Part 2: Liability free vs Financially free (detailed example)

After the previous round of discussion, I met up with Christine again to go through my example of being financially free or liability free. We discussed, calculated and then compared these two scenarios; if I were to stay liability free from age 35 till retirement, and if I were to invest in a property. Which of these scenarios can bring me closer to being financially free at age 65.

If you haven’t read the part 1 of this article, you can read it here.

Part 2: Liability free vs Financially free (detailed example)
Singapore Financial Liability Discussion


Before we begin the discussion here, I would like to do a simple disclaimer here. The example illustrates here applies ONLY to my unique situation. Different people will have their own unique situation. Therefore do engage a good advisor to find out your own unique situation and develop the best stratgies in moving forward.

Lets get started.

We did a quick analysis on the assumption that I am liability free at age 35. Meaning, at age 35, I have a fully paid HDB flat and there are no other liabilities or any other financial obligations from age 35 onwards till retirement. In addition, at the age of 35, I have saved a cash amount of $140,000 in my bank account.

I figure out based on my income and expenses, that I should be able to save $3,000 a month consistently. Also assuming that I intend to retire at the age of 65.


Retirement Calculation

I think I should be confident of getting a 3% return from my $3,000 monthly savings. If I am successful in doing that for 30 years, this savings should grow to a total of $2.092M. It’s quite a huge amount of money!

My intention is to be able to spend $3,000 per month (based on today’s standard level of living) at retirement.

Therefore taken into account 3% inflation over the next 30 years, the equivalent value of a $3,000 that I need today is a $7,281.79, 30 years later.

In the period of my retirement, I assume that inflation will continue to stay at 3% throughout my retirement. I will expect myself to be a lower risk taker at retirement, and I think I will expect only 1% returns from my retirement funds.


If I were to save the $3000 and stay liability free till age 65

After calculations, I figure out that the $2.092M that I save can last me for 19.5 years in my retirement age of 65. Not too bad!

However my retirement funds will likely to run out at round age 85. Therefore if I were outlive age 85, I may have a risk of not having sufficent for my retirement.

What if I were to put a portion of the $3000 into a property investment?

Assuming if I were to purchase a property and split the $3000 into savings and buying a property. How will my retirement looks like?

For the Property investment, assuming I bought a $700k studio condo, I will spend my $140k savings for the downpayment.

Here will be the breakdown of my property loan details, rent and other expenses:

Part 2: Liability free vs Financially free (detailed example)
Financial Free Singapore Calculation


Cash flow

$3,000 (Savings) + $2,000 (Rental) = $5,000


Total expenses

$2,212.68 (Instalment) + $300 (Maintenance fees) + $500 (Property tax & others) = $3,012.67


Nett cash flow

 $5,000 (Total expenses) – $3,012.67 (Cash flow) = $1,987.32


If I should save the $1,987.32 with 3% return save for the next 30 years, I should be able to save $1.157M.

Retirement Calculation, if I were to buy a property and save the difference

I should have fully paid the studio condo loan by age 65. If the rental were to stay the same at $2,000 and the rental yield increase is in line with inflation, the studio apartment should be giving me $2,000 of monthly retirement funds based on today standard of living. So if I need $3,000 (based on today’s standard of living), and the rental is already giving me $2,000, the additional amount I need is $1,000 (Intended retirement spending $3000 – rental return $2,000).

Similarly, taken into account inflation over the next 30 years for at 3%, the $1,000 that I need today is $2,427.26, 30 years later.

After calculations, I figure out that I my $1.157M can last me for 29.2 years. This figure looks better than the previous case that if I were to be liability free. However my retirement funds will runs out at age 94.

In the case that my funds were to run out, I still have a fully paid studio apartment with I can sell to encash it, or I can lower my standard of living by just living on the rental.

Part 2: Liability free vs Financially free (detailed example)
liability Diagram



Looking even further, the studio apartment could potentially be a legacy planning asset for my future generations. I will explore more into this subject matter in the future.



On paper, it may seems that buying a property is a better decision. Do note that this scenario may not be applicable to everyone. The simple illustration here may deviate from the actual investment situation due to market risk, fluctuations of rental returns, other costs and other factors. Therefore do take a look at my previous article on risk management before embarking on any property investment and engage a investment to advice you.

If you are keen to find out more, do drop me a note here.

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