Last Updated on September 4, 2018 at 10:50 am
Freefincal has its origins in retirement calculators. For a long while, all I did was to make different variations of retirement sheets, input my numbers and stare at the results. Soon I went on to make different inflation-protected income generators
The idea here is to divide the retirement corpus into different buckets. Some buckets are fixed income instruments which provide income for immediate and near future and some are equity which are to provide income after 10Y or so.
Income ladders with FDs can be used to generate income for 5Y intervals and this income will grow at a pace equal to the expected inflation (8% or so is the typically used no).
Then followed the even lower stress retirement calculator
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This was a combination of a standard retirement calculator with the inflation-protected income generator. Krishnan Muthusubramanium pointed out at FB group Asan Ideas for Wealth, the stress associated with retirement planning reduces significantly with this tool, only if a reasonable corpus is already available.
It is then that I realized that I have never used this sheet with my data. With the automated mutual fund and financial goal tracker, a standard retirement calculator is attached which auto-updates each time I refresh NAV.
This is my updated retirement planning story .. so far.
I have been investing for retirement since Jan 2007 and so far I have focussed on investments only:
- Have I managed to invest the necessary amount?
- Have I managed to increase the investment amount by the necessary percentage (as assume in the calculator)
Although I have 60% equity and rest in NPS + PPF in mind, it took me a few years to get to this asset allocation.
The standard calculators told me that I will be able to retire by age 55 or so. I did not mind too much as my slated retirement age is 65. A few years ago I took this number for granted. Today, considering everything, I will be surprised if I live that long. Anyway, the point is, I was not rattled by this 55 no. I love my job and I am not in any hurry to retire/quit. For the simple reason that I don’t know what I will do with myself if I am not teaching.
Anyway, the point is, I was not rattled by this 55 no. I love my job and I am not in any hurry to retire/quit. For the simple reason that I don’t know what I will do with myself if I am not teaching.
The following were the details and assumptions made with the even lower stress retirement calculator
- Inflation before and after retirement: 9%
- Return from equity: 12% (usually I use 10%, this time I choose to relax it a bit!. Assuming 10% will delay retirement by less than a year)
- Post-tax return from debt taxable: 9.5% from NPS assumed fully taxable at 30.9%. So 9.5%*(1-30.9%) =6.565%. I have assumed that NPS proceeds will be fully taxed. There is an argument that this is tax-free for government employees. I am assuming this is incorrect.
- Post-tax return from tax-free debt: 8% from PPF (invest very little here)
- If I retire before 60, 80% of my NPS corpus will be annuitized to provide some constant income. I have ignored this pension income. This is a considerable income. At current annuity rates will be equal to my present monthly expenses.
- Annual increase in monthly investment from now to retirement: 10%
- Equity allocation 60% and debt (NPS) allocation 40%. So net portfolio return is 12%(60%) +6.565%(40%) ~ 10%
- Current and future values of equity mutual fund, NPS and PPF are considered for retirement corpus calculation.
- The inflation-protected income was generated with the inputs used in this example assuming 25 years in retirement.
Result
For the kind of monthly investment I can currently manage, assuming I can do so in the near future, I can become financially independent in the next 8-9 years.
My current equity return is way above my expectations. If that continues for the next few years, 8/9 years will reduce significantly. I have also not considered the decent annuity I could receive.
This was a pleasant surprise to me. I think for the kind of inflation levels that we have, achieving financial independence well before age 50 (and up to age 75) is something to be happy about.
Of course, all this will change if there is another 2008 like scenario in the next few years.
Why did I share this?
I hope you do not perceive this post as an attempt to brag. Although I admit that I am proud of this achievement, that is not my intention.
I am a first-generation equity investor and my salary levels are quite low compared to corporate standards for the kind of responsibilities that I handle.
When I started out, I had no net worth that I could all my own and in fact had debts to clear.
So much of this is because of MDBSC* (I do not use SIPs anymore to invest but make sure I invest enough each month)
Although we had our share of unexpected expenses, life was kind enough to allow us to invest systematically. Full credit to my wife for backing me up on this.
The reason I wanted to share this post is to point out that all this was done with no direct equity exposure (I do enjoy small dividends from Colgate-Palmolive but that is not included in the above).
My point is that it is not necessary.
Starting as early as possible, investing as much as possible. Those are the keys to investment success.
Direct equity and the associated stress is really not necessary. Although I have come to realize that it is not as difficult or as time-consuming as I thought it will be, it is still not necessary. Mutual funds will get the job done with half the stress.
Many consider stocks as a way to compensate for not enough investing enough. Many see stocks as a short-cut to riches. Very few understand the associated risks. I have no doubt that direct equity has the potential to beat mutual funds. Just pointing out that not everyone can manage to do this.
Many people find retirement planning daunting and think that they can never pull it off. To them, I say that, a few years of MDBSC* plus a bit of encouragement from markets will lift our spirits. It is sure to get better with time.
Much of my gains from equity came because of the recent bull run. Prior to that, I was accumulating mutual fund units during the sideways market period.
When the markets picked up, I had enough capital in the market to boost my net worth.
Time in the market means nothing unless it implies (as much) capital (as possible) in the markets.
If I can get to this notional stage after about 8 years of investing, I am sure anyone can. All it takes is a bit of discipline with a desire to make our investible surplus work hard in productive instruments.
Updates
The rise and fall of my retirement corpus Dec 2016
Analysis: My Mutual Fund Investing Journey Feb 2016
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Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 14 years of experience publishing news analysis, research and financial product development. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice. Connect with him via Twitter(X) LinkedIn YouTube Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (Published by CNBC TV18) for DIY investors. 
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