Retirement Mathematics: Toughest ever
What is so scary about retirement? The big worry that you will run out of money before you die. Rather you OUTLIVING your money.
Is it a fear? I think it is a nightmare especially for those who do not have assets which they are NOT USING, children not doing well, and those women who have lost their husbands when they are young – say around 45 years of age and HAVE NO INVESTMENT SKILLS at all.
Your retirement mathematics needs the following:
1. At what age will you retire (you do not know)
2. How much will you be able to invest regularly from now till retirement (you do not know)
3. With all your resources at what rate will this investment grow (no clue!)
4. Going from point no. 3 – how much will your retirement corpus be (function of points 2 and 3 above)
5. How much will be the post retirement inflation be (no clue)
6. What will be the withdrawal rate at which you will withdraw (depends on your needs and inflation)
7. At what rate will your Investment portfolio grow. This again is a function of how your stomach will perform when equities tank, real estate stagnates, interest rates fall and your hospital bills are only paid partially by the insurance company.
8. Given the uncertainties of how long you will live, how long will your spouse live, whether your children will support you (or will they need it) any number that you estimate is a guess. Complete guess work.
When you use Pattu’s retirement calculator please remember the above 9 points. Just a suggestion.
Even better start on a whiteboard. Will save you effort.
SR
Hi
The Situation
Age 41
Age of retirement : at this very second
Family size: 3 (Husband, wife, kid in primary school)
Resources : All together 3.5 crores(2 crore liquid state and 1.3 crore can’t touch now will be available from 20 years so at age 61, hopefully it will grow at least double by that time) + home fully paid up (No debt or liabilities etc)
Living Expense, savings etc: Modest living nothing fancy will be happy with cheapest car, two wheeler, so e.g. suppose 2 crore liquid FD generates 16 lacs @ 8% post tax say 13 lacs. Can first save & invest 4 lacs and then use remaining 9 lacs not necessarily spend all. Basically loyal to saving than spending.
Is this situation good enough to consider retirement at this very second?
Pls guide as it is difficult to calculate based on inflation, rate of return etc etc
Regards
SR
subra
first of all i need much more details, but where is the money for the kids education? that grows at 15% p.a. – that will be about Rs. 2 crores AT LEAST …then where is the money for retirement?
Let me assume your annual expenses are Rs. 400,000 now – you need about Rs. 2 crores AT LEAST for retirement, and assume GOOD PORTFOLIO management skills…
shinu
Subra sir
Now a days the biggest worry should be… how much the future government s are going to rob you out from your savings other than inflation…
Regards
subra
shinu can u please tell me how does worrying help? Get into the government and influence decisions, or PREPARE for the SCENARIO that YOU think will happen.
Atul
I think irrespective of all the planning and investment done, one needs to adjust post retirement lifestyle in line with the available corpus. Post retirement mind may not work as efficient as in early 30s, 40s for taking investment decisions.
Regards
Atul
SR
Subra Sir
Oh yes, I know lot of info required for detail analysis.
Such as health, term insurance etc currently it is in place. After post retirement additional medical policy will be needed. (currently company paid policy)
Retirement – well as I said that 1.3 crore doubling in 20 years and current 2 crore generating daily life + 4 lacs savings. Now this 4 lacs will generate some amt in 10 years time for higher education for the kid right?
Another idea – instead of getting into thsis annual inflation schooling how abt home schooling? One can sit for SSC to IGCSE exam as private student and lot of material is available on this. Also do all educational courses require such huge amt of money? In some case scholarships are available and in some cases educational loans as well. I will work towards finding the best solution at that point of time.
More over this 13 lacs that is generated each year can be used for investment to generate more income (basically beating inflation)
So I was wondering for a modest lifestyle is it good enough? I mean it is difficult to explain/analyse for either of us to every small details here. Not fair to take free advise from you as well. I owe you a meal for this post & replies. 🙂
Anyway so I gave some basic figures based on the original 9 points, some how I am coming back to your recent post, I think more than money it is about the FEAR. I feel sad that fear of something is always making ppl continue to take decisions which may not be in their best interest. 🙂
subra
will do a post instead of answering you..
B
Dear SR,
you owe subra a…….meal……..only???? for retirment planning !!!!
man….surely this corpus is more than sufficient for you !!!!
nitish
hey SR, don’t worry, i think you will do fine. your 1.3 crores will be 4 crores even in debt instruments, moreover you will also have the 2 crore rupees principal. many people will be very happy with the amount you are generating per annum. i am earning half that sum and even i am hoping of a comfortable retirement. invest your 3 years savings in a few decent equity mutual funds and then let it grow for next 10 to 15 years for your child education, rest he can himself manage with loans and scholorship. after 3 years you can invest your savings towards unforetold medical expenses and retirement. i have never seen a person who retired at 40 and then lazed around for next 40 years so most likely you will also end up doing some profession which might be more relaxed/closer to your heart, that will also add something to your income though not at current spectacular level. so go ahead. wishing you happy retirement.
SR
WOW! Thank you Subra Sir, waiting for the post 🙂
Dear B, (only meal) ha ha for me B is for bargain 😉
Dear Nitish, Thank you for your kind words, it does feel nice. I just hope Subra Sir won’t comeup with a post that shows how wrong we are in our thinking ha ha ha
Surya
Dear SR ,
I’m pretty much in the same situation and similar corpus to what you’re quoting . But more than the problem of corpus mythe problem is what to do if you retire @37 ? Being an NRI earlier ,would say the mindset in other countries is different from in India . In India , if you retire you lose respect frm your family and society . I just wonder when will we come out of this mindset – else I would like to retire from my primary occupation and skill and do something more of voluntary/part time where I can have a simple life working per my interest and time and not just for money .
Regards
Surya
Surya
Dear Subra,
Can you write an article for people who want to retire early and have enough corpus . How can they live meaningfully afterwards with respect ,satisfaction and actively ?
Regards
Surya
Ramesh
Surya,
“Be the change you want”.
Think for yourself and your own values and aspirations. Trying to change others’ attitudes and calculating your self-worth in the eyes of others is a losing strategy. Do what you think is best for you (and your immediate family).
SR
Dear Surya, yes I understand what you mean and I also agree with Ramesh here. We have to take initiative and we have to take responsibility towards fulfilling our goals.
I think with movies like 3 idiots and ZNMD, I am sure indians will get it eventually as well. 🙂
Waiting for Subra Sir’s new post only then we can take this discussion further.
Balaji
Hi SR, Surya, Nitish and others,
You may find the answers to most of your questions in the blog posts here..
http://www.mrmoneymustache.com/
Regards,
Balaji.
Pravin
homeschooling is fine, if you are used to not feeling peer pressure,and you have the quality time to spare for it.
i wish to home school my child.i dont have the guts to do it.
shinu
Subra sir
Anybody in retirement mode 5-8 years back in cyprus with 100, 000 euros each in savings a/c, with money investment in govt (greek) backed securities and funds/ stocks would be poorer by 80-90% if not more. Even the govts changed with new promises. Only prayer and probably “gold” could have saved them from this disaster…
Surya
Dear Ramesh,SR ,
Thanks for the thoughts . Agreed – Everything is in the mind – i.e. thought which will dictate your actions and so your life .
subra
bang on Shinu – will be saying exactly that in my post. Trying to predict 50 years from today is amazingly brave.