Is it possible to retire early in India?

Is early retirement in India possible? Can a 45-year-old with ‘enough’ saved up, hang up his boots and avoid a full-time job for the rest of his life?

In this post, I do a feasibility study considering three different scenarios for early retirement to determine the most practical approach.

Early retirement is a phrase that has become extremely popular in recent year thanks to successful blogs like

  • Early Retirement Extreme
  • Mr. Money Mustache
  • Getrichslowly
  • The Simple Dollar

and many more that have cropped up by inspiration.

Many Indians get inspired by these blogs and seek early retirement without understanding the implications of inflation levels in India and what it actually means to a retirement plan. Some even have designed retirement calculators ignoring post-retirement inflation!

No one seems to understand how fragile their plans look on paper. So this post is to debunk some popular notions on early retirement and to provide a reasonably practical solution.

Early retirement is an extremely common dream. You long to say good-bye to your tough corporate job, tell your evil boss to f%%% off, begin an entirely new phase in your life!

Almost everyone dreams it, but only a few people decide to do something about it. Will those few succeed? How practical is it to retire early in a country where inflation is close to double digits?

Let try and answer these questions in this post by taking the case Brainy Smurf. Regular readers may recall we considered Grouchy Smurfs retirement planning with fixed and recurring deposits.

Brainy Smurf is a nerd who loves numbers. He would like to meticulously plan his retirement before quitting his job. He is convinced that with a frugal lifestyle and intelligent investing, he will be able to retire early in India.

brainy

Brainy Smurf explaining to Papa Smurf about early retirement while inflation is preparing to strike! Photo Credit: Vik Nanda

Note: Although this post considers early retirement is meant for everyone. All of us should understand why it is crucial to plan for retirement as early as possible and invest as much as possible – preferably, as much as you spend!

This is a lengthy post where we consider different scenario cash flow charts with graphs. I would like the reader to observe the cash flow charts and make their observations.

If you are serious about early retirement, you will need to spend extra time with the charts.

Let us now run through Brainy Smurfs numbers and check see where he stands.

Age at retirement: 45

Years in retirement: 45! (He assumes he will live up to 90)

Monthly Expenses:  20,000 per month.  This is much lower than most Indian households. When you reach the end of this post, recall this fact and figure out what would the situation if monthly expenses are higher than this!

Annual Expenses:  20,000 X 12 + 20,000 = 2,60,000.  We add an extra months expenses to account for health insurance, and other annual expenses. We are going to use these inputs in three scenarios:

  1. The Income drawdown strategy (decreasing corpus)
  2. The constant withdrawal rate strategy (increasing corpus)
  3. Using a perpetuity (constant corpus)
  • Accounting for the unexpected

 Scenario I: The Income drawdown strategy (decreasing corpus)

Inflation: 8%. Return expected on retirement corpus 8%. The real return  is zero. That is our annual return is equal to the average rate of inflation. Using the how much is required to retire? tool, we find that the corpus required is 1,17,00,000 or 117 Lakhs. Here is how the cash flow chart would pan out.

scenario-1

 

Notice how the corpus initially increases and then decreases when expenses become high due to inflation.

It becomes zero after 45 years. This is known as an income drawdown strategy. Brainy allows his corpus to grow at some rate (8% in this case) and withdraws from it each year to handle his expenses that increase each year with inflation (8% in this case).

The real rate of return =(1+return)/(1+inflation)-1 = 0%

Notice how the withdrawal rate  = expenses/(corpus value @ year start), rapidly increases.

scenario-1g

 

Myth: Withdrawal rate is a constant

Truth: Withdrawal rates are constant only if you plan for them to be so. In a drawdown strategy, the withdrawal rate cannot be constant even if inflation is assumed to be zero!

Scenario II: The constant withdrawal rate strategy (increasing corpus)

In this case, the percentage Brainy withdraws from a corpus at the start of each year is assumed to be a constant.

That is Brainy will need 2,60,000 in the first year of retirement. So assuming a withdrawal rate of 3%, he will need a corpus of 86.7 Lakhs to start with.

Notice this is considerably lower than the 117 Lakhs need in the drawdown strategy.

