Equity/Stock investment options: • Stock mutual funds (total annual costs can be >2%) • Index funds (total costs < 0.5%) • Self-managed diversified stock portfolio (home-made mutual fund) • No annual fees, • Can achieve 3-4 % steady dividend income (+ growth potential) • Dividend usually has build-in inflation protection. • Can sell “put” or “covered-call” options for extra income (for experienced investors only)

9. Where to Invest Retirement Funds ? (Continued) • Focus on blue-chip, dividend-paying stocks, accept moderate long-term average return (5-7%), let compounding and time do the magic. • S&P 500 in 12/2000 & 12/2010 are basically the same (~0% gain in 10 years) => Steady dividend income is important in retirement • 4% dividend =$40,000/yr from $1MM investment (even in down market). • The biggest risk in equity investment is emotional (Greed&Fear) • Typically cash flow into stock mutual funds is the highest near market top, cash flow out of stock mutual funds is the highest near market bottom (Buy High, Sell Low). • Never buy stocks onmargin, it is high-risk gambling. • Don’t buy at market high and don’t panic sell during market crash => “Buy Low, Sell High” instead of “Buy High, Sell Low” • Low cost index fund probably is a better option for people not interested in managing their own investments.

10. Summary • Satisfying retirement life needs good planning in advance. • Keep mentally and physically active in retirement, do whatever you always wanted to do in life. • The “Golden 10-15 years” is extremely precious , take advantage of it to travel or enjoy other activities that require physical strength, before it is too late. • To prepare for a long retirement, prudent investment in retirement is just as important as during work years, especially in current low-interest environment. • Wish you all a happy and healthy retirement…sooner or later. Disclaimer: I am NOT a certified financial planner or retirement consultant, all statements here are my personal opinions.