Last Updated on February 12, 2022
Suppose we have Rs. one Crore with us today, can we retire with it? Let us punch some numbers in the freefincal robo advisory template and check what good is Rs. 1 Crore.
One Crore is a psychological or emotional benchmark for wealth. Financially it is just one followed by seven zeros with its value constantly eroded by inflation. That said, it is still a good chunk of money as we shall see below.
Assumptions
Every projection will have assumptions and the following are made in the robo advisory template
Inflation before and after retirement: 8% (to a small extent, this can factor in lifestyle changes)
Life expectancy: 85 years (could be more, but on average, this is reasonable)
Return from equity: 10% (better to be cautious and this could be the case a couple of decades from now)
After retirement return from instrument providing income is 6% (post-tax)
Return from fixed income (used as investment) is 7% (post-tax).
The retirement corpus (when possible) will be invested in four buckets:
B1: income for first 15 years in retirement
B2: low -risk bucket with 20-50% equity depending on age of the retiree
B3: Medium-risk bucket with 30-70% equity (again age dependent)
B4: High-risk 70% or 100% equity.
While B1 provides inflation protected income for the first 15 years in retirement, B2, B3, B4 grow for later use.
In this example, if one crore is less than the total corpus necessary to invest in the four buckets, a much simple suggestion will be provided.
We will assume emergencies will be handled from other sources. This is a weak assumption, but do play along.
There are some more details, but let me not bore you with them. On to the examples for all ages from 60 to 30.
A 60-year old with Rs. 1 crore
Monthly expenses: Rs. 60,000 + another Rs. 60,000 for annual expenses (say health insurance)
There is not enough money to provide inflation protected income for the first 15Y. Taking any form of investment risk is ill-advised. So the robo says: Buy an annuity and seek constant pension.
Monthly expenses: Rs. 40,000 + another Rs. 40,000 for annual expenses
Now, about 89L is necessary to generate inflation protected income for first 15Y in retirement. However, 52L is necessary to do the same for the remaining 11 years. Only, 10.8L is in hand.
This again amounts to an excessive risk. The person will have to buy an annuity sooner or later. This is a tricky case requiring a SEBI registered Human advisor. I am still trying to see if the advice here can be automated.
Monthly expenses: Rs. 30,000 + another Rs. 30,000 for annual expenses
Now, 66.9 L is needed for 15Y inflation-protected income. Another 39.4L for the rest of the person’s life. So 1.06 Crore in all against 1 Crore in hand. That is pretty good. The person can adopt a bucket strategy with zero or minimal equity exposure.
Now let us look at the case for younger people. Obviously, the result will change depending on expenses as shown above, but I cannot show all possibilities here.
A 55-year old with Rs. 1 crore
Monthly expenses: Rs. 30,000 + another Rs. 30,000 for annual expenses
Rs. 66L is necessary for the first 15Y and another Rs. 56L for the rest. So the corpus is about 23L short. This is “cat on the wall” situation. Take risk and it may become too much risk. Taking no risk is also a risk! If the person chooses not to buy an annuity, then careful portfolio management is essential.
A 50-year old with Rs. 1 crore
Monthly expenses: Rs. 30,000 + another Rs. 30,000 for annual expenses
Now, 1.35 Crores is necessary. About 67 L for the first 15Y and 69 L for the remainder of the person’s life.
Again, it is on the fence.
A 45-year old with Rs. 1 crore
Monthly expenses: Rs. 20,000 + another Rs. 20,000 for annual expenses
At last, only 99L is required to be invested in the four buckets as shown below! The person can comfortably retire (as per current expenses!)
A 40-year old with Rs. 1 crore
Monthly expenses: Rs. 30,000 + another Rs. 30,000 for annual expenses (say health insurance).
An additional 66L is required. The person cannot retire.
A 35-year old with Rs. 1 crore
Monthly expenses: Rs. 20,000 + another Rs. 20,000 for annual expenses (say health insurance)
Now there is a shortfall of 18L. Too risky to retire that young. Many youngsters in early retirement forums believe that it is possible, but if they see a bit more of life, they will agree that it is simply too risky. A single unexpected recurring expense can screw up the whole plan.
So the answer to “Can I Retire With Rs. One Crore Today?” depends on several factors. It is certainly not impossible as the above example show. As mentioned this is a sneak preview of the post-retirement suggestion provided by the robo template. It will also cough up pre-retirement suggestions.
A 40-Year-old with 1 Crore wanting to retire by 55
Monthly expenses: Rs. 40,000 + another Rs. 40,000 for annual expenses (say health insurance)
Get the freefincal robo advisory template
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
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 nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)