If inflation is assumed to be zero and for 3% withdrawal rate each year in retirement, brainy Smurf  will only need a return of 3.1% on his corpus.

His corpus will not reduce in value and will remain 86.7 Lakhs after 45 years! Since inflation is zero, the real return = return = 3.1%

For an inflation of 3%, the return required = 6.2% and real return = 3.1% for each year in retirement to maintain the withdrawal rate constant at 3%

For an inflation of 8%, the return required = 11.34% and real return = 3.1% for each year in retirement to maintain the withdrawal rate constant at 3%

This is how the cash flow chart looks like

scenario-2

The top cell in the withdrawal rate column is green to signify that it is an input. This is how the corpus grows with time.

scenario-2g

 

Lower the withdrawal rate, higher the initial corpus required lower the return.

For example, for a withdrawal rate of 5%, Brainy would need only 52 Lakhs to start with, but require an annual return of 13.7%

For a withdrawal rate of 1%, Brainy would need only 260 Lakhs to start with, and required an annual  return of 5.3%. (Thanks to Satish for pointing out a mistake here)

So he needs to find an optimum withdrawal rate to keep the initial corpus and return required low.

However is this scenario practical? Can you manage a real return of 3.1% year after year for the kind of inflation that exists in India? Many of the early retirement fans seem to think it is not such a big deal!

Have to find out what they are smoking! One could argue that a real return need not be obtained each year in retirement, and it is some kind of average after a few years.

Point taken. However, we are talking the return for the entire corpus to grow. So even if we invest part of the corpus in equity and part in debt, how practical is to achieve an average real return of 3%? This would mean much of the corpus will have to be in equity.

So a couple of bad years and Brainy would be screwed.

They also talk of something called a safe withdrawal rate(SWR). This is the rate at which one can withdraw from a corpus taking into account volatility in its growth rate and inflation. All this talk of SWR is impractical in a high inflation rate scenario.

What one needs is a Safe rate of return. That is, before we actually retire, we should plan with a volatility-free return, that can be realistically achieved year after year in retirement.

After we retire, we should divide the corpus in different buckets and allow them to grow at different rates.  Even then, the net portfolio return has to be realistic!

Resigning our job in the hope of achieving an unrealistic high net portfolio returns is madness.

Retirement math is simple.  No matter when you retire, the math is the same. It is neither shocking simple, not alarmingly complex. You do not need concepts like SWR.

Prepare for the worst and pray for the best. To assume that withdrawal rate ( = SWR) will be constant in retirement, for high inflation scenarios is plain dumb in my opinion. I will leave you to be the judge.

Scenario III: Perpetuity (constant corpus)

Perpetuity is nothing but an pension or annuity that is constant and forever. Such annuities are sold by insurance companies and last until the lifetime of the retiree.

If you want one to last forever (that is outlive you) your corpus will have to increase each year by the exact same amount that you withdraw.

Then the corpus will never diminish like it does in a drawdown strategy (scenario I), nor will it increase like the constant withdrawal rate strategy (scenario II).

When inflation is zero, scenarios II and III become identical.

Now with 8% inflation, if Brainy uses 117 Lakhs as the corpus required (same as scenario I), this how the cash flow chart pans out

scenario-3

 

The green cell indicates that corpus is an input in this case. Although the corpus is constant, notice the return required.

scenario-3g

 

Notice the return required is low initially and the rapidly increases.  Therefore, for nearly 20 years the real return is quite small and in fact negative for several years initially.

After that it is impractically large! So assuming again the idea of a perpetuity as it is defined will not work in a high inflation rate scenario.

Hey! Wait a minute, the return required for the first several years is too small. Why can’t Brainy assume a higher rate of return? He sure can!

Only that it will not become a perpetuity then.

For example. If the rate of return required is an achievable 8% (= inflation rate) for all 45 years, then you will simply reproduce scenario I. That is the corpus will reduce to zero.

If you take the rate of return is higher than the inflation for all years in retirement, you will reproduce scenario II: the corpus will increase. Again, the question of how practical this is, looms large.

