How to create a retirement income plan for 27-year old Amar (Case study)

Published: January 20, 2018 at 9:57 am

Last Updated on December 28, 2021 at 6:27 pm

We discuss how to create a retirement income plan with 27-year old Amar as a case study. We shall consider asset allocation for each year of investment before and after investment and how Amar can derive an inflation-protected income and be financially free after retirement. This is step 11 of Re-assemble, a series on the basics of money management aimed at beginners and young earners. The full list of steps with links can be found below.

What is inflation-protected income? A retirement income that increases each year as per the needs of the family. It takes into account inflation in expenses as well as due to lifestyle modifications. Young earners today should not be thinking and be talking about constant income or pension in retirement. They should consider how to consistently beat inflation with an inflation-protected income (also known as inflation-indexed income).

Read more: Generating an inflation-protected income with a lump sum.

What is financial freedom? The ability to generate inflation-protected income for given number of years, preferably until the death of the youngest dependent.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

How to create a retirement income plan

We shall use the freefincal robo advisory template to create a retirement income plan for 27-year old Amar who is married to a 25-year old homemaker. Last week, we had considered a case study for unmarried young earners less than 25: Investment planning case study 1: How to create an investment plan.

Amar is 27 and salaried and hopes to retire by 58. Recommendation: this is okay for a start, but suggest pushing to lower and lower gradually. Less than 30-year olds today must focus on retirement by 50 (20 years of “bound” labour).

Therefore we shall plan for retirement income from the time Amar reaches 58 to the time his wife (younger spouse in general) reaches 90. Therefore, Amar has 31 years to invest (the most precious asset) and needs to plan for inflation-protected retirement income for 34 years.

We shall consider 8% inflation before and after retirement. If this seems low to you, it is because you have bothered to calculate your personal inflation rate and/or have not handled unexpected recurring expenses (my prayers that you don’t have to). Do not take the inflation numbers published by the government seriously, they mean nothing.

Some people talk about “real returns” as if it is some profound concept. It is not. All you need to be clear about is (1) a practical inflation in expenses and (2) a practical tax-free rate of return for your entire portfolio. You need to be ready to handle at least 8% inflation. This way, if your actual inflation is less, you would have built yourself a nice corpus to handle medical emergencies.

The video tutorial is linked below. First, an overview is presented.

Why should Amar worry about generating retirement income?

At 8% inflation, in 9 years, his current expenses will double (repeat, just his current expenses. He will have to re-do the retirement calculation once a year). In 18 years, it will 4 times the current expenses.

create retirement income plan: how expenses increase

In 27 years, 8 times and by the times his income stops (aka retirement!), it will be about 11 times current expenses. So Amar should worry, but do so productively – by starting investments as soon as possible.

Why is the corpus needed for inflation-protected retirement income so big?

Hold on to your chairs and take a deep breath. Amar will have to have about 21 Crores, 27 lakhs ready by age 58. He will have to begi investing about 57, 500 immediately increasing at 7% a year, in a portfolio of 60% equity and 40% fixed income. I know people who have lost sleep for days after using my calculators. Amar, however, need not worry even if he is not able to invest that much. He has time on his side and the robo template assumes 8% inflation, only 10% returns from equity – hey we are projecting 31 years into the future. I am not a sales guy to assume 18% returns so that my clients “c;loses” the deal (and his brains).

So expect the corpus to be high. It is better to aim for the 1st floor even when there is more than ample chance to be able to the 5th. Expect less and you won’t be disappointed! Am I being pessimistic, not really. I have quite optimistically assumed 6-7% returns from fixed income. This is unrealistic over the next 3 decades and it is better to expect less, but let us not be realistic to the point of discouragement.

Variable asset allocation for building the retirement corpus

Starting with 60% equity exposure, Amar can gradually taper down to about 25% at retirement and maintain that.

creating retirement income plan: variable asset allocation

Variable portfolio return due to variable asset allocation

As the portfolios equity exposure decreases, so too does the expected net return from the portfolio. The retirement corpus is so big because this is factored in from day one. Most retirement planning tools (including my early ones) do not consider this crucial aspect. Welcome to the real world!

retirement income plan: how portfolio returns change with time.

Creating retirement income with buckets

The robo template assumes that the corpus will be distributed among the four buckets shown below. The income bucket will be used to generate inflation-protected income for the first 15 years in retirement. During the period, as per market conditions, money can flow from one bucket to another.

retirement income strategy with buckets

Another possibility:

retirement bucket strategy: shifting money among buckets

Please note that such switches cannot be calculated now.

Rebalancing the buckets is a fantastic game and you can try the switching with random market returns to see how well you are doing:

Play The Retirement Bucket Strategy Simulator


How to create a retirement income plan: video tutorial

Here is step by step walk-through of the robo advisory template filled by Amar. I have considered only the retirement planning section. This is an unrehearsed single take video as my Myasthenia Gravis prevents me from talking too much and too long. I wore out my cheek muscles after this, but hey after 5+ years with the autoimmune condition, I have learned to live with it. If life gives you lemons, you aim to make tequila with it. So please do bear with me as I think on my feet.


This weekend, do explore the videos in freefincal youtube channel. If you are new to Re-assemble, then here is a sample video.

Will Amar be able to retire with financial freedom?

Mr. and Mrs. Amar have time on their side. So I am more than confident that with disciplined investing and disciplined risk management, they will be able to retire comfortably and fight inflation. Let us thank Amar for taking time to fill out the robo template and wish them all the very best.

Re-Assemble: a recap of the steps

Many of you may be on vacation this week. Now would be a perfect time to work on these steps.

₹e-assemble by is a series on the basics of money management for yougn earnersStep 1: Listing your goals dreams and nightmares

Step 2: Lay the Foundations to Get Rich creating an emergency fund

Step 3: How to buy Term Life Insurance

Step 4: How to choose a suitable health insurance policy

* Apollo Munich Optima Restore Benefit vs Max Bupa Re-fill Benefit 

* Star Health Comprehensive Insurance vs Religare Care Comprehensive Insurance

Building a health insurance comparison chart + Cigna TTK vs Royal Sundaram Health Policies

*  How to buy a Super Top-up Health Insurance policy

How I selected a health insurance policy

Why we all need a corpus for medical expenses and how to build it

Step 5: How to select a credit card for maximum benefit

Step 6: How to track monthly expenses and manage them efficiently

Step 7:  How to close your loans and live debt-free

Step 8:  How to buy a personal accident insurance policy

Step 9: Are you ready to let go and let your money grow?

Step 10: Investment planning case study 1: How to create an investment plan

Step 11: Retirement planning case study 2 (this post)

Coming soon:  other case studies and portfolio management with examples from readers.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • 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.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr 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 ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), 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 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 3,000 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 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 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!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
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 is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the 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 with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will 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
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished 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 Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis 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

Travel-Training-Kit-Cover-new This is an in-depth dive 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 300 (instant download)