Mixed Bag Scenario

What if we combine Scenarios I and III? That is choose 10% as required return for first 20 years in retirement (real return 1.85%, still a tall order but barely manageable), 8% as required return for next  years (real return is zero since inflation is 8%) and then plan for a perpetuity

. That is we choose scenario I for first 25 years in retirement and then switch to scenario III for the last 20 years. Here is the cash flow chart

scenario-4

 

The green cells as usual represent the variables. Notice that return required is now just about manageable for almost 41 years in retirement. That is a reasonably good achievement.

scenario-4g

 

Notice how the scenarios are combined. We have used the fact that the corpus grows in the initial phase of scenario I and combined it with the constant corpus perpetuity in scenario 3.

The region in scenario I when the corpus starts to decrease has been avoided. This provides a reasonably manageable scenario. The starting corpus used is the same as in scenario I: 117 Lakhs.

Scenario IV: Accounting for the unexpected

Phew! If you have made it to this point, thank you very much!

Now, all of the above are scenarios on paper. Life does not work quite like that.

Trouble with the early retirement extreme folk (including Brainy) is that they think frugality and DIY can solve all problems of life. This is nonsense.

You may want to be frugal, but life may not allow you to do so. You may think you have your expenses in control when an unexpected recurring expense can wreck havoc on your plans.

Banking on frugality to defeat inflation is dumb. Yes, frugality will help you combat inflation but you will also have to take into the ups and downs of life. I can tell you with the full benefit of hindsight that a frugal lifestyle has helped me keep expenses in check. I cannot however assume that it will continue to remain the same.

I may buy only what I need, but that can change with time!

We have already discussed the trouble with banking on real returns after retirement.

So what does this mean for Brainy? What scenario should he choose?

Brainy should plan with a drawdown strategy – this is the standard used in all retirement plans. When it comes to implementation he should choose the bucket method which in some sense a variation of the mixed bad scenario discussed above and try to prolong the life of the corpus as much as possible without taking undue risks.

Bottomline: Do not hate your job too much! If you are not assuming realistic rates of return and inflation, you will not able to retire as early as you think.

Besides if you don’t know how to spend your time in retirement, why bother retiring? Your time would be better spent investing wisely and enriching your skill set.

Dear Brainy Smurfs, Get real!

Do not retire early if your corpus is lesser than that given by the drawdown strategy with reasonable inputs.

What do you think? Do you think it is possible to retire early in India?

What if the expenses were higher than that assumed here?

Download free e-book: E-book: How to retire early in India

=-=-=-=-=-=-=-=-=-=

You Can Be Rich Too With Goal Based Investing is now 30% OFF at at Flipkart . The Kindle edition(you can use the free app to read it). is available for only ₹90.74.  The Google Play Store editionOpens in a new window (read on PC/Tab/mobile) is also available for the same price. Grab them before the offer ends!

Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. You need to only cover my travel fare for the session.

Connect with us on social media


Do check out my books


You Can Be Rich Too with Goal-Based InvestingYou can be rich 243x300 - Is it possible to retire early in India?

My first book is now available at a 35% discount for Rs. 258. It comes with nine online calculators.  Get it now .  The Kindle edition is only Rs. 199.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Cover pink - Is it possible to retire early in India?
My second book is now only Rs 199 (Kindle Rs. 99) Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.   Get the pdf for ₹199 (instant download)

Create a "from start to finish" financial plan with this free robo advisory software template


Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

109 thoughts on “Is it possible to retire early in India?

  1. ha ha! Bang on! I didn't take taxes into account on purpose. I have used a low almost impractical monthly expense to point out how even that requires a large corpus. At 2.6L pa one can assume income to tax-free in the coming years.If expense is 40K a a month and if one includes tax, one can safely kiss early retirement plans goodbye!

  2. ha ha! Bang on! I didn't take taxes into account on purpose. I have used a low almost impractical monthly expense to point out how even that requires a large corpus. At 2.6L pa one can assume income to tax-free in the coming years.If expense is 40K a a month and if one includes tax, one can safely kiss early retirement plans goodbye!

      1. I am firm believer of that Pattu. Once you stop working, you start decaying. Unless, of course, you start playing golf!!

      1. I am firm believer of that Pattu. Once you stop working, you start decaying. Unless, of course, you start playing golf!!

  3. Looks like I will continue working for couple of years more. Sad about it, but thank you Pattu for highlighting the pitfalls.

    1. Dear Pradeep, do not stop even after 2Y. Keep working. Yes you may change job from high paying but not you love to low paying but you love. Retiring permanently is going to create issues later on when you ‘ll not have the capacity to handle the BLACK SWAN events.

      Thanks

      Ashal

    2. Thanks Pradeep. As Ashal say, never quit until you have enough corpus to retire with fixed income instruments. If you want to invest in equity, invest only a small portion of it. Learn about the bucket method etc.

      1. Thanks Ashal and Pattu. The worry is the energy one spends on creating a realistic corpus may eventually leave one incapacitated to handle black swan. Stop working means stop working for corporates and their appraisal system and do what u like as u said not for income.

        1. Agree with you Pradeep. You will need to strike a balance. If you must retire early do so only if you can walk into a job at any point in your life!

  4. Looks like I will continue working for couple of years more. Sad about it, but thank you Pattu for highlighting the pitfalls.

    1. Dear Pradeep, do not stop even after 2Y. Keep working. Yes you may change job from high paying but not you love to low paying but you love. Retiring permanently is going to create issues later on when you ‘ll not have the capacity to handle the BLACK SWAN events.

      Thanks

      Ashal

    2. Thanks Pradeep. As Ashal say, never quit until you have enough corpus to retire with fixed income instruments. If you want to invest in equity, invest only a small portion of it. Learn about the bucket method etc.

      1. Thanks Ashal and Pattu. The worry is the energy one spends on creating a realistic corpus may eventually leave one incapacitated to handle black swan. Stop working means stop working for corporates and their appraisal system and do what u like as u said not for income.

        1. Agree with you Pradeep. You will need to strike a balance. If you must retire early do so only if you can walk into a job at any point in your life!

  5. Pattu, Do you know Peter ponzo of canada? Well, he has created a portal named gummy-stuff. Org and has hundreds of links which opens in to spread sheets but all for american/canadian market. You remind me of him wrt the hard work you put in to educate the investors. Do visit his site to have glimpse of what he has done over the years.

  6. Pattu, Do you know Peter ponzo of canada? Well, he has created a portal named gummy-stuff. Org and has hundreds of links which opens in to spread sheets but all for american/canadian market. You remind me of him wrt the hard work you put in to educate the investors. Do visit his site to have glimpse of what he has done over the years.

  7. Hi Pattu, was roaming your homepage for a nice read and stumbled upon it. Its actually a hard question to answer.
    Mostly people who want to retire early, say 45, wish to retire from their “regular job” and want to pursue their hobbies or start looking for the dream job. To pursue a hobby, suppose cooking in your owned restaurant or being a mechanic in your own garage, needs planning too.
    These people would like to have a regular passive income, say 20-25k. If their business is not going well, they will have some amount to keep them going on daily basis.
    I think Two questions they should ask is “what will I do after 45?” “How much I need to Build my Garage?”
    40 years is a long time. You don’t want to count money left in your corpus after each passing month. Be prepared if you want to retire early.

    1. Thanks Piyush. Yes, I agree with you. These are most important considerations for the early retiree. Thank you.

  8. Hi Pattu, was roaming your homepage for a nice read and stumbled upon it. Its actually a hard question to answer.
    Mostly people who want to retire early, say 45, wish to retire from their “regular job” and want to pursue their hobbies or start looking for the dream job. To pursue a hobby, suppose cooking in your owned restaurant or being a mechanic in your own garage, needs planning too.
    These people would like to have a regular passive income, say 20-25k. If their business is not going well, they will have some amount to keep them going on daily basis.
    I think Two questions they should ask is “what will I do after 45?” “How much I need to Build my Garage?”
    40 years is a long time. You don’t want to count money left in your corpus after each passing month. Be prepared if you want to retire early.

    1. Thanks Piyush. Yes, I agree with you. These are most important considerations for the early retiree. Thank you.

  9. Interesting post .But i believe with kind of monthly expense 20-25k to start with retirement is possible with 50 lk.Here’s how keep around 12lk in debt funds and around 38 lk in equity funds to start with.Basically keep around 5 yr cover in debt funds.Since u would be withdrawing monthly or weekly from debt fund the corpus of 12 lk over a period of five yrs would grow too depending on inflation.Now Assuming GDP growth 4-5 % ,very conservative haan,the equity portfolio would give REAL RETURNS in the region of 5-6 % assuming 1-2 % out performance.So ur equity part would give u a real return in the region 12-13 lk ,now this is excluding the inflation part of return,delibrately ommited as the focus of my reply is equity allocation should be sufficient to generate a real return to cover for the real capital consumed from debt.If a 5 % inflation is factored in the 38 lk would grow to 64 lk .Take any benchmark index in the world over long time that is around 10 yr the returns are inflation+GDP+outperformance.For eg for sensex it is around 18 % for last 10 years and for dow around 7.5%.The only catch here is the volatality of equity markets,that can be countered by keeping 5 yr debt cover so that u don’t have to sell equity in case of a market correction.Finally as somebody in the thread mentioned retirement does not mean u stop working all together,but it is rather quiting the daily grind to do something where u have your own free will and engage in hobbies which u missed out.Think about it if i have 40-45 years in retirement will i keep everything in fixed income?Why would i ?

    1. To me this wishful thinking Deep. You are completely ignoring standard deviation in the argument. Please tell me the probability of getting a real return of 1% (forget 5%) from equity, year-on-year? A couple of bad years is enough for you to rejoin the rat race.
      5% inflation in India is simple not practical. Lool at my real inflation numbers post.

      1. The returns on equity won’t be smooth as i already mentioned its volatile,hence the 5 yr debt cover “u don’t have to sell equity in case of a market correction”.Regarding inflation irrespective of its level the above calculation holds true.The point is equity will deliver real returns but not in yearly pattern but in a volatile manner down 20 % one year up 30% another year.Check out any benchmark indices return CAGR over a period of time.Sensex has given around cagr 17% in last 10 years,which is i would say 2-3 % outperformance over nominal GDP growth(Real GDP+inflation).Even in the case of a market correction from current levels to say 20% ,it is still 15% cagr for last 10 years.There are basically two major variables in this approach size of your equity asset and gdp growth,which determines whether u can cover for the capital eroded.Finally what i feel is the wrong and the over abused use of the word “RISK”.So many of personal finance articles,discussions and various media invariably attach the word RISK with equity.The correct word should be “VOLATILE”.

        1. Please check the associated standard deviation with those 15% and 17% percent figures. The standard deviation is still high enough to make the return a single digit figure. There are 7-8 periods when the sensex has remained flat. Besides that figure you quote is heavily influenced by the Harshad Mehta scandal when the Sensex returned. 272%. Get that out of the equation with tool and check for yourself:
          http://freefincal.com/understanding-the-nature-of-stock-market-returns/

          1. The harshad mehta scandal happened in early 90s.i have said last 10 year data.Besides market regulation is far better today and size and depth of the market itself makes it impossible to manipulate that is unless u r dealing in penny stocks .Single digit return is possible definitely over 5 yr period,thats the reason for the debt cover,may be a 7 yr cover if u r risk averse.The key is to sell equity to replinish debt cover in a rising market perhaps similar to what a fund like FT Dynamic PE does.But i personally feel that the days of very high volatality is over for index.The reason is the relative size of emerging markets today is not as small as it used to be .

          2. I did not say such a scandal will happen again. I said if you remove the scandal out of the equation, long term equity returns are much lower. The 15% cagr figure is heavily influenced by the number.
            Use the std dev with 10Y return and you will know how high the probability of single digit return is.
            I think it is extremely dangerous to assume volatility will decrease. That is the only thing that has remained constant about the market.
            Anyway, let us agree to disagree.

  10. Interesting post .But i believe with kind of monthly expense 20-25k to start with retirement is possible with 50 lk.Here’s how keep around 12lk in debt funds and around 38 lk in equity funds to start with.Basically keep around 5 yr cover in debt funds.Since u would be withdrawing monthly or weekly from debt fund the corpus of 12 lk over a period of five yrs would grow too depending on inflation.Now Assuming GDP growth 4-5 % ,very conservative haan,the equity portfolio would give REAL RETURNS in the region of 5-6 % assuming 1-2 % out performance.So ur equity part would give u a real return in the region 12-13 lk ,now this is excluding the inflation part of return,delibrately ommited as the focus of my reply is equity allocation should be sufficient to generate a real return to cover for the real capital consumed from debt.If a 5 % inflation is factored in the 38 lk would grow to 64 lk .Take any benchmark index in the world over long time that is around 10 yr the returns are inflation+GDP+outperformance.For eg for sensex it is around 18 % for last 10 years and for dow around 7.5%.The only catch here is the volatality of equity markets,that can be countered by keeping 5 yr debt cover so that u don’t have to sell equity in case of a market correction.Finally as somebody in the thread mentioned retirement does not mean u stop working all together,but it is rather quiting the daily grind to do something where u have your own free will and engage in hobbies which u missed out.Think about it if i have 40-45 years in retirement will i keep everything in fixed income?Why would i ?

    1. To me this wishful thinking Deep. You are completely ignoring standard deviation in the argument. Please tell me the probability of getting a real return of 1% (forget 5%) from equity, year-on-year? A couple of bad years is enough for you to rejoin the rat race.
      5% inflation in India is simple not practical. Lool at my real inflation numbers post.

      1. The returns on equity won’t be smooth as i already mentioned its volatile,hence the 5 yr debt cover “u don’t have to sell equity in case of a market correction”.Regarding inflation irrespective of its level the above calculation holds true.The point is equity will deliver real returns but not in yearly pattern but in a volatile manner down 20 % one year up 30% another year.Check out any benchmark indices return CAGR over a period of time.Sensex has given around cagr 17% in last 10 years,which is i would say 2-3 % outperformance over nominal GDP growth(Real GDP+inflation).Even in the case of a market correction from current levels to say 20% ,it is still 15% cagr for last 10 years.There are basically two major variables in this approach size of your equity asset and gdp growth,which determines whether u can cover for the capital eroded.Finally what i feel is the wrong and the over abused use of the word “RISK”.So many of personal finance articles,discussions and various media invariably attach the word RISK with equity.The correct word should be “VOLATILE”.

        1. Please check the associated standard deviation with those 15% and 17% percent figures. The standard deviation is still high enough to make the return a single digit figure. There are 7-8 periods when the sensex has remained flat. Besides that figure you quote is heavily influenced by the Harshad Mehta scandal when the Sensex returned. 272%. Get that out of the equation with tool and check for yourself:
          http://freefincal.com/understanding-the-nature-of-stock-market-returns/

          1. The harshad mehta scandal happened in early 90s.i have said last 10 year data.Besides market regulation is far better today and size and depth of the market itself makes it impossible to manipulate that is unless u r dealing in penny stocks .Single digit return is possible definitely over 5 yr period,thats the reason for the debt cover,may be a 7 yr cover if u r risk averse.The key is to sell equity to replinish debt cover in a rising market perhaps similar to what a fund like FT Dynamic PE does.But i personally feel that the days of very high volatality is over for index.The reason is the relative size of emerging markets today is not as small as it used to be .

          2. I did not say such a scandal will happen again. I said if you remove the scandal out of the equation, long term equity returns are much lower. The 15% cagr figure is heavily influenced by the number.
            Use the std dev with 10Y return and you will know how high the probability of single digit return is.
            I think it is extremely dangerous to assume volatility will decrease. That is the only thing that has remained constant about the market.
            Anyway, let us agree to disagree.

  11. pattu, on the same lines, the market has corrected heavily in march 2009. the logic of removing 270% gain is flawed. because the at the end of the day its already taken into consideration in the current P/E of the market.
    (btw one should stop analysing index returns or index p/e. you got to be stock specific. over a long period there is a clear correlation between price growth and eps growth. ( of course there two exceptions. 1 when you overpay and it undergoes a p/e compression and 2. market rewards consistent performers ( and has good earning visibility) with a p/e re rating)

    1. From the point of view of a market analyst, I will agree with you. The 270% is part and parcel of history. However, I am planning for retirement. I would prefer to take into account black swan events like 2009 and ignore white swan events like the 270% because I would rather prepare for the worst case scenario. The 15% cagr is too heavily influenced by the 270% for my liking and I would prefer to assume nothing like happens in the future.

      1. Even if i take 10% cagr with 5% inflation 45 lk is sufficient for retirement at todays price if my current annual expenditure is 4 lk.Here’s how 15 lk in debt 30 lk in equity for a five year period.Will withdraw from debt part weekly for my expenditures,now for the subsequent 5 yr period will target 30% higher allocation in both i.e debt 20 lk and equity 40 lk approx .Now say the equity market performs well and crosses 40 lk in my first 5 yr then i would transfer the excess amount into debt.As per data in hdfc mf site the worst 5 yr rolling return of sensex is 3.3% cagr.Well that means in the worst case my equity portion will be around 35 lk,still enough to replinish my debt portion for a year without drawing from the reserve capital initially started.There will be only two cases where i make transfer from equity to debt 1)When equity portion crosses next 5 yrs target .
        2)When debt part is exhausted.

  12. pattu, on the same lines, the market has corrected heavily in march 2009. the logic of removing 270% gain is flawed. because the at the end of the day its already taken into consideration in the current P/E of the market.
    (btw one should stop analysing index returns or index p/e. you got to be stock specific. over a long period there is a clear correlation between price growth and eps growth. ( of course there two exceptions. 1 when you overpay and it undergoes a p/e compression and 2. market rewards consistent performers ( and has good earning visibility) with a p/e re rating)

    1. From the point of view of a market analyst, I will agree with you. The 270% is part and parcel of history. However, I am planning for retirement. I would prefer to take into account black swan events like 2009 and ignore white swan events like the 270% because I would rather prepare for the worst case scenario. The 15% cagr is too heavily influenced by the 270% for my liking and I would prefer to assume nothing like happens in the future.

      1. Even if i take 10% cagr with 5% inflation 45 lk is sufficient for retirement at todays price if my current annual expenditure is 4 lk.Here’s how 15 lk in debt 30 lk in equity for a five year period.Will withdraw from debt part weekly for my expenditures,now for the subsequent 5 yr period will target 30% higher allocation in both i.e debt 20 lk and equity 40 lk approx .Now say the equity market performs well and crosses 40 lk in my first 5 yr then i would transfer the excess amount into debt.As per data in hdfc mf site the worst 5 yr rolling return of sensex is 3.3% cagr.Well that means in the worst case my equity portion will be around 35 lk,still enough to replinish my debt portion for a year without drawing from the reserve capital initially started.There will be only two cases where i make transfer from equity to debt 1)When equity portion crosses next 5 yrs target .
        2)When debt part is exhausted.

  13. There is a scenario where you can retire early (i.e. before 50).

    You’ll need a corpus that will provide you the cushion for unforeseen expenses, and against inflation.

    So, in above scenario, If you take inflation at around 8% as worst case average then to be able to live comfortably you need enough corpus which will earn you Rs. 20,000/- and also provide you cushion against inflation and shocks.

    So, if you had a corpus that is double of 1.17cr (say 2.4cr), then by drawing down Rs.20K at real interest rate of zero, it is possible to live for a very long time.

    It is all the matter of the corpus. However, Given sufficiently long time any amount of corpus is not enough!!

  14. There is a scenario where you can retire early (i.e. before 50).

    You’ll need a corpus that will provide you the cushion for unforeseen expenses, and against inflation.

    So, in above scenario, If you take inflation at around 8% as worst case average then to be able to live comfortably you need enough corpus which will earn you Rs. 20,000/- and also provide you cushion against inflation and shocks.

    So, if you had a corpus that is double of 1.17cr (say 2.4cr), then by drawing down Rs.20K at real interest rate of zero, it is possible to live for a very long time.

    It is all the matter of the corpus. However, Given sufficiently long time any amount of corpus is not enough!!

  15. Please read the book written by the author of that blog and find out the corpus needed for retirement. I did not say it is not possible. I said it is not possible with dreams of beating the market year after year.

  16. Please read the book written by the author of that blog and find out the corpus needed for retirement. I did not say it is not possible. I said it is not possible with dreams of beating the market year after year.

  17. Please read the book written by the author of that blog and find out the corpus needed for retirement. I did not say it is not possible. I said it is not possible with dreams of beating the market year after year.